SOUTH ASIA MONITOR Published 03 February 2017
Book extract from the chapter on Pak-China Relations
There are several issues with the China Pakistan Economic Corridor (CPEC) project. For one, transparency and accountability have been sacrificed because details of the projects have not been shared, there is no public bidding or even announcement. Clearly, the intention is that the major proportion of these loans will be channelled back to China to benefit only Chinese companies. Worse, since there is no transparency, issues such as cost efficiency, economic feasibility and viability, environmental concerns are likely to be ignored that could lead to serious economic and environmental issues later on. Recently, the federal minister for planning and development, Ahsan Iqbal, has laid to rest the debate about transparency by telling the Senate that the CPEC agreement is sensitive and cannot be disclosed.
As important as the provincial concerns are the issues of finances, especially because there is no clarity about them. So much so that even the governor of the State Bank of Pakistan, Ashraf Mahmood Wathra, the main financial regulator of the country, was constrained to say in an interview to Reuters that he did not know how much was going to be financed by debt and how much by equity. He openly called for the CPEC to be more transparent. The governor must be a worried man because the $46 billion CPEC is three times the reserves held by the State Bank and repayments would become a huge issue. Given Pakistan’s loan repayment situation the last thing it needs is further accumulation of unspecified debt. Even the World Bank, in its report titled Global Economic Prospects 2016, released in January 2016, has cautioned that ‘Sovereign guarantees associated with CPEC could pose substantial fiscal risks over the medium term.’ Former finance minister Hafiz Pasha has projected that loans contracted under CPEC will push the country’s total external debt to $90 billion from the current about $70 billion.
The main issue in the energy sector is not generation but productivity, distribution, line losses and poor governance. Further investment in generation will not solve the long-term issues plaguing the energy sector though they may give the impression of doing so in the immediate term. To operationalise the investment, Pakistan will have to make crucial reforms in the energy sector.
The emphasis in the energy sector is on thermal power projects based on both Thar coal and imported coal, and LNG. It is universally accepted that thermal power is far more expensive than hydropower. The emphasis, therefore, should have been on the latter. Considering that twenty textile mills have already closed down recently due to exchange appreciation, with 100 more believed to be vulnerable to power viability issues, will the industry survive a potential hike in power price? ‘No’, says All Pakistan Textile Manufacturers Association (APTMA) chairman S.M. Tanveer.
The economic corridor will be viable if it is used. The Lahore–Islamabad motorway is a case in point. Though it has been in existence for the last twenty years there is very little industrial development along its route and neither has there been any value addition to agriculture. If anything, it has only benefited the elite, enabling them to travel between Lahore and Islamabad quickly. Will the highways under CPEC meet the same fate?
For the Sharifs there is an urgency to complete the ‘early harvest’ projects before the next elections due in 2018. Not surprisingly, bulk of these projects are planned in Punjab and Sindh. Out of $28.6 billion early-harvest projects, Punjab has the lion’s share of $13 billion, Sindh $4.6 billion, KPK $1.8 billion, Islamabad $1.5 billion, and Balochistan $920 million. However, less than two years after the April 2015 launch of CPEC, several of these early harvest projects are facing delays or are in danger of being closed. These include the $1.8 billion, 870-MW Suki–Kinari hydroelectric power project; the $590 million, 330 MW coal-based power project in Punjab; a coal mining project in Thar; and four power plants listed to generate 4,620 MW of power; and also the $2.1 billion, 878-km-long Matiari–Lahore transmission line listed to supply 4,000 MW of electricity produced from coal in Sindh to cities in Punjab.
The delays and possible closure of the above projects indicate that not much thought and planning have gone into the projects. It is almost as if the federal and Punjab governments want to ram home the projects so that they can show some achievement before the next elections. In the process, there is a grave danger that the mistrust that the smaller provinces have with Punjab and their insecurities vis-à-vis the federation will get aggravated as a result of the CPEC. Unless the smaller provinces, especially Balochistan and KPK, are given a sense of ownership, the CPEC may actually damage Pakistan rather than be the game changer it is billed to be. An ominous warning has been sounded: ‘It would do us well to remember that investment in East Pakistan was also considered unsafe for security reasons. What are the planners of today driving the smaller provinces to?’
Thus, while CPEC could enormously benefit the Pak economy, expectations need to be tempered with realism, especially where financial issues are concerned. Anecdotal evidence suggests that at least some Pakistanis are beginning to realise this. For example, at a seminar held in December 2015, an adviser to the Balochistan government asked if Pakistanis will basically be fixing punctures on Chinese trucks. The reply reportedly given by the commander of Southern Command of the Pakistan Army was that Chinese companies ought to be asked to explain how Pakistan will benefit from the larger vision of the CPEC.