Thanatos
FULL MEMBER
- Joined
- Dec 14, 2008
- Messages
- 682
- Reaction score
- 1
- Country
- Location
Game Changer
1. 91% of the income from Gwadar Port goes to the Chinese and 9% to Pakistan.
Reply: First of all, the contract was signed with the Port of Singapore Authority in 2007. The same contract was transferred to the Chinese. Secondly, can you kindly point out what’s wrong with this model especially when all the liabilities and investments lie at their end? We don’t up with any loans on Pakistan’s balance sheet.
Let me remind you, in past 7 decades, not only our government has failed to develop the port but also ignored the importance of its geostrategic location; and currently, our country doesn’t have the resources to develop it even if they want to for next 3 decades or so. Every Pakistani still gets to use the port and enjoy the benefits from its development. The port is a window to the economic activity it will generate in the country through becoming a safe transit route for China.
2. Chinese companies get preferential treatment and tax exemptions (making it impossible for local companies to compete and opens the Pakistani market for a commercial invasion)
Reply: The statement is completely misleading. Only CPEC projects get tax exemptions, mainly in the power sector, because we are in dire need to mitigate the losses due to the energy crisis in Pakistan. Moreover, tax exemption also drives down the cost of building these strategic projects, which results in lower tariffs and repayments.
(Impossible is a strong word. Construction companies in Pakistan are working at their full capacity, turning down projects due to output issues. Commercial Invasion? I think mentioning special economic zones would be more relevant since the argument of building infrastructure has no correlation with the commercial viability of businesses.)
3. Money for the road network comes from Pakistan (so we’re paying for the roads China will use to export stuff to us and the world)
Ans: Let me break the statement into 2 parts:
1) The Road; 2) The Money
1) The Road: The roads built under CPEC will be the property of National Highway Authority and will generate revenue through the toll tax. Moreover, as a Pakistani, will you want strategic roads in the country to be the property of a foreign country?
2) The Money: These projects are being built on Engineering-Procurement-Construction+Finance (EPC+F) Model. Finance comes from China and our government takes it as a concessionary loan. Same as ADB model. But the difference is that Chinese companies are mandated to complete these grand projects within 24-36 months. There needs to be open bidding for these projects, but then again, it will push the timeline of the CPEC to 30 years instead of 15 years.
4. Of the original $50b, over $30b was loans to build power plants for which we’ll pay a) interest to Chinese banks b) exorbitant profits to Chinese companies who will build and supply to these plants c) guaranteed profits to the Chinese companies that will operate and own these plants d) backed by sovereign guarantee
Ans: This figure is completely incorrect. All the power projects under CPEC are BOOT (Build-Operate-Own-Transfer) basis which means that investment, loans, and liabilities are all the investor problems. Our problem is to pay for the electricity they produce. No loan has been acquired so far by the government of Pakistan for energy projects.
a) We have nothing to do with the interest rates.
b) Getting a payback for what you invested is a very fair request so don’t know what’s wrong with it?
c) Guaranteed profits because we have PKR 800 billion in circular debt? Why would anyone even want to invest? Would you?
d) Same as above.
5. We’re making commitments to buy electricity at over 8 cents from coal-based plants and India is buying solar electricity at 4 cents (solar price is crashing every year). This will make our manufacturing uncompetitive for the next 15 years or longer.
Ans: We have a flaw in this argument. First, we are comparing apples to oranges. The feed-in tariff for coal power plants is around PKR 8/Kwhr in India as well. Although it’s a lengthy discussion,
Why can’t we opt for Solar? That’s because of the energy mix. India produces 59% of electricity from Coal while Pakistan, prior to CPEC, only 2%. Then, another issue: Solar produces well in the afternoon but doesn’t at night. You need to be over-dependent on reliable energy outputs in order to shift to renewable. I won’t get involved in grid problems but that’s one of the issues as well why Pakistan cannot opt for aggressive solar issues. On the price front, the tariff for solar in Pakistan dropped by more than 60% in past 4 years; in fact, it’s the projects are awarded through open bidding.
Apart from that, cost of producing electricity on generators ranges from PKR 70-90/Kwhr.
6. Meanwhile, the government falsely thinks tax revenue growth is economic growth. Excessive taxation is crushing the local industry and businesses and the government claims a “victory” every time it borrows more money
Ans: That’s a governance and leadership problem, not a CPEC one. If you want to bash the government, you will find me as one of the front-runners.
7. The Chinese are rational profit-minded businessmen…they have zero incentive to think about our future prosperity. Would they rather bolster our economy or own us?
Ans: Too descriptive in nature. But let’s say, we have strategic interests aligned to an extent that they are willing to risk phenomenal amount of money in a country which is not very famous in the international arena. Owning us? I don’t think that would be possible. Bolster our economy? Why not, if it is in great benefit of China?
Shah: So why is the CPEC “game changer” being sold to us with such force? As a state, we are feeling threatened by multiple regional and global forces. The Chinese investment is an insurance policy.
Ans: Isn’t an insurance policy a core agenda from the inception of our existence? We are exhausting 70% budget on the military after the debt is serviced. Why would we not want an insurance policy? Combine that with economic uplift and we land on the term “Game-Changer”
I personally think it’s a game-changer. We are bound by our own fears and fail to realize the scale of what’s coming.
Shah: We’re giving them what they want (profits), in return for what we want (security and survival).
Ans: The problem is that we can’t give them profits. They are betting on us that we can. There is a difference.
Shah:
What’s the problem?
That the “game changer” is a mirage. Let’s be honest about CPEC. It won’t bring us prosperity. It’s a debt trap we’re willing to get into because we’re desperate. Once we see it for what it is, we’ll know what to do: tighten our belts, work hard, train our people and export more.
Ans: I would rather rephrase this: The CPEC is a game-changer, an opportunity for everyone. If we sit at home and expect China to knock at our doors, that won’t happen. What will happen is that the opportunities in Pakistan would become more and more difficult to come by as the markets become more competitive in future. So let’s focus on how to engage with the opportunities emerging from CPEC right now and position ourselves to live the CPEC dream.
Personal Note: I am not happy with the government performance as well but that doesn’t make the CPEC evil in nature. Let’s not run away from our problems and blame China for it. Let’s talk about circular debt, youth platforms, private-public linkages, education, technical training, awareness, research, Gwadar facility centres etc.
The writer is the former Head of Operation, Pakistan-China Institute.
1. 91% of the income from Gwadar Port goes to the Chinese and 9% to Pakistan.
Reply: First of all, the contract was signed with the Port of Singapore Authority in 2007. The same contract was transferred to the Chinese. Secondly, can you kindly point out what’s wrong with this model especially when all the liabilities and investments lie at their end? We don’t up with any loans on Pakistan’s balance sheet.
Let me remind you, in past 7 decades, not only our government has failed to develop the port but also ignored the importance of its geostrategic location; and currently, our country doesn’t have the resources to develop it even if they want to for next 3 decades or so. Every Pakistani still gets to use the port and enjoy the benefits from its development. The port is a window to the economic activity it will generate in the country through becoming a safe transit route for China.
2. Chinese companies get preferential treatment and tax exemptions (making it impossible for local companies to compete and opens the Pakistani market for a commercial invasion)
Reply: The statement is completely misleading. Only CPEC projects get tax exemptions, mainly in the power sector, because we are in dire need to mitigate the losses due to the energy crisis in Pakistan. Moreover, tax exemption also drives down the cost of building these strategic projects, which results in lower tariffs and repayments.
(Impossible is a strong word. Construction companies in Pakistan are working at their full capacity, turning down projects due to output issues. Commercial Invasion? I think mentioning special economic zones would be more relevant since the argument of building infrastructure has no correlation with the commercial viability of businesses.)
3. Money for the road network comes from Pakistan (so we’re paying for the roads China will use to export stuff to us and the world)
Ans: Let me break the statement into 2 parts:
1) The Road; 2) The Money
1) The Road: The roads built under CPEC will be the property of National Highway Authority and will generate revenue through the toll tax. Moreover, as a Pakistani, will you want strategic roads in the country to be the property of a foreign country?
2) The Money: These projects are being built on Engineering-Procurement-Construction+Finance (EPC+F) Model. Finance comes from China and our government takes it as a concessionary loan. Same as ADB model. But the difference is that Chinese companies are mandated to complete these grand projects within 24-36 months. There needs to be open bidding for these projects, but then again, it will push the timeline of the CPEC to 30 years instead of 15 years.
4. Of the original $50b, over $30b was loans to build power plants for which we’ll pay a) interest to Chinese banks b) exorbitant profits to Chinese companies who will build and supply to these plants c) guaranteed profits to the Chinese companies that will operate and own these plants d) backed by sovereign guarantee
Ans: This figure is completely incorrect. All the power projects under CPEC are BOOT (Build-Operate-Own-Transfer) basis which means that investment, loans, and liabilities are all the investor problems. Our problem is to pay for the electricity they produce. No loan has been acquired so far by the government of Pakistan for energy projects.
a) We have nothing to do with the interest rates.
b) Getting a payback for what you invested is a very fair request so don’t know what’s wrong with it?
c) Guaranteed profits because we have PKR 800 billion in circular debt? Why would anyone even want to invest? Would you?
d) Same as above.
5. We’re making commitments to buy electricity at over 8 cents from coal-based plants and India is buying solar electricity at 4 cents (solar price is crashing every year). This will make our manufacturing uncompetitive for the next 15 years or longer.
Ans: We have a flaw in this argument. First, we are comparing apples to oranges. The feed-in tariff for coal power plants is around PKR 8/Kwhr in India as well. Although it’s a lengthy discussion,
Why can’t we opt for Solar? That’s because of the energy mix. India produces 59% of electricity from Coal while Pakistan, prior to CPEC, only 2%. Then, another issue: Solar produces well in the afternoon but doesn’t at night. You need to be over-dependent on reliable energy outputs in order to shift to renewable. I won’t get involved in grid problems but that’s one of the issues as well why Pakistan cannot opt for aggressive solar issues. On the price front, the tariff for solar in Pakistan dropped by more than 60% in past 4 years; in fact, it’s the projects are awarded through open bidding.
Apart from that, cost of producing electricity on generators ranges from PKR 70-90/Kwhr.
6. Meanwhile, the government falsely thinks tax revenue growth is economic growth. Excessive taxation is crushing the local industry and businesses and the government claims a “victory” every time it borrows more money
Ans: That’s a governance and leadership problem, not a CPEC one. If you want to bash the government, you will find me as one of the front-runners.
7. The Chinese are rational profit-minded businessmen…they have zero incentive to think about our future prosperity. Would they rather bolster our economy or own us?
Ans: Too descriptive in nature. But let’s say, we have strategic interests aligned to an extent that they are willing to risk phenomenal amount of money in a country which is not very famous in the international arena. Owning us? I don’t think that would be possible. Bolster our economy? Why not, if it is in great benefit of China?
Shah: So why is the CPEC “game changer” being sold to us with such force? As a state, we are feeling threatened by multiple regional and global forces. The Chinese investment is an insurance policy.
Ans: Isn’t an insurance policy a core agenda from the inception of our existence? We are exhausting 70% budget on the military after the debt is serviced. Why would we not want an insurance policy? Combine that with economic uplift and we land on the term “Game-Changer”
I personally think it’s a game-changer. We are bound by our own fears and fail to realize the scale of what’s coming.
Shah: We’re giving them what they want (profits), in return for what we want (security and survival).
Ans: The problem is that we can’t give them profits. They are betting on us that we can. There is a difference.
Shah:
What’s the problem?
That the “game changer” is a mirage. Let’s be honest about CPEC. It won’t bring us prosperity. It’s a debt trap we’re willing to get into because we’re desperate. Once we see it for what it is, we’ll know what to do: tighten our belts, work hard, train our people and export more.
Ans: I would rather rephrase this: The CPEC is a game-changer, an opportunity for everyone. If we sit at home and expect China to knock at our doors, that won’t happen. What will happen is that the opportunities in Pakistan would become more and more difficult to come by as the markets become more competitive in future. So let’s focus on how to engage with the opportunities emerging from CPEC right now and position ourselves to live the CPEC dream.
Personal Note: I am not happy with the government performance as well but that doesn’t make the CPEC evil in nature. Let’s not run away from our problems and blame China for it. Let’s talk about circular debt, youth platforms, private-public linkages, education, technical training, awareness, research, Gwadar facility centres etc.
The writer is the former Head of Operation, Pakistan-China Institute.
