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CPEC — the engine of our growth

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CPEC — the engine of our growth


Anjum Ibrahim
18 Jan 2021



Fiftyone memoranda of understanding (MoUs) with an initial 46 billion dollar envisaged investment were signed in April 2015 during Chinese President Xi’s visit to Pakistan when Nawaz Sharif was the Prime Minister; and ever since then China Pakistan Economic Corridor (CPEC) remains a major engine of growth for the country’s beleaguered economy.

Sadly, while the Chinese have worked with three Pakistani administrations amicably, in spite of some irritants, reflective of their sustained commitment to CPEC - defined domestically as a Chinese initiative to improve/strengthen Pakistan’s deficient infrastructure – as well as a vital component of President Xi’s Belt Initiative Road (BRI), those heading the three administrations have not been so forthcoming in acknowledging the contribution of their predecessors.

Former President of Pakistan Asif Ali Zardari in the first week of January 2017, claimed that Pakistan Peoples’ Party was the ‘pioneer of the idea of the multi-billion dollar CPEC and is not concerned who takes credit for the project by placing advertisements in the media.’ This was confirmed by Lijian Zhao, Deputy Chief of Mission and Minister Counselor at Chinese Embassy, Islamabad, during a seminar end-June 2018 titled CPEC & Role of Media – Separating Facts from Misconceptions. And reconfirmed by the Chinese Ambassador to Pakistan Yao Jing in September 2020 when he called on the former President to inquire about his health by publicly acknowledging that former President Zardari is the founder of CPEC.

This was not recognized by Nawaz Sharif or any member of his cabinet during his premiership (2013-17); and notwithstanding the two national parties ongoing cooperation under the umbrella of Pakistan Democratic Movement (PDM) today there has been no statement from any PML-N leader acknowledging the role played by Asif Ali Zardari in CPEC’s launch.

On 25 May 2017 Nawaz Sharif while addressing a BRI forum in Beijing highlighted CPEC’s relevance to our economy succinctly: “we are striving to leverage geography for economic prosperity, we are also trying to build a peaceful, connected and caring neighbourhood….CPEC is owned and nurtured by all Pakistan” – a sentiment not shared by Imran Khan at the time.

Before taking oath in August 2018 as the country’s Prime Minister Imran Khan opposed CPEC projects for multiple reasons ranging from maintaining that the road route approved and the location of the special economic zones injudiciously bypassed poor areas and lamenting the lack of focus on social (health, education) sectors. In the following month Prime Minister’s Advisor on Commerce Razzak Dawood in an interview to the Financial Times stated that all 57 billion dollar CPEC projects could be eligible for suspension in a review to be conducted under Prime Minister’s orders, adding that “I think we should put everything on hold for a year, so we can get our act together …perhaps we can stretch CPEC out for another five years….Chinese companies received tax breaks, many breaks and have an undue advantage in Pakistan; this is one of the things we are looking at because it’s not fair that Pakistani companies should be disadvantaged.” Pakistan’s stock exchange fell by 0.4 percent in response to this statement and Dawood was forced to retract his statement a day later.

Such publicly expressed sentiments led to Prime Minister Khan receiving at best a lukewarm reception during his first visit to China in November 2018, prompting the opposition to maintain that the new leadership’s injudicious remarks on CPEC, and the offer to Saudi Arabia and the UAE (as well as others) to join CPEC projects made by Prime Minister Khan after the assistance pledged by Saudi Arabia (3 billion dollar loan and 3.2 million dollar deferred oil facility) and the UAE (three billion dollar pledged but one billion dollar disbursed to date), had not gone down well in China.

By 2019 the Prime Minister was fully on board on the criticality of CPEC projects to our economic development no doubt realizing that China – public and private sector – was, contrary to any other foreign private company/government, willing to invest billions of dollars in Pakistan. On 12 May 2019 Imran Khan’s new economic team leaders – Dr Hafeez Sheikh and Dr Reza Baqir – signed off on Pakistan’s 23rd International Monetary Fund (IMF) programme with the guarantee (the first time ever in our long history of going on IMF programmes) to ensure that the loans acquired from China, Saudi Arabia and the
UAE would not be recalled during the duration of the programme because, “financing support from Pakistan’s international partners will be critical to support the authorities’ adjustment efforts and ensure that the medium-term program objectives can be achieved” - the usual assumption in previous Fund loans was that once a country is on a Fund programme concessional funding becomes readily available from other multilaterals/bilaterals.

China has not only kept its pledge but also met the shortfall due to recall of loans by Saudi Arabia (two billion dollars to date) though some concerns over our ability to repay are reportedly surfacing.

A couple of weeks later, on 26 May 2019 Imran Khan with Chinese Vice Premier Wang Qishan witnessed the signing of several MoUS for cooperation in different sectors as per the official website and two projects that began during the tenure of PML-N with a progress update were identified: (i) Matiari-Lahore 660kV HVDC transmission line project with an agreement signed between PPIB and State Grid of China on May 2018 which achieved financial close on 27 February 2019 with an expected COD in March 2021; and (ii) 300 MW imported coal-based project at Gwadar with a No Objection Certificate issued by Balochistan Environment Protection Agency in August 2018 with groundbreaking on 4 November 2019.

Three projects signed during the tenure of the Khan administration that were highlighted included: (i) Kohala Hydel project agreement signed on 25 June 2020; (ii) Cacho 50 MW wind power project and Western Energy 50 MW - both in LoI stage: and (iii) Azad Pattan Hydel project agreement signed on 6 July 2020.

On 8 October 2019 President Alvi promulgated two ordinances – one to set up CPEC authority, headed by Lt-General Asim Saleem Bajwa (retd) (former DG ISPR 2012-16) on the eve of Prime Minister’s second visit to China and, two, granting tax concessions to Gwadar and its free zone. The appointment was seen as providing a safety comfort level to Chinese staff engaged in CPEC projects.

Prime Minister Khan thence began extolling the successes of the Chinese government in ending poverty and improving farm output through reforms though inexplicably he continued to espouse a right wing formula for Pakistan notably that the private sector must be allowed to create wealth and thereby to jump start the economy.

While addressing the Country Strategy Dialogue on Pakistan organized by the World Economic Forum in November 2020 Imran Khan stated that “this is the first government in Pakistan since the 1960s which has made it a point that we want to make profit-making easy for people ... and investors.” These sentiments were in parallel with Imran Khan’s frequent denouncement of mafias (read collusion to set a price higher than the market rate), smugglers and middlemen determining prices through promoting market imperfections. In this context one would hope that the issuance of licences to a select few private companies to import RLNG, with the objective of ensuring timely imports and improving efficiency, does not lead to collusion.

CPEC projects have also been subjected to considerable international criticism. Alice Wells, a former Assistant Secretary of State for South and Central Asian Affairs, in a seminar in November 2019 argued that Pakistan’s indebtedness had increased manifold due to CPEC. Geng Shuang (Chinese Foreign Ministry Spokesperson) rejected these claims as “mere repetition of old slanders against China, the CPEC and BRI” as did the Planning Minister Asad Umer who stated that Pakistan’s mounting debt crisis had nothing to do with China.

In 2019-20 95.73 billion rupees was budgeted for CPEC projects (as counterpart funds) and while the Planning Commission claims it released the entire budgeted amount actual disbursement was 57.44 billion or 60 percent of the total budgeted amount. In 2020-21 the government has budgeted 77.33 billion rupees for CPEC projects (a decline of nearly 20 percent from the year before) and by July-December 2020 the release was 40 billion rupees though the actual disbursed data is not yet available.


China as well as Middle Eastern countries including particularly Saudi Arabia and the UAE are reluctant to publicly announce total amount and terms of investment/loans/grants to a third country including special incentives by the recipient country to the pledged inflows. The Khan administration was injudicious in highlighting the pledges of assistance that were later not realized which provided fodder to CPEC critics, local and foreign.

One major lesson learned therefore should be information sharing with relevant documentation with members of the opposition in parliament – be it in-camera or not - to ensure that subsequent governments do not roll back the process to the country’s detriment. Pakistan has paid hundreds of millions of dollars in penalties in arbitration and courts for reneging on contracts signed off by previous governments – the Broadsheet case is just the most recent example.

Disturbingly, Prime Minister Imran Khan refuses to engage with the opposition but would hope that an institutional measure that seeks to share information be put in place to ensure that all are on board with respect to any foreign, public or private sector, contract. Failure to do so may compromise his long-term pet projects including the Ravi City project and development on the islands off the coast of Sindh.


Copyright Business Recorder, 2021


 

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