SARAS
South Asia Research and Analysis Studies

Update on CPEC
S M Hali
1/10/2019

Moving forward

As the year 2018 ended, the China Pakistan Economic Corridor (CPEC), the flagship of the Belt and Road Initiative (BRI), showed progress, which merits a review. CPEC is a major platform for comprehensive and substantive cooperation between China and Pakistan and is an important consensus reached by the two countries. In May 2013, Chinese Premier Li Keqiang proposed the initiative of CPEC during his visit to Pakistan, while President Xi Jinping, in his April 2015 visit, signed the agreement for a “1+4” pattern of economic cooperation, featuring a central role of the CPEC and four key areas including the Gwadar port, energy, transportation infrastructure and industrial cooperation, so as to achieve win-win results and common development. Both sides agreed on the principles of scientific planning, step-by-step implementation, consensus through consultation, mutual benefit and win-win results, as well as ensuring quality, safety, and environmental protection. During Prime Minister Imran Khan’s maiden visit to China, the two sides reaffirmed their complete consensus on the future trajectory of the CPEC, timely completion of its on-going projects and joint efforts for realisation of its full potential with a focus on social-economic development, job creation and livelihoods and accelerating cooperation in industrial development, industrial parks and agriculture.

An overview of the mega project reveals that over the past five years, under CPEC, 11 projects have reached fruition, 11 are under construction. The total investment of the 22 projects is around 18.9 billion USD, with 20 more projects in the pipeline.

For the execution of CPEC, both countries have set up a ministerial-level Joint Cooperation Committee on CPEC Long Term Planning (JCC). There are seven joint working groups (JWG) under JCC, namely planning, energy, transportation infrastructure, Gwadar port, industrial cooperation, social economic development and international cooperation. JCC is responsible for overall planning and coordination under CPEC, while the JWGs are responsible for the detailed planning and implementation of the projects. The two secretariats are responsible for communicating and coordinating with the line ministries related to the projects of CPEC. Until now, JCC has convened 8 meetings and since 2015 it is held on annual basis. The 8th meeting was held in Beijing on December 20, 2018.

The major avenues of focus of CPEC include Energy, Infrastructure, Gwadar Port and Industrial Cooperation. Energy is the driving force for economic development and a key factor to ease load-shedding and improve the lives of millions of people. Fifteen energy projects highlighted as the priority sector under the CPEC framework are planned as priority with a total generation capacity of 11,110MW, among which 7 have been completed and are in operation while 8 are under construction with a total capacity of 6,910MW. At present, Zonergy 300MW Solar Park, 50MW Dawood Wind Farm, Jhimpir UEP wind power project, Sachal 50MW Wind Farm, Sahiwal 2×660MW Coal-fired Power Plant, Port Qasim 2×660MW Coal-fired Power Plant and Three Gorges Second and Third Wind Power Projects have been completed. These projects have added 3240 MW to Pakistani national grid, amounting to more than 11pc of the total installed capacity of 29,000 MW in Pakistan. The project also includes alternate energy sources, while the total package is aimed at providing affordable energy to Pakistani consumers in a diversified manner.

In the infrastructure section, efficient transportation network is key to economic development. Currently, KKH Phase-II (Havelian-Thakot section), Karachi-Lahore Motorway (Sukkur-Multan section) and Lahore Orange Line are three projects under construction. The information highway for laying of optical fiber cable (OFC) from Rawalpindi to Khunjrab is in operation. These ongoing projects are funded by preferential loans from the Chinese government at around 2pc interest rate with a total amount of 5.874 billion USD. The up-gradation of ML1 railway and the KCR are under discussion.

The major avenues of focus of CPEC include Energy, Infrastructure, Gwadar Port and Industrial Cooperation. Energy is the driving force for economic development

According to an agreement between China Overseas Ports Holding Company (COPHC), Gwadar Port Authority (GPA) and Singapore Port Authority in 2013, the development and operation of Gwadar Free Zone was handed over to the COPHC. Up to now, COPHC has invested 250 million USD in the port renovation. 5 new quay cranes, a 100,000 M2storage yard, a seawater desalination plant with capacity of 220,000-gallon pure water/day, 2 sets of sewage disposal systems and cargo handling equipment have been installed and 80,000 M2 green space has been added to the port area. 400,000 tons of cargoes have been handled by Gwadar Port in 2017.

The Gwadar Free Zone is in the northern part of Gwadar, about 7km away from the port. The planned development period is from 2015 to 2030 and is divided into four phases.

The project of Gwadar East Bay Expressway was agreed by China and Pakistan during President Xi Jinping’s visit to Pakistan in 2015. The EPC contract of the project was signed in September and construction commenced in November 2017. The construction period of the project is 36 months with the designed speed of 100 kilometers per hour, which is implemented by the China Communications and Construction Company (CCCC). After inauguration, the project will become the main channel for the cargo distribution of Gwadar Port and a vital communication line to connect the Free Zone in southern and northern areas of Gwadar.

As far as industrial development is concerned, the federal government of Pakistan and each province have attached paramount importance to the construction of SEZs. The work has been in progress with the joint efforts of both sides.

The mega project is endeavouring to create job opportunity and social responsibility. According to the preliminary statistics, CPEC projects have created more than 75,000 direct job opportunities for Pakistani people. To promote economic development and employment of Pakistan, Chinese companies also subcontract many projects to local Pakistani companies. This also develops relevant upstream and downstream industries, such as raw material processing, catering industry which also provide more employment opportunities for local people.

China and Pakistan signed the Long-Term Plan at the 7th JCC after obtaining consent of both federal government and all the Pakistani provincial government. The plan provided the macro guidance for implementation of CPEC in the next phase and could be adjusted based on the real situation as well as the consensus between the two parties during its implementation in the future.

A lot of misreporting has been done about CPEC being a debt trap. Nothing could be further than the truth. The Chinese government provided concessional loans of $5.874 billion for Pakistan government’s major transportation infrastructure projects, with a composite interest rate of around 2pc in repayment period of 20-25 years. The Pakistani government provides sovereign guarantee for the above loans and will start the repayment from 2021.

The Chinese companies and their partners invested $ 12.8 billion in energy projects in Pakistan. Among them, Chinese companies provide $3 billion from their own equity. The rest $9.8 billion is raised from commercial banks with interest rate of about 5pc. The repayment period is 12-18 years. All the CPEC energy projects are investment in nature, which is purely independent business behaviour of these companies. China provides interest-free loans for Expressway East Bay in Gwadar and grant for some livelihood projects. Pakistan provided funding for the feasibility study of ML-1 upgradation. Therefore, Pakistan will repay only $6.017 billion (Category-I $5.874 billion and Category-III $ 0.143 billion) and their interests to China. China and Pakistan are discussing how to use Chinese grant to implement new projects such as new Gwadar international airport, Gwadar vocational training center and friendship hospital.



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