EDITORIAL: Preparations are underway for the forthcoming maiden visit of Shehbaz Sharif to China as the Prime Minister and the wish-list seeking additional investment/support submitted by the relevant departments/ministries is getting rather exhaustive.
It includes Karachi circular railway, Karakoram highway, 10,000MW solar power projects and hydropower projects. From the Chinese side there is considerable pressure to make the payment of dues to Chinese companies operating in Pakistan for projects constructed under the umbrella of China Pakistan Economic Corridor (CPEC).
This envisaged support is in addition to the rollover of loans of more than 4 billion dollars by the Chinese (against around 9 billion dollars pledges from Arab countries, including Saudi Arabia, in investment and loans) that they have already pledged directly to the International Monetary Fund (IMF) on Pakistan’s behalf which was a prior condition for the approval of the ongoing Extended Fund Facility programme effective 1 July 2019 and which has remained a prior condition for all subsequent quarterly reviews, including the last successful seventh/eighth review.
The IMF in a report released recently has noted that the Chinese debt to Pakistan has been revised upwards by 4.6 billion dollars to about 30 billion dollars by September 2022 from 25.1 billion dollars in February 2022 – triple the amount of IMF debt and more than the amount given either by the World Bank or the Asian Development Bank.
And further the report notes that the debt shows that China is playing a role similar to the IMF’s in Pakistan by providing financing during balance of payment crises rather than World Bank-style concessionary project financing.
It is significant to note that all power sector projects that were established during the 2013-18 PML-N (Pakistan Muslim League-Nawaz) tenure under the CPEC were on the same lines as those established under the previous power policy which allowed for payments in dollars as well as capacity payments – conditions which not only raised the domestic tariffs to exorbitant levels but have also compromised the export sector’s ability to compete in the international market that, in turn, compelled administrations, including the previous government, to cap the utility tariff which implied a major rise in subsidies that the country’s narrow fiscal space can simply not withstand.
The recent decision by Finance Minister Ishaq Dar to allow the five export sectors electricity at the rate of 19.99 rupees per unit, projected to cost the taxpayers 90 to 100 billion rupees, is not going to go down well with the taxpayers or with the IMF that has already urged the government to spend on subsidies targeted to the vulnerable and the poor.
The Chinese have already expressed their inability to renegotiate the terms of the agreed power contracts, arguing that if they give Pakistan this benefit other countries too would demand renegotiations, however, reports indicate that the Chinese have offered that other concessions can be given which may account for the long wish-list prepared by the government to be discussed during Sharif’s visit to China. One must however urge the government to consider the cost of any additional borrowing and at the same time negotiate the terms much more vigorously than was evidently done back in 2013-18.
The projects cited for possible Chinese assistance however are for infrastructure development and while these have a high rate of internal and economic returns, a prime consideration before embarking on any project, yet one would also suggest that the government negotiates the terms more vigorously than in the past as well as focus on improving the yield of crops as well as investment in social sectors, particularly healthcare.
It is important to note that China under the CPEC invested billions of dollars in our deficient infrastructure; however, there were clearly some issues relating to the projects, including setting up coal plants away from the source, which has led to high transport costs as well as health hazards and focusing on generating when transmission was clearly a major issue. There is, therefore, a need for the government to get input from sector experts as well as the generalists in our ministries/departments.
Copyright Business Recorder, 2022