Recent interactions with Chinese stakeholders in Pakistan and Beijing lead to one unambiguous conclusion; the state of relations is not good. Multiple factors including a mismatch between Chinese expectations and Pakistan’s dithering actions on the ground have contributed to the relative unease in the ties, it seems.
This slowdown began with pressure on Chinese power companies to cut the tariffs for CPEC power projects – Port Qasim, Sahiwal, Hubco which have been run at mutually agreed 8 cents/per unit since 2016.
Government officials in fact were using revised tariffs (from 13 to 10 cents) which were negotiated with local companies but that was possible because these plants had already recovered their capital cost and had been receiving undue favors even after over ten years of operations.
Even President Alvi reportedly took up the issue with President Xi that displeased the Chinese leadership. Alvi requested a review of tariffs during his March 2020 meeting in Beijing, saying our economy not good and power tariffs are not favorable.
How can you force the investors to review contracts after signing them years ago? Which foreign investor will come if the state doesn’t stick to its contractual obligations, asked a Chinese business executive.
The government’s attempt to force Chinese companies into the revision of tariff also delayed the Gwadar Power Plant because the Chinese company refused to begin construction unless the government honored the agreement signed in November 2019 i.e. 7.5 cents per unit.
The CEO of the company, who was supposed to steer the Gwadar Power Plant, was called back to China and told to wait. He may be returning now that the government finally dropped its insistence.
The tardy and multi-layered system of approvals, center-province discord and reprioritization of priorities by the Pakistani leadership is another contributor to the unease in relations.
Former ambassador Yao Jing tried his best to accelerate the pace of CPEC-related approvals and execution in Pakistan but failed and hence did not get the promotion within the foreign ministry that ambassadors usually get after serving at an important posting such as Pakistan. Probably the bosses in Beijing concluded that Yao Jing failed to comprehend how Pakistan works, opined a Chinese friend.
Rashakai Economic Zone, for example, may be coming about but is delayed by nearly two years – something totally out of step with the Chinese model of speedy and relentless action once the decision has been taken.
The legal framework for the Gwadar Port and Industrial Zone was fully resolved only recently, over five years after CPEC was born.
Another source of disappointment is the snail-paced movement on the railways ML-1 project; no settlement yet between both sides on financing terms i.e. government to government loan – amount, Interest rates, and the repayment period.
Equally upsetting for the Chinese counterparts has been the recent uproar over the fencing issue in Gwadar. How can security officials hope to enhance social support for CPEC endeavors if they don’t take locals into confidence, wondered many?
Imagine the time and lost opportunity cost? A project that should have begun in November 2019, is going into implementation with a loss of nearly 18 months.
Pakistan’s loss of credibility and goodwill erosion is even greater. You don’t do this to a country that has stood by Pakistan through thick and thin, the only country that has invested nearly 30 billion dollars in less than six years.
A direct consequence of this arm-twisting by Pakistani officials is that the Sinosure Insurance company has stopped providing insurance to the Chinese private business in Pakistan since the new government began demanding revision of contracts signed during the Nawaz Sharif government. No bridging loans anymore because of the uncertainty created by government demands.
The China Export Credit & Insurance Corporation (Sinosure) is a state-funded insurance company. Until the end of 2017, the cumulative domestic and foreign trade and investment supported by Sinosure exceeded USD 3.3 trillion.
The Chinese companies meanwhile also declined to complete the Kohala Hydro Project in Kashmir because of the demand for lowering tariffs in the coal-fired plants. Federal ministers to complete it but we have refused because they don’t want to revise contracts.
The high-handed approach towards Chinese power companies obviously disregards the benevolence that Beijing displayed over and above the CPEC framework, which brought several billion dollars worth of investment into Pakistan within a few years.
At a time when Pakistan is submitting to extremely tough conditions for the resumption of the IMF loan, which will entail punishing price impact on people, China has already increased the size of bilateral currency swap to $4.5 billion, used to return the $ 3 billion Saudi loan. China has also rolled over $2.5 billion commercial loans in this fiscal year and also plans to extend $4.4 billion in the next fiscal year, meaning thereby it remains a lifeline to Pakistan’s balance of payment support.
COVID19 no doubt curtailed activity on CPEC projects for a few months but the bigger impediment has been the government’s insistence on the revision of power tariff contracts.
How sad that because of this no CPEC ministerial meeting has taken place since November 2019. COVID19 was one problem but the bigger one is the government’s insistence on the revision of contracts.
Many in Pakistan may spurn this writing as gossip and speculation but let us be clear; our leadership has for too long used the country’s location as the bargaining chip in deals with US and China. This has clearly prevented them from approaches that are absolutely essential as well as unavoidable if they want the country to progress and retain China’s invaluable support. Geo-strategic location is no blank cheque for unqualified external support. The recent Chinese-Iran strategic cooperation deal is perhaps a warning that Beijing is not likely to rely on the nuclear-armed goliath which is hamstrung by the burden of its own inaction, tardy governance system, policy contradictions, and partially delusional romance with its super geostrategic location which meanwhile is more of a liability than advantage.
This article first appeared in Matrix Mag. Click here to go to the original.