Earlier this month, Pakistani media reported that the country has decided to remove a $14-billion hydroelectricity project, the Diamer-Bhasha Dam, from the China Pakistan Economic Corridor (CPEC), which is part of the Belt and Road Initiative. Reports out of Islamabad voiced the concerns of Muzammil Hussain, chairman of the Water and Power Development Authority, that the Chinese contractor, Gezhouba Water and Power Group Co. Ltd. (CGGC), has imposed extremely tough financing conditions that are not in the best interests of Pakistan.

The Chinese foreign ministry declined to comment on the controversy.

The Indus River dam, which would be the world's highest roller-compacted-concrete dam, is designed to generate 1,200 MW of electricity in the first phase and 4,500 MW when it is fully built.

"Chinese conditions for financing the Diamer-Bhasha Dam were not doable and against our interests," Hussain told the Parliament, according to The Express Tribune, a leading Pakistani newspaper. Pakistani Prime Minister Shahid Khaqan Abbasi plans to finance the dam from the country's own resources, Hussain added.

CGGC proposed taking ownership of the project till the dues are paid back and demanded that Pakistan pledge an existing and operational project as security, Hussain said.

Times of Islamabad, a news agency, reported that the prime minister has asked officials to bring the issue of financing the dam before the Council of Common Interest, a constitutional body meant to resolve river-water disputes among different provinces of the country. This indicates that financing has not been finalized.

Asked about reports coming from Pakistan, Chinese foreign ministry spokesman Geng Shuang on Nov. 17 said, "I am not aware of the situation mentioned by you." Geng added, "As far as I know, the CPEC is progressing smoothly for the time being."

"CPEC follows the principle of extensive consultation. It is conducive to promote connectivity of the two countries and the whole region," Geng said. "I can tell you China-Pakistan cooperation is extensive and profound."

The Diamer-Bhasha has been planned on the River Indus as a roller-compacted-concrete dam with a maximum height of 270 meters and impounding a reservoir of about 7.5 million acre-ft, with live storage of more than 6.4 million acre-ft. Mean annual discharge of the Indus River at the site is 50 million acre-ft. Once built, the dam is expected to impound 15% of the annual river flow.

The project footprint would cover an area of 110 sq kilometers and extend 100 km upstream of the dam site to Raikot Bridge on Karakoram Highway, which links Pakistan and China. It will have a diversion tunnel, an upstream diversion canal and downstream cofferdams. The dam will be located in northern Pakistan, about 315 km upstream of Tarbela Dam, 165 km downstream of the northern areas of the capital, Gilgit, and 40 km downstream of Chilas.

The economic corridor in Pakistan is Beijing's showcase project and the best advertisement for promoting the Belt and Road Initiative across the globe. It cannot afford to suffer a setback in Pakistan, its next-door neighbor, particularly after another neighbor, Nepal, has walked out of a $2.5-billion hydropower project. Myanmar, also China's neighbor, scrapped its $3.5-billion Myitsone hydroelectricity project three years ago.

The Chinese company Gezhouba Group, builder of the acclaimed Three Gorges project, has been involved in all three controversial projects in Myanmar, Nepal and Pakistan. 

"I don't think Pakistan would reject a Chinese proposal because it would be a loss of face for Beijing, which is bankrolling the entire $60-billion CPEC plan. It is possible that China wants to pull out of this dam project," a Chinese expert told ENR on condition of anonymity. "China is switching gears and looking more at the rate of return than political considerations in choosing projects under the Belt and Road [Initiative]. In the process, some projects may have to be sacrificed, and the Daimer-Bhasha Dam may be one of them." 

Some critics think the Chinese company set tough conditions to force Pakistan to withdraw because the project appears unviable. Further, they say the project cost may have risen from the originally estimated $12 billion.

Pakistan's media also quoted Shumail Khawaja, the country's secretary of water resources, as saying that neither the World Bank, the Asian Development Bank (ADB) nor China would finance the dam; therefore, the government decided to construct the reservoir using its own resources.

ADB rejected the loan proposal in part because it is associated with a disputed territory, Pakistan-occupied Kashmir, which is claimed by both India and Pakistan. Further, Beijing may be worried the contested land will give the entire Belt and Road program a poor image, an analyst said, also citing the project's low rate of return as another possible snag.

CPEC, a component of the Belt and Road Initiative, covers 15 energy projects, including the Daimer-Bhasha Dam and another hydropower project, worth a total of $22.4 billion and expected to generate a total of 11,110 MW of electricity. The 15 projects are meant to overcome Pakistan's chronic power shortages, which are so severe that the last government was elected mainly on the promise of solving this problem. Most of the other planned projects are coal-based.

The Diamer-Bhasha Dam has been discussed and debated for more than 15 years, during which time five separate efforts have failed to launch construction.