The fine print on the CPEC portfolio

Published: November 6, 2016
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ISLAMABAD: Mega projects are all about multi-billion dollar budgets, fast-tracking schedules and triggering media hype. However, they also involve creating a consistent but compelling narrative for stakeholder consensus.

Pakistan too, is expected to get a “CPEC booster shot” of around $5 billion in Foreign Direct Investment over the next couple of years – with a promise to jump start its sluggish economy, at least in the short term. Since 2013, China-Pakistan Economic Corridor (CPEC) has had its fair share of highs and lows in the national media but a closer look reveals that the devil is in the details. Whilst the government claims that CPEC is the ‘Holy Grail’ of its development agenda, the picture is not as simple as it is portrayed to be.

Missing policy frameworks

Imagine the chaos that may ensue if we execute the $51.5 billion CPEC programme in the absence of a national transport policy. All stakeholder exercises in the past have failed to roll out a viable and fair national transport policy. The Federal Ombudsman Secretariat called for formulation of the national policy in February this year but the issue has been thrown on the backburner once again.

Policymakers need to decide the market structure and offer just the right incentives. For instance, if we liberalise the power market and offer targeted subsidies to firms willing to invest in rural areas, we can expect increased rural electrification levels. In the absence of such a winning policy blueprint, the participation of private sector in infrastructure projects will remain low.

Can we break the “connectivity bottleneck” in absence of such a policy framework? Only time will tell.

Who’s calling the shots?

A Prime Minister’s Delivery Unit has been set up in Islamabad that works with the Joint Cooperation Committee of China’s National Development and Reform Commission (NDRC) and Planning Commission. Although a multi-tier mechanism has been put in place besides setting up five joint working groups to deal with energy, transport infrastructure, special economic zones, Gwadar and planning; it is the Ministry of Finance that is calling all the shots.  The role of the CPEC secretariat at the Planning Commission has been reduced to that of an inter-provincial coordinator.

CPEC planners lack the deep domain experience of putting systems and processes in place for the performance reporting of Engineering, Procurement and Construction (EPC) companies and frequent tracking of key variables. The only tool available at hand is an obsolete PC-iii form and the committee established by the prime minister in June 2015 to propose alternative mechanisms for monitoring of megaprojects has not yet come up with a new project management process suite.

Problems with the boomtown, Gwadar

Gwadar has an acute drinking water shortage as its Ankara Kaur dam has dried up. The Mirani dam will not able to meet its future water requirements after a mass migration of labour force takes place to complete projects such as Gwadar airport and coal power plants.

With a depth of only 14.5 metres, Gwadar can’t become a trans-shipment hub for transit trade from Central Asian states. Moreover, oil shipments from Gwadar to China via trains aren’t economically viable as it costs 800% higher than direct shipments to Chinese ports.

Iffy Economics: The Chinese model

In 2014, Sri Lanka borrowed several billion dollars from China for infrastructure development, on the condition that major contracts shall be awarded to Chinese firms without any competition.  All these projects are now in shambles – with the Sri Lankan government reaching out to the International Monetary Fund for payback of expensive Chinese loans.

Drawing parallels, Pakistan is also repeating same mistakes by awarding contracts to Chinese players without any competitive bidding – with a sovereign guarantee of 18% return on investments.

Moreover, there is no guarantee that Chinese will pump money into our local economy by sourcing materials and labour force from Pakistan. The lion’s share of 400,000 jobs that will be created may go to Chinese labour force – not to mention the hefty cement and construction material import bill that may touch the billion dollar mark.

The way CPEC is unfolding now calls for new rules of business such that it mutually benefits both economies. All tenders should be open and transparent with mandatory provisions to source local materials, labour and management. The key lesson to learn at this stage is that there’s no such thing as a free lunch and there are no shortcuts to development.

The writer is a Cambridge graduate and is working as a management consultant.

Published in The Express Tribune, November 7th, 2016.

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Reader Comments (12)

  • SB
    Nov 6, 2016 - 11:10PM

    Leadership knows the points mentioned but simply keep it covered in disguise of secrecy or national security….Good effort in uncovering the hidden facts..Recommend

  • hiro bachani
    Nov 7, 2016 - 1:01AM

    at least listen and pay heed to your own pakistani experts- they are not indian agents- Recommend

  • Malik Shanawar
    Nov 7, 2016 - 8:47AM

    Our govt has been like this since ever but we still managed projects like M2 and tarbela damRecommend

  • Waqar
    Nov 7, 2016 - 9:10AM

    Gwadar Port depth of 14.5m is adequate to make it a transshipment hub. Dredging is planned for a 20m depth in the next few years.

    Singapore port depth is less than 12.5m, while Hong Kong is 15m. Both are world’s biggest transshipment hubs.

    Our own Karachi is the 4th biggest transshipment hub in the world. So we are already experienced in transshipment practices which can be carried over to the Gwadar seaport.Recommend

  • Mujahid Hussain.
    Nov 7, 2016 - 9:29AM

    Allah has given us an oppertunity in the shape of CPEC, and inshallah we will overcome the difficlities faceing in these days.But the main problem is we dont have expert contract lawers renowned Architect and town planner,honest builder and developer,even honest leader and politician. pakistan is a land of oppertunity but young lot is frustrated with the system and dont want to work in this country.our enemies are spreading confusion among us about CPEC.they dont want to see us as a developed nation.unity,faith and discipline is the need of the hour. Recommend

  • Komal S
    Nov 7, 2016 - 10:26AM

    @Mujahid Hussain.:
    You do not need Architects, town planners etc.., because Chinese are bringing them. They just want you to provide security. Remember the money they earn will be sent back to their country. Similarly money earned through power generation will also be sent back. Will be interesting to see what would happen to your foreign reserves due to CPEC Recommend

  • Shyam Bhagat
    Nov 7, 2016 - 10:49AM

    Chinese people are only for Business… India we do business only not selling our National Interest… If Pakistan change it’s mindset it will be great land of opportunity in near future… I don’t know how much time it will take to change 70 year old mind set..Recommend

  • Feroz
    Nov 7, 2016 - 11:23AM

    All these points already raised by many a scholar but situation is such that beggars cannot be choosers. No one is interested in putting even a dollar in FDI, therefore the one taking the risk has ensured it has covered all bases by incorporating every minor detail in its favor. Today the best global companies are struggling to earn returns of 5% on capital invested, China wants 18%.

    My question is why Chinese labour ? Why raw materials is not being procured in Pakistan ? Why no competitive bidding, to get best quotes from around the world ? Also, Pakistan has promised special security forces for implementation of these CPEC projects — what will it cost say over 25 years. Why all these special incentives offered only to China ?Recommend

  • Subhaan Butt
    Nov 7, 2016 - 12:50PM

    Dear Policymakers, Dont borrow prosperity from future for a short-term boost. Pls plan long-term. Simulate. Build scenarios. Recommend

  • Mr Obvious
    Nov 7, 2016 - 1:40PM

    With a depth of only 14.5 metres, Gwadar can’t become a trans-shipment hub for transit trade from Central Asian states. Moreover, oil shipments from Gwadar to China via trains aren’t economically viable as it costs 800% higher than direct shipments to Chinese ports.
    .
    Obvious stuff that somehow gets overlooked with all the Gwadar propaganda – it’s also worth noting that a railway to China isn’t scheduled until 2030 (assuming there is any money left by then). Of all the CPEC projects Gwadar is likely the one which will never meet expectations and may never even make a profit. Recommend

  • ABC
    Nov 7, 2016 - 2:37PM

    @Komal S:

    I wonder why you Indians are so jealous Recommend

  • PrasadDeccani
    Nov 7, 2016 - 8:58PM

    @Feroz:

    Do we really need to ask these many questions? Why don’t we just leave everything to Pakistanis? After all, it is their project. They know what is good for them.

    Just relax.Recommend

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