Money Matters

Game changer

April 27, 2015
By Magazine Desk

Now when China has gone out of the way to further substantially strengthen the existing bilateral economic, diplomatic, political and military ties with Pakistan,

Now when China has gone out of the way to further substantially strengthen the existing bilateral economic, diplomatic, political and military ties with Pakistan, it is Islamabad’s turn to prove its metal by adopting reforms, transparency, and good governance to absorb $46 billion unprecedented Chinese investment in the country.

Cynicism apart, the multibillion Chinese investment plan, compared to just $5 billion US investment made during 2009-2015, speaks volumes about the commitment of the Chinese leadership towards Pakistan and its 180 million people.

Various news reports, analyses and articles appeared in the local and foreign media particularly in the BBC, Wall Street Journal, New York Times and the Times of India amply talking about the increasing cooperation between Pakistan and China. They also acknowledge that the visit of Chinese President Xi Jinping is a “game changer” and will go a long way in further cementing trade and military collaboration between the two countries.

Last year, the Chinese president’s planned visit to Pakistan was cancelled when he was to come from Sri Lanka and then later go to India. It was a three-nation trip over which the Indian media made a lot of hue and cry by demanding that since India was a bigger country, Chinese president should have visited India exclusively.

But this time around, the Chinese president made an exclusive trip to Pakistan and pledged to invest $46 billion compared to only 20 billion of such investment in India, which was announced at the time of his visit to New Delhi last year, though projections worth $100 billion were made. It saddened the Indian political leadership and media then and now again when the Chinese president toured Islamabad last week, creating a history of bilateral collaboration in every field- from nuclear cooperation to defence, trade, investment, economy, and terrorism.

The good thing was the much delayed $1 billion worth of military equipments, particularly helicopters, announced by the US government during the visit of the Chinese president to Pakistan. According to insiders, Obama administration realises that if US hesitates, China would fill the vacuum. So they [the US] need to continuously support Pakistan - a major South Asian player with influence in Afghanistan, barring which, Uncle Sam cannot have active access to Central Asia.

The Chinese president talked about Pak-China relations in his speech in the parliament, calling Pakistan an enduring friend included in the larger regional “One Belt One Road” network, where Islamabad would act as a bridge between the New Silk Road for Eurasian connectivity and a Maritime Silk Road between ASEAN countries.   

Nonetheless concerns are being expressed by the opponents of the government and the critics for allegedly changing the original route of the China-Pakistan Economic Corridor (CPEC) project to unduly benefit Punjab.    

Regrettably, the Planning Division has not completed its homework to finalise the route, and denies it modified the route to accommodate Punjab. As soon as the Chinese president left, politicians have started criticising the government for changing the original route of the massive CPEC project which is a planned network of roads, railways and energy projects linking southwest Pakistan’s deepwater Gwadar Port with northwest China’s Xinjiang Uighur autonomous region. The signing ceremony witnessed by the nation includes 51 memorandums of understandings (MoUs) and projects worth $46 billion in various sectors, including energy, infrastructure, security, and economic development. It includes $34 billion investment in energy projects, $12 billion in infrastructure and $15.5 billion in coal, wind, solar, and hydroelectric projects. Energy projects with capacity close to 9,000MW are to be completed by 2018 – the election year and could greatly benefit the ruling PML-N government, provided the development work continues in the right direction.

It is certainly encouraging to note that the government plans to provide comprehensive security to the Chinese investors and the related development projects. For that to happen, a “Special Security Division” would be raised for protecting the joint projects and the Chinese workers. The importance of this force could be gauged from the fact that it will be headed by a two-star General who will directly be reporting to the General Headquarters (GHQ). The move surely deals with the chronic security problem particularly in Balochistan from where the 3,000 kilometres corridor would emanate. The province is faced with militancy, separatism, political volatility, mounting corruption, and gross inefficiency. Creating the army division for the safety of Chinese investors and workers will be a challenge, but it shows the political and military leaderships’ resolve to make the trade corridor a success story.

Many believe unless the government reviews its policy in troubled Balochistan, things would not improve and that something out of the box will have to be thought to quell the insurgency in the region. Others believe enough is enough and that time has come for the state to establish its writ by eliminating all insurgents and their foreign agents, including Indians.

Besides the security challenge, there also exist other challenges that need to be addressed by the government to translate the MoUs into hard agreements by ensuring fast track implementation. Chinese are said to have complained of the weak implementation process coupled with undue delays. This has marred the Chinese assisted development projects in the past. Now, the government will have to cover this aspect vigorously to largely benefit the people of Pakistan in terms of increased employment opportunities and the transfer of technology from China, to ultimately have a better GDP growth rate.

It is also often said that dozens of MoUs were earlier signed by the previous PPP government with China, but most of them were not converted into hard projects. Former president Asif Ali Zardari visited China at least seven or eight times, but nothing significant happened in terms of luring Chinese investment, though his critics do allege that he personally benefitted from these visits because he was pursuing his own business interests.

It is in that backdrop, experts are urging the government to live up to its side of the bargain which means not only to promote stability but also ensure continuity, reforms and transparency without which no real development and progress could take place. There is no doubt the mood and body language of the Chinese president was heartening to further promote Pak-China friendship.

Since Pakistan is experiencing acute energy shortages, $34 billion investment, out of $46 billion, is being made in the energy sector and in this regard power sector issues have to be seriously taken into account by the government. One of the major hurdles, which continues to haunt the government, is the circular debt which according to some experts has reached an all time high of Rs540 billion. The government had initially removed this circular debt amounting to Rs480 billion immediately after coming into power in 2013. However, this debt continues to surge and according to the government’s books it today stands at close to Rs270 billion. Why people claim it is now Rs540 billion, is a question that needs to be answered by the concerned officials including both the federal and state minister of water and power.

There is no doubt that that the increasing circular debt is due to failure in meeting government’s commitment to the Independent Power Producers (IPPs) who are calling in sovereign guarantees for the recovery of their dues.

Then what went wrong to set up the much talked about ten power plants to generate 6,600MW of electricity in the proposed Gadani Energy Park is also intriguing. The project is believed to have been shelved, some say put on backburner, because the government failed to provide profit guarantees to the Chinese investors.

This seeks honest pondering of the issue and calls for initiating power sector reforms if at all the power sector vows are to be removed and foreign direct investment (FDI) attracted. The FDI has plunged to $300-400 million annually compared to $5.5 billion in 2007-08.

There is another important issue which if not resolved could jeopardise the entire new power generation plan, and this relates to the crumbling and decaying infrastructure.  Fears are being expressed that the existing system cannot take new power load, particularly its old and fragile transmission lines through which newly generated electricity would have to be added in the national grid system. The government claims ever since it came into power it added roughly 2,000MW electricity in the system.

The buzzword is power sector governance which has to be improved if desired results of providing adequate power and gas to the industry, commercial and the domestic consumers are to be achieved.

The installed capacity is close to 21,000MW while the demand is 15,000MW. Surely, the new MoUs and projects could not only remove the current shortfall, but also help manage additional power for the benefit of the industry and domestic consumers.

Former chairman Wapda, Lt Gen Zulfikar Ali Khan said that electricity shortfalls could well be managed, provided the government and Wapda improve their governance. Managing director of PEPCO Rasool Khan Mehsood did not believe that power crisis could be handled before 2020. In his opinion, the government should tell the nation point blank that there is no shortcut and people will have to endure more pressing years.

Another sad fact is that successive governments failed to curb power theft, and transmission and distribution losses which are still more than 30 percent. Many officials concede that if these losses are curtailed pressure on the system can be lowered significantly.

Nevertheless, Chinese investment in the power sector is a test case for the PML-N government in terms of ensuring transparency and sorting out governance related issues. It is high time not to embarrass the Chinese leadership and carry out the job honestly and efficiently by our side to make Pakistan an Asian Tiger.

The writer is a senior journalist based in Islamabad