Economic corridor: Cabinet gets exhaustive Briefing

The federal cabinet has directed the State Bank of Pakistan (SBP) to reflect Chinese FDI appropriately in books as the official figures indicate only $ 2 billion FDI during the last two and half years, well-informed sources told Business Recorder. The cabinet was informed on April 3, 2018 that CPEC is part of the Belt and Road Initiative (BRI) that aims to provide the stimulus for growth. It would be a game changer for Pakistan, a conduit for attracting Foreign Direct Investment (FDI), transforming Gwadar into a trade hub, and would go a long way in uplifting the socio-economic conditions of the people of Pakistan.
The cabinet was briefed that the MoU on CPEC was signed on July 5, 2013 and aimed to extend cooperation between the governments of Pakistan and China in the planning and development of CPEC, and to facilitate and intensify economic activity along the corridor. It was pointed out that Ministry of Planning, Development & Reforms is the focal Ministry in Pakistan whereas its counterpart in China is National Development and Reform Commission (NDRC).
The sources said, CPEC has different components, which include Energy (coal, hydel, wind, solar, LNG, and transmission), infrastructure (road, rail, aviation, and data connectivity), industrial cooperation (Gwadar Free Zone and SEZs), as well as the development of Gwadar port and city. The CPEC projects has been divided into Early Harvest Projects (EHP) (2017-18), short-term projects (including EHP) (2014-2020), medium-term projects (2021-2025) and long-term projects (2026-2030).
The institutional framework for CPEC was also shared with the cabinet. This included Joint Cooperation Committee (JCC), which is co-chaired by Minister for PD&R and Vice-Chairman, NDRC. Under the Committee, different Joint Working Groups have been formed, each looking after planning, energy, transport infrastructure, Gwadar and industrial cooperation. The implementation mechanism reviewed progress of different CPEC projects and is chaired by the Minister for PD&R.
The overall portfolio of CPEC projects was also presented to the cabinet: (i) energy (IPP financing mode) estimated cost $ 34.746 billion, 72%; (ii) roads (government concessional loan) estimated cost $ 4.179 billion, 9% ;(iii) rail network ML-1 (GCL under discussion) estimated cost $ 8.212 billion, 17%; (iv) Gwadar Port (Grant/GCL/Interest free loan) estimated cost $ 780.6 million, 1.9%; and (v) Fiber Optic and Gwadar City Master Plan estimated cost $ 48 million, 0.1%. The total estimated cost is $ 47.965.6 billion, 100%.
The cabinet was also apprised about the energy projects under CPEC. These were categorised as under: (i) prioritized energy projects, 15, capacity 11,110 MW; (ii) actively promoted projects, 4, capacity 2,544 MW; and (iii) balance capacity, capacity 3,415 MW, totaling it to 17,045 MW.
The details of individual projects in each category, including its name, fuel type, location, capacity (MW), cost in US$ and date of commissioning, were also shared with the cabinet. Similarly, details of transport infrastructure pertaining to roads, rails and mass transit projects were also presented before the cabinet.
The cabinet was briefed about different projects which have been completed to-date, the ones which were due for completion in the near future, and which were yet to be commissioned. It was added that for expansion and reconstruction of the existing line ML-I, the Framework Agreement had been signed, feasibility had been completed. The first meeting of ML-I Finance Group had been chaired by the Secretary, PD&R and the project was on fast track. Names of new provincial projects and their status approved/included in the 6th JCC meeting were also shared with the cabinet.
The cabinet was also updated about the projects being undertaken in Gwadar: (i)
Eastbay Expressway, cost $ 140.6 million, COD 2019;(ii) Gwadar International Airport, cost $ 230 million ;(iii) construction of breakwaters, cost $ 123 million;(iv) dredging of berthing areas & channels, cost $ 27 million;(v) infrastructure for Free Zone & EPZs port related industries, cost $ 32 million, COD 1st phase in January 2018;(vi) necessary facilities of fresh water treatment and supply, cost $ 130 million;(vii) Pak China Friendship Hospital at Gwadar, cost $ 100 million;(viii) Technical and Vocational Institute at Gwadar, cost $ 10 million and ;(ix) Gwadar Smart Port city master plan, cost $ 4 million, COD August 2018. This makes a total of $ 796.6 million.
The cabinet was also briefed about industrial cooperation being envisaged under the CPEC. Nine potential sites in all the four provinces, Azad Jammu & Kashmir, Gilgit-Baltistan and FATA were approved in the 6th JCC meeting in December 2016. The planned economic zones will target specific products and services, based on the availability of local raw material, workforce, etc. In this regard, seven feasibilities/pre-feasibility studies were shared with the Chinese side during the 7th JCC in November 2017. The priority SEZs under CPEC shared with the cabinet were: (i) Sindh, China Special Economic Zone - Dhabeji (Thatta); (ii) Punjab, Allama Iqbal Industrial City (M-3), Faisalabad; (iii) KP, Rashakai Economic Zone on M-1; (iv) Balochistan, Bostan Industrial Zone; (iv) Gilgit-Baltistan, Moqpondass, Gilgit SEZ and; (v) AJK, Mirpur Industrial Zone; and (vi) FATA, Mohmand Marble City; the Federal, Model ICT Zone.
Different exemptions and facilities being extended to developers and investors in the SEZs were presented before the cabinet: (i) one-time exemption from customs duties on plant and machinery for the development and maintenance of the SEZ for developers; (ii) income tax exemption for a period of five years for developers; (iii) one time exemption from customs duties on imports of plants and machinery into the SEZ for installation; (iv) income tax exemption for a period of 10 years for units starting production by 30th June 2020 and five years thereafter; (v) provision of plots on installments (50% down payment and remaining 50% in four biannual installments basis); (vi) mark-up support @ 50% of the mark-up to a maximum of 5% on the loans taken in Pakistani currency for financing a project; and (vii) freight subsidy @ 50% on inland transportation of plant and machinery for installation in any SEZ.
The cabinet was further informed that in the long term, CPEC is based on government guidance and market-oriented operation, infused with a spirit of partnership towards shared prosperity, openness and inclusiveness, livelihood improvement and sustainable development, as well as orderly development with highlighted priorities.
The social sector projects under CPEC cover people to people exchanges, transfer of knowledge in different sectors through Consortium of Business Schools, and the establishment of Pakistan Academy of Social Sciences.
The cabinet was briefed that CPEC is a new driving force for economic growth which will lead to a 2-3 percent increase in GDP. This would improve the energy and infrastructure sectors by overcoming supply side bottlenecks. Trade and commerce would improve, new industrial parks would be set up, tourism would get a boost, and there would be focus on technical innovation. New roads and rail networks would not only improve connectivity, but also lead to inclusive development and national integration. These factors would create about 400,000 new jobs.
The cabinet was also apprised that a Special Security Division consisting of 9 composite battalions of Pakistan army and 6 wings of civil armed forces have been raised. Different companies have been deployed in Punjab and Sindh. However, there is an emergent requirement for a Special Security Division in the South at Gwadar.
During the course of discussion, it was mentioned that Pakistan has the world''s largest coal reserves in Thar, which have more energy generation potential than the oil reserves of Saudi Arabia and Iran combined. However, these have been lying unutilised for the last seventy years. Now Government of Pakistan have convinced the Chinese to invest in these reserves, which would not only generate cheap and affordable electricity but also improve the socio-economic condition of a backward area.
In response to a question regarding large number of energy projects that may result in to excess electricity generation, it was pointed out that Pakistan has one of the lowest per capita energy use, which would rise gradually with improvement in the standard of living; secondly, with industrialization in the proposed SEZs, energy use is likely to increase at a rapid pace.
The CPEC''s Western route which largely passes though the backward districts of Baluchistan and investment in Keti Bandar would also facilitate the movement of people and goods from the area and uplift their soda-economic condition.
In response to a question that no investment has been planned under CPEC in the agriculture sector, it was pointed out that since Pakistan''s economy is facing serious bottlenecks in the energy and infrastructure sectors, the short-term focus of CPEC is in these areas. However, in the Long Term Plan, agriculture features prominently and there is emphasis on improving productivity and water conservation in the agriculture sector.
The cabinet was briefed that the Chinese investment through CPEC has mostly come in energy and infrastructure projects. The energy projects are mostly in the private sector, and they, not the Government of Pakistan, are responsible for the corporate debt they have incurred. However, the government organisation, Central Power Purchase Agency (CPPA), has signed agreements with IPPs for the purchase of electricity on the tariff rates determined by Nepra before this government came to power. The role of government would come if CPPA is unable to recover the amount from the consumers and pay the IPPs.
The cabinet was apprised that the average interest rates for loans being provided to the government is 2.4%. This does not include the commercial loans being procured by the private sector. However, if grant (for Gwadar airport) and interest free loan (for Gwadar Eastbay Expressway) are excluded, the net effective interest rate would come to 1.7%.
The issue of Chinese investment in Pakistan was also discussed in the meeting. It was pointed out that despite huge Chinese investments through CPEC in Pakistan the FDI recorded by the State Bank of Pakistan has remained low, which has led to balance of payment problems. It was pointed out that the amount of money, whether in the form of loan or grant, coming through CPEC is not known. The cabinet was informed that official figures for the Chinese FDI in Pakistan during the last two and half years (from 2015 to December 2017) is about $ 2 billion. The cabinet emphasized the need to appropriately reflect the Chinese FDI on the books of accounts being maintained by the State Bank of Pakistan. The cabinet further directed the Finance Division to arrange a separate briefing for those members of the cabinet who are interested in financial side of the CPEC.