A move by the Asian Development Bank to bring World Bank on board for co-financing Diamer Bhasha Dam backfired when the World Bank instead asked the ADB to first seek a no-objection certificate from India – a condition that has derailed the project.

The ADB has so far faced criticism for asking for Indian NOC at the eleventh hour when Pakistan has already met agreed prerequisites. Background discussions with officials of multilateral lenders and Pakistani officials concerned revealed that it was actually the World Bank that set the condition of NOC and also asked the ADB to press for the same.

The plan was to seek $2.5 billion each from the ADB, Pakistan’s largest creditor, and the World Bank, the second largest creditor.“The ADB will never itself impose a condition that is tantamount to undermining sovereignty of the country and seems stupid,” said an official requesting anonymity.

He said the ADB was trying to manage the situation and resisting World Bank pressure.Compared to initial estimates of $11.2 billion, the revised cost of Diamer Bhasha Dam is touching $14 billion with construction work yet to start. Lately, Japan has come forward with a $4 billion package for procurement of machinery, but still the lead financier is missing.

At a time when the ADB was taking up the matter with the World Bank, Pakistan and India had already locked horns over Delhi’s move to divert water to generate electricity. Pakistan invoked an arbitration clause of the Indus Waters Treaty after both the countries failed to resolve disputes over Baglihar and Kishanganga hydropower projects.

Last week, Pakistan lost Kishanganga case in the court of arbitration. The Indus Waters Treaty, inked between India and Pakistan, provides for appointment of a neutral expert by the World Bank as a last option to resolve water disputes between the two countries.

According to another official, the Indian lobby in the World Bank actually prevailed over the management that placed the NOC condition. The bank took the position that since it was an arbitrator between India and Pakistan, financing for Diamer Bhasha Dam would compromise its position.

The ADB has managed to get its board of directors approve a couple of projects in Azad Jammu and Kashmir and insists that it can do the same when the need arises. Yet, it does not solve the equation.The other day, the ADB’s Director of Energy Division of the Central and West Asia Department, Rune Stroem, stated that right now Pakistan does not have the needed fiscal space to finance mega projects like Diamer Bhasha Dam. Furthermore, the energy sector over the last few years has rotten away and financing of such projects should be seen in broader macroeconomic perspectives.

The way the government has handled the construction of Neelum Jhelum hydropower project, which is far smaller compared to Diamer Bhasha, has further made the ADB wary.Owing to delays and kickbacks in award of contracts for procurements, the cost of the project has ballooned from Rs84.5 billion to a staggering Rs274.8 billion. ADB officials said the bank did not want to finance a project which remains incomplete after years.

What is going on between the two international lenders does not absolve the government of its responsibilities. Officials said the government could have fought back against the Indian lobby by approaching the Americans who have expressed interest in financing the dam.