The World Bank (WB) appointed arbitrator rejected Pakistan's demand that India scrap the Rs 5,200 crore (USD 1.1 billion) 450 megawatt Baglihar hydro-electric power project across the Chenab in Doda district but asked for a reduction of dam height by 1.5 meters.
Pakistan had contended that the project violated the 1960 WB facilitated bilateral Indus Water Treaty (IWT) that awarded waters of Jehlum, Chenab, and Indus to Pakistan and Sutlej, Beas, and Ravi to India. As per this treaty, India cannot store waters on the rivers for power projects awarded to Pakistan but can construct dams on running water. Pakistan argues that India was storing the water while India contends that it is merely constructing a dam on running water and not storing it. Since both sides did not agree on the interpretation, the matter was referred to a WB arbitrator.
WB chose former Swiss dam safety expert and professor of the Electric Power Plants and Water Resources Department at the Federal Institute of Technology at Lausanne Raymond Lafitte to settle the dispute. Lafitte apparently rejected Pakistan's demand for a change in the main spillway chute design but accepted that the dam size could be reduced by 1.5 meters. He also asked for a parapet wall of 1.2 meters and raising the power intake capacity by three meters so turbines may be installed.
The state government has already spent Rs. 3,500 crore (USD 760 million) on this project and delays induced cost overruns has made the project more expensive by another Rs. 1000 crore (USD 217 million). The dam height reduction and the new power intake requirement will require a complete redesign of the entire structure necessitating new simulation and fresh model studies. Moreover, engineers are unable to say whether the new design will increase the cost of decrease the power generation capacity. Engineers fear that these changes may change the cost-to-benefit analysis and the government may as well walk away from the project.
As per original plans, the project was supposed to start power generation by 2007, which is now out of the question. The main issues that Indian strategists need to ask is whether the changes need an increase in capital outlay or working capital expenses. If there is a higher working capital involvement, then the project may become unviable. However, if the cost overruns are merely capital outlays, India needs to balance that with a couple of important points. Firstly, walking away from the project at this stage may be interpreted as the nation abandoning its position that it is legal to construct power projects across running water. Secondly, an additional capital outlay may rescue the monies already invested and therefore the cost overrun may only be marginal. Thirdly, the power generated can be used for the benefit of the state of Jammu and Kashmir which desperately requires economic rejuvenation. Fourthly, abandoning the project now will send the wrong message to Pakistan -a tenacious objection to any project will lead to capitulation.
