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Pak-Saudi-China ties-CPEC: Six editorials, Oct 2-3, 2018

1.On with the handbrake ; edit in The Express Tribune, October 3rd, 2018
The China-Pakistan Economic Corridor project (CPEC) is not having a good week. Austerity is the watchword de jour and it goes far beyond the sell-off of a few buffaloes. The upgrading of the national railway system is a core component of CPEC and it has been announced that CPEC investment in railway projects has been slashed to $6.2 billion and there is likely to be close scrutiny of other infrastructure and power projects which were initiated by the previous government. The underlying issue is not so much the necessity or viability of the projects all of which are worthy in varying degrees, but the cost of servicing the debt that has been taken out to do the work that makes the project reality.

On top of this is a growing unease about the lack of transparency associated with CPEC. This has now been picked up by the Senate that has expressed its displeasure at the government offering Saudi Arabia a slice of the CPEC pie without first passing it through either the upper house or lower house of parliament. Wider concerns are being expressed that Pakistan is falling into a debt trap driven by the Chinese, who are seen by some as reinventing colonialism for the 21st century — an analysis that may not be far from a literal truth when Chinese economic activity is viewed via an arc that stretches from central African states and up into the Asian heartlands as well as across the nations of the subcontinent.

That Pakistan needs CPEC and CPEC needs Pakistan is not in any doubt, but the project was born in the opacity and lack of openness that typifies so much of our governance, where vast decisions are made without benefit of consultation or public scrutiny. In that context there has to be a cautious welcome to the application of the handbrake, but this is only going to yield maximum benefit if there is parallel transparency and thus far that is not in evidence. Neither in evidence is quite what the Chinese think of their master plan being outsourced to Saudi Arabia. Time for some CPEC housekeeping, preferably under floodlights.
https://tribune.com.pk/story/1816706/6-on-with-the-handbrake/
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2. The Saudi Ambiguity: edit in The Nation, Oct 3, 2018
There has been much mystery surrounding Prime Minister Imran Khan’s visit to Saudi Arabia. Bit by bit though, the details over the potential gains of any development with the Kingdom are starting to filter through. Reports from meetings held between the two countries reveal some potential game-changing developments could occur. A plan is in the talks for supply of more than 100,000 barrels per day (BPD) on deferred payment and more than $12 billion investment, particularly in Gwadar. Whispers also hint of an early harvest programme for refinery, oil storage and investment in LNG projects and Reko Diq on the pattern of the CPEC programme.

No doubt, these developments, if true, could bring about considerable economic benefits to Pakistan, which is currently direly in need of breathing space. An arrangement for oil supplies on delayed payments could lend huge support to Pakistan’s balance of payments account. These investments by KSA, if finalised, may just be the piece in the puzzle that the PTI government needed to avoid going to the IMF for a bailout.

Yet, when it comes to foreign policy, no investment is purely economic. There are always strings attached with any decision, and this hand of friendship is likely to have effects in our policy in the Middle East. A Saudi Oil refinery and storage facility in Gwadar is a geo-strategic installation, designed to counter Iranian control over the straits of Homruz by establishing an alternative route. While it will increase the strategic importance of Gwadar, it has the potential of permanently skewing the balance maintained by Pakistan in its Middle East policy unless handled with care.

Perhaps the most bothersome part of this development is the lack of transparency in what could be decisions that could alter Pakistan’s landscape and foreign policy. When it comes to such major developments, consultation needs to be made with parliamentarians, and particularly the representatives of the regions where the developmental change is planned. For one, Reko Diq falls in the jurisdiction of the Balochistan provincial government; to finalise a deal for investment in the constituency without cooperating with the Balochistan government does not set a good example for provincial autonomy.

When it comes to such major foreign developments, the nation needs to be taken on board with any potential decisions, instead of being left to piece the bits together. It is no wonder then that the Senate yesterday criticised the government yesterday on the ambiguity of the Saudi-Pak developments; its call for more open deliberation on the matter should be respected. https://nation.com.pk/03-Oct-2018/the-saudi-ambiguity

 

3. ‘Decreased’ CPEC cost: edit in Dawn, October 3rd , 2018
THE new government appears ready to renegotiate with China the price of a railway megaproject that will upgrade the main railway line in Pakistan linking Peshawar with Karachi. The indication came from Railways Minister Sheikh Rashid. He says the cost estimates of the scheme ML-1 had been scaled down by almost a quarter from $8.2bn to $6.2bn. The mega venture will be executed with commercial Chinese loans as part of the CPEC initiative around which Beijing has agreed to invest $62bn in infrastructure in Pakistan. The minister, however, stopped short of explaining the dramatic decrease in the cost of the venture. It still remains unclear if the government is restructuring the terms of the deal or making a compromise on its range and size. The government is said to have convinced Beijing to tweak the original CPEC framework to attract third-country investments in schemes, and it is reviewing the costs of ventures like ML-1 that have yet to be undertaken. But it has done little to address the allegations that the way CPEC has been executed gives unfair benefits to Chinese contractors, who obtained almost every project with no competition, and at the expense of Pakistani companies. The Chinese firms are also accused of charging higher prices for lower-quality equipment brought for power projects. Loans were given by Chinese banks to their companies in China that bought equipment from the latter country to bring to Pakistan, and not a single dollar of the $26bn-$30bn (borrowed so far by Islamabad for power and transport schemes) has crossed into Pakistan. On top of that, expensive projects completed so far as part of the CPEC scheme are accused of exponentially increasing the country’s import bill, widening the current account gap, draining foreign currency stocks, and spiking the external debt.

The Nawaz Sharif government which signed the CPEC agreements with Beijing kept the deals a well-guarded secret, and anyone questioning the fairness of the terms was immediately accused of working against the ‘national interest’. In spite of its promises, the present government is also following in the footsteps of its predecessor as far as the lack of transparency around Chinese loans and investments is concerned. It would be doing a huge service to the people by making good on its pledges with the voters and putting before them the financial and other details of all CPEC projects, so that we can calculate their impact.
https://www.dawn.com/news/1436520/decreased-cpec-cost

 

4. Honesty and pragmatism: edit in The Frontier Post, Oct 3, 2018
After alternating eras of bad governance and financial corruption by leadership of two mainstream political parties, ruling the country turn by turn, a dawn of honesty and pragmatism has come. It appears that efforts are being made to lay the foundation of good governance by the new leadership, notwithstanding the fact that a few political personalities in the corridors of power did not have an enviable past in their mother parties or in their political career in PTI. One such political figure proved a hard nut when he was being shifted from the center of gravity in Peshawar to the ocean of Islamabad. He had made all government departments as his personal fiefdom except one department the in-charge minister of which was a persona of impeccable integrity, moral courage and political strength and spine.

Learning a lesson from the disastrous economic consequences of Chinese development projects in a number of South Asian Countries, the PTI government wants to review all Belt and Road Initiative (BRI) contracts. There are growing concerns that the last PML-N government badly negotiated the deals as they are too expensive and overly favoured China. But to Islamabad frustration, Beijing is only willing to review projects that have not yet begun. In other words the terms of contracts of ongoing extremely high capital expenditure (Capex) and per unit tariff thermal and hydro energy projects cannot be renegotiated. China’s foreign ministry said in a statement in response to the questions faxed by Reuters that both sides are committed to pressing forward with BRI projects to ensure the implementation of those projects which are being built smoothly.

The worries about Chinese model of investment are not confined to Pakistan alone. The cooling of enthusiasm for Chinese investment mirrors the unease of incoming governments in Srilanka, Malaysia and Maldives, where new administrations are wary of Chinese deals struck by their predecessors.

Resistance has stiffened under the new Prime Minister Imran Khan, who has voiced alarm about rising debt levels and he is anxious to wean the country off the fetters of foreign loans which have piled up to the unsustainable limit of $ 95 billion. Railway project linking Karachi to Peshawar is the China’s biggest BRI project in Pakistan, but its estimated cost of $ 8.2 billion is highly inflated. That is why the Railway Ministry was reluctant to shoulder the responsibility of loans to be acquired for the project despite the insistence of Planning Ministry under the stewardship of former minster Ahsan Iqbal. This was one of the reasons that PC-1 of the project could not be prepared.

Pakistan remains committed to Chinese investment but wants to push harder on price and affordability, while re-orienting the China-Pakistan economic Corridor (CPEC)—for which Beijing has pledged about $ 60 billion in infrastructure funds to focus on projects that deliver social development in line with the Prime Minister’s election promises.

China’s Ambassador to Pakistan Yao Jing told Reuters that Beijing was open to changes proposed by the new government and “we will definitely follow their agenda to work out a roadmap for BRI projects based on mutual consultations.” “It constitutes a process of discussion with each other about the existing kind of model and about the roadmap for the future,” Mr. Yao said. Beijing would only proceeds with the projects that Pakistan wanted, he added. “This is Pakistan’s economy, this is their society,” the Chinese envoy said.

Islamabad’s efforts to recalibrate CPEC are made trickier by its dependence on Chinese loans to prop up the vulnerable economy. Growing fissures in relations with Pakistan’s historically the United States have also weekend its negotiating hand, as the current grave economic crisis makes seeking of a bigger International Monetary Fund bail out inevitable. The US controls 70 percent voting rights in IMF. The Washington based lender may impose tougher conditions of massive spending cuts and privatisation of public sector corporations, both profit earning and huge losses incurring.

Malaysia’s Prime Minister Dr. Mahatir Mohammad has set a brilliant precedent by outright cancellation of Chinese funded $ 20 billion East Coast Rail Link (ECRL) for other countries. Prime Minister Imran Khan is expected to visit China. It is for the new government to do proper homework for exploring grounds to renegotiate the Capex and tariff issues of ongoing Chinese power projects as power sector circular debt has reached to Rs. 1.2 trillion and it is on the rise.
https://thefrontierpost.com/honesty-and-pragmatism/

 

5. Diversifying CPEC finances: edit in The Frontier Post, Oct 2, 2018
To ensure maxim transparency about CPEC related mega projects, the new government is diversifying the sources of finances to reduce reliance on extremely high interest bearing loans from China in view of the precarious economic situation. It has signed three grant agreements, not loans, with Saudi Arabia to finance three road infrastructure and energy projects. The agreements are in line with the understanding reached during Prime Minister Imran Khan’s visit to Saudi Arabia. The agreements were signed by Saudi envoy and officials of finance ministry.

According to Information Minister, Fawad Chaudhry, more agreements would be inked next week between a high level Saudi delegation, comprising Saudi minister for petroleum and investment team, and Pakistan officials. The accords will be related to Riko Diq gold and copper mines and oil refinery at Gawadar.

Addressing a Joint Ministerial Commission (JMC) meeting with Kuwait in Islamabad, finance minister Asad Umar invited the Kuwaiti businessmen to explore investment opportunities in Pakistan’s oil and gas sector and projects under CPEC. He said, “We are in close collaboration with China with regard to implementation of CPEC projects and we want to further expand the corridor”, adding “we want all our friendly countries to join CPEC for the socio-economic development of the people of the region.”

The United States (US) had expressed reservations about the strategic dimension of CPEC. The Secretary of State Mike Pompeo had said that the International Monetary Fund (IMF) bail out package include dollars of American taxpayers which should not be used by Pakistan to pay the loans that it owes to Chinese companies and bondholders. Hence the IMF is looking for contract details of CPEC related projects and the West’s deepening interest in the strategic arrangements between the, presumably, “all weather” friends. The IMF staff level delegation in its recent meeting with high officials of planning ministry raised the issue CPEC deals. The ministry gave an overview of the macroeconomic outlook and progress on CPEC initiative. The delegation which was led by IMF Washington based Mission Chief Herald Finger is believed to have inquired about the contract agreements of energy projects of CPEC. However, the ministry of planning did not provide the information, arguing that only the ministry of energy has the relevant details.

The government is under no obligation to provide details of CPEC contracts to a third party particularly there is no formal arrangement with IMF at this stage. The disclosure of Chinese financing deals under CPEC has been described as one of the disadvantages of going for an IMF bailout programme during a briefing to the Prime Minister. This explains as to why the government is indecisive about seeking IMF financial assistance. But the PTI government is in catch 22 situation because of the economic mess that is left as legacy by the most corrupt and inefficient PML-N last government. Pakistan immediately needs $ 12 billion to meet its external obligations on account of unsustainable foreign debt of $ 95 billion and liabilities of current account deficit. The government is currently accessing to arrange about $ 11 billion loans to deal with the external sector problems. Among the options are IMF programme, Chinese financial assistance on concessional terms and oil on deferred payment from Saudi Arabia.

Finance Minister has already promised to make public the terms of CPEC deals. But well the public stomach the shady terms of agreements signed by the last PML-N government with China. Railway Minister Sheikh Rashid Ahmad had previously called for investigation into CPEC power projects in which he alleged corruption. In a recent interview with a female anchor Gharida Farouqi, he told that China is willing for downward revision of the cost estimate of up-gradation project of railway track ML-1from $ 8.2 billion to $ 6 billion because there will be no kick-backs then. The increased transparency around CPEC will clarify that Pakistan has received loans from China at the exorbitant rate of interest with no grant component. Won’t Pakistanis question as to why they pay unreasonably high power tariff, taxes and surcharges in the electricity bills for China’s benefit. Certainly, they will ask this question soon.
https://thefrontierpost.com/diversifying-cpec-finances/

 

6. Senators against unilateralism : edit in Daily Times, October 3rd 2018
Senators of the opposition parties have taken exception to Saudi Arabia becoming the third CPEC partner. Or, better put, their objection is directed at the government’s unilateral decision towards this end. They have a point. For, by rights, the matter should have gone before Parliament; regardless of the economic crisis facing the country. Ditto when it comes to the Centre’s plans for making Riyadh a stakeholder in the Balochistan-based Reko Diq gold mining project.

The PPP’s Raza Rabbani termed the move unconstitutional on the grounds that the Quetta political leadership had not been consulted. This sentiment was echoed by the National Party’s Hasil Bizenjo; who went on to point out that Balochistan owns the Reko Diq mines. Meaning that the federal government enjoys no jurisdiction over them. Continuing down this path therefore risks denying the people of Pakistan’s largest and most impoverished province their fundamental right to self-determination. In short, the federal government must issue a set of clarifications.

This needs to extend to the country’s requests for Saudi oil given the conflicting media reports on this front. Some news stories state that Islamabad is seeking 0.2 million barrels of oil per day on deferred payments covering a three-month period; in addition to $2 billion in oil supplies over two years. Elsewhere, recorded details have put this figure at 0.2 million barrels daily over a five-year period.

But even more than this, Finance Minister Asad Umar needs to come clean about the total sum to be paid back to Riyadh. By outlining any possible mark-ups in terms of interest; compound or otherwise. This is not to mention detailing how Pakistan intends to service these deferred payments. Not least because to the average layperson – what the country is signing up for looks a lot like purchasing goods on the ‘never-never’ or hire purchase. This is not to snub Saudi Arabia with its generous investment drive. Rather, it is to call on the government not just to take the people into confidence. But to let their elected representatives vote on such important matters. https://dailytimes.com.pk/305595/senators-against-unilateralism/

 

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