Does Pakistan’s so-called geo-strategic location shackle efficiency and competence? Does it stymy a realistic reassessment and recalibration of its entire policy-making and governance regime to avoid destroying the only trusted and long-standing relationship abroad i.e. China? Or will those who matter continue exploiting the country’s location in the global geopolitical wars, and thus refuse to take honest stock of the policies that are crucial to the country’s economic survival? And does this imply that the geostrategic location continues to strangle innovation, correction and pro-active action?
These questions arise from a number of indicators – the lofty continued rhetoric on both sides notwithstanding.
Let us consider the following.
A recent internal meeting of all Chinese stakeholders in Pakistan ended on one conclusion; CPEC is slow and hence the state of relations is not good. This slowdown began with pressure on Chinese power companies to cut the tariffs that were agreed upon in 2016 but other pressing factors contributed to the current strains on relations.
The tardy and multi-layered system of approvals, center-province discord and reprioritization of priorities by the Pakistani leadership have slowed down progress on several projects.
Former ambassador Yao Jing tried his best to accelerate pace of CPEC-related approvals and execution in Pakistan but failed and hence did not get the promotion within the foreign ministry that ambassadors usually get after serving at an important posting such as Pakistan.
Rashakai Economic Zone, for example, may be coming about but is delayed by nearly two years – something totally out of step with the Chinese model of speedy and relentless action once the decision has been taken.
The legal framework for the Gwadar Port and Industrial Zone was fully resolved only recently, over five years after CPEC was born.
Another source of disappointment is the snail-paced movement on the railways ML-1 project; no settlement yet between both sides on financing terms i.e. government to government loan – amount, Interest rates, and the repayment period.
Equally upsetting for the Chinese counterparts has been the recent uproar over the fencing issue in Gwadar. How can security officials hope to enhance social support for CPEC endeavours if they don’t take locals into confidence, wondered many.
Of course, the major spoiler has been the government insistence on tariff revisions, a demand made CPEC power projects – Port Qasim, Sahiwal, Hubco which have been run at mutually agreed 8 cents/per unit since 2016 being forced to reduce tariff further.
This also delayed the Gwadar Power Plant because the Chinese company also refused to begin construction unless the government honoured the agreement signed in November 2019 i.e.7.5 cents per unit.
The CEO of the company who was supposed to steer the Gwadar Power Plant was sent back to China and told to wait. He may be returning now that the government finally dropped its insistence.
Imagine the time and lost opportunity cost? A project that should have begun in November 2019, is going into implementation with a loss of nearly 18 months.
Pakistan’s loss of credibility and goodwill erosion is even greater. You don’t do this to a country that has stood by Pakistan through thick and thin, the only country that has invested nearly 30 billion dollars in less than six years.
A direct consequence of this arm-twisting by Pakistani officials is that Sino Sure Insurance company has stopped providing insurance to the Chinese private business in Pakistan since the new government began demanding revision of contracts signed during the Nawaz Sharif government. No bridging loans any more because of the uncertainty created by government demands.
The China Export Credit & Insurance Corporation (Sinosure) is a state-funded insurance company. Until the end of 2017, the cumulative domestic and foreign trade and investment supported by Sinosure exceeded USD 3.3 trillion.
The Chinese companies meanwhile also declined to complete the Kohala Hydro Project in Kashmir because of the demand for lowering tariffs in the coal-fired plants. Federal ministers to complete it but we have refused because they don’t want to revise contracts.
Even President Alvi reportedly displeased the Chinese leadership when he requested President XI for a review of tariffs during his March 2020 meeting, saying our economy not good and power tariffs are not favourable.
How can you force the investors to review contracts after signing them years ago? Which foreign investor will come if the state doesn’t stick to its contractual obligations, asked a Chinese business executive.
Government officials in fact were using revised tariffs (from 13 to 10 cents) which were negotiated with local companies but that was possible because these plants had already recovered their capital cost and had been receiving undue favours even after over ten years of operations.
Unless a nation learns to honour bilateral agreements – regardless of whether G to G or Business to Business – it cannot attract foreign investment. Whatever Sharif or Musharraf did was between two governments. How can the successor government simply ask for any changes?
It is quite upsetting that the high-handed approach towards Chinese power companies disregards the benevolence that Beijing displayed over and above the CPEC framework.
At a time when Pakistan is submitting to extremely tough conditions for the resumption of the IMF loan, which will entail punishing price impact on people, China has already increased the size of bilateral currency swap to $4.5 billion, used to return the $ 3 billion Saudi loan. China has also rolled over $2.5 billion commercial loans in this fiscal year and also plans to extend $4.4 billion in the next fiscal year, meaning thereby it remains a life-line to Pakistan’s balance of payment support.
Covid-19 no doubt curtailed activity on CPEC projects for a few months the but the bigger impediment has been the government’s insistence on revision of power tariff contracts.
How sad that because of this no CPEC ministerial meeting has taken place since November 2019. Covid-19 was one problem but the bigger one is the government insistence on revision of contracts.
Many in Pakistan may spurn this writing as gossip and speculation but let us be clear; our leadership has for too long used the country’s location as the bargaining chip in deals with US and China. This has clearly prevented them from approaches that are absolutely essential as well as unavoidable if they want the country to progress and retain China’s invaluable support. Geo-strategic location is no blank cheque for unqualified external support. The recent Chinese-Iran strategic cooperation deal is perhaps a warning that Beijing is not likely to rely on the nuclear-armed goliath which is hamstrung by the burden of its own inaction, tardy governance system, policy contradictions, and partially delusional romance with its super geo-strategic location which meanwhile is more of a crippling liability than a strategic advantage.