By Syed Shoaib Hasan
BBC News, Islamabad
Daily power cuts have led to frequent protests
Pakistan has approved a long-delayed project to build a dam in the country's North West Frontier Province (NWFP).
The Diamer-Bhasha dam on the River Indus is due to cost $12.6bn and take seven years to complete. It is being built mainly to boost power production.
However water from its reservoir can also be used for irrigation.
Pakistan has developed a massive power shortfall in recent years, and experts believe development of hydro-electric power is a key part of the solution.
The country is expected to construct five major dam projects over the next decade to meet this shortfall.
"I think the Diamer-Bhasha project will be a magnificent achievement for the people of Pakistan," Energy Minister Pervez Ashraf said.
Water is a precious commodity in Pakistan
"Pakistan is facing an energy crisis, and it is our endeavour to get out of this debacle as soon as possible.
"We are trying our best to make sure that Pakistan's people do not have to face such a debacle again and that energy is cheap and readily available."
Pakistan is currently undergoing its biggest energy crisis in living memory, with massive power cuts in major cities on a daily basis.
The Diamer-Bhasha dam will be able to produce 4,500 megawatts of power and have a storage capacity of millions of cubic feet.
The project is expected to cover an area of 110sq.km and will displace some 28,000 people.
Although the Diamer-Bhasha dam has run into some local opposition it is seen as a better alternative to the much larger and more heavily promoted Kalabagh dam.
The Kalabagh dam project has been the single most politically controversial infrastructure project in Pakistan's history.
It has strong support in Punjab, Pakistan largest province, but is fiercely opposed in the smaller provinces of Sindh and NWFP.
People there say the project would destroy the Peshawar valley through water logging and would lead to massive desertification in Sindh.
The project would also displace 100,000 people in NWFP.
But the Diamer-Bhasha project has now pushed it into the background.