Priorities for CPEC

The Joint Co-ordination Committee (JCC) has recently completed its deliberations in China with Pakistan side being headed by the Minister of Planning, Ahsan Iqbal. New projects have been approved, mostly on roads, railways and industrial estates. Power projects appear to be less in number. There is already a glut of 10,000 MW. Every province will have one industrial estate, and one railway-based mass transit scheme. There is a long list of miscellaneous provincial schemes, which many find slightly out of place in a large framework, such as that of CPEC. The government has the job of meeting national objectives and satisfying the provinces. It is a good omen, however, the Chinese have not been discouraged by the experience and have come with more. In this article, we would draw attention to some issues that merit some consideration for prioritisation in the CPEC framework.

This time there have been more consultations with the provinces - each proposing their own schemes and projects. Normally such approvals are, in-principle, to be finally decided upon the outcomes of feasibility studies. While the financiers always give importance to the returns of the project, the recipients are not usually very sensitive on this. However, the provinces should not insist on unviable projects and should give importance to the financial viability as after all, it is they who would have to pay, unlike earlier CPEC projects of federal content and nature. For the time being, the provinces appear to be happy as shown by the statements of Khyber Pakhtunkhwa Chief Minister in Beijing.
A matter of concern is the projected debt servicing liabilities and the bill for imported fuel. A 1,000 MW power plant would generate debt payments of $500 million per year, to be paid in foreign currency. For 10,000 MW, it would be $6 billion per year. In the initial years, this amount may be 30 percent more due to higher interest. This would certainly put a lot of strain on Pakistan's balance-of payment capabilities, unless exports are raised. The projected export increase prospects do not appear to be very high. It may be a good idea to create export projects meant for China. One of such possibility is export of minerals, particularly of copper. Some enthusiasts have raised unrealistic optimism for self development and revival of the Reko Diq project, little realising it requires several billion dollars of investment, technology, management skills and a marketing network. Otherwise artisan mining with an axe and spade is being done for centuries and with power shovel now, everybody thinks he can mine anything. Local coal resources have been destroyed by bad practices of local miners.

A copper project of Reko Diq's size can generate exports of more than one billion dollars, thus supporting foreign exchange requirements of two coal power plants (2x1000 MW). The legal situation does not appear to be clear. Some negotiations have reportedly taken place in the past with the original promoters who may have a claim of sorts. There are other large copper deposits in Chaghi which may be free of legal complications, where Chinese investment could be invited and should be invited soon. Precious time should not be wasted waiting for revival of Reko Diq. Resources lose value over time as technologies change: coal is getting out of fashion while the usage of other metallic minerals has gone down. Resource companies and countries hasten to exploit their reserves, as one sees in the case of oil. The time for copper exploitation is now .

Prior to CPEC, Chinese interest in Balochistan had waned away due to the law and order problem. Now with the CPEC framework and the Gwadar port activities, there is a renewed interest. China will be interested now, especially, in the context of repayment of their invested capital in other projects. In fact, with the integration of transport infrastructure, even mineral sector of Khyber Pakhtunkhwa has become attractive for China.

Local industry has suffered, power projects for understandable reasons. It takes usually more time to get components manufactured in Pakistan. However, with the completion of 10,000MW projects, the emergency would be over and in the new projects, some delayed delivery by local manufacturers can be tolerated or absorbed in the overall schedule. Conversations with the Chinese have revealed that China is aware of the issue and that they want to assist in industrialisation and development of local technological infrastructure in Pakistan. China has done it earlier too through major technology ventures such as HMC -HFF, railway carriage and locomotive factory and nuclear power. Pakistan has suffered due to the emergence of a number of factors such as the new trade order and a naïve enthusiasm for private sector investment is in high-tech industries. The latter has not happened. There have been no takers for projects on prioritisation list. Those who took over later closed down factories and sold the land. Pakistan Steel has been destroyed in the process of privatisation. More or less, same has happened to HMC and HEC and others.

Countries like Iran, Turkey, Indonesia and Egypt have developed significant power plant equipment manufacturing capabilities within their countries. In Pakistan, lack of demand could have been cited as a reason for not developing our own equipment manufacturing industry but this isn't true anymore.
Water conservation and efficiency projects should receive priority. Pakistan is already a water-stressed country. An evidence of the problem is visible these days. If sufficient attention is not given, we may be facing a similar crisis as we have faced in case of electricity. Pakistan has practically one water storage dam of a significant capacity, Tarbela, the capacity of which is being continuously reduced. Bhasha dam has been inaugurated several times over in the last decade or more but it continues to suffer from international politics. The only possibility of the project's implementation appears to be through China. Time, resources and opportunities should not be squandered away. The present government has taken serious interest in Bhasha as Rs 100 billion have been spent in land acquisition - usually a long process. Bhasha is ready to be implemented. Proposals for financing Bhasha under local financing have been forwarded, which appear to be too optimistic. We should set our priorities right and put Bhasha on a higher priority than it appears to be at present. It would be highly unfortunate that we delay Bhasha to the point, where China announces their budget for investment in Pakistan is over.

Another very important issue is of the project costing or pricing. By definition, Chinese projects are single-bid, meaning that there is no competition: one vendor or contractor almost dictates the price. It is important that there is a third-party review by expert and consultants from third countries. If the Planning Commission rules are implemented, a solution already exists. A feasibility study has to be done for large projects. Thus if feasibility studies are awarded to third-country consultants, the requirement may be adequately met. Also , there is a need for appointment of international consultants in project supervision to make sure that the projects are implemented as per standards and specifications .In power projects, NEPRA has to show vigilance and spend money in hiring international consultants .The practice of appointing committees of senior officials for adjudicating prices of large projects should be done away with. At the very least, such committees should have the benefit of third-party advice. This would smoothen the negotiating process which is often difficult.

(The writer is a former member of the Planning Commission)