PowerChina to Cooperate with Division of Pakistani Army on Construction of Hydropower Dam in Disputed Kashmir Region
On May 13, Pakistan’s government officially granted a $5.85 billion contract to a consortium comprised of China’s state-run Power China Corporation (70% control) and Pakistan’s Frontier Works Organization (30% control) for construction work on the Diamer-Basha dam. Frontier Works Organization is reportedly a division of the Pakistan Army. The dam is located in Gilgit-Baltistan, an area that is disputed with India. The contract calls for construction of a diversion system, main dam, access bridge, and a 21 MW hydropower project, constituting a segment of the broader $14 billion hydropower project.
The Diamer-Basha dam project has been mired in controversy of various forms over the past decade, which has seemingly impeded Islamabad’s ability to secure financing for the project. Western financial institutions, such as the World Bank and Asian Development Bank (ADB), have reportedly refused to finance the project due to related environmental, ecological, and even geopolitical risk factors. Not only is the dam situated in a region that carries risk of seismic activity (future earthquakes with a magnitude of up to 8.7 are expected to the region), it is also expected to cause the displacement of local populations, with some local residents protesting the dam’s disproportionate benefit to other Pakistani provinces.
Importantly, Diamer-Bhasha is situated in Gilgit-Baltistan (near the strategic China-built, Karakoram Highway), which is part of the Greater Kashmir region that is claimed by both India and Pakistan. Notably, China first signaled interest in the project in 2011, just a year after media reports emerged alleging that approximately 11,000 soldiers from the People’s Liberation Army had been stationed in the region to carry out various infrastructure projects along the highway route.
The inclusion of PowerChina in the project is also of note, considering Islamabad withdrew inclusion of this same dam project from the China-Pakistan Economic Corridor (CPEC) in 2017 due to Beijing’s demand for ownership of the final asset. Indeed, Chinese financing for the project at the time was reportedly made conditional on total Chinese ownership and operation of the structure, including maintenance and securitization of the dam. Islamabad refused to agree to these terms.
Amid the coronavirus pandemic, the signing of this contract has been touted by local authorities as a critical stimulus for Pakistan’s economy, purported to create 16,500 jobs while irrigating 1.2 million acres of agriculture land. With the expected production of approximately 4,500 MW of electricity, the dam is intended to help alleviate Pakistan’s severe power shortages.