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Featured CPEC by Moonlight

Discussion in 'CPEC' started by Moonlight, Jan 24, 2017.

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  1. Moonlight

    Moonlight PDF THINK TANK: ANALYST

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    My first attempt on CPEC, I hope you will like it

    By Moonlight

    CPEC for China
    [​IMG]
    CPEC is one of the 6 proposed economic corridors of China under the vision of One Belt, One Road (OBOR). The idea is to establish new maritime silk route by enhancing regional connectivity and linking 3 billion people of 64 countries of the world in Europe, Asia and Africa by cost effective road, rail and sea links to boost industrial sector and to sustain future economic challenges. China has immense economic and strategic benefits from CPEC and I have highlighted some of them below

    From Strait of Hormuz to Strait of Malacca

    China imports about 7 million barrels of oil per day, over 80% of its oil passes through the strait of Hormuz located near Gwadar with total value estimates of about $400 million dollars a day at reasonable price of $70 dollar per barrel. After the oil is loaded from one of the oil exporting nations in strait of Hormuz (Kuwait-Saudi Arabia-Qatar-UAE-Iran and Oman) it passes through Pakistan-India-Sri Lanka-Malaysia-Singapore-Indonesia-Vietnam and ultimately reaches its destination at port cities of Hong Kong, Shanghai and Shenzhen crossing over 16,000KM in 3 months. By the time CPEC is fully operational in 2030, it is most likely that the demand of oil must have increased.

    China have various challenges in this route such as the dispute in South China sea might escalate and effectively neutralise China’s sea route with support of USA, Japan, India and other major players in South China sea.

    The other challenge is the strait of Malacca which at its narrowest point of just 2.8km is neither deep enough to accommodate large vessels nor able to meet future demand of China, Japan, South Korea and rest of East Asia with current vessel traffic of over 77,000 per year.

    From Kashgar to Gwadar

    CPEC is specifically intended to boost the economy of autonomous region of Xinjiang which at $150 Billion USD is about 60% of Pakistan’s economy but most of the Western China will benefit from CPEC as evident from the first shipment that came to Pakistan being dispatched from the province of Yunnan and not from Xinjiang. The western china consists of 55% of the land area of China with approximately 20% population and largely remains under developed compared to North and East China.

    China wishes to bridge the gap between western China and rest of the country and came with ambitious plan of “Western Development Strategy” of 1999 under which she invested $512 Billion USD in western China to boost the economy of this region however despite major achievements such as West Triangle Economic Zone, the province of Xinjiang remains less developed due to internal conflict, extreme weather conditions, comparatively low population and poor transportation connectivity as well as lack of access to sea despite being naturally blessed with mineral resources and surplus in energy requirements.

    In order to address these problems China envisioned CPEC to boost the economy of Xinjiang by establishing Special Economic Zones (SEZ), Industrial parks, road and rail projects worth billions of dollars to integrate Xinjiang with rest of the country and opening up the province by giving access to warm waters of Karachi and Gwadar at approximately 2700km from Kashgar compared to 5100km from the nearest Chinese port of Shanghai or 5400km of Hong Kong saving in 50% of transportation cost. Besides Pakistan, the autonomous region of Xinjiang also shares border with Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Mongolia and Afghanistan.

    Gwadar and China

    The port of Gwadar is likely to play more important role for development of Xinjiang than the whole of Pakistan. The port of Gwadar is situated on the mouth of strait of Hormuz and can effectively cut the sea route from 16,000km to just 5000km with only half the journey by road.

    The cheapest method for transportation of energy is pipeline followed by sea route and railways. China have repeatedly shown interest in laying the oil pipeline to divert about 17% of her oil imports or about 1 million barrel of oil per day from Gwadar to Kashgar. If such initiative materialises it means China will be importing $25 billion dollar of oil each year from Gwadar to Western China through oil pipeline effectively cutting the cost of transportation by manifold besides other strategic benefits of reducing her reliance on South China sea.

    The port of Gwadar will also be used for transportation of goods from Western China to East Asia, Africa and Europe by land and sea routes reducing the travel distance from 3 months to just few days. To achieve such goal China is pursuing to upgrade Main Line 1 of Pakistan Railways, new rail links between Gwadar to Karachi and Havelian to Kashgar besides establishing 3 corridors for transportation of goods by road.

    There is no second opinion that sea is the cheapest method of transportation of goods however no nation in the world solely relies on sea route. If such was the case, then China would never have built rail link between China and Spain. The rail route between most part of western China will be cheaper between Gwadar and Western china due to proximity of sea port however it is highly likely that many regions of China will prefer Gwadar over Chinese ports where technically Gwadar is more expensive compared to Chinese ports because of time efficiency. If Gwadar is 20% more expensive compared to existing ports in China, it still makes a lot of sense for many businesses to use such route if it also cuts the cost from 3 months to few days.

    Power Projects

    China is financing $34 billion dollars of power projects in Pakistan to generate 17,045MW of electricity besides commitment to add more hydro power projects in future. China knows that no nation in the world would give them high rate of return with current reserves of over 3 trillion USD hence they are trying to invest in under developed nations that are likely to agree with higher rate of return due to their own economic needs.

    One of the example is the financing of transmission lines between Matiari to Lahore and Faisalabad that is likely to cost $3 billion dollar. According to National Transmission and Despatch Company (NTDC) if the transmission line was financed from internal resources, it would require 6 years to recover the cost of the project and won’t need to pay Chinese company for 25 year.

    Defence

    It’s a secret
     
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  2. Moonlight

    Moonlight PDF THINK TANK: ANALYST

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    I might edit this post later to add more information

    CPEC for Pakistan


    We often underestimate the economy of Pakistan which is bigger than Malaysia, Netherlands, South Africa, UAE, Switzerland and Singapore in terms of GDP purchasing power parity (PPP) and Romania, New Zealand and Qatar in terms of GDP (nominal). Pakistan currently have GDP of 1 trillion dollars in terms of GDP (PPP) and likely to be become 1 trillion-dollar economy in terms of GDP (Nominal) by 2030 without realising the potential of CPEC.

    CPEC coincides with Pakistan’s vision 2025 which talks about enhancing regional connectivity with neighbouring nations of China, Iran, India and Afghanistan as well as Central Asia and Turkey in extension. It talks about increasing bilateral trade to boost export volume from current 25 billion USD to 150 billion USD by 2025 and building Karachi-Lahore Motorway (KLM) to reduce travel distance from 18 hours to just 12 which is responsible for 80% of vehicle traffic in Pakistan.

    Pakistan have historically been under achieving growth rate by about 2% due to fragile security and crippled energy sector. CPEC is likely to stimulate economic activities in Pakistan and add 2.5 percentage points to the GDP after elimination of electricity woes and increased spending power with development of CPEC related projects.

    The biggest advantage CPEC gives to Pakistan is that it closely integrates all parts of Pakistan and opens the mineral rich remote areas of Pakistan for both road and rail links. It will help boost economic activities across entire Pakistan and likely to create 2 million direct and indirect jobs
     
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  3. Moonlight

    Moonlight PDF THINK TANK: ANALYST

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    Energy

    Electricity.jpg


    Electricity - Overview

    Pakistan’s total installed capacity in 2007 was about 20,000MW against demand of 18,000MW however due to high running costs, inefficient power plants and obsolete machinery only 11,000-13,000MW of electricity was being produced. Pakistan’s electricity consumption was growing at around 8% per year and it was projected by NTDC that Pakistan’s energy requirement by 2030 are likely to increase to 98,557MW at Low scenario and 145,304MW at High scenario

    Fast forward in 2013 and Pakistan’s total installed capacity was lingering at 23,000MW of which about 14,000mw was operational against demand of 19,000MW. The reason for low demand is the lack of growth in GDP, floods, thousands of industries had been shut or relocated in Bangladesh and Sri Lanka and billions of rupees were being spent on import of generators to offset reliance on national grid.

    Fast forward in 2017 and the total installed capacity is around 27,000MW with operational capacity of 18,000MW leading to claimed reduction of load shedding from 18 hours a day to less than 4 hours a day in most parts of the country.

    At first sight we realise that Pakistan’s energy requirement of 18,000MW in 2007 is similar to the energy requirement in 2017 however as per the report of Research and Advocacy for the Advancement of Allied Reforms (RAFTAAR), There is more electricity being generated by imported generators than the combined electricity being produced in the national grid (17,000MW).

    Pakistanis are currently spending over 200 billion rupees on import of generators, 30 billion rupees for solar panels as well as 30 billion rupees on import of UPS Power backups each year which as per the report of Federal Environment Protection Agency is now installed in over 60% households in Pakistan.

    Pakistan’s electricity consumption per capita is one of the lowest in the world about half the electricity consumption per capita of her neighbour India however keeping in view that Pakistan’s electricity per capita is based on the figures of National grid and do not account the electricity generated from independent off-grid resources such as imported generators and solar panels. It is likely that our actual energy requirement is being misrepresented.

    The vision 2025 asserts that Pakistan will provide electricity access to 90% population by 2025 from current 67% and given our total consumption is already around 35,000MW as projected by NTDC in 2007, it is likely that Pakistan’s energy needs will continue to rise by unprecedented level of 90,000 – 120,000mw by 2030.

    Electricity - CPEC

    CPEC will add 17,045MW of electricity by 2022 and keeping in view the energy requirements of Pakistan, it is highly likely that more hydropower projects that are under consideration will be added in the future. CPEC is likely to resolve short term energy woes of Pakistan but CPEC alone will not be enough to cope with future needs of Pakistan.

    The projects approved under CPEC are also going to bring down the cost of electricity generation in Pakistan which relies on generating 30% of its electricity from expensive furnace oil and diesel, most of the projects in CPEC will generate electricity from coal and hydropower with each selling electricity to NEPRA for approximately 8 cents per unit compared to 16-24 cents for generating electricity from furnace oil.

    Gas - Overview

    Pakistan is currently producing 4 Billion Cubic Feet per Day (BCFD) of gas against unconstrained demand of 8 BCFD. It is likely that Pakistan will exhaust all its proven reserves by 2030 and must rely on import of gas if no reserves were found in Pakistan.

    It is currently interested to import gas from Iran, Turkmenistan and Qatar through various gas pipelines (IP, TAPI and North South Gas pipeline) however given the present political scenario, IP and TAPI gas pipeline projects are likely to face severe delays. Pakistan’s total share in above mentioned projects is below the gas requirements of Pakistan and it is imminent for Pakistan to close more deals with gas exporting nations. Pakistan is likely to continue facing gas crisis for the coming years.

    Gas - CPEC

    One of the CPEC project will help build 700KM section of Iran-Pakistan Gas pipeline from Gwadar to Nawabshah. It can further be extended by 80KM to link with Iran under favourable circumstances.
     
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  4. Moonlight

    Moonlight PDF THINK TANK: ANALYST

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    Infrastructure

    Roads

    Roads.jpg

    Roads are considered the backbone of economy for developing nations. One of such example is the reserves found in Thar in 1990s. Pakistan tried to attract foreign investors for over 20 years to extract coal from Thar coal minefields and the first question they used to ask is, how are we going to transport heavy machinery if there is no access to road?

    Pakistan envisaged construction of Motorways and Highways in 1990s. It took them 25 years to build only 700KM of motorways before the massive influx of money started pouring in for CPEC related projects.

    Roads - CPEC

    The biggest advantage Pakistan gets from CPEC is that it gets to build infrastructure possibly 20 years ahead of timeframe. Pakistan has spent 182 billion rupees on building new highways and motorways since the inception of CPEC in 2015 and allocated 129 billion rupees from PSDP budget of 2016-17. Construction work at such large scale was not possible without CPEC and will add 3200KM of new or upgraded highways to existing network by 2020.

    It will now be possible to travel between Lahore and Karachi in 12 hours compared to 18, Gwadar to Quetta in 8 hours and Gwadar to Lahore in 16 hours compared to several days and will save billions of rupees in fuel imports

    It will also help integrate remote areas of Balochistan, Inner Sindh, FATA, KPK and Gilgit Baltistan and will be catalyst for possible fall of deprivation of provinces with closer integration and inter-dependence and will help increase economic activities amongst the provinces.

    Boosted by transit route of China, the economies of scale will allow Pakistan to gain access to regional markets of Middle East, East Asia, Central Asia and possibly South Asia with the lowest transportation and logistics costs and will help generate thousands of direct and indirect jobs.

    Pakistan is finally able to extract its mineral resources after the connectivity of road infrastructure and various new job opportunities will be created in such fields.

    China currently have bilateral trade of 4000 Billion USD and looking at the GDP of China, it is likely to grow by 300% in 2030. If we have a hypothetical scenario of China’s bilateral trade increasing to 10,000 billion USD by 2030, if China only diverts 1% of its trade towards Pakistan, that is 100 billion USD. It is expected that thousands of vehicles would be required to cater the needs of just 1% Chinese trade which will indirectly give boost to the economy of Pakistan as well.

    Railways

    Rail.jpg


    Pakistan Railways plans to overhaul entire railway infrastructure that was originally built before the independence of Pakistan in 1947. It also has plans to create new rail link between Gwadar to Quetta and Jacobabad via Basima, Quetta to DI Khan, Gwadar to Karachi, Havelian to Pak-China border as well as new links for establishing rail link between Afghanistan and upgrading ML-4 to enhance railway links between Iran.

    Railway – CPEC

    The original plan of CPEC talks about establishing rail link between Pakistan and China and agreed to conduct study on upgrading ML-1, ML-2, ML-3 as well as creating new link between Havelian to Pak-China Border and Gwadar to Karachi. The first phase of the study is completed and Pakistan and China principally agreed to upgrade ML-1 costing $8 billion USD of which China will finance $5.5 and rest of the cost will be financed by ADB. It is highly likely that more of such projects will be added in near future as the rail link with China will not be possible until Havelian to Pak-China railway project is not is not funded. The upgradation of Karachi to Peshawar will increase the railway speed of 60-80km to 160km per hour reducing the travel distance to half from 26 hours to 11.
     
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  5. Moonlight

    Moonlight PDF THINK TANK: ANALYST

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    Industry - CPEC

    The original plan of CPEC talks about principle understanding of industry along the corridor of CPEC. It was originally planned to have Tax Free Special Economic Zone in Gwadar which is now enhanced to minimum of 8 industrial zones across the country.

    It is likely that some of the projects will be co-financed by the respective provinces, the federal government and China and foreign investment will be encouraged. The feasibility of Special Economic Zones is still being conducted however it is certain to believe that multi billion dollars will be invested in the industrial sector as evident from the approval of Steel Mills in Gwadar and Chiniot costing about 1 billion dollars.

    New Cities & Other projects

    It is likely that many industrial zones will be established along the corridor of CPEC besides hospitality industry to cater the needs of thousands of Chinese workers engaged in transportation of goods from China to and onwards. So CPEC envisions huge demand people required along the corridor to engage in such activities leading to creation of new cities

    Gwadar

    Gwadar is likely to be the game changer for Balochistan and will contribute to the economy of Pakistan but in my opinion Gwadar is often over exaggerated. As per the recent report of Federal Minister for Shipping, Gwadar will have 100 berths by 2045 with capacity to handle 400 million tons of cargo per year. As per the reports in the media Gwadar have the maximum potential to install 120 berths. To put that in perspective it is less than some of the biggest Chinese and East Asian ports however it is much than the port of Chabahar with maximum handling capacity of 86 million tons of cargo per year. Gwadar have the potential to attract a lot of business but it is not going to be the solution of every problem of the region.

    Conclusion:

    CPEC will indeed benefit economy of Pakistan in the long run however we must not forget that the proposal was envisioned by China to serve the people of China and the major stakeholder of CPEC will always remain China.
     
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  6. Moonlight

    Moonlight PDF THINK TANK: ANALYST

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    CPEC Overview.jpg
     
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  7. VCheng

    VCheng ELITE MEMBER

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    An absolutely honest assessment. Thank you for such a detailed report with the correct conclusion.
     
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  8. Zaki

    Zaki MODERATOR

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    So Pakistan is currently generating 17,000MW from IPPs and Wapda etc and another 17,000MW from generators :woot:
     
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  9. salarsikander

    salarsikander SENIOR MEMBER

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    And let's see how Pakistani take advantage of such proposed vision. Chinese are not used to of slack behaviour, do it or give it to us. With current culture in Pakistan. I will b not surprised to see desi chor industries getting shipped out
     
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  10. Zaki

    Zaki MODERATOR

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    Since you like to talk about electricity

    Did you notice the demand of electricity in 2007 was 18,000mw and the same figure is published in 2017 despite the gdp growth of 300 billion USD from 152 billion USD in 2007 and the population increased from 170 million or so to 200 million.

    Now the reason is quite understandable that the domestic generators are generating equal mw of electricity to offset the burden of load shedding on the national grid
     
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  11. The Eagle

    The Eagle MODERATOR

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    The great effort and interesting analysis/write-up that I will read all in detail soon but great initiative.

    CPEC is initiated by China majorly indeed and as said "There is no free lunch" then must be benefiting China as well. However, from another point of view that the same is also covered in detail in above posts, Pakistan was not able to invest as such in large quantity or couldn't make it a beneficial project for the nation due to resources though, the vision is clear that it brings infrastructure, jobs, economical growth, power sector and advancement for us through different factors which will ultimately benefit us in long run. It is also to be noted that CPEC is not just Pakistan's project but indeed, China-Pakistan and going to be the game changer w.r.t. the benefits for the region and all the possible future participants. Giving us the roads, industrial setup, attracting investment and above all, representing Pakistan as a growing nation and a step towards self-reliance.

    CPEC will not just help us growing economy and it is not necessary that we will be earning the money alone here, as mentioned in first post, we will be having many equipment, gadgets etc in lieu of the money for our defence which is priority for us in these times that we are not able to buy directly due to budget constraints so it is a win win for us and is like a light in the dark. CPEC in all is going to support the nation widely and will be helping our economy manifold in times to come. So all in all, IMO, a fair approach from China that spent a lot will be gaining as well and for Pakistan, economy will be upward and beneficial in every factor which is far better than having nothing in hand that too since the terrorism affected us and before Op, situation was getting worsen day by day but it is proven that all the sacrifices are not in vain and we are moving forward for a better and stronger Pakistan In'Sha'ALLAH.
     
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  12. Mo12

    Mo12 SENIOR MEMBER

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    @Moonlight

    Do you envision any risk that may occur, if China finds alternative route to western china, for example India?
     
  13. The Eagle

    The Eagle MODERATOR

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  14. Mentee

    Mentee SENIOR MEMBER

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    not feasible for obvious reasons :offtopic:

    When did that happen :o: @Zaki something is fishy with these stats ?
     
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  15. Zaki

    Zaki MODERATOR

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    I did research on that and came to know

    • It is very costly to reinvent Korakoram highway in India. Such route is only possible from the state of Sikkim but no such serious proposal is under consideration. It took about 20 years to build partially single lane of Korakoram Highway and several hundred workers lost lives from both nation
    • Chinese are interested in various routes and each route has its own importance. They will link India via China-Burma-Bangladesh-India corridor but it will take several years to commence such proposal and will not be an alternative strategically important Gwadar port

    its open truth man, please look at the gdp ppp and gdp nominal of each nation from the imf website. Even wikipedia will help
     
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