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EDITORIAL: A Business Recorder exclusive revealed that China and Pakistan are engaged in talks on reduction of profits on Chinese power projects established under the umbrella of the China Pakistan Economic Corridor (CPEC). This engagement is regarded as the logical next step from Pakistan’s perspective subsequent to the agreements signed with Independent Power Producers (IPPs) established under the 1994 and 2002 policies, which resulted in over 4 trillion rupee windfall profits as per the inquiry report published last year, envisaging: (i) application of 148 rupees to the dollar instead of 168 rupees to the dollar agreed earlier; (ii) the existing capacity payments under take or pay to be replaced by take and pay; and (iii) upholding the decision of a three bench arbitration panel with two former supreme court judges while the third member will be selected by them. However, one spanner in the works has been a request by the National Accountability Bureau (NAB) to submit details of the agreement for its review – a situation that has generated considerable angst amongst the negotiators of the deal.

The rate of return of Liquefied Natural Gas power projects signed under the CPEC by the previous administration was recently reduced by Nepra from 17 to 12 percent; however, details of CPEC power projects established through mainly Chinese investment are not available though the general perception is that the PML-N government to maintain a level-playing field offered the same highly lucrative terms to these projects that were being enjoyed by IPPs established under the 1994 and 2002 policies. Thus while from the perspective of the Pakistani government and more particularly the Pakistani consumer a revisit of the agreed terms is required especially given the recent escalation in tariffs - attributed to the sustained failure of the Khan administration to improve governance and cease to pass on sectoral inefficiencies onto the consumers, like its predecessors – yet from the perspective of the Chinese companies any revisit would require their capacity to renegotiate the terms and conditions with Chinese banks that had extended credit for these projects. The situation therefore is tricky and would require delicate diplomatic negotiations between senior members of the two governments.

The situation is all the more delicate because China-Pakistan relations, time-tested and honoured, have considerably strengthened in recent years. President Xi’s One Belt One Road (OBOR) is flourishing in Pakistan and from Pakistan’s perspective, it is by far the major source of foreign capital inflows. In addition, China has promptly picked up the slack in loan withdrawal from bilaterals, be they direct loans or through swap arrangements, to meet the International Monetary Fund programme’s stipulation of key bilateral partners maintaining their exposure throughout the programme period, including by extending new loans consistent with programme objectives.

Recent geopolitical events, both from China and Pakistan’s standpoint, have diplomatically brought the two countries even closer together. India, long opposed to the CPEC, has clearly emerged as a spoiler for China and Pakistan and is using its clout internationally, premised on its ability to buy from the West, to try to isolate the two neighbours. In this context, we are certain that China and Pakistan shall remain focused on maintaining their close ties and strengthening them further and seek to amicably resolve all outstanding issues through engaging in high level diplomatic channels.

Copyright Business Recorder, 2021


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