Pakistan has reassessed the cost of the under-construction Mohmand Dam at a staggering Rs666 billion, an increase of 115% in the past eight years, which authorities largely attributed to rupee devaluation after 2018.
Mohmand is one of the three largest reservoirs Islamabad is building to deal with Indian water aggression.
The revised project cost was presented before the Central Development Working Party (CDWP) meeting this week, which did not take up the matter for a decision due to paucity of time, according to federal government officials. The CDWP is the first stage for approval of mega projects, which are then sent for final endorsement of the Executive Committee of the National Economic Council.
The Water and Power Development Authority (Wapda), the agency responsible for execution of the mega scheme, has assessed the cost at Rs666 billion, according to officials who have seen the documents.
In 2018, the then government had approved the project at a cost of Rs310 billion with a deadline to finish work by September 2025. Since then, the cost has been estimated to escalate by Rs356 billion or 115%, according to the authorities.
The project was planned for completion by 2025, but due to various reasons, mainly dollar exchange parity, cost escalation, design changes that translated into a price hike, the 2022 floods and security issues added to the delay, according to an explanation given by the project management to the Planning Commission during the cost review assessment.
A joint venture of China Gezhouba Group Company Limited (CGGC) and Pakistan's Descon Engineering Limited is constructing the dam.
Planning Commission officials said Wapda had informed that 51% of the overall cost increase was due to dollar parity. They said a detailed discussion was held regarding the impact of foreign exchange fluctuations on the project cost. It was explained that the project contains both local and foreign currency components and that fluctuations in the dollar exchange rate have resulted in a significant increase in the rupee equivalent of the foreign component.
The rupee devaluation impacts everything from a household kitchen to mega projects due to the country's heavy dependence on foreign resources and imports. The rupee-dollar parity has again come under the spotlight after the World Bank said this week that Pakistan's currency was not freely responding to market developments.
It has assessed the difference between the market price and the daily price as of June this year at 10%, slightly higher than the 8% difference being worked out by the central bank under its Real Effective Exchange Rate (REER).
The Planning Commission had asked Wapda to provide details of dollar-denominated contractual payments and the extent to which exchange-rate variation could be passed on to the project cost.
It was observed that the foreign component of a contract cannot simply be converted at the latest exchange rate without establishing the contractual basis and the actual payment obligations. It was pointed out that, for contracts containing foreign currency payments, the actual contractual arrangements and the applicable exchange-rate provisions need to be examined.
According to project documents, as of last month, about 57% physical work had been completed, with Rs275 billion spent on the project.
The project was approved by ECNEC in its meeting held in April 2018 at a cost of Rs310 billion, with rupee cover of Rs71.5 billion.
Out of the total proposed upward revision, the dam cost will be Rs267 billion, an increase of Rs153 billion or 134% over the old estimates. Likewise, the power generation cost went up to Rs399 billion, a surge of Rs204 billion or 105%.
On completion, the project will increase Pakistan's overall water storage capacity by 1.29 million acres and add 2.9 billion units of generation to the national grid. It will also provide 300 million gallons of drinking water annually to Peshawar.
The Mohmand Dam Hydropower Project is of strategic national importance to Pakistan as it directly addresses the country's chronic water storage deficit, energy insecurity and vulnerability to climate-induced floods.
The project faced huge setbacks in the 2022 floods, when heavy flooding in the Swat river damaged diversion tunnels. As a result, work was halted for a significant period, according to the project management's explanation to the Planning Commission.
But the Planning Commission was of the view that the project was a classic example of delays and other issues among various flagship projects being implemented under Wapda.
The Planning Commission is of the view that the project should be recommended for third-party validation for financial and physical resource utilisation, scope of works, variation orders, escalation cost, gestation period, financial closure and other matters.
It has also recommended that the revised financial plan needed updating, including the federal government's share through the Public Sector Development Programme (PSDP) for dam funding, any provincial share and loans from foreign lenders.
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