One year after India and Pakistan began peace talks, the dialogue between the nuclear neighbours appears to be heading towards a collapse over sharing the River Indus. India's decision to go ahead with construction of the Baglihar dam has become a major stumbling block to the peace process that former Indian premier Atal Behari Vajpayee and Pakistani President Pervez Musharraf launched in January last year. The project is a multimillion-dollar hydroelectric scheme on the Chenab River, a tributary of the Indus, in the disputed territory of Indian-administered Kashmir. Pakistan fears the dam will have a significant effect on the volume of water flowing into its territory, despite India's assurances over the 450-megawatt project. Several rounds of talks, including a session in New Delhi last month, have failed to resolve the disagreement. 'The dialogue cannot be held without confidence,' said Masood Khan, Pakistan's foreign office spokesman. 'It will have an indirect impact on the dialogue process because both sides have been talking about a trust deficit and such an impasse increases that deficit.' The point was underlined earlier this week when General Musharraf raised the issue in his meeting with the visiting World Bank president, James Wolfensohn, and asked it to appoint a mediator to help resolve the dispute. Islamabad claims the dam violates the Indus Water Treaty, an agreement brokered by the World Bank in the 1960s. It has also refused to hold further talks unless India suspends all work. The treaty granted India exclusive rights over three eastern tributaries, the Sutlej, Beas and Ravi, while Pakistan secured similar rights over the westward flowing tributaries of Jehlem, Chenab and the Indus itself. But India says it will not stop working on the project while the bank considers the issue. Analysts fear the row may slow talks. 'It may lead to a breakdown of talks over the resumption of bus services and the proposed gas pipeline project,' said political analyst Talat Masood, referring to the bus service between Muzzaferabad and Srinagar and Pakistan's proposed gas pipeline that would link Iran, Pakistan and India.