Economic crisis: Projects under CPEC remain non-starter


By M. A. Feroze

Financial assistance from China for Pakistan has become a topic of routine discussion. No Pakistani would have ever thought that assistance from its close friend China could become a death-trap for his or her beloved country. The multi-billion dollar China Pakistan Economic Corridor (CPEC) project was said to give much needed boost to Pakistan’s frail economy.  

It reality, however, it has created major problems for the already crippled economy of Pakistan in just five years of its launch. No wonder that the capital cost of the CPEC has increased from $46 billion in 2015 —20 per cent of Pakistan’s GDP– to $62 billion in 2018-19 as many projects were found to be infeasible.

All these however have thrown Pakistan in the China’s predatory economics and debt-for-sovereignty deals. What happened with Sri Lanka is a classic example. The CPEC is a planned network of roads, railways and energy projects linking China’s Xinjiang with Pakistan’s strategic deep sea port in Gwadar on the Arabian Sea in the volatile Balochistan province.

Not just all projects in the first phase of the initiative jumped their deadline of 2017 but almost all are still on the paper or early stage of execution. Some even have been scrapped after the Pakistan government realized the non-viability of the projects.

Earlier this year, the Imran Khan government decided to shelve major coal-based Rahim Yar Khan power project after finding it financially unviable. China was investing huge money for the CPEC but it has benefitted Chinese companies more rather than Pakistani ones, said two top officials who were quoted by Pakistani media in recent articles.

The protracted delays in implementation of projects in AJK under the CPEC have resulted into cost escalation as well as stress among the unemployed youth. Except the Karot hydropower project, all other projects including 1,124 megawatts Kohala hydropower plant and Mirpur–Muzaffarabad–Mansehra Motorway are still on the drawing board.

The Pakistan government had to take around $9 billion loans on its book to get back the Main Line 1—Peshawar to Karachi railway line– back on the track. Is not Pakistan becoming a victim of China’s soft loan diplomacy? The project was supposed to be completed by 2017. However, it has delayed significantly.

What can be added to the Islamic Republic’s troubles is a threat from China that Pakistan Pakistan will have to pay the extra cost for delays in preparation of the master plan for the smart port city along the southwestern coastal town of Gwadar.

While the CPEC is expected to boost Pakistan’s economy and create employment, which is still quite far from the reality, China is set to reap major benefits—including encroachment on Pakistan’s sovereignty. It is a flagship project of Chinese President Xi Jinping’s ambitious Belt and Road Initiative (BRI).

The direct connectivity to Gwadar port in Baluchistan province through roads, rail lines and gas pipeline would reduce China’s dependence on the South China Sea and the Indian Ocean and would bring the Middle East closer. 

Although Gwadar port opened officially this month, its management has run into rough weather. Due to the inadequate cargo handling facilities and transit system to transport to Afghanistan, Chinese company COSCO Shipping Lines recently terminated its container liner services between Karachi and Gwadar.

Gwadar Port, which China calls a jewel of the CPEC, has seen attacks from local Baluchi people, who believe the inflow of immigrants poses a threat to their identity. Despite number of interventions by Pakistani authorities and even by the Chinese government, the hostility towards the port project by the people of Baluchistan has not reduced, which is set to deteriorate the future prospects of the project.           

Also there has been no progress on the Phase-2 projects under the CPEC, which include setting up special economic zones and industrial estates. Interestingly, the deadline is 2020.

“There can’t be any progress with China. Even Beijing knows that CPEC is on hold at the moment,” said Kaiser Bengali, an economist and former policy adviser to the Sindh provincial government.

As China pushed the BRI with its allies, many economists have asserted that the CPEC projects are being built with heavy interest rates and without due diligence studies about their viability, leaving the smaller countries in heavy debt.

Rahimyar Khan Power project

Giving in to pressure from China and immoderate desire for personal wealth, previous Nawaz Sharif regime had given green signal to 1320- megawatts Rahimyar Khan imported fuel Power Plant in the Punjab province of Pakistan. This power plan was a part of the incredulous China- Pakistan Economic Corridor (CPEC), which has become a debt trap, or simply death trap, for the frail economy of Pakistan.

The Pakistan government had signed highly Chinese-favoured deal by claiming to end load shedding. However, the power supply would come at the exorbitant cost– about 34.5 percent return on equity to the Chinese sponsors of coal-fired power plants.

Yet, China could get the Pakistan Muslim League- Nawaz (PML-N) government to approve the unviable project since it was proposed and to be implemented by Quaid-i-Azam Thermal Company, which is owned by then Prime Minister Nawaz Sharif’s brother Shahbaz.

Shahbaz Sharif was Chief Minister of Punjab when the project was approved and he used to attend meetings of the Cabinet Committee on Energy led by Nawaz Sharif. Owing to nepotism and pressure from China, then Nawaz Sharif government ignored the non-viability of the project and went ahead with it. However, after the Pakistan Tehreek-i-Insaf (PTI) government came to power last year, Prime Minister Imran Khan decided to shelve the Rahimyar Khan project.

After being perceived the CPEC is going to benefit China while exposing Pakistan to the high risk of entering the debt trap, the Imran Khan government became suspicious of China’s intentions and started shelving various projects under it. The Rahimyar Khan power project was the first one to be scrapped.

The PTI government decision to remove the power project from CPEC list came after the bureaucracy highlighted that surplus generation capacity had already been contracted and more contracts would lead the country to ‘capacity trap’. So Pakistan has requested the China to formally delete the project from the CPEC list—a big blow to China’s expansionist Belt and Road Initiative (BRI).

The USD 1,600 million coal-based Rahimyar Khan project was to be developed by China’s Huaneng Shandong Power Generation, which would add to the environmental problems in Pakistan.

The “politically motivated” project was not needed at all and it would have been a burden on the already deteriorating financial condition of the power sector. “We do not want to waste public funds where lien has been created or sufficient progress achieved, but we definitely don’t like to throw good money after bad,” a cabinet member of Pakistan’s National Assembly told Dawn newspaper.