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Old Sunday, November 01, 2015
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Default China-Pakistan Economic Corridor (Important Articles)

CPEC faltering?
I HOPE I am wrong on this one. But early signs indicate that the Pakistani side has already started faltering on the China Pakistan Economic Corridor. This has happened within six months after its announcement with much fanfare during the visit of Chinese President Xi Jinping.

Last week the parliamentary committee was given a ‘status update’ by the executing ministries. The ‘briefing’ consisted of a presentation on the Frontier Works Organisation’s progress on the western route, another on the Suki Kinari power project and standard presentations on coal deposits that are available in Khyber Pakhtunkhwa and Balochistan and about which we have known for a long time. Another was on opportunities in the agriculture sector.

So the western route is being built and hopefully will be completed by the end of 2016. Trucks laden with shipping containers will be able to ply up and down. But does the government have any estimate or study that can quantify the economic benefits that will accrue from this? Nato containers also plied our roads for over a decade but what then? Sure there will be ribbon development effects and we’ll see refuelling stations, rest areas and tea shops crop up alongside the new route.

Hinterland access would also be improved as branches are developed from the trunk. But to be sure, CPEC is a north-south trunk that meets the Chinese objective of accessing markets for its manufactured goods. Do we have any ideas, apart from the usual platitudes, on leveraging it to create substantial economic benefits?

Clearly, the government is out of ideas.
To be fair, China has suggested for Pakistan to establish industrial parks and special economic zones where raw materials and other factors of production are available. Industrial parks can be considered for sectors such as steel, cement, automobiles, construction materials, gems and stones, household appliances, agricultural implements, textiles and garments. With some savvy business structuring, it may even be possible to relocate certain low technology industries from China.

For several weeks, the federal and provincial governments went through the usual standard motions, and identified sites for 29 industrial parks and 21 special economic zones.

But the government remained clueless on how these estates will be made attractive for investors. Who will invest here, what will they make and who will they sell to? What ails our competitiveness in most productive industrial sectors? Indeed, why so many existing industrial estates in the country remain underutilised.

Instead of any deep thinking on the matter the government was last mulling exemptions from duties and taxes on all imported machinery and a 20-year income tax holiday for new manufacturing plants. That is, until somebody mentioned the elephant in the room. How do we run industrial estates without electricity? And that was that. Now even this half-baked plan has been put off because there is not enough electricity. Clearly, the government is out of ideas here. If it had its piece together, the electricity bit was easy to solve. Let the estate developers and operators bring in rental power plants. Any excess could be fed to the grid and any shortfall drawn from it. They would need fuel to be delivered to their locations. And the fastest stop-gap solution would be furnace oil. At the present low world oil prices this may just be viable. Until we can get our power plants up and running that is.

Incidentally, most issues appear to revolve around the power sector. To the earlier problem of circular debt and delayed payments has now been added a decrepit grid that cannot evacuate and transmit power in the required quantities. And project sponsors in the power sector complain that there is no ‘one window’ as promised, instead they have to chase around AEDB, Nepra, NTDC and other power-sector agencies separately to get their files and paperwork processed; the work at each window is dependent on the other and the agencies do not talk to each other to resolve problems.

On to Gwadar port where 1,000 hectares have been assigned to the port operator, China Overseas Port Holding Company to develop a duty-free zone and industrial area adjacent to the port.

In my background discussions with the company, it was not clear to them yet what kind of business opportunities would be pursued at the zone, whether the investors would predominantly come from China or from the local market. There does not appear to be a traffic forecast with underlying assumptions indicating how many and what type of ships will arrive in 2018, 2019 and 2020? The port operator appeared to be struggling with these questions.

The government needs to step up and ask them what is it that we can do to help you get this port up and running. The government needs to allocate more imagination and will here.

The writer is a business strategist & entrepreneur

moazzamhusain@gmail.com

Published in Dawn, November 1st, 2015
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Default The China-Pakistan Economic Corridor (CPEC): Dominating Threats

While taking both the all-weather friends to the new heights of bilateral relations, the China-Pakistan Economic Corridor (CPEC) is a significant development mega project. The principal purpose of this multi-billion project is to link the Gwadar Port in southwestern Pakistan to northwestern region of Xinjiang in China and to provide Pakistan energy and communication infrastructure.

The development project is aimed to be connected through highways, railways, oil and gas pipelines, and an optical fiber link. Moreover, the development mega project also includes 2,700-kilometers highway from Kashgar to Gwadar through Khunjrab, railways links for cargo trains between Gwadar and Khunjrab linking to China and having connectivity with Afghanistan, Iran and India.

The project is one of the largest projects in history of bilateral relations between Pakistan and China, and also known as multi-billion project. The entire program costs $46 billion. $34 billion would be spent on energy infrastructure and remaining amount is for basal infrastructures. Besides, being one of the largest regional projects the China Pakistan Economic Corridor (CPEC) is a time taking project which is estimated to be end up by 2030. The projects are planed short, mid and long terms. The short term projects would be completed by 2018. The midterm projects are expected to be end by 2025. However, most important long term projects would be wind up by 2030.

While the project is one of the significant and beneficial mega projects, it is experiencing certain dominating threats.

So far the most prevailing threat experiences for the corridor is lingering security concerns. Scores of militant outfits such as, Tehreek-e-Taliban Pakistan (TTP), Lashkar-e-Jhangvi (LeJ), Baluchistan Liberation Army (BLA), Baluchistan Liberation Front (BLF) have been on front to impair the corridor via physical damage and attacking the workforce while accomplishing economic gains and filling up the desires of their influential foreign masters.

Additionally, several of the Chinese workers have been killed as yet in different ambushes. That was the very reason China has several times urged Pakistan to provide security for the Chinese workforce.

Moreover, another key existing threat to the corridor is political concerns. In September 2014 the Chinese president had planned to pay visit to Pakistan, however, owing to the tight political situation in Pakistan the Chinese president was forced to postpone his visit. In addition, another controversy broke out when some nationalist political parties alleged the government was changing the route. Though Pakistan’s Prime Minister of Pakistan convened all parties to a conference, doubts still exist.

Furthermore, RAW, India’s secret services has never let a chance escape to harm the interests of Pakistan. According to a daily newspaper the security agencies of China shared documents with Pakistan that RAW is on its front to sabotage the mega project. Pakistan’s neighboring country since the partition has remained hostile on accounts of ideological differences and Kashmir issue.

More importantly, unrest in Baluchistan is yet another key threat to the economic corridor. There are certain outfits such as the Baluchistan Liberation Army (BLA), Baluchistan Liberation Front (BLF) that are endeavoring to sabotage the mega project to pursue their interests of separating Baluchistan from Pakistan and destabilizing Pakistan. Besides, these outfits there are nationalists who are of the view that the corridor would turn the majority Baloch into a minority.

Additionally, which provinces and cities will reap the windfall of Chinese Investment has not been so far officially revealed, thus making it one of the prevailing potential threats to the corridor. Even sub-nationalist political parties have launched a campaign against the federal government alleging it for showing a cold shoulder to the provinces other than Punjab where the ruling party attained the majority of votes in general elections in 2013. Thus, this political ploy is directly affecting the flow of the project.

To sum up, despite China and Pakistan being all-weather friends — that have always endeavored to strengthen their relations in different ways — in numerous times those efforts have been in vain owing to different constraints. The Karakoram Highway stands as a perfect example of one such failure. All future efforts should be put forth to figure out the aforementioned hindrances to the mega project as for the involved nations every difficulty would be surmountable if true attempts are put forward. And ultimately the corridor would benefit both the stakeholders and it would certainly benefit not only the lives of people of China and Pakistan, but also all the neighboring nations if these dominating threats are dealt with successfully...
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Old Wednesday, January 13, 2016
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Default Corridor echoes

Corridor echoes
“THE great thing about the road is that we can go wherever we want. The problem is that others come here on it too,” said an old man in Islamkot in Thar desert, lamenting the intrusion of modernity. With the road came the coal developers, the land grabbers, madressahs and maulvis, divisive politicians, strangers with guns and too much money, outsiders who ogled at women, and NGOs who said everything they did was wrong. But it also brought mobile phone coverage, easier access to healthcare and labour markets, convenient transport and a sense of connection with the nation-state.

Like all other symbols of modernity from schools to vaccinations and from dams to television, initial scepticism and contestation gives way to grudging acceptance by most, as long as some version of initial purity can be preserved, usually through women’s bodies. Like the other symbols, roads have a power, maybe even a route beyond what was initially conceptualised.

The silk route, for instance, was born of the search for ‘heavenly horses’. The Chinese Han dynasty wanted horses from Ferghana valley, which they heard ran so fast they sweated blood and that could defeat the Huns against whom the Great Wall had been constructed. The blood sweat turned out to be parasites that burst equine capillaries. But in the search for horses, they found markets for silk.

And now the silk route is being revived. China’s ambition is staggering. The contiguous land route from China will cross Central Asian states through to Iran and Turkey, then via Ukraine to Moscow, onto Germany, Portugal and Italy. From there waterway connections will bridge to Greece, down Lebanon into Ethiopia and Kenya, crossing the oceans through Sri Lanka and Malaysia and looping back into China. Collectively known as the OBOR (One Belt One Road) Initiative, it would link two-thirds of the world’s population and two-thirds of known energy reserves. The Gwadar to Kashgar route is one of three corridors that will connect the land route with the sea route. All the current government here seems to have extracted from this proposed economic recalibration of the world is that transport is the new in thing.

CPEC is not only a road. It is seen as the cure for all national ills.
The China-Pakistan Economic Corridor is coalescing tribal, local, ethnic, national and international regimes into specific GPS coordinates while throwing forward interesting anomalies. Roads are usually a public good and public works, but this one is a foreign investment with foreign contractors. It follows the narrative of economic development but the contestation around it is built on psycho-geography. It is being heralded as a trigger of growth but with little thought of what we will produce and send out through the corridor aside from it being a transit facility, a regional laari adda.

But it is not only a road. It is energy projects, industrial parks, exports, economic growth and the cure for all national ills. Like the honey that grandmothers say is the remedy for everything. Drawing from the Egyptians, maybe we think this honey can embalm ethnic grievances. So it is definitely not just a road.

But then, it never is. The women of Kaka Pir village, now known as Sandspit in Karachi, say the construction of the road that connected their village, Manora island and the city in the 1950s changed their lives. It opened up jobs, sure. But it changed the social fabric from a matrilocal village where women went on fishing expeditions, made nets and swam in the mangroves to one where they are confined to their homes because of the fear of outsiders. Instruments of modernity act upon existing social differences and exacerbate them. Including roads. Including, in fact, the state itself.

In Telangana in India, there is an infamous ‘highway of death’ that with its road accidents has created entire villages of widows along its route because no one thought of making ways for villager pedestrians to cross it. It could work as an analogy for what development can mean if it doesn’t factor in the poor and disenfranchised. That’s what the bypasses end up bypassing.

When cement structures became common, the Odh tribe in lower Sindh who made mud houses became redundant and ended up as bonded laborers. More recently, when their property became prime real estate, katchi abadi dwellers in Islamabad were recast first as Afghan Pakhtuns who threatened security, and then as Christians who threatened the Muslim credentials of the city and in either case required eviction. Development creates its own collateral damage.

The old man in Islamkot was among the crowd that stood on the road to receive the dead bodies of five labourers from his village who had gone to Turbat to work on Sohrab dam and were killed by Baloch militants. “You can decide what goes on the road,” he said, “But you can’t stop what comes on it.”

The writer is a researcher and consultant in the social sector.

nazishbrohi.nb@gmail.com

Twitter: @Nazish_Brohi

Published in Dawn, January 6th, 2016
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Default CPEC and federalism

CPEC and federalism

THE conflict over the geographic distribution of projects being implemented under CPEC is neither unexpected nor completely unwarranted. Out of all principle fractures dotting Pakistan’s political history, centre-province relations, and the debate on centralised bureaucratic structures controlling administration and policy, are second only to a basic civil-military conflict. In fact, it can be plausibly argued that the latter is in no small part responsible for the former.

Distilling public statements, speeches, and posturing of various political actors, the Cliffs Notes of this conflict are as follows — out of the agreements signed between the two governments, a disproportionate percentage of the financing is devoted to projects located in the six divisions of north and central Punjab, with Lahore receiving special attention.

This holds for both the main highway projects, as well as for the various power projects planned (or under construction). Other areas, like Fata, the provinces of KP and Balochistan, and Azad Kashmir, will see a smaller portion of the investment. This is said to be particularly salient in the case of the ‘western’ route, which is being pushed off to a lower priority.

Ethnic discord and centre-province conflict are a fight between different tiers of political elites.
In case it wasn’t clear, this is a rudimentary summary of the position held by those opposing the government’s current utilisation of CPEC agreements. It is not, and I should make this abundantly clear, an actual analysis of project distribution or per-area expenditure. That analysis needs to be done separately and needs to be made public as soon as possible.

Nonetheless, the starting point here is inter-provincial mistrust, and frayed relations between provincial actors and the central government. The history behind this is fairly simple: The composition of the civil and military bureaucracy, their colluding political clients, as well as the geographic and political weight of Punjab, makes the centre seem as partial to one province over the others.

The roots of this lie in colonial times and in Partition, where provincial elites were suddenly made subordinate to a newly formed centre, which then proceeded to centralise power in the hands of largely unaccountable elites.

That pattern remained in place through various military and civil regimes till the passage of the 18th Amendment, which subsequently enshrined substantive provincial autonomy in the Constitution. By and large, the same centre-province debate has also been about greater control for elected representatives versus civil and military bureaucrats.

The second point worth stating here is that ethnic discord and centre-province conflict are a fight between different tiers of political elites. Apart from the MQM in Karachi, there is currently no mass, ‘common citizenry’ movement with ethnic under or overtones. The PPP, ANP and the PkMAP mobilise voters on ethnic lines, but their leadership consists largely of elites from within their ethnic group. This leads sceptics to suggest that the ‘ethnic card’ is used as a cynical ploy by one set of elites to fight another.

While this may be true for some (or maybe even for most), this scepticism does nothing to diminish the existence of inter-provincial conflict. The feelings of deprivation amongst citizens are real, regardless of whether they’re super-imposed, brainwashed, or a product of false consciousness. In fact, repeated patronising suggestions that ‘you people are being misled’ probably exacerbate the trust deficit.

Thirdly, in any state with low levels of national integration and high levels of inter-ethnic or inter-provincial conflict, slogans of ‘development in the national interest’ are often digested as efforts to further enshrine status quo imbalances. Given that many segments of Pakistan’s population ascribe to other identities — as opposed to the vague Muslim/Islamic nationalism peddled by the central government — there is and can be no genuine ‘national interest’ without political consensus.

Technocrats may come up with the most socially optimal way to spend CPEC money, devise policy that may help the smaller provinces even more in the long run, but this ‘rational/dispassionate’ thrust has to pass through the muck of actual politics. On its own, it is useless, and when a particular government tries to bludgeon it into implementation, it creates greater conflict.

Which leads us to the fourth point — actual politics, ie give-and-take between different political elites — is how most civilised states go about their business. Whether it’s over federal funding for different projects in the US, or the introduction of a reformed general sales tax in India, communication between different tiers of political elites, and the development of consensus (even if it is ‘objectively’ sub-optimal) creates a stable system of government. This is something Pakistan has very little experience of, despite claiming to be a federal republic for the better part of its history.

Many otherwise educated observers ascribe to the bludgeoning strategy of development, ie come up with the best technocratic solution and get a ‘strong’ leader to push it through. Unfortunately, we’ve been dealing with the fallout of strong, centralising leaders for most of this country’s existence. It hasn’t worked in the past, and there isn’t much to suggest it will work in the future.

Luckily, all is not lost yet. There are several avenues for realisation of the federal government’s CPEC ambitions, without any accompanying acrimony. Instead of convening APCs, it needs to take the debate to parliament. Complementing that should be a detailed expenditure analysis of where the money is going, and what benefits will be received by which sub-national entity.

Its tone even towards new converts to provincial autonomy discourse — such as the PTI — has to be conciliatory. Finally, opposition parties will have to meet the government if not halfway then at least a quarter of the way. They need to acknowledge that blanket opposition is useless, and will jeopardise their own political stake in the long run.

Federalism of this kind may seem cumbersome to an impatient polity, but rest assured it remains the only way forward.

The writer is a freelance columnist.

umairjaved@lumsalumni.pk

Published in Dawn, January 18th, 2016
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Default China-Pakistan Economic Corridor: A boon for the economy, a bane for locals

Pakistan’s Gilgit-Baltistan region is frequently in the news these days, but not necessarily for its mouth-watering cherries and dried apricots. The much touted US $46 billion China-Pakistan Economic Corridor (CPEC) will pass through this beautiful province in the north to reach Chinese-operated Gwadar port in the country's south. While there is hope it will transform the economy and help bridge Pakistan’s power shortfall, CPEC has also triggered concerns that the local people might be left out of the gains.

To be built over the next several years, the 3,218 kilometre route will connect Kashgar in China’s western Xinjiang region to the port of Gwadar. Currently, nearly 80 per cent of China’s oil is transported by ship from the Strait of Malacca to Shanghai, a distance of more than 16,000 km, with the journey taking between two to three months. But once Gwadar begins operating, the distance would be reduced to less than 5,000 km.
If all goes well and on schedule, of the 21 agreements on energy– including gas, coal and solar energy– 14 will be able to provide up to 10,400 megawatts (MW) of energy by March 2018, to make up for the 2015 energy shortfall of 4,500MW. According to China Daily, these projects should provide up to 16,400MW of energy altogether.

Businessmen like Milad-us-Salman, a resident of Gilgit-Baltistan who exports fresh fruits like cherries, apricots and apples, is hoping that CPEC will be a game-changer for the region. So far, the carefully packaged truckloads of fruit traverse the rundown Karakoram highway to reach the national capital Islamabad, from where they are flown to Qatar, Abu Dhabi and Dubai.

Last year, his company, Karakoram Natural Resources Pvt. Ltd., sold fruit worth Rs20 million (US $190,000). “We sold 30 tonnes of cherries and 100 tonnes of apples,” Salman said.

Hopes and doubts
With the CPEC passing through Gilgit-Baltistan, Salman hopes the route will open business opportunities for the region's traders.

Diverting fruit to China will be more profitable, for one, will be more profitable. “We can double our sales and profits if we can sell to China where cherries are very popular," he said.
Currently, he ships his produce to Dubai through air-cargo. "It would be faster and cheaper if we could send it by road to China via Xinjiang as we can get a one-year border pass to travel within that border," Salman explained.

According to the Asian Development Bank (ADB), Gilgit-Baltistan produces over 100,000 metric tonnes of fresh apricots annually. While there are no official surveys, Zulfiqar Momin, who heads Farm House Pvt Ltd., which exports fresh and dried fruits to the Middle East, estimates that Gilgit-Baltistan produces up to 4,000 tonnes of cherries and up to 20,000 tonnes of apples.

“All fruits grown in Gilgit-Baltistan are organic with no pesticides used,” Momin said.
The CPEC, some believe, will also boost tourism in the 73,000 square km region. The region is considered to be a mountaineer’s paradise, since it is home to five of the ‘eight-thousanders’ (peaks above 8,000 metres), as well as more than 50 mountains over 7,000 metres. It is also home to the world’s second highest peak K2 and the Nanga Parbat.
But development consultant Izhar Hunzai, who also belongs to the area, has no such expectations. The CPEC, he feels, is nothing more than a “black hole” as far as the people of the region are concerned.

“The government has not engaged with us; we do not know exactly how much or what Gilgit-Baltistan’s role will be in CPEC or how we will benefit from it,” he said.

While both Pakistan and China will benefit through this region, he feels his people will be left “selling eggs”.

“I fear when the region opens up, it will give short shrift to the locals," he added.

Also read: China’s new silk road: What’s in it for Pakistan?

Land of opportunities
But it does not necessarily have to be this way. According to Hunzai, the region has infinite water resources to tap.

“By building hydro power projects, Pakistan can sell clean energy to China and even use it for itself, the development consultant said. "If Bhutan can sell to India, why can’t we sell to China?” Hunzai poted out that the Chinese already taking the country’s national grid to its border province.

It made little sense to him that the Pakistan government wanted to buy 1,000MW of hydropower from Tajikistan under the Central Asia South Asia (CASA-1000) project and construct an expensive 750km transmission line when the resource was right there in the country’s own backyard.
However, the government is almost ready to revive the Diamer-Bhasha dam, a gravity dam on the Indus river in Gilgit-Baltistan, in the second phase of CPEC. Once completed, it is estimated to generate 4,500MW of electricity, besides serving as a huge water reservoir for the country.

Hunzai also lamented the government’s decision of buying discarded coal powered plants from China and using imported coal to run it. Doing some quick calculations on the back-of-the-envelope, he asked, “Why produce 22 cents per unit electricity from imported fuel and sell it to the people at a subsidised rate of 15 cents? Why not make electricity from hydropower which would cost just 0.02 cents?”

According to the ADB, Gilgit-Baltistan has the potential to produce nearly 50,000MW of energy. Just Bunji Dam, a run-of-the-river project that the ADB has invested in, has the capacity to generate up to 7,100MW electricity when completed.
The government is not wilfully neglecting the region, countered long-time hydropower advocate Tahir Dhindsa of the Islamabad-based Sustainable Development Policy Institute. Instead, he feels the problem is more about the profits that middlemen make. It is all about the “kickbacks and commissions” that one can earn quickly from “cheap and carbon-spewing coal power plants”, compared to almost none from hydropower projects that can take up to 10 years or more.

Explore: Paris climate summit: An opportunity missed for Pakistan

“The future is renewables as has been reiterated in Paris at the COP21 and Pakistan should seriously be thinking about its future course of action,” he said.

Demographic shift
There is also the fear that the CPEC may lead to widespread displacement of the locals. “Of the 73,000 square kilometres, cultivable land is just 1pc," Hunzai explained. "If that is also swallowed by rich investors from outside, we will become a minority and economically subservient once there will be no farmland or orchards left to earn our livelihood from."
The government is not wilfully neglecting the region, countered long-time hydropower advocate Tahir Dhindsa of the Islamabad-based Sustainable Development Policy Institute. Instead, he feels the problem is more about the profits that middlemen make. It is all about the “kickbacks and commissions” that one can earn quickly from “cheap and carbon-spewing coal power plants”, compared to almost none from hydropower projects that can take up to 10 years or more.

Explore: Paris climate summit: An opportunity missed for Pakistan

“The future is renewables as has been reiterated in Paris at the COP21 and Pakistan should seriously be thinking about its future course of action,” he said.

Demographic shift
There is also the fear that the CPEC may lead to widespread displacement of the locals. “Of the 73,000 square kilometres, cultivable land is just 1pc," Hunzai explained. "If that is also swallowed by rich investors from outside, we will become a minority and economically subservient once there will be no farmland or orchards left to earn our livelihood from."
Of the US $46bn, between $35bn to $38bn were earmarked for the energy sector– of this, $11.6bnwill be invested in Khyber Pakhtunkhwa, $11.5bn in Sindh, $7.1bn in Balochistan and $6.9bn in Punjab.

Beijing has urged Islamabad to resolve the internal differences on the CPEC to create favourable working conditions for the project to roll out smoothly.
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Default CPEC challenge

CPEC challenge



THE China-Pakistan Economic Corridor has become a contentious political issue. Recently, the KP chief minister reproached the centre and Punjab. He said CPEC’s western route traversing KP had been restricted only to the roads whereas major investment and energy projects (eg fibre optic lines, railway tracks etc) linked to CPEC were being planned on the eastern route.

While CPEC’s domestic dimensions are hotly debated within Pakistan, few have focused on the international angle. Realising CPEC is contingent upon enforcing multiple agreements entered into between China and Pakistan. Under international law, Pakistan is categorised as a ‘dualist state’ ie for treaties signed by Pakistan to be locally binding, implementation legislation is required domestically through the federal legislature. From the perspective of national law, the process is considered the ratification of treaties signed earlier.

The Pakistani government has entered into several trade and investment treaties with China that predate CPEC but that still have immense relevance, including the China-Pakistan Bilateral Investment Treaty (1989), China-Pakistan Free Trade Agreement (2006), and the China-Pakistan Agreement on Trade and Services (2009). For CPEC, Pakistan has inked many more deals including over 50 MoUs.

There is not much focus on the international angle of CPEC.
Under the Vienna Convention on the Law of Treaties, any agreement governed by international law qualifies as an enforceable treaty when it is expressed in writing between the states that intend to commit themselves. The intent to bind need not be expressed and can be inferred from the circumstances.

It is in light of this rule that the Inter*national Court of Justice, in a case between Qatar and Bahrain, found consent implied in the general minutes of a meeting, in turn, creating a binding treaty. Even pacts between states that do not meet Vienna Convention requirements can qualify as binding international agreements under customary international law creating responsibilities, and — in the case of a breach — remedies.

Thus, from an international law perspective, virtually all agreements and MoUs signed by Pakistan are legally enforceable treaties, even if these accords are considered soft-law or nonbinding instruments by many domestic stakeholders.

While Pakistan continues to assume new international obligations, virtually none of these commitments has resulted in the passage of the corresponding domestic legislation. In fact, the process of ratification of international treaties is far from clear under the Pakistani domestic legal framework.

Many CPEC-linked treaties and accords, do not exclusively deal with one but several forms of investment and commercial activity which appear to fall under the Federal Legislative List: Part I and II, as well as under the residual jurisdiction of the provinces, often at the same time. Investments pertaining to ports, railways, minerals, oil, natural gas and electricity require policy formulation and regulation by the Council of Common Interests. If a province is dissatisfied with its decision, the matter is referred to parliament and put to a joint vote of both houses.

Further, if smaller federating units feel that CPEC is being appropriated by the larger provinces they might also be hesitant to pass provincial legislation to implement CPEC obligations in areas that fall under their residual jurisdiction. All this political activity, or inactivity, can delay the implementation of CPEC.

After the passage of the 18th Amendment, the provinces were empowered to manage their fiscal affairs more independently and to raise funds through various forms of taxation, surcharges and royalties. A year earlier, the seventh NFC Award was moderately appreciated by the smaller provinces for achieving a more equitable distribution of federal revenue.

Today, it is uncertain how the recently created special economic zones (with their corresponding tax regimes) for CPEC will affect the fiscal powers and revenue-generating capacity of the provinces granted under the amendment. Further, because of the territorial ambiguity of Fata and Gilgit-Baltistan, confusion exists over sharing of revenues or rents with these administrative units. In context, the role of the National Economic Council and CCI for harmonising federal-provincial ties vis-à-vis CPEC is not clear.

As a rule, Pakistan should only enter into treaties for which it has the requisite domestic political consensus and after it has created the necessary political and legal space for their execution. Once it enters into a treaty, it is bound to make it part of domestic law and to expeditiously implement its obligations. At present, the politics of federalism and the absence of domestic legal reordering and preparedness has created a strong possibility of CPEC projects being subjected to unscheduled delays, even possible cancellations, exposing Pakistan to liability for violating its international commitments.

Published in Dawn, February 22nd, 2016
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Default The ‘E’ in CPEC

The ‘E’ in CPEC
THE China-Pakistan Economic Corridor (CPEC), once completed, will become a major milestone in Pakistan’s economic history. The road networks that will extend from Gwadar to the Chinese border along with several power projects, and infrastructure development including export-processing and industrial zones, will benefit the economy.

The Chinese government’s intention is clear. It wants to connect the western region of China to one of the closest seaports, Gwadar, with an efficient transportation network that provides easier access to a major supplier of oil and other natural resources necessary to develop its western regions. This strategy is in accordance with the Western Development Programmes introduced in the late 1990s to focus on the industrial development of the western regions. Gwadar’s proximity to the oil-rich and resource-intensive Middle East will let Chinese importers circumvent the alternative sea routes that involve passage through several countries in the Indian Ocean and the extensive land transport from its seaports in eastern China. It is likely that several tons of natural resources and industrial supplies will flow through Pakistan.

A viable industrial development strategy is a prerequisite for economic growth. It is imperative that strategies are evolved that involve appropriate industrial policies as otherwise CPEC will just be a ‘transit’ route with no added benefits to Pakistan other than providing a shorter transport link to China and its trading partners.

Western China contributes to approximately 20pc of economic activity and 30pc of the population of China. As it is likely that CPEC will be a conduit primarily for Chinese imports from the Gulf countries (classified as Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE) in the Middle East to western China, we need to analyse the current demand for Chinese imports from these countries.

We need a deal with China that promotes value addition.
We can classify imports into primary products and processed products according to UN Comtrade’s ‘broad economic categories’. Primary products are likely to have low levels of value addition and the manufacturing process has only made a minor contribution to the product’s value. For instance, crude oil is classified as a primary product and petroleum oil as a processed product.

In 2014, China imported some $88 billion worth of fuel and lubricant from the Gulf countries of which $76bn was unprocessed primary imports. This suggests that more than 85pc of the fuel and lubricants imported from the Gulf by China was processed after being transported to China.

On the other hand, Pakistan imported $13bn of fuel and lubricants of which $5.6bn were unprocessed primary products. Even if China is to import 5pc of its total imports of unprocessed primary products from the Gulf countries through CPEC, it will almost double the current flow of such products into Pakistan. Similarly, China imported approximately $17bn worth of industrial supplies from the Gulf countries, which is significantly greater than $2.4bn imported by Pakistan in 2014.

As a majority of the imports into China through CPEC are likely to be natural resour*ces and intermediary industrial supplies, a focus on the development of industries that rely on such products as their major inputs can be developed. For instance, the inflow of primary fuel and lubricant products can provide opportunities for petroleum refineries, parti*cularly in Balochistan. Although, there are only a handful of refineries in Pakistan, they are located either in or near Karachi or in Punjab. The inflow of industrial supplies into Pakistan, such as petrochemical intermediaries, may provide opportunities for plastic man***u**facturers to establish businesses along the route.

The government can negotiate a deal with its Chinese counterparts that promotes value addi****tion within Pakis*tan. For example, initially a small percentage of all primary fuel and lubricants imported into Gwadar by China could be converted into processed goods within Pakistan and then transported to China. This proportion can be increased over the years. Similar policies can be adopted for other industries, such as the petrochemical industries, for which China depends upon the imports of primary and processed products from the Gulf countries.

It is important to mention that the free-trade agreement between Pakistan and China in its current form is unlikely to promote exports from Pakistan into China. The trade balance is largely tilted towards China and this is likely to grow as the Pakistani transporters to China are likely to carry Chinese products on the return journey. In addition, the exports from Pakistan to China are currently heavily concentrated in cotton yarn, which contributes to about 70pc of the exports from Pakistan to China.

A strong industrial policy to complement CPEC is essential, one that promotes the deve*lop**ment of strategic industries at specific locations within Pakistan. Without appropriate industrial policies, CPEC may fail to achieve positive outcomes for the Pakistani economy.

The writer is assistant professor of economics & research fellow at IBA.

anakhoda@iba.edu.pk

Published in Dawn, March 20th, 2016
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Default CPEC snags on solar

CPEC snags on solar


ONE of the more exciting of the CPEC power projects to be undertaken on priority in Pakistan was the giant solar park to be built in Bahawalpur. It was part of the Quaid-i-Azam Solar Park and was part of what they call the ‘early harvest’ projects, meaning the first to come online.

The first MoU for the project was signed in August 2013 between the governments of China and Punjab. The provincial government owned the project, and in the first solar power plant that was inaugurated under it, the provincial government was also a joint venture partner with a Chinese contractor.

Later in July 2014, another MoU was signed between the government of Punjab and private Chinese developer that expressed an interest in setting up a 900MW solar plant in the same park. This MoU was signed in the presence of the prime minister in Beijing.

And then the problems began. Their first application for a generation licence was rejected by Nepra.
Things moved fast initially, due to interest in the project at the top. The Project Commitment Agreement was signed a week later, again witnessed by the prime minister and both sides agreed to a tariff of Rs14 per unit outside of taxes, along with the timeline. In August it was placed on the early harvest list and prequalification documents were submitted, and a letter of interest from the Punjab Power Development Board was issued in September.

On Jan 22, 2015, the power regulator and tariff setting body Nepra announced a revised upfront tariff for solar projects at Rs14 per unit for the first 10 years of operation, and this tariff was notified in the official gazette on July 1, 2015, with the stipulation that this offer would be valid for a period of six months, until December 2015. The project sponsors applied for a generation licence under this tariff regime.

Meanwhile, land allotment had already been done in April, for the first batch of 300MW worth of solar power, and in May, the second batch of 600MW also received its allotment. In May the feasibility studies were done for the first batch, and June saw the feasibility for the second batch of 600MW approved.

Grid interconnection studies for both projects were completed by the sponsors in July, and submitted for approval to the National Transmission and Dispatch Company (NTDC), which is a requirement for all private power projects. On July 4, the prime minister met the project sponsors and asked them to move the timelines of the project further up, to April 2016. Right around that time, the company applied for a generation licence from Nepra, so it could begin with lining up the financing and placing the orders for the equipment

And then the problems began. Their first application for a generation licence was rejected by Nepra on July 14, 2015, on the grounds that a duly approved grid interconnection study has not been included. The sponsors pressed NTDC to expedite its approval of the study, and on July 24 received a reply that their study has been ‘vetted’, that concerns of NTDC have been addressed, but the report should be sent to the Central Power Purchasing Agency and the Multan Electric Power Company (Mepco), whose transmission facilities would be used to evacuate the power.

The approval from NTDC was received on Aug 17, and three days later, the company again sent an application for acceptance of the tariff and grant of permission to proceed with project execution.

Then things started to go from bad to worse. To cut a long and detailed story short, when Nepra received the NTDC grid interconnection approval, it objected that this had been issued without a final report of the consultant on renewable energy in the national grid. Therefore, Nepra said in a letter dated Oct 5, 2015, the NTDC certification of the grid interconnection study is “not adequate and useful for the Authority” and asked for the grounds on which these certificates had been given in the absence of an overarching study on the induction of renewable energy. In all previous communications with the project sponsors, Nepra had made no mention of this.

I will surmise that this letter fell like a bombshell on the sponsors. A few more letters were exchanged, where NTDC explained that issuing a certification on grid interconnection for a specific project was a different matter from an overarching study on the role of renewables in the total energy mix of the country. But on Oct 28, Nepra demanded “complete detail of all the solar projects awaiting approval” before proceeding. On Nov 4, NTDC wrote back that the details demanded were being prepared, and that “approval as well as certificates for power evacuation in respect of above mentioned three solar projects already given be considered withdrawn”.

In December, the tariff expired, and Nepra determined a new, lower tariff for solar energy. The project sponsors went into litigation, and won an order from the Lahore High Court that Nepra should hold another round of tariff hearings for this particular project, which was approved to enter under the old tariff regime, and that the grounds on which its application was rejected were baseless. The sponsors are now waiting for a date when Nepra will hold the next hearing, and matter will begin all over again.

This is the tale of one CPEC project. It’s easy to assign blame when reading the simple facts of the story, but it must be remembered that the original upfront solar tariff that Nepra had granted was one of the highest in the world, and was based entirely on cost structures provided by one party — the QAS (Pvt) Ltd, which is a joint venture between the government of Punjab and a Chinese group.

That party is now enjoying the benefits of an extraordinary Rs17 per unit tariff, where the competitive price of solar in the world today is closer to Rs4. Meanwhile, all the other parties that were in the queue for that tariff are today licking their wounds.

The writer is a member of staff.

Published in Dawn, October 20th, 2016
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Default How CPEC can help the SDGs

How CPEC can help the SDGs


THIS newspaper’s initiative to help mainstream Sustainable Development Goals through a series of articles focusing on the SDGs has brought forth the complexity and policy choices that need to be made by the federal government and the provinces. One question, however, still needs to be raised: how will the SDGs be financed?

No budgetary estimates are available on the finances needed to meet the cost of any of the 17 SGDs 169 targets. In fact, conversations on methodologies for calculating such costs are barely in the preliminary stages, as are the district-level target baselines to determine the scale and progressive pace of investments needed over the remaining 14 years to achieve the 2030 Agenda for Sustainable Development.

The SDGs won’t come cheap. We will need to mobilise tens of millions every year over the next decade and half in public- and private-sector capital. There is no doubt that we will need to significantly ramp up both public and private investments in two basic categories.

First, in social sectors such as education, health, drinking water and sanitation, where results can be measured with relative ease. The state cannot absolve itself of its fundamental responsibility of providing these services to its citizens. A long-term commitment for budgetary allocation, therefore, needs to come from annual development plans, irrespective of donor commitments. Domestic private sector investments are already heavy on health and education. Private health service providers serve almost 75pc of the population, and about 40pc of Pakistan’s schools result from private-sector investments.

Instead of simply being an ‘economic’ corridor, CPEC can become an environmental corridor.
With well-designed and coordinated policies, financing models and instruments, and incentive programmes, additional investments need to be unlocked. The government will need to create conditions that encourage private investments for quality delivery and to ensure equity and inclusiveness. A ‘leave no one behind’ principle needs to be followed by a ‘reaching the farthest first’ policy. We need to put our money where our mouth is and allocate additional resources to the districts with poorest poverty and HDI indicators in each province to lift them up to the national averages.

Second, for SDGs dealing with infrastructure, urban development, energy, transportation, mass transit systems, etc the country needs to strengthen its capacity to access international green finance. The cost of the capital for green growth has created a new global ecosystem of financial instruments and polices. In fact, this has become an essential first step to stimulate sustainable economic growth for green jobs.

The government needs to develop policy instruments and guidelines to encourage the banking system to make green investments. If the global green bond market has more than quadrupled since 2013, why can’t Pakistan avail itself of this rather than spending expensive cash on new motorways and colourful bus lines in the cities? If private firms can fund wind and solar parks in neighbouring countries in the region, the government can also attract them by developing guidelines to encourage banking institutions to make green investments.

The green financing mechanism can be widely adopted so that capital markets can allocate financing to low-carbon sectors of the economy. These measures include subsidies for clean energy, pricing of carbon emissions, emissions trading and taxes. Reducing the price of low carbon technologies to make them more attractive for private entrepreneurs and investors can help access international climate finance from the Green Climate Fund and other such options. Investments in low-carbon transportation, energy-efficient production and technologies, clean energy for the cities can — and should — come from the private sector so that the government is able to prioritise social-sector investments.

In other words, the argument is for us to correct the present imbalance: instead of spending the bulk of its financial resources on mega infrastructural projects such as motorways and bus lines, the government needs to prioritise specific social-sector SDG targets and create a policy environment to mobilise private-sector resources, particularly international green finance, for infrastructural needs. The China-Pakistan Economic Corridor offers Pakistan precisely this opportunity.

Instead of simply being an ‘economic’ corridor, CPEC can become an environmental corridor. CPEC can spearhead the development of regional renewable energy trade, expand to Pakistan China’s nationwide carbon market, which is already the world’s largest, to become a regional market. China’s share of global green bond market is over 40pc. Benefiting from the Chinese experience, Pakistan can launch green bonds under CPEC. This strategic move alone can help Pakistan address about 50 SDG indicators and, hopefully, attract direct foreign investment.

CPEC is part of a grand Chinese vision for enhanced trade with 60 or so countries, and 40 of them will be facilitated by CPEC alone. China considers it as a model and a pilot project that will give fruit to a ‘bumper crop’ in the future. In Pakistan, on the other hand, it is mostly (and erroneously) conceived as a transit trade facility. Opinion leaders in various provinces are bickering that the transit routes should pass through their favourite areas. Cargo trailers passing through our villages alone will not deliver prosperity. Of some $51 billion committed under CPEC, about $30bn will be spent on the power sector alone. Visiting Pakistani delegates are often reminded by their Chinese hosts to invest in education so as to harvest the ‘bumper crop’.

Pakistan and China share many SDG challenges, ranging from increasing inequality to making cities sustainable, from combating climate change to managing water or protecting oceans and forests. It’s a historic opportunity for Pakistan to weave its SDG targets in the accelerated pace of CPEC. Equally important, CPEC can serve as a model in acceleration for some SDG indicators.

Meeting the SDG challenge will be costly, but we cannot afford to do without it. Luckily, the country is rich in ideas, models, and the intellectual capital necessary to fulfil this agenda. What is needed now is leadership from the policy community to prioritise the development of a system that is designed to succeed.

The writer is CEO, LEAD Pakistan, a think tank focusing on climate and water issues.

Source: How CPEC can help the SDGs
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Default Part 1: An introduction into CPEC's long-term plan and challenges

Part 1: An introduction into CPEC's long-term plan and challenges


ISLAMABAD: Most structural weaknesses of Pakistan’s economy, which are hampering its journey towards prosperity and inclusive growth, could be addressed in the next 10 to 15 years, if the country is able to achieve the targets outlined in the long-term plan of the China-Pakistan Economic Corridor (CPEC).

A look at the draft of the long-term plan (LTP) 2016-30 gives an impression that Prime Minister Nawaz Sharif has truly called the CPEC a fate changer for the country. The plan has been framed by China, which is yet another reason to believe that it will not remain a pipedream.

In a series of articles, The Express Tribune will highlight Chinese approach to the CPEC revealed in the LTP draft. However, the document could be revised as it is currently being negotiated.

According to the draft, the economic corridor will boost Pakistan’s national output by 1.5% from 2016 to 2020 and by another 1% from 2020 to 2030.

From 2016 to 2020, trade between China and Pakistan will grow 24% and bilateral direct investment will rise 25%. Industrial value addition should exceed 1.5% and 500,000 to 800,000 new jobs will be created.

The length of newly built or upgraded roads and railways should reach 3,871 km and 1,529.7 km respectively. The electricity generated by newly built sources will reach 19.785 million kilowatts and the length of optical fibre cable will stretch to 2,084 km.

However, these outcomes depend on successful implementation of the CPEC strategic framework. Political wrangling over the CPEC by both ruling and opposition parties may deprive the country of the benefits of industrialisation and orderly urbanisation – the two key objectives of the long-term plan.

“International, interwoven domestic, ethnic and religious factors might give rise to terrorist activities and affect the secure environment for corridor construction,” note Chinese planners. They say global powers shifting their focus to this region might create uncertain influence.

Scope of the corridor

The National Development and Reform Commission (NDRC) and China Development Bank (CDB) have designed the draft plan, which highlights the scope of the corridor and may address concerns over the western route.

The CPEC spans the Xinjiang Uygur autonomous region and the entire Pakistan in the spatial range. The corridor is divided into a core area and a radiation area, which indicates the levels, range and layout of the construction and development.

“The core area includes Kashgar, Tumshuq, Atushi and Akto of Kizilsu Kirghiz of Xinjiang, and Corps Tumshuq, most of Islamabad capital territory, Punjab and Sindh, and some areas of Gilgit-Baltistan, Khyber-Pakhtunkhwa and Balochistan,” says the draft report.

The radiation area includes areas other than the core ones within the spatial scope of the CPEC. Most of Balochistan and Khyber-Pakhtunkhwa fall in the radiation area.

However, Pakistan suggests that the corridor’s core area may be extended on the Chinese side up to Khorgos on the China-Kazakhstan border and add an appropriate direct connectivity between Kashgar and Khorgos as a priority project in the short term.

Pakistan’s access to Russia and Europe through China and Kazakhstan would have far-reaching positive geo-economic impact.

Corridor routes

Chinese authorities have explained in detail the CPEC routes passing through Pakistan, which they describe as “one belt, three passages, two axes and five functional zones”.

One belt refers to the strip to be formed by an important arterial traffic route in China and Pakistan, which lies in the core area of the corridor. This northeast-southwest strip starts from Kashgar, passes through Taxkorgan, Khunjerab Pass, Islamabad and Lahore, and ends in Sukkur where it is divided into two routes heading to Karachi and Gwadar on the Arabian seacoast.

One belt will cover a cluster of industries, population and cities.

Three passages refer to the east, central and west traffic passages in the core area from Islamabad to Karachi and Gwadar, each of which consists of several trunk railways and highways. The east passage consists of the railway-highway network from Islamabad to Karachi, via Lahore, Faisalabad, Multan, Sukkur and Hyderabad, and is the main traffic artery of the corridor.

The central passage starts from Islamabad in the north and reaches Karachi, via Daria Khan, Jacobabad and Khuzdar through N25 highway, or reaches Gwadar through M8 motorway. The construction of this passage has not been entirely completed and some sections are in the planning and construction phase.

The west passage starts from Islamabad in the north and reaches Gwadar, via DI Khan, Quetta, Basima and Hoshab.

Impediments

However, the Chinese caution that construction of the corridor may be disrupted by domestic and regional challenges.

The corridor construction and its operation also face constraints from physical geographical factors. South Xinjiang is far from China’s main production and consumption centres. Its industrial base is weak and the size of its economy is limited.

Special natural geographical conditions of border areas of the two countries will increase the costs of infrastructure construction, operation and management, according to the draft report.

Areas along the Indus River within Pakistan are relatively economically developed, but have limited resource-carrying capacity due to high population density. The western part of Pakistan is underdeveloped with poor natural conditions.

Pakistan’s economic recovery and development foundation is weak, according to Chinese experts. There are major bottlenecks restricting economic and social development.

Energy shortage, obsolete infrastructure, low efficiency of administration, unbalanced regional economic and social development, high risks of exchange rate and capital control, all pose potential challenges to the corridor construction.

The writer is a staff correspondent

Published in The Express Tribune, October 24th, 2016.
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