Pakistani media reported last month that the project was excluded from the China-Pakistan Economic Corridor (CPEC) framework because Islamabad was unable to meet China’s “strict conditions” for agreement.

The Chinese conditions were “not doable and against our interests”, Pakistan’s Express Tribune quoted Water and Power Development Authority chairman Muzammil Hussain as saying on November 14.

Hussain said the conditions centred on project ownership, operation and maintenance costs, and possibly giving China operational rights to another Pakistani dam, the report said.

The official from the NDRC, an agency under the State Council with broad administrative and planning control over the Chinese economy, was quoted as saying that the two governments were still in touch regarding cooperation on the Diamer-Bhasha dam, although the facility was not part of the CPEC plan.

The dam, on the Indus river in Gilgit-Baltistan, Pakistan, is in the preliminary stages of construction.

The official said Chinese companies had made large investments to generate profit from the Gwadar Port since taking over management rights. Gwadar Port, a deep-sea port on the Arabian Sea at Gwadar in Pakistan’s Balochistan province, is seen as vital to the US$57 billion CEPC plan and a crucial element of China’s massive trade and infrastructure undertaking, the “Belt and Road Initiative”.

Despite the recent disagreement, China and Pakistan continue to discuss and develop the CPEC plan, which is considered vital to the opening up of trade along land and sea corridors linking Asia, Africa and Europe.

Officials from the two countries last month held their seventh joint cooperation committee meeting on projects related to it. Minutes of the talks highlighted the need to provide accurate costings for one scheme – the upgrading of the Peshawar to Karachi railway line – to avoid problems at the implementation stage, according to a report by Pakistan’s Dawn newspaper.

Li Peng, managing director of Pak China Investment Co – a company set up by the two countries to facilitate funding for projects in Pakistan – said officials from China’s embassy in Islamabad regularly held meetings with Chinese companies to coordinate the development of projects.

At a forum held at the end of last month, he said that Chinese firms were keen to invest in the CPEC, whose projects would be beneficial to Pakistan’s economy, but that many of them needed to do more preparatory work.

“Chinese firms should carry out more research into such things as the local culture and legal issues before launching construction projects,” he said.

Several Chinese banks, including the Export-Import Bank of China, China Development Bank, and Industrial and Commercial Bank of China, are major lenders to CPEC projects.

Hu Zhiyong, a research fellow with the Institute of International Relations at the Shanghai Academy of Social Sciences, said the construction of Diamer-Bhasha dam would not be likely to proceed until after the elections in Pakistan and that construction work was likely to be handled by China.

Chu Yin, an associate professor at the University of International Relations in Beijing, said that although Pakistan was involved in the development of large-scale infrastructure projects it did not have China’s financial muscle and was therefore more sensitive to funding problems.

“China and Pakistan hold different views on risk sharing, and there are some voices in Pakistan that China should give more preferential treatment [to local firms] on infrastructure projects,” he said.

“At the initial stages of bilateral cooperation, the strategic significance [of projects] outweighs the commercial considerations. But now the focus is turning to the commercial terms,” he said.