At the China Pakistan Economic Corridor (CPEC) performance review meeting called this week by the National Assembly Standing Committee on Planning, Development and Special Initiative, it was stated that a total of 38 projects worth over USD 25 billion have been completed, whereas, 23 development projects at cost of USD 2.1 billion are currently under implementation in various sectors under the framework of China-Pakistan Economic Corridor (CPEC).
The completed projects include 17 projects in energy sectors at a cost of USD 18 billion, seven projects in infrastructure sectors, five projects pertain to Gwadar, and nine projects are related to socio-economic development. The funds for the projects were provided by the EXIM Bank of China under a well-defined payback mechanism.
Although it is important to be informed about the projects completed and the funds deployed on them, the priorities of the nation extend beyond knowing only these numbers. It wants transparency and seeks to know what benefits such high costs to the exchequer have brought to the economy and the people of Pakistan.
Understandably, such a large loan exposure, in so short a time, was undertaken by the government of Pakistan and granted by the government of China under the proviso that the deployment of funds would result in the exponential growth of Pakistan’s economy by providing the country with abundance of affordable energy and an infrastructure to support the logistics of the country towards better business outreach.
This did not happen, and instead the nation got itself stuck in a debt trap. Moreover, it has to acquiesce to the dictates and macro management of its fiscal and economic discipline by the IMF (International Monetary Fund). How could this happen? A short answer could be the adoption of ad hoc and aimless economic priorities by the economic managers of the country, resulting in much waste of the good money.
This brings into question the feasibility of the projects on which the funds were deployed, the business model of revenue generation and the loans payback mechanism adopted.
Let us start with the energy sector, on which the bulk of funding of USD 18 billion is reported to have been deployed. In question are the imported coal-based four power plants of a total capacity of 4300 MW installed at a cost of USD 6.2 billion. Furthermore, USD 990 million was deployed at Thar to generate 990 MW of power. Moving from fossil fuel to coal is by no means a cost-effective and a sustainable option.
At the recent environment global warming conference at Baku, twenty-five countries at the COP29 climate summit have pledged not to build any new unabated coal-power plants, in a push to accelerate the phase-out of the highly polluting fossil fuel.
Moreover, USD 1.4 billion was deployed to generate 400 MW of solar power and 300 MW of wind power. What impact, if any, this green energy mix is having on the grid not in public knowledge as yet. Of interest and perhaps benefit is power generation of two hydropower plants of 720 MW and 884 MW installed at a total cost of USD 3.7 billion.
The installation of HVDC 660 KV transmission line at a cost of USD 1.7 billion is a long-term strategic investment. Its payback will be derived from electricity wheeling tariffs, which is missing in the electricity regime of the country.
The government did succeed in enhancing the power generation capacity by around 7500 MW but at an unaffordable tariff. Much of this capacity is lying unutilised as there are no takers and the investment did not support the economic growth of the country.
The CPEC investment of USD 1.6 in Orange mass transit system at Lahore, USD 2 billion in road network and USD 300 million at Gwadar free port and free zone are long-term strategic investments and the government must have deep pockets to sustain its payback. The dire economic situation does not support this investment.
Also, the under-progress project of Gwadar airport at a cost of USD 230 million and road network in Balochistan at a cost of around USD 500 million are also long-term payback projects, requiring deep pockets to sustain them.
Special Economic Zones constitute another important sector under CPEC. Last week, the Federal Minister for Planning, Development and Special Initiatives stressed the urgency of enhancing government-to-government (G2G) collaboration with China and directed the concerned authority for immediate identification of land for proposed Special Economic Zones (SEZs) and called for a detailed evaluation of the existing facilities in these areas.
A high-level meeting was held this week to review the identification of locations for model Special Economic Zones (SEZs) and the policy framework for relocating Chinese industries to Pakistan.
The possibility of relocating Chinese industries to Pakistan appears to be still in its initial planning stage, and not much is expected out of it in the foreseeable future.
CPEC projects could have significantly contributed to the economic growth and fiscal sustainability of the country if the priorities had been set right based on a feasible business models, which guaranteed revenue generation with the ability to retire loans and profitability as is the prerequisite in any business model, more so if it has loan liabilities.
Copyright Business Recorder, 2024