EDITORIAL: The governments of Pakistan and China celebrated the 10th Anniversary of the CPEC (China Pakistan Economic Corridor) in a big way recently. There is no doubt that the Chinese lent a helping hand when Pakistan needed to develop critical infrastructure — roads, energy security, etc. Unfortunately, however, this South Asian country is still finding it extremely difficult to attract attention of global investors and financiers. Therefore, the situation gives birth to a question whether or not the ten years of CPEC constitute a real success story.
When CPEC was envisaged in 2013, the summer power load-shedding was for 12-14 hours in urban Punjab. Production reliance was higher on dirtier and imported fuels (such as furnace oil and diesel) and the efficiency of the power plants was low and the industry was largely relying on captive power generation. Some of the projects (such as nuclear -K2/K3), which are of long gestation, were already in the process. The government came with way too many power projects under the CPEC umbrella in too short a period of time. These projects have surely resolved the energy production and generation capacity deficiency issues but not without a cost.
The country had drawn no lessons from the power policies of 1994 and 2002. In both cases, too many projects in too little time created a supply glut in the short term, while all those projects being on ‘take or pay’ at very high returns in dollar terms created a dangerous circular debt problem. Under the CPEC, both the quantum of projects and their returns were higher than those established under the previous two polices, and invariably all of them are on ‘take or pay’basis. And one should not be surprised to see the growth of circular debt in the last few years, particularly when the power consumption is not increasing proportionately.
The one rationale for having a higher number of power projects was to meet the demand from industries to be developed and relocated from China, and for that Special Economic Zones (SEZs) were a critical component of the CPEC. The idea was to learn from the success of economic zones in China, which are an integral part of this Asian country’s steep and consistent economic growth in the past few decades.
However, SEZs are a complete flop in Pakistan to-date. These zones have become a real estate play which is against the spirit of industrial development. The relaxation in taxation and removal of regulatory burdens, which are part of the SEZ Act, are not implemented in letter and spirit. Sixty percent of SEZ land in Pakistan is still unoccupied after 11 years of passage of the SEZ Act 2012. Chinese businesses are still keen to relocate to Pakistan but only if the taxation and regulatory issues are sorted out to their satisfaction.
The Pakistan authorities and stakeholders should take stock of the situation, learn from their mistakes and work on improving or enhancing the efficacy of the CPEC. No Opposition party or parties should criticize the CPEC for the sake of it like what PTI (Pakistan Tehreek-e-Insaf) did; and when this party came to power, the Chinese were initially quite disturbed by statements of some in Imran Khan-led government. The other element is to think holistically. One is to develop SEZs in a real sense to promote industrialisation. The other is to improve the power transmission and distribution network to have full utility of installed power plants and do away with ‘take or pay’ challenge in future. The third is about the required working on railways and Gwadar Port, which are perhaps the core interest of the Chinese in the CPEC.
After the passage of 10 years, many gaps still remain. The second decade of CPEC must prove more fruitful insofar as Pakistan’s economic development or progress is concerned.
Copyright Business Recorder, 2023
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