No reforms, no Chinese investment

ISLAMABAD: Investment is “the action or process of investing money for profit”. President Xi Jinping, the President of the People’s Republic of China, the General Secretary of the Communist Party of China and the Chairman of the Central Military Commission, is not here to throw away $45 billion of hard-earned Chinese dollars. President Xi is here to invest — to invest in order to profit.
For the record, the power sector circular debt stands at a colossal Rs540 billion. What that means is that our power sector is in a mess. What that means is that power sector investors are owed hundreds of billions of rupees. What that means is that the Government of Pakistan is failing to meet its financial commitments to power sector investors.
In 2011, four Independent Power Producers (IPPs) called in sovereign guarantees for the recovery of Rs10 billion. In 2012, the Government of Pakistan defaulted on payments of Rs45 billion to nine IPPs that generate 1,700MW. In 2012, IPPs issued a legal notice to the Government of Pakistan for the recovery of their dues. In 2012, IPPs threatened to call in sovereign guarantees.
In 2013, the newly-elected PML-N government paid off Rs480 billion worth of circular debt (claiming that the PML-N has now buried the issue of circular debt for good). In 2015, according to IMF’s 6th Review, the circular debt has shot up to Rs540 billion.
In August 2013, the Gadani Energy Park — 10 coal power plants with a total capacity of 6,600 MW — was announced with much fanfare. It was claimed that the Chinese would provide financial as well as technical assistance.
On February 4, 2015 the Ministry of Water and Power, in a testimony before the National Assembly’s Standing Committee on Planning and Development, disclosed that the Gandani Energy Park had been “put on the backburner”. By March, it had become clear that the entire project had been shelved — shelved because the Government of Pakistan failed to provide guarantees for a profit to Chinese investors.
For the record, over the past 50 years, China’s foreign direct investment in Pakistan has averaged around $100 million a year. If history is any guide, then Pakistan will take around 450 years to absorb the new MOUs being valued at $45 billion.
Over the past decade, the government of Bangladesh has also signed multi-billion dollar energy sector MOUs with China. And almost all those MOUs have been gathering dust because Bangladesh failed to reform.
To be sure, reforms and foreign direct investment are directly related — cannot attract foreign direct investment without reforms. We must dissect politics from economics. It is being claimed that 80 percent of the Chinese investment will be in the power sector.
Make no mistake, in the absence of wholesale power sector reforms, China investing a wholesome $34 billion shall remain a political statement.Make no mistake, reforms must come first, foreign direct investment will follow. Make no mistake, our power sector mess is getting messier. No reforms, no investment.