Any adjustment in CPEC should not ignore socio-economic impact

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The new government has broadly supported CPEC. Though there might be some changes to which China is on board, saying that “strategic adjustments” of CPEC do not depict reconsideration of the BRI or CPEC. To allay the concerns of provinces, the government, in line with its manifesto, has claimed to ensure an equitable development of Balochistan and Gilgit-Baltistan (GB) under CPEC. But closure of some CPEC projects in Balochistan in light of the modifications in CPEC might pave way for mistrust between government and locals. Saudi Arabia inclusion in CPEC by the new government is appreciated by China.

These were the major findings of the quarterly monitoring report on CPEC, covering July to September 2018. Some salient ones are summarized below:

  • Broad agreement: A significant development in the last three months was the swearing in of the new government after fresh elections were conducted in July 2018. The previous government, of PML-N, took credit for CPEC projects. After its tenure ended, it was asked if there will be any change in any approach towards CPEC.

The incoming government continued to extol the benefits of CPEC. Prime Minister Imran Khan mentioned China more than once, in his post-victory speech. Nevertheless, Chief of Army Staff (COAS) Gen Qamar Bajwa visited China and ensured the Chinese government that “Pakistani military and its new government are consistent in their policy towards China.”

  • Specific adjustment: At the same time, reports emerged that the government is planning to reconsider some of the CPEC projects, or their ToRs. A report in The Financial Times quoted new economic advisory as making similar statements. Official statements from both China and Pakistan followed to deny the report.

Yet, these denials were doubted as it later emerged that at least 4 projects of CPEC have been dropped from the on-going Public Sector Development Program (PSDP). Afterwards, Pakistan Railway minister also announced cutting funds for Main Line–1, which connects Peshawar with Karachi.

These developments lent credence to the belief that the government is considering a review of CPEC projects. This much is established now.

Responding to reports by western media about Pakistan’s revision of CPEC, China underlined that “strategic adjustments” in development projects are common and in no way mean to reconsideration of the BRI or CPEC.

  • Balochistan at the centre stage?Before coming into power, Pakistan Tehreek-e-Insaf (PTI) in its 2018 election manifesto hadpromised to include local population of Gilgit Baltistan and Gwadar in the CPEC. They also had called for uplifting Balochistan through the CPEC-linked development.

It is yet to be seen if these promises are met to their own satisfaction. Lately, China’s ambassador to Pakistan has been making several trips across the country, in particular to Quetta. PTI’s regional allies, the Balochistan National Party (BNP) and Balochistan Awami Party (BAP), who otherwise are at loggerheads with each other in Balochistan, were in accord on the point of reaping the benefits of the projects for Balochistan.

The government is expected to deliver on those fronts. Otherwise, it may face a lot of pressure from its allies in the province. It is pertinent to mention that the projects dropped from PSDP mostly fell in Balochistan. These include: the fish harbor on water bay in Gwadar, extension of the existing hospital at Gwadar, development of CPEC institute of Gwadar, land acquisition scheme under the Gwadar Master Plan, construction of Basima-Khuzdar project, and rehabilitation of the Quetta-Dhadar section.

Some even hinted at the fact that the roads dropped by the new government formed the western route. One of the surprising elements of this quarter was the relevant that the western route is not included in CPEC, which China tended to support. The road in talk, in particular, was D.I.Khan – Zhob motorway of western route.[1]This disclosure of excluding western route development from CPEC, and axing someGwadar development schemes from PSDP would largely aggravate regional grievances and government maylose the province’ssupport to CPEC.

There are some other concerns too. People of ThandaMera, Salhad and Jabrian area in Abottabad, KP have protested against nonpayment of market prices of their lands acquired for CPEC and threatened mass suicide. They have urged Chief Justice and Prime Minister of Pakistan to help resolve the matter.

While PTI government is authorized to negotiate the projects, it should also weigh in the socio-economic impact of whatever is being negotiated.

  • Expanding avenues: Meanwhile, Pakistan invited Saudi Arabia (KSA) to join CPEC during the maiden visit of Prime Minister Imran Khan. It was reported that KSA has responded positively and agreed to provide grants for energy and road infrastructure projects, especially in Balochistan.

The reported entry of Saudi Arabia in the CPEC was taken with mixed response, especially on whether a third country can even join the project directly. Former Interior and Planning Minister, Mr. Ahsan Iqbal, who was very much a public face on CPEC seemed to have thought otherwise, saying China should have been taken on board. He termed CPEC as a “bilateral” and not commercial project. But another member of his own party, Senator Mushahid Hussain, who headed parliamentary committee on CPEC, termed it a multilateral project. As of now, however, it is reported that KSA is not part of the CPEC, but a separate deal. This seems to resonate with the views of the former minister.

  • Technical revision of ML-1 execution: Meanwhile, delayed Orange Line Metro project and revision of Mainline-1 (ML-1) was reported. It is likely that the new government revise ML-1 project’ feasibility to continue its execution under build-operate-transfer (BOT) rather than executing it under the Engineering-Procurement-Construction (EPC) that the federal government thinks could carry financial risks for it. For instance, in ECP model, owner has to choose wisely ECP companies as it has less control over the detailed activities of the project than the contractors/ECP companies. So, the higher cost charged by ECP or any wrong decision taken would harm the owner. On the other hand, in BOT is a type of a public-private partnership (PPP) that limits the cost liabilities to public sector.
  • Debt burden: Pakistan’s bailout plea to the International Monetary Fund (IMF) amid financial crisis, opposed by US, and Moody’s report about CPEC related investment led to the doubts of CPEC adding to the external debt burden of Pakistan. US even warned IMF to observe its action related to bailout China or its stakeholders.

In response, government of Pakistan has clarified that CPEC holds $6 billion out of $95 billion total external debt of Pakistan. Also, the government is not obliged to instant or short-term repayment of CPEC loans. Chinese investors of energy sectors have taken funds from Chinese banks that again would not add to debt burden. China has also affirmed that CPEC will not contribute to the debt burden of Pakistan.

  • Institutional checks: The effectiveness of bodies/committees/joint working groups formed for this mega project should also be evaluated. For instance, decision taken in last 7thJoint Cooperation Committee (JCC) on CPEC remained standstill. Revolving fund for energy payments to Chinese could not be formed; ML-1 was delayed; there was no progress on construction of the New Gwadar International Airport; and therewas nopolicy onproviding 5 million gallons water per day in Gwadar. Similarly, inclusion of Saudi Arabia in CPEC has brought responsibility of formulating and publicizing the CPEC Standard Operation Procedures (SoPs) on the shoulders of government.
  • Work force: Owing to previous critique that CPEC would bring more Chinese workers in Pakistan, it is noted that the ratio of Pakistani employed is greater than the Chinese working on CPEC. However, to ensure the security of CPEC and Chinese nationals working under CPEC is important.
  • Security: The government of Pakistan established Special Security Division (SSD) comprising 15,000 troops, including 9,000 Pakistan Army soldiers and 6,000 paramilitary forces personnel for the security of CPEC projects and individuals working on CPEC.

Yet, one of the most violent incidents this quarter was the attack by Balochistan Liberation Army (BLA) on a bus carrying Chinese engineers of Saindak copper and gold mines project under the CPEC.

[1]ShahbazRana, The Express Tribune, September 18, 2018. https://tribune.com.pk/story/1805774/2-pakistan-eyes-8b-investment-china-saudi-arabia/

Click here to download: CPEC Quarterly Report: July-September 2018

Annex: CPEC Monthly Monitors (August, September, 2018)