Chinese Investment to Resolve Energy Crisis, Build Infrastructure in Pakistan

[RiazHaq]

Haq's Musings: China Deal Could Set New FDI Records, End Energy Crisis in Pakistan

Chinese state-owed banks will finance Chinese companies to invest in, build and operate $45.6 billion worth of energy and infrastructure projects in Pakistan over the next six years, according Reuters.

Major Chinese companies investing in Pakistan's energy sector will include China's Three Gorges Corp which built the world's biggest hydro power project, and China Power International Development Ltd.


Prime Minister Nawaz Sharif and President Xi Jinping

Under the agreement signed by Chinese and Pakistani leaders at a Beijing summit recently, $15.5 billion worth of coal, wind, solar and hydro energy projects will come online by 2017 and add 10,400 megawatts of energy to the national grid. An additional 6,120 megawatts will be added to the national grid at a cost of $18.2 billion by 2021.


Total Foreign Direct Investment Source: World Development Indicators


Starting in 2015, the Chinese companies will invest an average of over $7 billion a year until 2021, a figure exceeding the previous record of $5 billion foreign direct investment in 2007 in Pakistan.



FDI As Percentage of GDP. Source: World Development Indicators


With over $7 billion a year, it will still, however, barely match the prior record of 3.75% of GDP in 2007.

The biggest upside of this investment will be the generation of over 16,000 MW of additional electricity which should revitalize Pakistan's industry and significantly boost its GDP.

The deal can be win-win for both if the Chinese companies coming as independent power producers (IPPs) enjoy significant returns of over 17% to 27% a year on their investment while Pakistan actually alleviates its crippling electricity crisis to get its economy moving again. The assumption here is that Pakistan has learned from the prior mistakes in its existing cost-plus IPP contracts which guarantee significant profits to IPPs regardless of costs, efficiency and amount of power supplied to the grid.

Rapid increase in power generation is a well understood pre-requisite for accelerating industrialization and major improvements in productivity in this day and age. Pakistan needs sharp focus on increasing electricity availability to improve productivity and living standards of its people.

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Haq's Musings: China Deal Could Set New FDI Records, End Energy Crisis in Pakistan

 

[dil_dil]

This investment will be counted as FDI?

 

[RiazHaq]

KARACHI: Foreign direct investment (FDI) increased by 47 per cent in the first four months of this fiscal year, mainly because of a big inflow from China.

The State Bank reported on Monday that the country received $423 million during July-October compared to $288m during the same period of last year.

The inflows posted a sudden increase in October, turning around a year-on-year fall of 26pc in July-September quarter to a 47pc rise in the four-month period.

Pakistan received just $169m as foreign direct investment in the first quarter. The inflows in October alone amounted to $252m.

However, the main inflow which changed the depressing situation was from China which invested $163m out of the total $423m. The government has been making efforts to bring Chinese investment in the country. Prime Minister Nawaz Sharif recently signed memoranda of understanding (MoUs) with Chinese companies for $42 billion investment here.

The United States and Hong Kong were other two countries who made significant investment of $75.2m and $74.6m, respectively.

Despite this sudden jump in October the overall situation is still unattractive since the size of FDI is extremely poor.

The overall FDI inflows and outflows during July-October were also surprising since both were very high in numbers. The inflows were $1.390 billion (112pc higher year-on-year) and outflows were $966m (up 163pc).

Portfolio investment in this period also showed positive sign increasing by 144pc to $176m compared to only $72m in the same period of last year. However, foreign portfolio fell by 143pc during the four months. It was $69m during the same period last year while this year it was negative $29m.

Pakistan has been waiting for more than seven years for improvement in the FDI but the country hit by terrorism could not convince the foreign investors so far. The FY14 was better with FDI inflows of $2.3bn than FY13 when the figure was $1.57bn.


FDI jumps by 47pc in July-Oct - Newspaper - DAWN.COM

 

[VCheng]

How will any of this help with the real problem with the power sector, which is the circular debt?

 

[B+ Dracula]

WHY CHINA IS INVESTING ....
1)
China is financial hub of worldwide from item A to Z all are made in China ...number 1 to 'X'.........RESULT.....they've Loads of US dollars in Chinese Bank...........when China demands USA to exhange your $ with our Yuans......American says...we've no YUANs & at the same time you posses more DOLLARS then Rest of America....so chinese gov buy American security notes (IOU's) in exchange to transfer Us currency reserves to them.
2)
When Chinese businessman approach chinse bank...and demand for YUAN in exhange for US dollars......Chinese government have no other option...only to PRINT MORE YUANS (in collateral with American IOU's..issued by Us.Gov)..........RESULT......value of yuan diluting and in next comming years it will slow down Chinese Economy and inflation will rise
3)
As by world renowned Economist - American Dollar is enjoying last decade of its formation and world has started dealing in their own currency instead of accepting HEGEMONY of dollar in international trade Moreover Trade giants like India/china/russia insisted to stop trading in US dollar esp RUSSIA....defied first time Openly worldwide to accept dollars...RESULT.....Big Trade Surplus countries like China are now preparing to DUMP load of US dollars in worldwide investment to secure its value before it fades away.....we will witness increase in Investments activity by China ......Chinese Economical Gurus understand that Phenomena....thats why they're dumping it methodically ...bcoz they dont want TRAUMA in international politics.....In that case they'll suffer it GREATLY as they've world largest reserves of Dollars.

Source: Pakistan wins China investment worth $42 billion | Page 3

 

[RiazHaq]

WHY CHINA IS INVESTING ....
1)
China is financial hub of worldwide from item A to Z all are made in China ...number 1 to 'X'.........RESULT.....they've Loads of US dollars in Chinese Bank...........when China demands USA to exhange your $ with our Yuans......American says...we've no YUANs & at the same time you posses more DOLLARS then Rest of America....so chinese gov buy American security notes (IOU's) in exchange to transfer Us currency reserves to them.
2)
When Chinese businessman approach chinse bank...and demand for YUAN in exhange for US dollars......Chinese government have no other option...only to PRINT MORE YUANS (in collateral with American IOU's..issued by Us.Gov)..........RESULT......value of yuan diluting and in next comming years it will slow down Chinese Economy and inflation will rise
3)
As by world renowned Economist - American Dollar is enjoying last decade of its formation and world has started dealing in their own currency instead of accepting HEGEMONY of dollar in international trade Moreover Trade giants like India/china/russia insisted to stop trading in US dollar esp RUSSIA....defied first time Openly worldwide to accept dollars...RESULT.....Big Trade Surplus countries like China are now preparing to DUMP load of US dollars in worldwide investment to secure its value before it fades away.....we will witness increase in Investments activity by China ......Chinese Economical Gurus understand that Phenomena....thats why they're dumping it methodically ...bcoz they dont want TRAUMA in international politics.....In that case they'll suffer it GREATLY as they've world largest reserves of Dollars.
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View attachment 156190
Source: Pakistan wins China investment worth $42 billion | Page 3

According to the Wall Street Journal, the dollar is deeply entrenched in world trade. Businesses lower their transaction costs by dealing in a common currency. More than 80% of exports from Indonesia, Thailand and Pakistan are invoiced in dollars, for instance, according to the latest figures available in research by the European Central Bank, although less than a quarter of their exports go to the U.S.


"There is no alternative to the dollar as a trading currency in Asia," Andy Xie, a Hong Kong-based economist told the Wall Street Journal last year. "Eventually, the renminbi [yuan] will replace the dollar in Asia, perhaps in our lifetime. But it will take at least 30 to 40 years."


Haq's Musings: Yuan to Replace Dollar in World Trade?

 

[RiazHaq]

How will any of this help with the real problem with the power sector, which is the circular debt?

Circular debt has a lot to do with the cost of power generation. New coal and hydro plants built by the Chinese will hopefully cut these costs significantly and reduce the gap between the cost and revenue.

Haq's Musings: Pakistanis Suffer Load-shedding While Power Companies' Profits Surge

 

[VCheng]

Circular debt has a lot to do with the cost of power generation. New coal and hydro plants built by the Chinese will hopefully cut these costs significantly and reduce the gap between the cost and revenue.

Haq's Musings: Pakistanis Suffer Load-shedding While Power Companies' Profits Surge

Circular debt has more to do with theft and lack of timely payments, Sir.

 

[Kompromat]

This investment will boost foreign confidence and bring more money in FDI.

@RiazHaq - Does this mean that Pakistan can score 5% GDP growth for the next five years?

Oil prices going down will save Pakistan $7 billion per year. How would that impact our economic growth?

 

[RiazHaq]

Circular debt has more to do with theft and lack of timely payments, Sir.

Isn't that revenue? Isn't that what contributes to the gap between cost and revenue? So the bottom line is that reducing the cost of production will reduce the circular debt.

 

[VCheng]

Isn't that revenue? Isn't that what contributes to the gap between cost and revenue? So the bottom line is that reducing the cost of production will reduce the circular debt.

Only if the cost per unit billed to customers is reduced as a result of reduced cost of production, and even then it would not affect the debt already accrued (over PKR 700 billion and counting).

 

[RiazHaq]

This investment will boost foreign confidence and bring more money in FDI.

@RiazHaq - Does this mean that Pakistan can score 5% GDP growth for the next five years?

Oil prices going down will save Pakistan $7 billion per year. How would that impact our economic growth?

Resolving energy crisis is a pre-requisite to higher economic growth. It's necessary but no sufficient to achieve higher growth. It's overall investment level that drives growth and resolving energy crisis will hopefully increase investment in Pakistan.

Haq's Musings: Declining Investment Hurting Pakistan Economic Growth

 

[RiazHaq]

Only if the cost per unit billed to customers is reduced as a result of reduced cost of production, and even then it would not affect the debt already accrued (over PKR 700 billion and counting).

If the cost of production drops faster than the consumer rates charged, then the gap will go down significantly over time. That's the entire logic of shifting the mix from oil to coal and hydel.

Haq's Musings: Pakistanis Suffer Load-shedding While Power Companies' Profits Surge

 

[VCheng]

If the cost of production drops faster than the consumer rates charged, then the gap will go down significantly over time. That's the entire logic of shifting the mix from oil to coal and hydel.

Haq's Musings: Pakistanis Suffer Load-shedding While Power Companies' Profits Surge

If the cost of production drops faster than the consumer rates charged, then yes, I agree with you that over time the circular debt will become less. That is a mighty big IF to sustain over time to have a sizable effect.

 

[RiazHaq]

If the cost of production drops faster than the consumer rates charged, then yes, I agree with you that over time the circular debt will become less. That is a mighty big IF to sustain over time to have a sizable effect.

Welcome to life. There are few certainties in it. Mostly probabilities based on certain actions leading to certain outcomes...