Reports emanating from Pakistan suggest that the dispute over India's construction of the Kishenganga Hydroelectric Project might also be referred to a 'neutral expert'. This decision has reportedly been taken in principle, and only requires a nod from President Musharraf.

However, Pakistan is frenziedly constructing its own hydroelectric Neelum-Jhelum project, further downstream on the Kishenganga (which is referred to as the Neelum in Pakistan). This project has been necessitated by Annexure D Part 3 (15) (iii) of the Indus Water Treaty, which permits the construction of hydro-electric projects on the tributaries of the river Jhelum by India, provided it does not 'adversely affect' any 'existing uses' by Pakistan on the same tributary. Hence, whichever country finishes its project first would have 'priority rights' granted to it over the use of the water of the tributary.

Pakistan's Neelum-Jhelum project entails the diversion of 280 cubic meters per second of water from the Neelum/Kishengana river at Nauseri, 41 km upstream of Muzzafarabad, to the lower stream of the Jhelum River, through a 32.5 km long headrace tunnel. The power station will be located underground and generate 963 MW of electricity. Certain sources indicate that the tunnel would be about 300 meters below the riverbed.

Thought initial clearances were obtained in 1989, it was only in September 2003 that Pakistan grasped the relevance of the Neelum-Jhelum project and the 'priority rights' it would create. On the advice of its military authorities that it was crucial to Pakistan's security interest, a high-powered special cell was set up, which reported directly to the President and Prime Minister. It was decided not to leave the project to the Water and Power Development Authority (WAPDA) as it was not proceeding with adequate speed. This cell had to evaluate proposals by five parties for the construction of the project in November 2003 and invite one to sign a memorandum of understanding (MOU) for constructing the project on a turn-key basis.

This project however is not completely outside the purview of WAPDA. In its Vision 2025 strategy, the Neelum-Jhelum project has been identified as a medium-term project to be completed by 2010. The major problems facing the project over the years have been with regard to external financing, given the fact that the Indian Kishenganga project has been hanging like a Damocles Sword over it. The International Competitive Bidding (ICB) for the project was plagued by several disputes. Initially, some 10 companies had indicated their interest in bidding, but eventually only 2 companies from China submitted their bids. The October earthquake did not help. One of the earlier interested companies, Vinci, from France (for whom the bidding process had been delayed by three months), asked the government to delay the project due the earthquake. Eventually of the two companies that bid [China International Water and Electric Corporation (CIWEC) and China Mechanical Electric Company (CMEC)], only the CIWEC bid conformed to the requirements, but its bid was based on buyer's credit (and not suppliers bid as sought for by the government of Pakistan). The government of Pakistan was eventually forced to provide sovereign guarantees for completion of the $1.6 billion project at the request of the CIWEC. This final twist in the tale has raised the stakes astronomically for Pakistan, with its direct financial liability being added to a possible loss of 'priority rights'.

On 7 April 2006, WAPDA cancelled the contract with the Chinese firm as their proposal was not found 'feasible'. Reportedly, the Pakistani government has decided to undertake the construction on its own, with the work being assigned to the Frontier Works Organization. The possibility that the government of Pakistan would undertake this project without the technical expertise of the private sector seems extremely doubtful. Recourse to such an arrangement is a sign of its desperation.

As regards international companies, it must be added that they bring in their own paradigms of efficiency and profit into the whole process and are unwilling to engage in projects that are enmeshed in political and legal imbroglios. In the case of the Neelum-Jhelum project, these players have driven an extremely hard bargain and have been unwilling to rush into the process, before ascertaining how these issues will be resolved at the inter-state level. This has made it extremely difficult for Pakistan to start the construction of the project early, as it had hoped. Given these delays and uncertainty over its actual rights, it will be interesting to see if Pakistan will risk approaching the 'neutral expert' over the Kishenganga project issue.