Saudis: something like CPEC?

Anticipation was running high when Pakistan’s new premier went to Saudi Arabia for his first official visit (Sep. 18-19). But the Khan entourage didn’t receive the multibillion-dollar ‘gift’ some folks were expecting from the Kingdom. The new federal government has since been eager selling the idea that Saudis mean big business in Pakistan.

On September 20, the day after that sojourn, the top government spokesperson announced that Saudi Arabia had been invited to become a “third strategic partner” in CPEC. Later on, two projects were specifically mentioned: i) an oil refinery at Gwadar – which is the port city chosen by China for CPEC’s crown jewel: Gwadar Port – and ii) the Reko Diq copper and gold mines – which is unrelated to CPEC, besides being under litigation abroad and politically-controversial at home.

A week later, on September 27, the chief spokesperson informed the public that the Saudi government had signed “grant” agreements towards financing of three CPEC-related road and energy projects. Neither the projects were specified, nor was their scale of financing disclosed. And it is still not clear what the nature of those agreements was and which government authorities signed them on either ends.

On October 2, roughly another week later, the government denied that the Saudis would become the “third country” in CPEC framework. Flanked by the same spokesperson who had just a fortnight ago claimed the opposite, the Planning Minister (who also looks after CPEC) categorically stated on TV that “The framework between China and Pakistan is bilateral and Saudi Arabia is not entering that framework as a third-party investor”.

The government has come full circle by denying that the Saudis would have a role in the CPEC framework. Moving the goalpost was inevitable, to make up for lack of clarity and discretion on matters diplomatic and economic. Either it was a serious faux pas on part of the Pakistani government to associate Saudis with CPEC – or the Saudis didn’t or couldn’t seriously pursue a partnership with the Chinese at this stage.

In any case, a sudden Saudi interest in Pakistan’s economy – in the sense of making multibillion-dollar investments in the real sector – should be taken seriously.

The PM’s Saudi trip – which was perhaps an indication to the US (a key Saudi ally) that Islamabad was now looking to re-balance its relationship between US and China – has set things in motion. Earlier this week, a Saudi delegation visited Pakistan on what seemed like an investment reconnaissance mission. With a limited mandate, they reportedly met key ministers and visited project sites.

But it will take more visits– and high-level ones – to look deeper at the identified investment opportunities, fine-tune the financing and operational details, and place the projects in a broader bilateral framework on the lines of CPEC. It is expected that such a framework will be signed by the two countries’ leaderships when the Saudi Crown Prince visits Islamabad in the near future.

There will be no free lunch – but a longer payment horizon for crude oil purchases is apparently in the works. Though the idea to quickly raise a few billions by selling Saudis a couple of power plants has been doing the rounds, it looks impractical. It seems that Greenfield is the way to go. Therefore, even if it doesn’t yield immediate dollar inflows, a Saudi-Pak bilateral economic cooperation framework is still welcome in the long run.

But the government will do well to tread with caution while signing up again for something like CPEC. For one, Pakistan must negotiate better this time, having (hopefully) learned something from its CPEC experience in recent years. Besides infrastructure project financing, Pakistan can also seek Saudi help in facilitating its labour exports to the Kingdom in the face of competition from other South Asian rivals. If the religious/cultural ties between the two countries are as strong as so often claimed, driving a hard bargain shouldn’t hurt the friendship too much.

And two, Pakistan must be careful not to get caught in the middle of the crossfire that is Saudi-Iran rivalry. One of the two identified projects thus far is a massive oil refinery and crude-oil storage facility astride Gwadar port, which is just 76 nautical miles off Iran’s Chabahar port. As the two bitter rivals are embroiled in proxy warfare in the Middle East, Iran may construe this Saudi investment as building outposts to encircle Iran closer to home. China may also dislike disruption around its crown investment in Gwadar.

Harsh reality is that Pakistan badly needs FDI; the Saudis look willing and able to help; the sky is falling on Iran; and the Trump administration has to be appeased so that Pakistan can find breathing space at multilateral forums like FATF and IMF. If Pakistan has learnt nothing from its past economic management and regional alignments, it’s not so difficult to see which way the chips may fall in the end. But if it plays its cards right, Pakistan can become the center of regional connectivity instead of regional conspiracies.