CPEC is often termed as ‘” game changer” and ” fate changer” which it could be —–rather should be, since it has emerged at a very critical juncture in the 69 years history of Pakistan. Pakistan which is located in a very strategic position, shall gain unmatched importance by connecting directly western China, Turkmenstan, Uzbekistan, Kyrgyzstan, Kazakhistan and southern Russia (thru Central Asian States) directly to the warm waters which was a very old dream of Russia/China curtailing thousands of kms and weeks of travel time to reach the Arabian Sea at the doorsteps of Middle East and East Africa. China, Russia and 4 central states have a combined population of 1.575 billion which is 21% of the world population, with a combined GDP of $12,488 billion, about 17% of world GDP. The transportation of goods and services to these countries from/to Pakistan which previously had no direct accessibility and entailed prohibitive logistical expenses, is now possible at a fraction of previous cost , improving the possibility of quantum jump in mutual trade. These and other similar enthusiastically discussed scenarios are very exhilarating, raising hopes of imminent actualization of these plans . However, now that the initial euphoria has settled, there are lots of caveats to be seriously looked into to translate the goals into reality. First and foremost is the fact that we always write and discuss to prove the importance and utility of CPEC thru the prism of China, at least economically. CPEC is part of an ambitious plan of One Belt, One Road (OBOR) of China to gain access to the markets of Asia, Africa and Europe. This being a “flagship project”, it is of extreme importance for China to complete it successfully and in shortest possible time. CPEC shall not only give it access to Indian Ocean overcoming its Malacca overhang but also cut its distance and travel time to Arabian Sea, saving billions of dollars only in freight plus unquantifiable value of time saving. This is in additions to the widely held belief of India and USA of China’s enhanced strategic capability of monitoring their navel activities in Indian Ocean, which explains the opposition, anger and dilemma of these two strategic allies. China is fast developing its softbelly western provinces, the largest being Xingjian Uygur Autonomous Region (which borders 9 countries i.e. Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Pakistan, Mongolia, India and Afghanistan) to bring them at par with its eastern provinces. Urumqi Economic and Technical Development Zone which was conceived in August 1994 is now operative on an area of 480 sq km with thousands of projects including 15 top Fortune 500 companies. In addition to this , another industrial zone called Kashgar Central and Southern Asia Industrial Park has been set up in 2010 on 165 sq km area. Installed power generation capacity in Xinjiang is 49,790 mw while additional 19,132 mw coal projects were approved by China in 2015, raising total installed capacity to 68,922 mw, out of which 51,000 mw shall be on coal. Xinjiang has coal reserves of 2,190 billion tonnes (which are 40% of the entire Chinese coal reserves) against a miniscule reserve of 175 billion tonnes in Thar. The price of electricity for industries in Xinjiang is Y0.348/kwh ($0.0521). All the projects under CPEC are to be financed by Chinese banks to Chinese investors in Pakistan. There is no international bidding of the cost of the project and whatever the Chinese companies offer, has to be accepted. The infrastructure projects funding of about $11 billion is at 1.6% per annum payable in 25 years while electric generation projects valuing about $35 billion are at 4.95% per annum ( Libor 0.5% + spread od 4.50%) alongwith guaranteed rate of return on equity varying from 27% pa to 30.65% pa, all repayable in dollars. The priority power projects of 10,400 mw are stated to commence operation in 2017-18; hence the repayment of loans , cost of imported coal and profits (which are included in the tarrif) shall become payable instantly on fortnightly basis. The Government of Pakistan has given a sovereign guarantee to purchase for 30 years the generated electricity (wether we need it or not) and pay for it as per agreed tarrif. If all 10,400 mw projects are on coal, the annual payment to be remitted to Chinese investors in foreign currency may be to the tune of $ 2.48 billion per annum; this figure is liable to change if the generation mix is changed. The tarriff or coal-based projects is fixed at highest of $0.109247/kwh and lowest at $0.090642/kw. These rates are liable to increase every year equivalent to increase by consumer price index in Pakistan (for local currency input-cost component) and CPI of USA for foreign currency input-cost component. This tarrif may also increase after every 5 years with the major overhaul of the generating sets which is generally done after 40,000 hours. The Government has allowed the Chinese companies to hire private security guards for their personal security. China has given lease of Gwadar port with a land area of 2,300 acres for 40 years with 20 years tax holiday to the port operator and 10 years tax holiday to the projects put up in Gwadar Zone as well as in other approved Special Economic Zones. China’s total international trade in 2014 was $4.301 trillion (exports $2,342 trillion + imports $1.959 trillion). Due to savings in time and money, it is estimated that major portion of this trade may be routed through CPEC. However, for calculation purposes, if only 20% of this trade is routed thru CPEC/Gwadar, it means about 1,560,000 TUEs containers (assuming cargo value of $500,000 per TUE) shall pass thru CPEC/Gwadar every year, 4,273 containers per day. And if on average 20 days are curtailed from each shipment period, it means about $42 billion less investment by China in goods-in-transit plus millions of dollars in freight savings. It may not be viable for China to import Oil thru CPEC unless a pipeline is laid all the way from Gwadar to Khunjrab/Urumqi which may take years to accomplish. So in all likelihood, the quantum of exports thru CPEC shall be much more than import ; which in turn means that it shall always be Chinese transporter who shall be carrying goods for export from China to Gwadar and shall, on their way back, pick up cargo from Gwadar or other Pakistani markets to carry back to China, denying any chance to the Pakistani transporters. It is evident from above, China knows exactly what it has to spend and what it shall get in return-strategically and economically. There is no chance of any loss of the $36 billion energy projects since the purchase of its generation and payment thereof are guaranteed by Govt of Pakistan. For the rest of $10 billion, it shall be owningGwadar port for 40 years. In the second part of this article, we shall see what is in it for Pakistan. The writer is a Chartered Accountant and can be reached at president@economywatch.com.pk