CPEC: Challenges and Prospects

CPEC: Challenges and Prospects

I. Introduction
II. Challenges
• Domestic Challenges
A. Economic Discrepancies
a) Balance of Payment ambiguity
b) China’s Uncertain Economic Policy(learn by doing)
c) Special Economic Zones
B. Energy Gaps
a) Lack of Credibility of T&D(transmission and distribution) Equipments
b) Hefty Tax Concessions
c) Lack of Energy Competitiveness
C. Mass Transit Dilemma
a) Tax concessions
b) Preferential Contracts Given To Chinese
D. Hostile Forces
a) Baloch Insurgency
b) Religious Militancy
c) CPEC not another East India Company

E. Underutilization of CPEC
a) Lack of capacity given to that mega project
b) Lack of Skilled work force
c) Lack of Industries

F. Cultural Onslaught
a) Coastal enjoyment Industry
b) Cultural infusion
G. Limitations of Visa Regime

• International Anxiety Of Enemies
A. Indian involvement in sabotaging CPEC
a) Supporting separatism in Balochistan
b) Inciting people of GB,IHK for violence
c) Funding terrorism along Durand line
d) Inciting other countries to isolate Pakistan

III. Conclusion

Do you know what is new sense of security concept?. Former President of China Jiang Zemin elaborated as, “The international community need to build new security concept with mutual interest, mutual benefit, collaboration and equality at its core and work to create a peaceful international environment of long term stability and security”. CPEC (China-Pakistan Economic corridor) is visualization of China’s long term peace and stability through integration. CPEC is one of the corridors of $900bn OBOR (one belt one road).This is China’s ambitious effort to integrate three continents through trade. CPEC is giving benefits to almost 2bn people nearly one third of world population .China is pledging $50bn for rail ,road , energy and infrastructure(development of Gwadar Port. Special Economic Zones etc.) projects with 30 year repayment method. Gwadar port (11m deep) is handed over to Chinese development authorities for 50 years on lease. This project is urgent and pressing need of Pakistan for robust hike in economy. At the same time the prosperity and mutual benefit through coordination, CPEC countering many domestic challenges and international influences. I must say that CPEC is prone to certain liabilities but this new era of globalization through trade is welcoming. The domestic and international jeopardizing issues are looming threats to this multi-billion dollar projects but sincere efforts can mitigate such rising ill situations.
The first and foremost crucial aspect in domestic challenge (Economic Discrepancy) is payment obligation from Pakistan in term of debt servicing and profit repatriation. An ordinary citizen should have question in mind that we have already under hefty debt of IMF, USAID and some other IGO’s? How can we bear this burden of $55bn? Is country is capable of producing such economic growth to return it? .As recent analysis of former State Bank Of Pakistan Governor ISHRAT HUSSAIN in dawn news dated February 11th, 2016 shows the additional burden on our foreign flows due to CPEC. The total amount committed under CPEC is $50bn, in which $35bn are designated under Energy portfolio and $15bn under infrastructure development. Under the Capital Structure 60:40 debt-to-equity ratio for energy projects, the total equity investment would be $14bn.If we assume that the entire equity investment would be financed by Chinese (which is not in the case of HUB and ENGRO projects), we are obliged a 17% rate of return of equity in dollar terms annually which becomes $2.2bn.CPEC second component: infrastructure, is to be financed by government-government loan of $15bn.As announced these loans would be concessional with 2% interest rate to repay in 20-30 year tenure. This would increase the debt servicing by $910m.It means financial burden should not increase $3.5bn annually on staggered basis depending upon the completion of project. A very conservative estimate regarding energy and infrastructure loans, we would receive $9bn in terms of energy projects in 8 years term means $1.125bn annually and $4bn over 15 years means $266m annually in infrastructural development. This amount of $1.39bn can be used to wield current account deficit or for external payments .But the question is how can we create non-debt sources to offset this $3.5bn additional burden?. Keeping this scenario/analysis in mind the exports should boost by 14% annually in dollar terms .This boost can be expected if load shedding problem would be solved by heavy investment in energy. We should attract foreign investment from penetrating into new markets and providing incentives to them .I think we should not lose hope because in this analysis of writer the incremental growth in GDP due to investment in energy and infrastructure is not counted. The situation is even more serious if we account for import of fuel to run our old technology power plants?
Another aspect of fuel is added into discussion by SAKIB SHEERANI in dawn news dated March 31st ,2017.The currently running power plants in all power generation sector use RFO (residual fuel oil) which is substantially expensive way of producing energy. An estimate shows that 8910MW energy would be added to the national grid of which 6240MW would be of less expensive coal fired. In 6450MW of coal fired generation 2640MW is expected to be reliant on indigenous coal and remaining MW’s would be generated on import of fuel. This import of fuel would cost the nation around $2bn. According to writer revelation, I can say with somehow clarity if the power sector replace that less efficient power plants with more efficient and less expensive plants this amount of $2bn can be reduced to $1bn in saving of expensive fuel. So, as discussed previously that total burden on foreign payment was $3.5bn and with this addition of fuel import it would become $5.5bn.According to Ministry Of Power and Water as well as planning commission ,3000MW of energy is to be transferred from RFO to less expensive coal fired power plants. A widespread concern regarding CPEC is the China’s ambitious efforts to maintain momentum of growth without any exact terms and conditions, with uncertainty in amount of billions of dollars pledging in these corridors. Why is this obfuscating behavior?
PBC CEO Ehsan Malik said that people are still in dark regarding deal. What happen if it turns to be Trojan horse? Many third world countries were better economies than China in mid of 1970.So the China’s current standing in world economy reveals that something miracle happened. After 1989 in Tiananmen square China embraced economic reforms. The architect of these reforms was Deng Xiaoping who challenged the world that it would make China an average economy till 2050.China progressed so much than expected by its leader and it overtook japan in 2010 to become world’s second largest economy. Why is China is so uncertain of its own policies and plans? .Bo Qui a visiting scholar at Princeton University expressed that China’s economic policy do not have well defined blueprints. The China’s economic formulation depends upon “learn by doing”. China revamp its policies and rules according to different problems encountered rather than sticking to ideology. It defied the economic wisdom of Washington and other western countries of pledging to Capitalism or certain other economic system. That’s why the plans are so uncertain under CPEC due to Chin’s unique approach to economic reforms. So it is matter of relief for us to not worry about the ambiguity regarding the policies, negotiations about CPEC because in this way Chinese work. Some journalist and other politicians are cautioned about the SEZ (special economic zones) whether they are exclusively for Chinese or Pakistanis can access to them. Minister of planning and development Ahsan Iqbal (now interior minister) said these concerns are just ad hoc to distract CPEC. The desperate wish of current PMLN government to overcome load shedding to election year 2018 gave much leverage to energy bidders and tariff concessions.
In 2013 elections the center point for winning of PMLN was to overcome the load shedding. This is the problem which reminded the Pakistani’s of dark ages. But as the election year is about to come and load shedding is still looming on our heads. Under CPEC many energy projects are committed. The urgent need of electricity made government compliance of heavy tariffs given to Chinese companies to lure them and to show the people that we have fulfilled our promise. Recently the government has forced NEPRA to bump up tariff that originally determined by regulators. Let’s take example of LAHORE-MATIARI 660KV DC transmission line. NEPRA was forced to raise the tariff to 74 paisa which was originally 71 paisa because Chinese refused to accept the tariff of 71 paisa. Along that the government also set up a revolving fund of 22% of estimated monthly invoicing back by sovereign guarantee to ensure uninterrupted supply to Chinese investment in case of power purchase default. Shahid Sattar argues that we may have surplus electricity but we cannot afford it because in Bangladesh, the Chinese firms investing in coal power have been offered as low as tariff as $0.062 per unit compared to $0.092 per unit in Pakistan. It is evident that entire energy portfolio is under IPP’s (independent power plants) and they also enjoy a life-timer waiver on corporate tax payments which was set up in 1990’s and 2000’s to attract investment in power generation .In fact are we able to absorb such influx of electricity?. Our current transmission and distribution is outdated, ill and poorly maintained. In order to avoid all this the government should reform the power sector by privatizing DISCO’S and mandating NEPRA to develop competitive energy markets by providing power purchases by providing open excess to producers of transmission and distribution, setting tariffs by open and transparent bidding allowing different bidders to participate. Is this luring of Chinese contractors in Energy projects only?
CPEC is based on road, rail, airport, seaport and other Mass transit projects. The road network is 3200KM long which connects the Kashgar in China’s landlocked western province of Xinjiang to Middle East, Asia and Africa through Gwadar port in Pakistan. Lahore Orange Line Metro Train is designed under CPEC with the cost of $1.6bn.According to newspaper on Dec, 2015 government cleared three infrastructure projects including 392KM Multan-Sukkur section of Lahore-Karachi Motorway, 120KM Havelian-Thakot road and Allied infrastructure in Mullah Band area of Gwadar. All these transit projects have some loop-holes in them. Let’s take an example of Lahore Orange Line Metro Train is facing many obstacles because in August last year the civil rights activists who obtained court order halted the construction confronting 11 heritage sights including Shalimar Gardens. Much of opportunities in contracts are exploited by Chinese companies rather than Pakistani ones. In case of Orange Line Metro Train on Jan 6, ECC approved tax exemptions and reductions estimated at $20bn on import of machinery and equipment. This decision was made on the demand of Shahbaz Sharif in fear of escalation of cost and timely completion of this project to $1.8bn.The Chinese contractors also enjoy hefty tax concessions in Multan-Sukkur section of Lahore-Karachi motorway and Havelian-Thakot section. All these steps are taken by Contemporary government to lewd Chinese to complete the projects as soon as possible even before the next year election of 2018.I think Government should adopt cautions behavior by awarding these contracts to Chinese keeping in mind that the people of Pakistan want to complete these projects in thrifty manner not the extra heavy burden on them. I realize that mass transit is the backbone of economy but this should not be at the expense of already poverty stricken citizens of Pakistan. The government should also involve local investors to participate this development because Pakistani government need not to pay heavy concessions to them. Also due to this mega transit system Pakistan would get $3bn in toll collection than compared to other corridors of Panama $2.5bn in toll collection and Suez $3bn.I hope this will alleviate the situation. The benefits of CPEC cannot be counted without taking consideration into hostile elements.
. Baloch insurgency is one of the contemporary threats to state. BLA (Baloch liberation Army) of which Dr Allah a bright and middle class student was founder and started to lead the youthful insurgents in 2006.These insurgents are perched into the mountains of punjgar, turbat, kharan and other Gwadar. These are backed by the leaders residing in plush western countries. Likewise Khan of Kalat Mir Suleman Ahmedzai is trying to subvert the CPEC and leaning towards India and presenting India as a friend of Pakistan and China as global hegemon. BLA Hyrbyair Murree creating unrest in Quetta and Bolan Pass area .Have Islamabad taken into account the reconciliation of dissident leaders under the provisions of NAP (national action plan)?Recently a MPC (multi party conference) by BNP-Mengal on Jan 10, 2016 approved some resolutions likewise complete control of Gwadar port mega project, ownership rights to make decisions, to implement unanimous resolution by PM that western routes should be completed first .Government is doing the best it can to appease these leaders but extra steps should be taken to prevent Baloch from becoming minority and basic facilities. Likewise complete ban on issuance of national identity card to new settlers in Gwadar, facilities of clean drinking water, hospitals, schools ,technical colleges and marine universities, locals should give priority in appointments to mega projects, alternative means of fishing should be provided and provide locals freedom of movement.
Religious militancy and extremist Islamic movement in western reaches of People’s Republic where majority are Muslims and Pakistan also prone to this perception of extremism since Zia-ul-Haq era. This situation has deteriorated the situation on both sides of border and specially Pakistan paid a heavy price of this religious dogma. Chinese has raised concerns over this situation to both military and civilian leadership and they heard the sympathetic ears. Pakistan is trying to curb the militancy and sectarianism through different organized operations like Zarb-e-Azb and Rad-u-fasad. Are we inviting trap like another East India company?
Senators in upper house showed reservations that it might be another colonial influence over Pakistan. Senator Tahir Mashadi, chairman of senate standing committee on planning and development said that another East India company is offing, national interest are not being protected. What should we conclude from this reservation?. Actually a factor of force was involved in East India Company which is not the case here. East India Company gradually shed its influence in governance like Judiciary, Education, Land revenue and maintaining armed forces. All this is not happening here because we gave them Gwadar on lease and entire project is on debt servicing and profit repatriation. If we could not use this mega project effectively then it will have no effect in life of an ordinary citizen.
Underutilization is one of the undermined phenomenon by the Government of Pakistan. We cannot reap its benefits until we work on certain ignored aspects of it. Skilled labor scarcity is one of the most important side of it. Lack of skilled labor in Pakistan will provide opportunities to Chinese to replace them and Pakistani labor left deprived and in very bad situation. Not only lack of capacity in terms of labor but also in terms of capacity building. According to an estimate some 100,000 trucks would be required for the transport of goods and services between China and Pakistan. If our government will not work in this sector then the prices of truck would rise because we have to import trucks for the uplift of this sector. In Pakistan most of the industries are producing limited goods and services because of the many limitations including Electricity, no subsidies and scarcity of incentives given to company owners. The requirement of huge amount of goods and service required under CPEC would be a herculean task to full fill for Pakistani industry. The discussed situation would only be overcome if Vocational training centers are set up. There should be stipulation of Pakistani labor in industrial joints. The working conditions of labor should be improved in industries and they should be provided with insurance benefit. It is the first and foremost duty of government to provide uninterrupted supply of electricity and gas, rationalizing tax and easing regulations, certain sectors should be focused like textile sector. Will all this could be compromise on our soverginity and cultural values?
According to contract in CPEC there would be no-stop surveillance of 24 cities of Pakistan to avoid street crimes. Are Chinese keep these footages in their custody?. This is question mark on our sovereignty. As well as visa discrimination that the Chinese would require no Visa to come to Pakistan while Pakistanis need visa to travel to China. Chinese demand of Coastal enjoyment industry (including spas, pubs, dance clubs etc.) could cause our indigenous colors to fade. All these are unspoken questions which the government should answer.
India our 70 years long enemy and neighbor is not digesting the progress Pakistan is about to make by integrating with Chinese. Since the beginning India tried to destabilize the Pakistan so it cannot survive. India is inciting separatism through Baloch insurgents in the area which is the center point of CPEC. This is evident now because Uzair Baloch the separatist leader in Karachi and Balochistan openly admitted that he took funds from detainee Kulbushan Yadhev an Indian raw agent in Sistan province of Iran adjacent to Balochistan .Indian leader ship is trying to incite violence in GB (Gilgit Baltistan), Azad Kashmir. Recently prime minister Nareindar Modi expressed in his speech that the people for Gilgit Baltistan have sent letters to me. They congratulated me. India is fuelling religious militancy along the Durand line through raw agents. As a Pakistani we should not intimidate from this conniving of India because we have strongest armed forces and it’s not the first time India always tried to sabotage Pakistan.

In this ruthless and competitive world CPEC is a ray of hope for boost in Pakistan’s economy and infrastructure. It is true that Pakistan carries a historical baggage of debt and support from different NGO’s, IGO’s and western countries and yet Pakistan could not transform its fate. But now the era has changed Pakistan is towards gradual growth in reforming its Democracy and political and economic policies, now establishment is not interested in derailing democracy. It is the dire need of Pakistan to welcome this integration with open arms and Pakistan has no other choice. This may cause regional rivalry among many nations like India and Pakistan to maintain their balance of power. It is evident that India will get equal benefit from it. Pakistan established a Special Security Force for the protection of CPEC. The fear that China wants hegemony is merely skeptical because China only want to maintain the momentum of growth by securing shipping lines, to use underutilized machinery and as good will with neighbors. China is a time tested friend of ours it supported us and provided an umbrella in many forums of the world. So, we should formulate coherent, effective and careful policies on our end and should be optimistic about the fate of CPEC.