The Turkish government tried to have the Ilisu dam built as a Build-Operate-Transfer (BOT) project in 1996, but could not find an investor. So it awarded a contract to an international consortium with Balfour Beatty (UK) as lead company and the Union Bank of Switzerland (UBS) as financial agent. After intense public awareness raising about the project's impacts by an international NGO campaign all companies and banks involved except for VA Tech withdrew in 2001/2002 from the project as it became clear that the environmental and social problems could not be solved.

In 2004/2005 a new consortium consisting of VA Tech, Zueblin, Alstom and others was formed and applied for export credit guarantees in Austria, Germany and Switzerland. This triggered new controversy and a public outcry in those three countries. The NGO campaign also resurged, now under the lead of WEED (now CounterCurrent, Germany), Berne Declaration (Switzerland) and ECA Watch Austria. The ECAs promised to only provide coverage if international standards were met.

In 2005, a so-called Environmental Impact Assessment and Resettlement Plan were published but proven to be far from fulfilling international standards despite several amendments. Therefore in October 2006 the three European and the Turkish governments negotiated 153 conditons ("Terms of Reference") regarding resettlement issues, the environment, cultural heritage and transboundary impacts. They were kept secret until after the approval of the export credit guarantees. While the ECAs stipulate that the conditions bring the project in line with World Bank standards, NGOs and international experts claim that they are insufficient in crucial aspects to fulfil World Bank standards and international law.

Despite massive public protest, the governments of Germany, Austria and Switzerland approved the export credit guarantees for deliveries and loans by European companies and banks on March 27, 2007. Faced with the public outcry, Zuercher Kantonalbank announced that the bank withdraws from financing the project (June 15, 2007). In August 2007 the Turkish government signed delivery contracts with construction, machinery and consultant companies Andritz AG, Alstom Switzerland, Zueblin and others; financial contracts with DekaBank, Société Générale, Bank Austria, and Turkish Akbank and Garanti Bank.

At the construction site, a ground-breaking ceremony took place in August 2006. Access roads, a bridge through the Tigris river, workers' housing and military camps have been built since. Construction work on resettlement places has been started but not proceeded very far. The actual dam has not been started yet.

Expropriation of village properties closest to the construction site commenced in September 2007. A report by the Swiss NGO Berne Declaration from October 2007, on behalf of the European Ilisu Dam campaign, reveals major shortcomings – a lack of resettlement land, very low cash compensation levels and a lack of knowledge about the conditions imposed by the export credit agencies – in the expropriation process of the first villages. 

Committees of experts commissioned by the ECAs to monitor the implementation of the conditions attached to the export credit guarantees travelled to the region in December 2007 and in 2008. Their reports confirm the findings of Berne Declaration on a breach of conditions during the expropriation of the first villages and highlight many shortcomings in the project planning, e.g. an immense lack of capacity and organisational structure for the resettlement and the lack of baseline data on the cultural heritage. They even state that the Turkish officials falsely confirmed the fulfilment of conditions.

Due to the devastating reports by their experts the three European governments triggered the exit procedure which was foreseen in the case of non-fulfilment of the conditions and consisted of three steps: a) if the experts confirm the violation of conditions, an Environmental Failure Notice is issued giving Turkey a 60 day period for the healing of the violations; b) if there is no substantial progress in the implementation of the conditions after the 60 day period, the contracts are suspended for 180 days; c) if again there is no evidence that the conditions are met or will with great certainty be met in the future, the guarantee contracts are cancelled.

After the Environmental Failure Notice was issued on October 6, 2008, TV reports revealed the continuation of construction work in violation of the contracts, local acitvists critical of the project were detained when speaking with the affected people, and no substantial progress was made in the implementation of the conditions. Therefore the German, Austrian and Swiss governments ordered the suspension of contracts on December 23, 2008. 

Even after the suspension expropriations violating the conditions continued. A report by the German network CounterCurrent and Berne Declaration highlights major on-going deficiencies of the project: there still does not exist a concept to save the antique town of Hasankeyf and archaeologists confirm that the planned "salvage" of important monuments is not possible; thousands of nomads using the Tigris valley have been completely ignored; resettlement planning has only been done for the first six villages and the feasibility of the plans is completely untested. Also, the current drought in Iraq which is increased by Turkey's filling its existing dams on the Euphrates river highlights the transboundary impacts Ilisu would have as long as there is no binding agreement with the neighboring countries. Iraq has raised major concerns about the building of Ilisu, but negotiations with Turkey have not led to a solution. As Robert Goodland, a former World Bank official who drafted several of its environmental policies, pointed out at a conference on Ilisu in Berlin on May 28, 2009, a new resettlement policy for Ilisu still showed major deficiencies and even if the conditions had been fulfilled by Turkey, the project would not be in line with World Bank standards.

During all this time, the project met with widespread resistance in Turkey, Europe and internationally. Manifestations with thousands of people took place in Hasankeyf and Ankara, activists squatted the Brandenburg gate in Berlin and the headquarters of the Austrian ECA, hundreds of public events and manifestations in front of the ECAs and banks involved took place in Germany, Austria, Switzerland, Italy and France. Thousands of people worldwide voiced their concern by signing petitions to stop Ilisu and save the region as a UNESCO world heritage site, and countless articles and broadcasts covered the issue.

On July 7, 2009 the German, Austrian and Swiss governments announced officially that the export credit guarantee contracts ended as "the requirements tied to this insurance cover in the areas of the environment, cultural heritage and resettlement could not be fulfilled within the contractually stipulated time frame due".

In November 2009, construction work restarted without official permission from Turkey’s State Water Works (DSI). According to the Hasankeyf-Initiative, the DSI sent a letter to the consortium which has the contract from the project on 28nd October 2009 ordering it to stop the construction. The villagers of Ilisu state that they were told to leave their houses by the end of November. They were told that they could buy new houses in the new settlement sites. These are however more expensive than the compensation they received for their current houses and it is unclear how they can restore their income in the new settlement. So the affected people have said they will move to the cities. A new wave of displacement will start soon unless the expulsion is stopped now.