Amending laws to allow Chinese investment

Published: January 23, 2014
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The writer is a graduate of Columbia Law School and a partner at the Lahore-based law firm of Rana Ijaz & Partners

The writer is a graduate of Columbia Law School and a partner at the Lahore-based law firm of Rana Ijaz & Partners

According to a recent news report, China has demanded that all mega power projects, including the Bhasha Dam, the Gadani and Lakhra coal plants, the Tarbela extension project and several transmission lines be handed over to China without any competitive bidding in exchange for a $22 billion dollar Chinese investment in Pakistan. Surprisingly, it was also mentioned in this report that the Pakistani government is seriously considering this offer and is contemplating either using a loophole in Pakistan’s public procurement rules or amending these rules to close the deal.

One obvious benefit of this proposed deal is that Pakistan can get the much-needed cash to shore up its foreign exchange reserves and give its power sector a shot in the arm. The first question though is whether or not Pakistan is being offered the right amount. The second question is that even if we assume that it is the right amount, should China, or for that matter, any foreign country/investor be allowed to take control of these projects without engaging in a competitive bidding process?

The purpose of the competitive bidding process is to obtain services at the lowest prices, openly and competitively, without any nepotism. While cost efficiency is an overriding consideration in awarding such a contract, it must also be ensured that it is not awarded to a company that does not have the requisite experience and expertise. For the Chinese offer, in the absence of competitive bidding, it would be impossible to determine whether or not another foreign company could provide the same service at a lower cost or provide better quality service at the same cost.

As an alternative to competitive bidding, China has demanded that these projects be awarded through direct contracting. Although there is a provision for direct contracting under Pakistan’s public procurement rules, it can only be done in certain exceptional cases. For example, it could be done if there is only one supplier of the service or if changing the current supplier would entail technical difficulties in operation and maintenance. Pakistan’s government could come up with a creative interpretation of the emergency exception for direct contracting and maybe this is the loophole being referred to in the news report. However, citing ‘emergency’ as grounds for direct contracting would be a tough sell, which is why the possibility of amending the law was also mentioned.

Even if the government can show that the Chinese supplier has the requisite expertise and offers the most cost-efficient option, amending our country’s laws to accede to a foreign country’s demand would set a bad example. What if other countries also refuse to participate in competitive bidding before investing in Pakistan in the future? They could argue that if Pakistan made an exception for China, why can’t it do the same for them? It is a slippery slope.

Amending our laws would also signal to the international community that by throwing money at Pakistan, a foreign company can change Pakistan’s laws to fit its own requirements. Even if we disregard the financial and legal aspects, there is an important strategic element to this. The proposed transaction involves our power sector and it needs to be thoroughly deliberated whether or not it would be wise to hand over a substantial part of our power infrastructure to a foreign entity that may not be the most reliable and efficient manager of such assets.

This proposed deal seems like a quid pro quo for essentially getting a loan from China. It seems to be motivated by the same short-termism and myopia our leaders have been guilty of whereby they look for quick fixes and the political mileage that comes with it. The considerations for such large investments in our power sector should not be some superficial political gain or short-term economic gain. These decisions should be based on a national policy that encompasses economic factors, a coherent and stringent regulatory framework and a long-term vision for our national assets.

Published in The Express Tribune, January 23rd, 2014.

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Reader Comments (16)

  • Khurram
    Jan 23, 2014 - 12:28AM

    A very pragmatic article. A must read for ishaq dar!

    Recommend

  • Ammar
    Jan 23, 2014 - 12:29AM

    First of all there must be someone interested to invest in the country…

    secondly the process should be handled by open bidding, on built and operate models…and the successful candidate must be awarded the contract…

    up to my observation No other country is ready to finance Mega Projects in Pk…lets avail this opportunity if they want to invest…but plz dont sell national interests…

    Recommend

  • Pan Mat
    Jan 23, 2014 - 4:04AM

    Who knows this could be a RAW/MOSSAD /CIA conspiracy to malign “higher than Himalayas” friendship!

    Just kidding.

    Recommend

  • truthbetold
    Jan 23, 2014 - 4:13AM

    “should China, or for that matter, any foreign country/investor be allowed to take control of these projects without engaging in a competitive bidding process?”

    Competitive process is for countries that can afford to pay for the projects. When a country is broke, it can’t be choosy. Sorry, but that is the hard truth.

    Recommend

  • truthbetold
    Jan 23, 2014 - 4:17AM

    @athor,

    “Amending our laws would also signal to the international community that by throwing money at Pakistan, a foreign company can change Pakistan’s laws to fit its own requirements.”

    Have you been living on Mars all these years? Read your sentence above couple of times and think about Pakistan’s history. Hasn’t Pakistan has been for hire for the right money? How would you explain Pakistan getting into the 80’s Afghan war and the post 9/11 services to the US? If you go back in history, every Pakistani leader has done the same, selling out Pakistan. Do SEATO, CENTO ring any bells?

    Recommend

  • Sexton Blake
    Jan 23, 2014 - 4:34AM

    Having watched it happen in several countries I can almost guarantee what will happen. For example, in Australia the power companies were sold off cheaply to foreign interests in order to solve Government debt. Once privatized the quality of service went off and prices have continued to rise astronomically.ever since. The details may be a little different in Pakistan, but the end result never changes. Incidentally, Australian Government debt is at an all-time high, but does not have any resources to sell-off. The end result is that power bills and taxes continue to escalate. Best of luck Pakistan. You too can walk around your houses at night in the dark.

    Recommend

  • TARIQ mahmud
    Jan 23, 2014 - 5:39AM

    Any recourse to obviate the laid down procedures is fraught with dangers. £ 22 billion will not come in one go while Pakistan will be constrained to relax the rules up frontally . What if the promised flow hit some serious snags . Its high time that our leadership should start respecting our own rules and regulations before encouraging and enticing others to give such bait.The Chinese Government almost a decade ago had agreed to fund and upgradion of Karakurram High way . It still remains a pipe dream as loan from the Exim Bank never got materialised. Our contractual deals should be upfront rather than relying on intents and hopes .

    Recommend

  • Muhammad Ismail Mari
    Jan 23, 2014 - 11:56AM

    Pakistan must think before giving the projects to China. Such kind of biddings are very crucial for the country development.Recommend

  • Muhammad Ismail Mari
    Jan 23, 2014 - 11:59AM

    Such kind of projects are very crucial for the developement of a country.Recommend

  • Asad Khan
    Jan 23, 2014 - 1:23PM

    @ Author
    “Pakistan’s government could come up with a creative interpretation of the “emergency exception” for direct contracting and maybe this is the loophole being referred to in the news report…”

    The news item that you are referring put the lexical “loophole” in order to make news little bit catchy.

    Pakistan is indeed under an Emergency Crises and will be under a Water Stress in 2018. US is not allowing IP line to go through and politely refuse to finance the Thar Coal through UGS

    Now, I think by offering power projects to China w/o biding and on govt to govt agreement level is a God given opportunity. Pak & China must utilize the best of it for a win win for both.

    Remember, it is Pakistan on lower ground here not China, Chinese companies can go all over the world for business.

    However, I must commend the concern of the Author for national regulations. But right now Power / Water Security is a strategic concern for Pak rather than a business transaction.

    I hope readers understand the gist of my comment.

    regards,Recommend

  • Naresh
    Jan 23, 2014 - 5:51PM

    Pakistan and Pakistanis must stop at looking a Gift Horse in the mouth. Pakistan is in dire need of increasing its Energy Supply and improving as well as adding to its Infrastructure.
    .
    As we see ONLY CHINA – Pakistan’s Time Tested and All Weather Friend – is willing to Finance, Execute, Finance and Build mega power projects, including the Bhasha Dam, the Gadani and Lakhra coal plants, the Tarbela extension project and several transmission lines which provide Aid to the tune of US$ Twenty Two Million!
    .
    As there are no other Avenues of Financing being offered to Pakistan it is high time that Pakistan must accept the Chinese magnanimous offer without any hesitation or trying to amend the Chinese Terms & Conditions as Pakistan has no other Alternative Source of Finance.
    .
    Cheers

    Recommend

  • genesis
    Jan 23, 2014 - 9:45PM

    It seems that Pakistan is emerging as a colony for the Chinese.They will be the new colonial masters and because they can offer a *”for a few dollars more”* they call the shots!Recommend

  • Asad Khan
    Jan 23, 2014 - 10:42PM

    @genesis:
    Pathetic Argument.

    BTW, Western Capitalist Govts / Multi-Nationals are Christian Charities that they invest by the name of Lord nothing but for sake of Lord????

    regards,Recommend

  • Naresh
    Jan 27, 2014 - 7:00PM

    I hope Pakistan accepts China’s Offer and the Chinese conditions in respect of the Offer as the Chinese have been looking to Invest US$160 Billion in only ONE INDIAN State – ANDHRA as per the following Article :
    .
    http://economictimes.indiatimes.com/news/economy/foreign-trade/china-ready-to-invest-160-billion-in-andhra-pradesh/articleshow/21197721.cms?intenttarget=no
    .
    China ready to invest $160 billion in Andhra Pradesh
    .
    Cheers

    Recommend

  • Zeeshan
    Jan 30, 2014 - 1:37AM

    It was China or no one. Sometimes legality has to take a back seat for practicality.

    Recommend

  • Shah
    Feb 1, 2014 - 7:30PM

    If At The End Of The Day We Get Our Power and Infrastructure Projects Completed Then What Is The HarmRecommend

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