Partisan politics, massive corruption and raging insurgency have stalled progress on $62 billion China-Pakistan Economic Corridor
by FM Shakil –Asia Times
A mountain pass along the China-Pakistan Economic Corridor. Image: Facebook
PESHAWAR – Political unrest, foreign debt limits and the Covid-19 pandemic have all conspired to slow Chinese investment in Pakistan as Beijing holds off on projects under the US$62 China-Pakistan Economic Corridor (CPEC) including a $6.8 billion railway renovation plan.
Prime Minister Imran Khan, now under opposition fire for a range of complaints including allegations his government is military controlled, is also being criticized for squandering a golden economic opportunity for not prioritizing and expediting big-ticket Chinese infrastructure investments.
Soon after Khan assumed office in 2018, the premier put on hold several CPEC projects on the suspicion of corruption under the previous government and sought to renegotiate and realign the scheme, part of China’s Belt and Road Initiative (BRI) which seeks to pave a trade route connecting China through Pakistan to the Indian Ocean.
Two years later, his Cabinet members are being named in big corruption complaints themselves involving the country’s power sector, where at least one-third of power companies are involved in Chinese projects under the CPEC’s umbrella.
The 278-page inquiry report, compiled by the Securities and Exchange Commission of Pakistan (SECP) and presented to Khan in April, unearthed alleged irregularities worth over $1.8 billion in subsidies given to 16 independent power producers (IPPs) including those belonging to Khan’s advisors Razak Dawood and Nadeem Baber.
These IPPs invested around 60 billion rupees ($37.5 million) in establishing power plants and earned over 400 billion rupees ($2.5 billion) in just over two to four years. The profits earned by Chinese power companies were also scrutinized in the report
The SECP claimed Huang Shandong Ruyi Pakistan Ltd (HSR) and Port Qasim Electric Power Co Ltd (PQEPCL) were together overpaid by 483.6 billion rupees ($3 billion), including for excess set-up costs and miscalculations of internal rates of return allowed by the National Electric Power Regulatory Authority and the Central Power Purchase Agency respectively.
The Pakistan Democratic Movement (PDM), an alliance of 11 opposition parties spearheading a campaign for civilian supremacy over government since mid-October, has nonetheless called to accelerate Chinese-funded projects, particularly motorway and railway modernization plans that have seen little or no progress during the last five months.
The PDM also seeks the removal of the CPEC Authority’s chairman, retired Lieutenant General Asim Saleem Bajwa, until he transparently accounts for his personal and family business assets in the US. A recent report in local media claimed to expose Bajwa’s many offshore businesses, including over 100 companies and franchises in the US, UAE and Canada in which his spouse and children are reputedly involved.
Before visiting China in October 2019, Prime Minister Khan promulgated an ordinance to establish a CPEC Authority (CPECA) and tapped a retired lieutenant general as its chairperson, overriding the Planning and Development Ministry which until then had overseen CPEC affairs.
The authority was rendered legally dysfunctional after the ordinance under which it was created lapsed in June this year. The CPECA was functioning without legal authority for over four months until late October, when it was renewed for a further period of 120 days by the parliament.
Planning Ministry sources told Asia Times that CPECA was forced upon the government by China, which wanted the army to be directly involved in the CPEC portfolio as Beijing was reportedly irked with Khan’s slow movement on the wider scheme.
They claimed that recent media disclosures about Bajwa’s holding offshore assets have surprised Chinese authorities, who angled to work with the military to avoid private corruption. The allegations reputedly contributed to the postponement of President Xi Jinping’s scheduled visit to Pakistan in September this year, though Covid-19 was cited as the official reason.
Significantly, the CPEC Authority Ordinance gives immunity to the CPECA’s chairperson and staff from all legal proceedings against them. This implicitly protects them from the National Accountability Bureau (NAB), Federal Investigation Agency (FIA) and police to institute cases against them.
Senator Mushahid Hussain Sayed, a Pakistan Muslim League-Nawaz leader and chairman of the Pak-China Institute think tank told Asia Times that the PDM has reservations about the CPECA’s immunity clause, among other measures.
“The CPECA’s legality issue, chairperson’s immunity from legal proceedings and the controversies of overseas family businesses surrounding the authority’s incumbent chairperson gave a bad impression and must be resolved to improve the efficiency of CPECA,” he remarked while commenting on the PDM’s concerns.
Senator Mushahid attributed CPEC project delays to the Covid-19 pandemic but also noted that at least three new projects, two in energy and one in railway renovation were restarted this summer.
“Additionally, the new Chinese Ambassador, Nong Rong comes with a strong economic background which should give impetus to CPEC,” he said, adding that the PDM protests won’t undermine the CPEC’s progress.
“Pressures are emanating from the West and Western institutions – primarily in Washington – against the CPEC but Pakistan has demonstrated willingness, readiness and ability to withstand these pressures,” Mushahid added. He maintained that Pakistan’s broad economic progress and the CPEC are inextricably intertwined and that delaying CPEC-related activities was not an option.
The Main Line 1 (ML-1) project, the CPEC’s biggest single infrastructure undertaking, will connect Karachi in the south to Peshawar in the north through a 2,655 kilometer-long railway line for $6.8 billion.
The project aims to revamp the colonial-era railway’s infrastructure and create as many as 150,000 new jobs as well as additional freight revenue after completion.
China is well aware that nationalist and separatist forces in Balochistan and Sindh provinces have stepped up their activities against the projects, which in recent weeks has seen Chinese workers and engineers working in the regions targeted and killed by armed separatists.
They claim in propaganda materials that the Pakistan army has colluded with China to plunder Baloch and Sindh natural resources. The cost of providing around-the-clock security to Chinese nationals is raising the price of the projects at a time Pakistan’s economy is faltering badly.
With that squeeze, Pakistan has reportedly requested a 1% interest rate on the Chinese loan for the ML-1 rail project, but Chinese authorities have been reluctant to extend credit at such a low rate and have used delaying tactics to put pressure on Islamabad to accept its higher rate terms.
Khan and Bajwa now reportedly plan to take the issue to Chinese President Xi Jinping, who they believe can dictate terms on China Development Bank and Export-Import Bank of China loans, in hopes that an agreement can be reached on the rail line.
The CPEC’s Joint Coordination Committee (JCC), a core bilateral body comprised of Chinese officials and CPECA senior authorities who meet at least once a month to approve projects and review ongoing ventures, could not be held in October but will be convened later this month.
Reports suggest that the ML-1 project may not be finalized at the review meeting despite Pakistan Railways Minister Shaikh Rasheed Ahmad’s repeated assertions that the rail line project was ready to commence.
Similarly, the Greater Peshawar Mass Transit Project, Swat Express Way Phase-II and Peshawar-DI Khan Motorway, all nominally under the CPEC, have likewise been delayed and are not on the agenda of the next JCC meeting.
Jeremy Garlick, an assistant professor at the Jan Masaryk Centre of International Studies at the Prague University of Economics and Business, was quoted in regional media saying that Beijing was using delaying tactics on the ML-1 as it doesn’t want to end up with a bad deal on its hands.
“Beijing doesn’t want to say no to ML-1, it wants to appear committed in Pakistan, but at the same time it is aware of the risky environment for Chinese investments,” he added.