Economic Corridor: Some Facts

Within a year of the announcement of the China-Pakistan Economic Corridor (CPEC) formation, the energy and infrastructure projects, planned under it are being rolled out into realities. The year 2015 comes to a close with the media all out flagging news of Chinese support to fund projects in the energy and infrastructure sector under the CPEC. A remarkable projection of China’s engagement to build up the energy and infrastructure sector of Pakistan. All of this has eclipsed the number of mega projects being funded in Pakistan by Asian Development Bank (ADB), the World Bank, USAID and similar global institutions where the funding is substantially higher, on more softer and longer terms.

China has pledged a loan of $42 billion to fund energy and infrastructure projects. In the energy sector, the CPEC accord envisages 14 projects of 10,400MW in the first phase which are targeted. Some of them have been rolled out.

Pakistan and China last week signed in Beijing a formal agreement for around US $1.5 billion financing for a 3.8 million tonnes per annum of coal mining project and a 660MW coal-fired power plant at Thar. The agreements were signed by two syndicates of Chinese and Pakistani banks with Sindh Engro Coal Mining Company (SECMC) and Engro Powergen Thar Ltd (EPTL) for local and foreign loans to finance mining of Thar Coal Block-2 and utilisation of its coal for 660MW power generation. Pakistan and China have already entered into an agreement for laying of a transmission line for the evacuation of the electricity from the Thar plant to the national grid. The project is expected to be commissioned by 2018. This is the largest project on the top priority list of the CPEC.

The other energy project signed up under the CPEC is the 1,320MW Port Qasim Electric Power Company power plant at Port Qasim, Karachi. The financial close of the project has been achieved and is being implemented as a prioritised project under the CPEC. The project is being developed at a cost of US $1.9 billion and targeted to start production by end of 2017.

On the infrastructure end, an agreement was signed last week between the federal government of Pakistan and Exim Bank of China for provision of a soft loan of Rs 162bn ($1.5 billion) for the Orange Line Metro Train Project for Lahore. The Orange Line, covering a distance of 27km, would facilitate 250,000 commuters daily. It is targeted to be completed within 27 months. It is not clear whether this project is under the CPEC or funded by the government of Punjab. But, as the loan agreement is signed off by the federal government, it is clear that it is a sovereign bilateral loan arrangement between the federal government of Pakistan and Exim Bank of China. Other provinces are suspicious on the mode of funding and have asked for clarification on the subject.

Earlier, in mid-1990s, the government of Japan had pledged a much softer loan of US $500 million at 0.03% interest rate and payable in 30 years for the Metro System of Lahore, following nearly the same alignment as what is now the Lahore Metro Bus Service. The loan was suspended following nuclear tests by Pakistan. Upon normalisation of political environment, the government of Japan diverted the loan to revamp the once popular Karachi Circular Railway system into a modern Metro System connecting all parts of the city of Karachi. A very soft loan of over $1.4 billion stands committed by Japan. But, the project is struggling since the last over five years largely on account of incompetence of the Sindh government.

On the other hand, soft branding of the CPEC and China’s support to Pakistan, spearheaded by state functionaries of China and abetted by their counterparts in Pakistan, has accelerated. Last week, a Chinese delegation visited Faisalabad Chamber of Commerce and Industry (FCCI). Faisalabad is the hub of textile industry of Pakistan and the second major revenue generating city of the country after Karachi. Private entrepreneurs are looking into joint ventures in textiles where the CPEC will be the facilitator. Additionally, a number of MoUs are being signed between the entities of China and Pakistan for enhancement of investments and trade like the one signed last week with Board of Investment (BoI).

Meanwhile, the demand for transparency of the CPEC is growing. After Balochistan, the KP leadership has expressed apprehensions and has put up 13 demands related to the CPEC which include details of the budgetary allocations and the share of federating units in the loan package from China, categorical statement on route alignment, a guarantee that trade zones will be established through equal distribution, details of energy projects, a consolidated map of the oil and gas pipe line projects and similar questions.

While Punjab appears to be the front runner in utilising the benefits under the CPEC, the other provinces need to catch up. The federal government has to work harder to remove this suspicion by making transparent all that what matters the CPEC.

The backbone of the CPEC is a functional Gwadar port and the road link from Gwadar to China. This is what is of prime interest to China while the energy and infrastructure projects under $42 billion loan pledge are add-ons and a trade-off with Pakistan. It must be very well understood that this amount is a commercial loan on soft terms dedicated to specific projects largely with Chinese contractors. It is by no means a gift from China to Pakistan as being largely publicised.