Past 12 Months Progress of CPEC

[LRE-Azan]

Suspension of funding for few China-Pakistan Economic Corridor (CPEC) infrastructure projects was the most shocking news of the year for Pakistan, as China is solely financing the CPEC projects. Experts however point out that CPEC is more crucial for China and funding would resume soon.

Barring this setback at the end of this year, the progress on CPEC has been commendable in the past 12 months. Four mega power sector projects, each of over 1,300 megawatt became operational in 2017. The project would be entering its second phase in 2018 with the formal opening of Gwadar port and energising of the CPEC road link to take thousands of containers to and from Kashgar to Gwadar.

China has already committed to finance different CPEC projects worth $62 billion and the route is being touted as a game changer for Pakistan. This is one of the largest mega projects ever undertaken globally. CPEC involves development of Gwadar, energy projects, infrastructure projects and formation of 30 special economic zones.

There have been apprehensions in some circles that Pakistan would face problem in servicing the CPEC-related loans given by China. There would be no problem if we act prudently.

The benefits of CPEC would start pouring into Pakistan from 2018 when the trade corridor would become functional. Repayments will start from the 4th year of the project after the date of financial closure.

Pakistan would benefit through investment from China for the development of the much needed infrastructure and to bridge the energy shortfall. This project would also help the country realise its potential of becoming a regional trade hub and energy corridor, thereby bringing huge transit revenues and employment opportunities.

The transit revenues even in the first year would be larger than the repayments that Pakistan would start making for CPEC financing in 2021. Debt repayments are expected to be up to 10 years and will be $70 million for every $1 billion worth of project.

Equity repayments are expected up to 30 years and will be $30 million for every $1 billion worth of project. For CPEC projects of $16 billion, annual debt and equity repayments would be $1.6 billion starting from 2021 onwards. These are expected to be offset even by rise in exports sparing the transits’ fee for economic development.

Gwadar is central to the CPEC corridor because it would be linked to China by road, which has already been built and tested up to Kashgar. It is the only natural deep sea port in the entire region capable of anchoring mother ships that carry 6,000 to 8,000 containers. Even Dubai is kept operational through continuous dredging.

Chabahar port that became operational in 2017 similarly would operate only by deepening the sea through regular dredging that is an expensive exercise. Moreover, Chabahar has no direct road access to China.

Some experts wonder why China is financing this project. It is a game changer for China as well. Currently, nearly 80 percent of China's oil is transported by ship from the Strait of Malacca to Shanghai, a distance of more than 16,000 kilometres, with the journey taking between two to three months. But once Gwadar becomes operational the distance will be reduced to less than 5,000km.

China's presence in Gwadar will also increase its influence in the Indian Ocean, a vital route for oil transportation between the Atlantic and the Pacific. China would continue to finance CPEC projects particularly road infrastructure projects. To ease the power shortages in the country it has already funded and completed four power projects of approximately 5,200MW. The benefits of these projects would go to the domestic industries.

The corridor will reduce sea land route distance between Europe and Western China to less than half. A trial was conducted last year for transportation of containers from Beijing to Gwadar and Karachi through sea route as well as land route through Khunjerab.

Transportation through land route took almost half the time with approximate saving of seven to 14 cents per kilogram that translates into savings of billions of dollars per annum. (This comes to $70,000 to 140,000 per ton). This is the reason that every stakeholder in this corridor worked tirelessly during the entire year to accelerate the completion process.

Almost the entire CPEC route is virgin land that could be utilised by building industrial zones all along. At the same time the availability of infrastructure like roads and communications would lure many oil and gas and mineral giants to explore the mineral and oil wealth along this route. Chinese would definitely relocate some of their industries on this route. For the first time Pakistan could expect foreign investment that would boost exports instead of taking profits from local consumption.

This year vigilance of our agencies has thwarted various attempts by foreign powers to sabotage the CPEC corridor. The arrest of Kulbhushan Yadav from Balochistan unveiled many ongoing programmes by foreign agents to create unrest in Gwadar and CPEC infrastructure in Balochistan. The risks to CPEC also include political parties’ reservation, geopolitical risks including tensions on the Pakistan-India border, ISIS and ongoing war in Syria, global and economic slowdown, and project delays.

It seems that India has now realised the reality of CPEC and is now asking China to change its name for face saving purpose. It is economically more feasible for India to import and export its goods from its central regions through Karachi or Gwadar instead of Bombay as it would save both freight and time.

Dr CM Meena, assistant professor, Department of Geography, University of Delhi – India, in his analysis of this corridor wrote that CPEC assumes crucial significance for India in the larger context of China’s regional/transnational initiative, known as ‘One Belt, One Road’.

So far, observers in India have either ignored the proposed CPEC or have rejected it as unviable. India has also opposed this corridor as it will pass through disputed territory. It is true that some serious territorial disputes involving China, India and Pakistan are yet to be resolved.

However, in the continually evolving regional dynamics marked by a remarkable upsurge in bilateral trade between India and China, increasing bilateral cooperation on various other fronts, and attempts to revive the India-Pakistan peace process, the proposed CPEC presents to India some interesting and promising choices which, if exercised innovatively, may open new vistas of regional cooperation, stability and economic growth in the region.

The year 2018 would determine whether India joins the corridor like Iran or will forgo huge economic benefits by staying out of it. Historically, India has compromised on its economic interests if it benefits Pakistan as well. This time the economic opportunities are too lucrative to sacrifice as it would not hurt Pakistan. But by being part of corridor India would have to remove trade barriers erected against Pakistan.