Debunking misconceptions about CPEC energy projects
The Power Policy of 1994 was introduced as the ultimate solution to Pakistan's electricity problems. Western countries and institutions praised the policy as one of the best pro-private sector initiatives. The World Bank and USAID collaborated with other multilateral donors to ensure the policy's success by providing financial support. Both the World Bank and USAID backed the Private Sector Energy Development Fund, which extended special financing for the Independent Power Producers (IPPs) under the Power Policy.
However, the policy turned out to be disastrous for Pakistan. Instead of addressing the core issues or revising the policy, certain forces have shifted the blame onto the China-Pakistan Economic Corridor (CPEC) energy projects, running nonstop malicious campaigns against them. In reality, CPEC energy projects have greatly benefited Pakistan on multiple fronts. The Asian Institute of Eco-civilisation Research and Development analysed the situation and presented several key observations.
Let's begin with the circular debt. Pakistan's total circular debt stands at Rs2.66 trillion, of which Rs400 billion is owed to Chinese companies. If we subtract this Rs400 billion, the remaining debt is still Rs2.26 trillion. So, where does the blame lie? With the Power Policy of 1994, supported by USAID, the World Bank, and other financers of the policy.
Secondly, the analysis shows that before the launch of CPEC energy projects, Pakistan was facing a severe electricity shortage, a crisis that was significantly impacting the country. The industry was beginning to shift away from Pakistan, and business opportunities were dwindling. The limited job prospects for the growing young population were a cause for concern. This situation was taking a heavy toll on the Pakistani economy, with government statistics indicating an annual loss of $4-5 billion.
Thanks to the CPEC energy projects, Pakistan managed to significantly reduce, if not completely eliminate, the challenge of electricity load shedding. The improved availability of electricity also led to an increase in per capita electricity consumption. Data shows that per capita consumption rose from 431 kWh in 2014 to 644 kWh in 2022, signalling promising progress. Moreover, the percentage of people without access to electricity decreased from 25% in 2014 to 24.5% in 2022, even as the population grew from 188 million in 2014 to 241 million in 2022.
Now, imagine a scenario where CPEC energy projects did not exist. What would be the state of electricity load shedding and its associated costs? First, there would be no additional 5,000+ megawatts of electricity in the national grid. Meanwhile, demand would have increased due to population growth and higher per capita consumption.
A rough estimate suggests that the annual loss due to electricity load shedding would be around $15-20 billion. How? Two major factors support this argument. First, Pakistan's population grew from 188 million in 2014 to 241 million, according to the latest census. Second, per capita electricity consumption also increased during this period. Both factors indicate that demand would have risen, meaning that by 2023, Pakistan would have faced its worst load shedding crisis. This would lead to deindustrialisation, unemployment, mental health issues due to sleepless nights, and the closure of businesses.
To understand the impact of these costs, consider the current financial and economic crisis. Pakistan is struggling to find ways to avert a debt crisis and reignite economic growth. The International Monetary Fund compelled Pakistan to accept stringent conditions in exchange for a $3 billion loan. Without CPEC energy projects, Pakistan's economic situation would be even more dire, and the IMF's demands would be even harsher.
Furthermore, CPEC energy projects have created jobs and contributed to the capacity development of Pakistani engineers and staff. Let's examine three power plants in detail to understand how these projects have created jobs and developed skills.
First, the Sahiwal power plant created 8,436 jobs during its construction, with Pakistani and Chinese employees making up 63% and 37% of the workforce, respectively. During the operational phase, the plant employs 1,683 people, with a 61:39 ratio of Pakistani to Chinese employees. Chinese companies and the government also contributed to building the capacity of Pakistani staff, training 245 engineers and 377 lower-level staff members.
Second, the Port Qasim project created 4,000 jobs during its construction phase, with a workforce consisting of 75% Pakistanis and 25% Chinese. China also trained 600 engineers and 2,000 lower-level staff members. During the operational phase, the plant employs 1,270 workers, with 76% being Pakistanis and 24% Chinese.
Third, the HUBCO power plant's story is similar. During construction, the workforce was 56.7% Pakistani and 43.3% Chinese. During operations, the workforce is 71.1% Pakistani and 28.9% foreign, including 39 employees from the Philippines and one British national during construction.
Additionally, China invested in other projects such as the Engro Thar Coal Power & Mine, Hydro China Dawood Wind Farm, Quaid-e-Azam Solar Park, UEP Wind Farm, Sachal Wind Farm, and the Three Gorges Second and Third Wind Power Projects, all of which have been completed. Many projects, like the Karot Hydropower and Suki-Kinari Hydropower projects, are progressing well. Pakistan and China also collaborated to build the HVDC +660 kV Matiari-Lahore HVDC Transmission Line, a much-needed modernization of the electricity transmission system.
In conclusion, we can draw three key lessons from the above discussion. First, CPEC energy projects have helped Pakistan manage the load-shedding crisis, provided significant employment opportunities, and improved the skills of Pakistani engineers and workers. Second, it is evident that CPEC energy projects are not the cause of Pakistan's circular debt crisis or rising electricity prices; the real culprit is the Power Policy of 1994, supported by USAID, the World Bank, and other financiers. Third, the opportunity cost of not having CPEC energy projects would be extraordinarily high, beyond Pakistan's capacity to bear. The economic and social situation would be dire, and the IMF would impose even stricter conditions, pushing Pakistan to follow its dictates. Meanwhile, opponents would continue to create challenges for Pakistan on economic, social, diplomatic, and security fronts.
THE WRITER IS A POLITICAL ECONOMIST AND A VISITING RESEARCH FELLOW AT HEBEI UNIVERSITY, CHINA