June 10, 2016
What was once considered the path to prosperity for Pakistan is now a fraught subject. In the past three years, there has been little progress on the China-Pakistan Economic Corridor (CPEC), touted by both Beijing and Islamabad as the cornerstone of friendship between the two countries.
During the landmark visit of Chinese President Xi Jinping to Pakistan in 2015, China pledged USD 46 billion for a range of energy and infrastructure projects. But the corridor today is nowhere near its goal of boosting industrialisation in Pakistan.
The slowdown in recent years has been attributed in part to reduced interest in the project from the new government in Islamabad, which has had its share of teething problems in the shape of economic and administrative challenges.
Soon after Prime Minister Imran Khan came into power in 2018, Abdul Razzaq Dawood, a top advisor, suggested that all CPEC projects would be reviewed. China had been granted “too-favourable terms in many projects” by the former government of Nawaz Sharif, Dawood told the Financial Times.
CPEC projects have also been criticised for fuelling centre-province and inter-province tensions. Under the 18th Amendment legislation passed in 2010, the provinces have financial and legislative autonomy and the federation is bound to accept provincial ownership of natural resources. However, projects under CPEC are between Pakistan and China, giving the federal government control over project negotiation.
“There are good reasons for some CPEC-induced pessimism over the state of inter-provincial political and economic disparity in Pakistan,” said Umair Javed, assistant professor of politics at Lahore University of Management Sciences. “CPEC is a state-to-state cooperation agreement. At Pakistan’s end, multi-party conferences and the occasional chief ministerial-level meeting have no de jure authority over the actual projects. To put this in simpler terms, CPEC is a centralising force in Pakistan’s political system that places a lot of eggs in the federal government’s basket.”
Katherine Adeney, director of the University of Nottingham’s Asia Research Institute, noted that these “centre-province relations are key to the successful implementation of the investment package from Beijing”.
“How the projects agreed upon under the CPEC umbrella materialise on the ground will be a potent example of how things will develop in the countries along the new Silk Road,” Adeney wrote in a recent essay on the impact of CPEC on Pakistan’s federal system.
After a near three-year lull, the Pakistani government has once again started to promote CPEC. A flurry of tweets announcing work underway on projects are accompanied by the hashtags #PakistanMovingForward and #CPECMakingProgress.
The narrative is the same: that the corridor will further cement Pakistan-China ties, pull the country out of economic hardship and onto the road to progress.
According to analysts, recent developments signal that the powerful military is at the helm of the renewed push. The military has a serious strategic interest in closer ties with China, which it sees as a strong ally to counter India. There are reports that the Pakistani and Chinese governments are expanding Pakistan’s building of Chinese military jets, weaponry and other hardware as part of a confidential plan.
Additionally, a new CPEC Authority (CPECA) – a government body led by a retired lieutenant general – is aggressively promoting, and defending, the corridor even as it releases little in the way of details as to what the corridor will actually be. On the official cpec.gov.pk website, the information is superficial, and it is difficult to independently verify the government’s information on projects, as the chairman does not engage with the media.
To critically examine how far CPEC has come and what the future looks like, it is essential to look at what has been achieved in the context of what was promised – and how the power tussle will play out. Post-Covid-19, it is also relevant to see if goalposts will shift as China’s economy bounces back after a record slump.
More important still are the environmental consequences of the projects committed under the CPEC framework. These increase Pakistan’s dependence on coal and simultaneously pledge to add more infrastructure and high-volume transportation, thus enabling greater emissions.
There are fears that coal power plants will be major contributors to CO2 emissions and smog; that the network of new roads from Kashgar to Gwadar will result in a massive tree-cutting drive; and a recent study shows that the addition of 7,000 trucks per day on the Karakoram Highway will release up to 36.5 million tonnes of CO2.The plan
Aside from providing China a platform for stronger influence in the region, the corridor is intended to shorten oil, gas and other trade routes by thousands of kilometres by cutting overland from western China rather than going around South and Southeast Asia by ship. A study jointly written by researchers in Islamabad and Beijing found that transport costs for an average 40-foot shipping container between Kashgar and destination ports in the Middle East and Europe would decrease. China would save about USD 1,350 (32.9%) in transport costs per container traded with Europe and USD 1,450 (41.4%) per container to the Middle East.
For Pakistan there was also the hope is that proposed special economic zones (SEZs) built along the route would create tens of thousands of jobs. Local industries (ranging from textiles to automobile) would absorb Chinese investment.
The long-term plan, approved by both governments in 2017, called for the corridor to take shape by 2020. In total, 23 energy projects, seven major road and rail networks, nine SEZs and an expanded, functional Gwadar port lie at the heart of CPEC.
Five years on, progress has been made on the “early harvest” energy projects – largely coal-fired power stations – and some of the road projects.
According to cpec.gov.pk, of the infrastructure projects, one road project is functional and another is “substantially complete”. The rest are either “in progress” (with no details on extent of construction) or at the land-acquisition stage. The main USD 7 billion ML-1 project, which involves upgrading and expanding the 1,872 km Peshawar-Karachi railway line, did not move beyond a framework agreement signed in 2016 until June 2020. Only this year has the government begun to prepare to invite bids for tenders for the project. The Pakistani government had previously aimed to upgrade the line by a 2021 deadline, which has now been pushed to 2024. Details of the financing arrangement for this multi-billion-dollar project remain unclear.
Construction work is yet to begin on the SEZs, which are still either in the feasibility or land-acquisition stages.
The Gwadar port project – which under CPEC entails the construction of an expressway, airport, breakwaters and berthing areas among other things – is also largely incomplete.
Khurram Husain is a Karachi-based journalist at the English daily Dawn who has tracked CPEC projects since 2015. According to him, the slowdown has been significant. “The early harvest programme – under which they [China and Pakistan] were going to construct a network of roads and a handful of power plants – is pretty much done. Yet, the real CPEC begins after the early harvest programmes have been established. It entails running SEZs, a functional Gwadar port and the relocation of Chinese industry into Pakistan under the SEZ umbrella. This is where the project has been stuck,” said Husain.When asked to touch on the reasons behind the slowdown, he said: “This government just did not make it a priority to overcome challenges such as land acquisitions, relocation etc. If you ask the government, they will sugarcoat it in happy, pleasant language to indicate there is movement. But on the ground things were stagnant.”
Andrew Small, a senior transatlantic fellow at the US thinktank the German Marshall Fund and author of the book The China-Pakistan Axis: Asia’s New Geopolitics, agreed.
“Many potential initiatives that were part of the original USD 46 billion figure are not even being negotiated any more. So it’s a smaller overall package than originally envisaged, though still not a negligible sum – USD 19 billion plus already – and plans for President Xi’s upcoming visit have given some more momentum to the CPEC second phase.”
Nevertheless, China has pulled back a little.
“This isn’t just a question of the slowdown – which has been underway since Pakistan’s economic situation started facing difficulties in 2017 – but rather that China also grew more cautious themselves for a range of reasons,” said Small.
Small attributed the “cooling down of CPEC” to the wider pushback encountered by the Belt and Road Initiative (BRI), which he said forced China to adopt a more careful approach. Since 2017 Beijing has tightened restrictions on outbound investment, emphasising the need for high-quality projects, and a greater degree of party oversight.
“There have also been some practical bureaucratic obstacles, as well as objections from various interest groups to deal with, such as Pakistani business concerns about the special economic zones.”
The new CPEC Authority
Much of the way CPEC will develop can be discerned in how CPECA was created, and its mandate. In October 2019 the government created the authority through an ordinance that bypassed the National Assembly and Senate.
Its powers are extensive. CPECA will exercise control over all corridor projects within Pakistan and have the following functions: to interface with China to identify areas of cooperation; ensure consensus building between the provinces and federal government; engage in CPEC “narrative building” and conduct research. Even though the 18th Amendment gave the provinces autonomy over resources, the new ordinance allows the authority to become something of a “parallel government”.
As the draft legislation is still not in the public domain, it is unclear how much the CPECA will undercut the role of the provinces. But reports on the draft indicated that the CPECA will have unprecedented powers to control and conceive CPEC projects.
According to Umair Javed, “Part of the problem is because of how the civil and now the military leadership have built up the almost heroic status of the corridor, while sacrificing any attempt at transparency. The federal government’s bureaucratic role – through which the military’s control has been guaranteed – has further enshrined this centralising aspect of CPEC.”
In a comment for the South Asia Democratic Forum, Siegfried O. Wolf, the director of research at the SADF, noted that the plan for a central CPEC institution is not new. It has long been advocated by the military and related circles, but was rejected by former prime minister Sharif.
Wolf wrote that while an overall authority would improve coordination and efficiency, the ways CPECA is being set up reflect the unwillingness by Pakistan’s leadership to carry out fundamental reforms. The military, which wields significant political power in the country, has secured the appointment of one of its own to head the authority and speed things along.
Asim Saleem Bajwa, the former head of the army’s Southern Command which covers the province of Balochistan, is CPECA’s chairman, yet has avoided engaging with the press, including The Third Pole, on CPEC. Last month, Bajwa was embroiled in a corruption scandal after a journalist reported on his alleged failure to disclose assets. He has refuted the allegations but both he and the prime minister were clear that his CPEC appointment would be unaffected by the controversy.
The CPECA and its chair are immune to prosecution and legal proceedings.
On his Twitter account, Bajwa has been vehement in his denials about a slowdown.
Some detractors giving false impression of #CPEC being slowed.Not only pace of work on projects picked up recently,a great deal ground work done to launch phase-2.Coming soon;$ 7.2 Bn ML-1, two Hydel Power projects investing $3.5 Bns, SEZs,&agriculture.Scope actually enhanced
— Asim Saleem Bajwa (@AsimSBajwa) June 17, 2020
In a piece for Foreign Policy in August, analyst Arif Rafiq wrote: “Bajwa was undoubtedly selected out of a belief that he could address security concerns in particular. Beijing is worried about terrorism in Balochistan, where separatists have stepped up attacks on Chinese targets in recent years. Bajwa also served as lead military spokesman for three years and is credited as having taken the army’s media management game into the digital era. The army sees CPEC as being the target of a malicious foreign propaganda campaign (for example, several senior US officials have publicly questioned the sustainability, transparency and even the legitimacy of the program) and wants to fight back.”
He added: “But there’s also indication that the army has tried to use Bajwa and CPEC as Trojan horses to claim a greater share of power back from the civilian government.”
Adeney said both China and the army feel that a centralised authority will be more capable of pushing through the objectives of CPEC.
“But for CPEC to be a success and to bring the Pakistani people along with it, it is vitally important that the CPEC Authority includes the provinces in its decision-making procedures,” she warned.
Her research, carried out with Filippo Boni, shows a higher completion rate of CPEC projects in Punjab and Sindh compared with historically marginalised provinces such as Balochistan, Khyber Pakhtunkhwa and Gilgit-Baltistan.See: Locals urge Pakistani government to drop CPEC coal mining plans
CPEC – a poor green model
The real progress made under CPEC has been the building of coal-fired power plants. This has provided desperately needed energy but is a dirty and expensive way to overcome Pakistan’s chronic shortages.
Six coal plants have been built under CPEC so far, adding almost 5,000 MW of power to the grid by 2019 – with more in the pipeline. This has worsened pollution in a country where cities already suffer from toxic air pollution resulting in over 128,000 premature deaths a year.
Environmental lawyer and activist Ahmad Rafay Alam does not mince his words about the corridor’s poor environmental responsibility.
“CPEC ignores the climate crisis. The long-term CPEC plan published by the Ministry of Planning, Development and Reform mentions climate change only once, and that too in the context of the ‘possible effect of climate change’. This should be a red flashing fire alarm to anyone concerned about the climate crisis.”
With CPEC held up as a poster child for the BRI, this does not boost its green credentials. “While China is signatory to the Paris Agreement and President Xi Jinping even urged world leaders at the 2017 World Economic Forum to ‘stick’ to the agreement, there is little evidence of this commitment in its sale of coal-fired power plants to Pakistan,” said Alam.
“If coal is built as planned Pakistan will be locked into a high-carbon emissions pathway,” said Guo Hongyu, assistant programme director at Beijing-based NGO Greenovation-Hub (G-Hub) who has been analysing China’s investment in Pakistan.
Pakistan faces an overcapacity in energy supply by 2022, and the huge financial burden of power capacity payments, Simon Nicholas, an energy finance analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), argued in a recent report.
Chinese state-owned companies (SOEs) have locked down lucrative deals with officials who believed China’s secondhand coal was the only viable option. Now the Pakistan government has asked China for easier repayment terms on CPEC projects as the existing plants stand idle.
CPEC coal projects are not compatible with Pakistan’s own green policies. Its 2019 alternative energy policy – recently set in motion – commits to 30% of the energy mix being from renewable sources by 2030, up from 4% now.
Malik Amin Aslam, adviser to the Prime Minister of Pakistan for Climate Change, has even bigger ambitions: “Pakistan is strongly committed to a clean energy future and is aiming to shift towards a clean and green energy mix of 60% by 2030.”
But this will require large-scale hydropower, which brings its own environmental problems, or a massive turnaround. And while experts point to the potential of wide-scale wind and solar, CPEC – or at least Chinese finance – hasn’t yet provided the enabling framework.
“Chinese renewable energy [players] are private companies and CPEC is a government-to-government agreement,” pointed out Guo. “I’d like to see RE companies engage in CPEC, but they face many challenges in financing.” State-owned companies building coal plants currently enjoy the services of the insurance company Sinosure, while private companies don’t.
The network of roads under CPEC, including the reconstruction and update of the Karakoram Highway, will bring other risks.
“Nowhere in the world is it sensible economic development to build a highway through some of the most climate sensitive ecosystems on the planet – and then run diesel transport trucks on it. It [is] actually an ecocide in waiting,” said Alam.
Where next for CPEC?
Pressure and economic slowdowns post-Covid-19 loom large. But experts say that CPEC is too important to fail.
“Its status as the BRI flagship, and the wider Sino-US competition that’s playing out over geo-economics has ensured that it’s the subject of more critical US scrutiny,” said Small. “I expect that enough will now be done to maintain the story that everything is still moving ahead, despite its ongoing challenges.”
Henry Tillman, founder and chief executive of merchant bank Grisons Peak who has been closely tracking BRI investment, is more buoyant about CPEC’s future. “CPEC is a sign of how BRI is moving on – shifting from government to government loans (funding large infrastructure) to business-to-business investment and a ‘digital silk road’”. He predicted large amounts of private equity will flow into Pakistan with the generals in charge.
“In February 2019 I delivered an analysis to the Pakistan leadership showing over USD 30 billion of pledged equity investment into Pakistan – of which only 10% [is from] China. No one talks about the equity coming into this country… this is a result of the emergence of a consumer economy in a country of 200 million people.”
But the political and environmental realities are very different on the ground. As Umair Javed wrote in 2016, CPEC may well be an “economic game-changer” but it will also unmask “deep political wounds” as the spoils are divided inequitably within the country.
Additional reporting by Zofeen T. Ebrahim