CPEC: A Potential Game-Changer By Mr. Riaz Mohammad Khan
CPEC is the principal framework for China’s economic assistance to Pakistan. The current visit of China’s Vice Premier He Lifeng to Pakistan to mark the tenth year since the initiation of CPEC as part of China’s mega One Belt One Road initiative (BRI) enunciated by President Xi Jinping in 2013, underscores the importance the two countries attach to their bilateral relation and also to CPEC. In 2015, China allocated US Dollars 62 billion particularly for the development of energy projects, infra-structure connectivity and further development of Gwadar Port. This mega project also envisaged establishment of Special Economic/Industrial Zones along the planned infrastructure. According to Pakistan government sources, an investment of Dollars 25 billion has already been made in CPEC projects. Besides provision of funds, the success of CPEC depends on Pakistan’s own ability to carry forward development. In other words, it is a game changer provided we fully apply ourselves to make it so, especially by improving security and investment friendly environment in the country.
The disbursement procedure involves identification and approval of projects, negotiation of contracts with China’s corporations, and allocation of funds by the Chinese government to Chinese corporations. Thus, government to government negotiations for contracts was replaced by the Pakistan government on one side and Chinese semi-private sector corporations on the other. CPEC projects in the energy sector were quick to start as by mid 2010s Pakistan faced an acute energy crisis. Prime Minister Nawaz Sharif’s government proceeded expeditiously to contract energy projects. According to the CPEC website (cpec.gov.pk) in the first phase 6970 Mw capacity was added and a 600 KV transmission line from Matiari in Sindh to Lahore completed at the cost of 12.5 billion dollars. In addition to several mostly coal based energy projects, these included the resurrected three 330 Mw projects based on Thar coal. The capacity includes 2020 Mw based on hydro, solar and wind power. There are four additional plants 2780 Mw capacity at various stages of completion at the cost of 4.9 billion dollars. Four more, two hydro and two wind based as well as further expansion of Thar coal fields are actively under consideration. Even though not directly linked to the CPEC framework, China has helped Pakistan with the establishment of six nuclear power plants with over 3000 Mw capacity.
With the change of government in Islamabad in 2018, CPEC energy projects drew some albeit muted criticism on three counts: first that these were coal based and hence harmful to environment, second that there was no transparency and corruption was involved and third, that the terms of the loans were stringent pushing Pakistan into a debt trap. The criticism was apparently motivated. The choice of fossil fuel based projects was made by Pakistan partly in view of urgency and lower costs. Furthermore, Chinese companies assured that they were using the most advanced technologies in coal based plants to limit environmental pollution. As for corruption, first and foremost the Pakistan side should take the blame and responsibility and do something about it. The argument about stringent terms is weak as nothing was thrust on Pakistan. There were no funds available from anywhere to address the acute energy shortages.
By 2022, the Chinese credits accounted for nearly 30% of Pakistan’s external debt of close to 100 billion US$. The debt servicing liability from the Chinese loans which by 2019 came to just over 10% of Pakistan’s debt servicing liability is bound to increase with time. In any event there is always the possibility of rollover or rescheduling of China’s loans. China would not want to see Pakistan go under on account of its loans. Shahbaz Sharif’s November 2022 visit reportedly reviewed CPEC related loans. In fact, the campaign appeared to have been partly instigated by US interests.
Another disappointment has been Pakistan’s failure thus far to develop Special Economic/Industrial Zones which were part of the CPEC concept. Besides bureaucratic dysfunction, Pakistan’s political and security environment discourages investment activity. For example, special economic zones in China or elsewhere in the world are based on the central premise of a one-window-operation. Pakistan has not been able to work out this basic facilitation. This area requires special attention at the government level.
CPEC has other geo-political constraints and vulnerabilities. First, even though described as the flagship project of BRI, CPEC has not been the main artery of BRI which run through Russia and Central Asia to Europe. Their fate is also now clouded by the Ukrainian crisis. The other important link runs through Myanmar to bypass the choke point of Malacca’s. Potentially, CPEC could serve as a new overland route for China’s trade with the Middle East and Africa. Economic feasibilities apart, CPEC has faced several hurdles in its take off. Trade routes linking Central Asia with Pakistan remain blocked by Afghanistan where the situation is far from normal for international commerce. The alternative using the Karakoram Highway, despite the up-gradation of the road, traverses one of the most difficult terrains anywhere in the world. The road is snow bound almost four months in a year. Then Iran views Gwadar in competition with Chahbahar. One especially difficult challenge is the restive situation in Baluchistan.
Some Indian and western analysts also view Gwadar as a possible naval facility to be used by China to protect its interests in the Indian Ocean region and even to encircle India. Much of this is mere speculation. Gwadar was built by the Chinese in response to a specific request by the former president Pervez Musharraf to Premier Zhu Zongji. The purpose was none other than to develop Gwadar as a commercial port, with an eye to possible Central Asian commerce passing through the port. It was not the result of a Chinese initiative to serve any of its security interests in the region. Lacking its own capacity, Pakistan handed over the port to a Singaporean company for management. Only after that company pulled out was it contracted to a Chinese company for management.
Pakistan also wanted to develop Gwadar as an energy port with an oil refinery and as an important link in the Iran-Pakistan-India gas pipeline. India pulled out depleting the economic the economic dividend of the project. Serious thought had also been given to a gas pipeline going through Pakistan into Xinjiang. For these ideas to materialize, changes in the political environment of the region are required, including the stabilization of Afghanistan, which could make the passage of energy and transportation corridors linking Central Asia practically viable for international trade.
As for the transit of Chinese goods using Pakistani ports including Gwadar, the fact remains that most of China’s exports are generated in its eastern regions and their transportation through Pakistan makes little economic sense. For China, this route will become attractive only for exportable goods produced in its western-most Xinjiang province. Gwadar can also serve as an outlet for transportation once the Chinese are able to develop Aynak copper deposits or any other large-scale mining activity in southern Afghanistan. In discussing Gwadar and the Karakoram Highway, it is often suggested that China will need alternative routes to avoid the choke point of the Straits of Malacca. Again, geography suggests a preferable alternative route would lie through Myanmar, notwithstanding plans to build a shipping lane across the Isthmus of Kra in Thailand, bypassing Malacca.
Nonetheless, realization of full potential in any area of its charted utility as a transshipment port or an energy port or as a viable transit for products from Western China can greatly benefit Pakistan and the region. Already, investment under CPEC is a considerable achievement. Overland Pakistan-China trade amounts to 200 million Dollars. But as indicated earlier, much more could have been accomplished. Of late, the Pakistan government has refocused on CPEC projects. New projects have also been signed during the visit of Vice Premier He Lifeng. The two countries have decided to implement the Motorway ML-1 project and Karachi Circular Railway project under CPEC. CPEC’s scope has been expanded in its next phase to include cooperation in agriculture, mining, industry, oil and gas, science and technology, information technology, education, tourism and socio-economic projects. An emphasis is placed on renewable energy projects, including solar projects which align with green, low carbon and environmental-friendly development of energy sector. CPEC is open as an inclusive platform that welcomes third party investors.
CPEC: A Potential Game-Changer By Mr. Riaz Mohammad Khan
Source: https://pakobserver.net/cpec-a-potential-game-changer/