This week China and Pakistan reaffirmed their commitment to the multi-billion-dollar China-Pakistan Economic Corridor (CPEC), with Beijing reportedly agreeing to take a closer look at some of the agreements finalized by the Nawaz Sharif-led Pakistan Muslim League (Nawaz) government.
Their statement came in response to an article in the Financial Times, which quoted an interview with Abdul Razak Dawood, the adviser to the Pakistan prime minister on commerce, textile, industry, and investment. Taking his cue from Malaysia, Dawood had hinted that the Pakistani government would revisit some CPEC agreements. The paper had quoted him saying that the CPEC operation would be put on hold for a year or two, and that during this period its terms and conditions would be renegotiated.
Dawood reportedly said the tenure of the project would be extended for a further five years to ease pressure on dwindling foreign exchange resources. He accused the former Sharif government of not negotiating conscientiously, by giving Chinese companies unprecedented tax breaks.
On Monday, Dawood claimed the newspaper had quoted him out of context and that parts of his interview were irrelevant. But with sentiments regarding CPEC running high, Dawood’s clarification failed to pacify the opposition parties.
“How can a Commerce minister decide the fate of CPEC project, which is a game-changer for the Pakistan economy? The sovereign agreements between the two countries are binding on the government to follow,” Pakistan Muslim League-Nawaz (PML-N) Senator Mushahidullah Khan told Asia Times. He claimed such decisions could not be made by the cabinet and that Parliament was the right forum to discuss the issue. The PML(N), he maintained, would take a tough stand on changes proposed for the CPEC.
Chinese Foreign Minister Wang Yi, who was in Islamabad on a three-day visit last week, held meetings with Prime Minister Imran Khan, Army Chief Gen Qamar Javed Bajwa and Foreign Minister Shah Mahmood Qureshi. Sources in the Pakistan Foreign Office said the Chinese side was anxious to know what Islamabad was going to do with the $62 billion worth of infrastructure development projects launched under Belt and Road Initiative (BRI). They said the Pakistani side emphasized transparency, continuity, and efficiency, and assured China that the CPEC would be the new government’s top priority.
The ruling Pakistan Tehreek-e-Insaf (PTI) party, which assumed power just last month, has often voiced suspicion of corruption and malpractice in the adoption of the CPEC by the former government. Last month, Finance Minister Asad Umar had said that “opaque terms” of the agreements would be laid before Parliament, as they did not contain confidential information.
PTI leaders also allege that the former government, and even their Chinese counterparts, did not do their homework diligently and concluded the agreements indiscreetly without deliberating on their viability and cost-effectiveness.
PTI Senator Nauman Wazir said: “90% of the load carried on the 2,700km long Gwadar-Kashgar Motorway will be Chinese cargo goods, while Pakistan will derive no direct benefit from this huge infrastructure project.” The former government had agreed to Chinese loans at 20 to 23% interest, along with an insurance cost for the project, he said, adding that revenue generated from the project was not quantified in any of the documents.
“I suggested that 5% of the invoice value of cargo be collected on Gwadar-Kashgar Motorway. I am not sure anyone negotiated this percentage with the Chinese side,” he said. Wazir said a 10-year projection of cashflow from the project was necessary to evaluate whether the revenue from it would meet its cost. This assessment, he said, was nowhere on record.
Wazir pointed out that from Kashgar to Havellian, a two-lane road was built, but the motorway changed to four-lanes from Baseema onwards. This was inexplicable, he said, as a four-lane road was needed at that bottleneck. “No study was carried out to ascertain the load of traffic and capacity of the road. It is the most hopeless mega-project, in which a reliable database is neither available in Pakistan nor in China.”
The ruling party’s concerns about malpractice in mega projects hold water. Last year, Senator Wazir asked the Senate Standing Committee on Communications to probe irregularities in the contract for the 392km Multan-Sukkur motorway. He alleged the deal was awarded on inflated rates, causing the exchequer a loss of more than US$1.1 billion. Similarly, last November, China put two road projects on hold in troubled Baluchistan province and another in Gilgit-Baltistan with an estimated cost of $8.1 billion, due to corruption and malpractice.
The general perception is that CPEC was shaped by disproportionate benefits to local manufacturers and a bulging debt burden that upset the country’s balance of payments. “We will revisit the whole spectrum of the CPEC to make certain that the terms on which it was negotiated do not harm the interest of the country,” PTI Senator Mohsin Aziz said. CPEC-related agreements needed to be examined to bring transparency to the financial deals, he said.
A highly-placed source in the Finance Ministry said the Imran Khan government wanted to re-evaluate some of the CPEC deals but due to acute economic problems, it could not pull out from the costly projects the way Malaysia did. “We need approximately $10 to 12 billion by mid-December to fulfill international commitments and bridge the fiscal deficit,” he said. But he claimed that the government initiative to collect funds from expatriate Pakistanis for construction of dams would help build the country’s foreign exchange reserves.
Meanwhile, Muhammad Ishaq, a leading importer and one-time director of the Khyber Pakhtunkhwa Board of Investment & Trade told Asia Times: “CPEC will soon be like Atlas’ burden for Pakistan to carry.” China would get the lion’s share of benefit, he said, as the former government had agreed to a one-sided deal and the economy was on the verge of collapse.
“The hefty share in revenue from the port [of Gwadar] and [tax-]free economic zone is not the only issue which will deal a severe blow to the economy. The government also allowed contractors and sub-contractors associated with China Overseas Port Holding Company an exemption from income and sales taxes, and federal excise duties, for a period of 20 years, besides a 40-year tax holiday granted for imports of equipment, material, plant, appliances, and accessories for the port and special economic zone,” he said.
The massive Belt and Road Initiative has run into trouble all across Asia, with Malaysia, Sri Lanka and Myanmar also feeling the pinch from the often onerous terms in projects under the scheme. Sri Lanka was unable to repay Chinese loans related to the Hambantota port and forced to give control of the port to China in an equity swap. Colombo allocates a large share of its revenue to service debts while China has won a strategic presence in the Indian Ocean. Some critics have called this “debt entrapment”.
Last month Prime Minister Mahathir Mohamad flew to Beijing to discuss Malaysia’s withdrawal from $23 billion worth of infrastructure projects including the East Coast Rail Link and the Trans-Sabah Gas Pipeline. These were also part of the Belt and Road scheme. Mahathir said his country could not afford the loans agreed to by his predecessor Najib and must minimize its debts.
Now, Pakistan faces an even bigger challenge.