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No.

43 November 2016

China-Pakistan Economic Corridor: Energy


and Power Play
Rishap Vats
Research Intern, Institute of Chinese Studies, Delhi
rishap.vats@gmail.com

With US$34 billion investment allotted for


For a country already facing power
the power sector out of the total US$46
shortages regularly across the nation, billion supposedly pledged by the Chinese
combined with growing demand (2.55%- government, CPEC aims to generate
5%) each year, electricity is certainly one 16,400MW of power and solve the
of the main issues which Pakistan’s electricity shortage in Pakistan (Houreld
authorities need to address (Mustafa 2016). 2015). In November 2015, the CPEC
It is for this reason that the priority of Committee pledged to complete 14 energy
energy projects within the China-Pakistan projects by 2018, but things on the ground
Economic Corridor (CPEC) especially in suggest otherwise (Dawn 2015).
the initial stages is ranked quite high. The
existing electricity demand-supply gap When Secretary Ministry of Water and
currently exists at 2,500-3,000MW leading Power Mohammad Younus Dagha
to six to eight hours of load shedding suggested that by 2018 the production
(Mustafa 2016). And hence, the promise capacity would be 30,938MW whereas
made by the Pakistani Minister for Water demand would be 25,961MW and
and Power Khawaja Muhammad Asif of availability stand at 26,590MW, when
complete elimination of load shedding compared to the 2017 targets of
seems quite unrealistic at the moment 25,080MW against a demand of
(Business Recorder 2016a). It becomes 24,262MW and availability of 21,096MW,
even more significant as this is the crucial he overlooked the fact that as of June 2016,
aspect on which the chance of re-election over the previous three years, Pakistan had
of the ruling government led by Nawaz added only 2,665MW additional electricity
Sharif of the Pakistan Muslim League in the system (Dawn 2016c). This was
depends upon. admitted by the Minister himself in June
2016 while he was addressing questions
regarding the progress of the projects in Current situation
the National Assembly (Radio Pakistan
2016). According to Pakistan’s Water and
Power Development Authority (WAPDA)
The power demand in Pakistan reached
in June 2016, during the scorching summer, 21,200MWlast year while production was
the country faced a shortfall of more than only 16,548MW (Mohammad 2016).
5,000MW of power. There were more than Currently, the electricity-generation
eight hours of power cuts per day capacity of Pakistan stands at 22,797MW,
throughout the country, with considerably and with an average demand of
more in the rural areas. 17,000MW, the shortfall lies between
4,000MW and 5,000MW, which is
Although it is true that a few of the early expected to increase in the coming years as
harvest projects, such as the Enrgo Thar the population expands by almost two
coal project (Sindh), Hubco coal project percent annually (Anam 2016).
(Balochistan) and Sahiwal coal project
(Punjab) are on track and will probably Further, although the gap between supply
meet the 2018 deadline, other projects and demand has gone down when
have been delayed, and subsequently compared to last few years where it was
moved from the “early harvest” category 7,500MW to 8,500MW, several structural
to “actively promoted projects” category problems persist, creating huge roadblocks
which remain in the pipeline or targeted for any forward movement (The Economist
for completion only by 2020. There have 2012). For example, even after numerous
also been projects which have been attempts to control the circular debt
shelved altogether such as, for example, problem, as of30 June, end of the financial
the Gadani power plant in Balochistan. year 2015-16, receivables rose to an all-
time high PkRs.684.06 billion while
payables mounted to PkRs.299.06 billion
Several CPEC projects have been
(Mustafa 2016).
delayed, and subsequently removed
from the “early harvest” category
Pakistan’s government though, has
while others have been shelved
managed to bring down the losses to 17%
altogether.
from 18.6% by paying some of the share
themselves and waiving off others,
recently (Mustafa 2016a).Payments made
The US$9 billion, which was supposed to by the provinces also helped when it came
generate 6,600MW, was inaugurated by to reducing the dues and in addition, to
Prime Minister Nawaz Sharif at the improving the cash inflow in the power
beginning of 2016 (The Express Tribune sector, the government is considering
2015). Problems of transportation and the installing prepaid electricity meters as
lack of commitment on the part of Chinese advised by the Islamabad Chamber of
investors led to the decision of putting the Commerce and Industry (Daily Times
project on the backburner and finally in its 2016b). Simultaneously, attempts are also
scrapping (Kiani 2016b) being made to increase gas (LNG) imports
to ‘limit accumulation of new payables and

2 INSTITUTE OF CHINESE STUDIES, DELHI ● NOV 2016


gradually eliminate outstanding stocks of In the north, where most of the projects are
the power sector’s circular debt (The News hydel-power based, progress is visible
2016).There have been encouraging signs with the Kohala project in Pakistan-
such as a drastic 27% cut in generation Occupied Kashmir and the Neelum-Jhelum
costs and the upward trends across the project running smoothly with high
country when it comes to the recovery rate likelihood of meeting the August 2018
of distribution companies (Kiani 2016b). deadline (Kiani 2016c). Hydro-power
But despite all these efforts the receivables generation has a lot of potential but
in the month of August 2016 crossed the remains unutilized. And going by the
mark of PkRs.684 billion, highest they claims made by the Minister-in-Charge of
have ever been (Kiani 2016b). CPEC Ahsan Iqbal, ‘about US$18 billion
worth of projects are in the implementation
Given the fact that PML-N cleared phase while the remaining portfolios of
PkRs.480 billion in 2013 and taking into US$17 billion projects are at the
account the massive fall in international preparation stage’ (Aftab 2016).
crude oil prices the government should
have been able to adjust subsidies, take It is important for Pakistan to
advantage of the savings on import bills showcase its ability to utilize funds
and decrease in production costs (Kiani and investments flowing from
2016d). However, these benefits have not CPEC and showcase itself as a
been passed on to the masses; in fact, there viable economic hub
have been cases of inflated bills and undue
surcharges on consumers (Kiani 2016d).
One of the key elements at least for
This leads to the question of whether if and
Pakistan via CPEC is to showcase its
when the CPEC projects bear fruit; the fall
ability to utilize funds and investments
in production costs will make any
flowing from abroad and to put itself on
difference, especially when it seems more
the global map as a viable economic hub
likely that no matter what, certain
where things can get done.
consumers will not pay what they owe.

Of course, this is not possible when there


Not all hope is lost, however, if recent
is acute shortage of power and the major
reports are to be believed. Many projects
cities of the country are plunged into
are under construction and on track. The
darkness regularly. In terms of
solar park in Bahawalpur (Punjab
investments, Pakistan will receive three
province), which comprises about five per
times the total FDI of the last decade
cent of Pakistan’s current installed power
through the CPEC, with the main thrust of
capacity, is seen as being successful. With
the project being in energy and
the addition of 300MW to already existing
infrastructure (Almeida 2015). This
capacity of 100MW by Chinese company
affirms Chinese commitment to Pakistan
ZTE Energy, some claim to be fulfilling
but by itself is not a guarantee of the
the energy needs of around 200,000
success of this project. Apart from
Pakistani families (Business Standard
security-related concerns, a major
2016).
impediment is the competence of the

INSTITUTE OF CHINESE STUDIES, DELHI ● NOV 2016 3


Pakistani establishment and institutions. problem are facing serious delays. The
Mismanagement and corruption combined Port Qasim Coal project in Sindh, which
with well-entrenched patronage systems was estimated to add 1,320MW has been
need to be overcome if this has to work embroiled in a centre versus province
and implemented properly on the ground. standoff due to disputes regarding land
This initiative might well aggravate some acquisition, which are still yet to be,
of these problems. Still, the onus is on solved (Kiani 2016c). The Suki Kinari
Pakistan itself to utilize this chance and hydropower plant’s fate took a similar turn
gain some economic leverage, which will as it was announced that it faces another
be beneficial for the domestic situation and delay; one of the ‘priority projects’ in
for its foreign policy. Mansehra district of Khyber-Pakhtunkhwa,
it is facing land acquisition troubles (The
Perceptions, at home and abroad are Express Tribune 2016a, c).
fuelled further by the lack of transparency
about the terms and conditions of various The Diamer Bhasha dam which the
projects. The Pakistani government though Chinese agreed to build in 2015, is
is trying to amplify the progress of few embroiled in a dispute between
infrastructure projects (mainly road rival tribes backed by the Khyber
projects) as a sign of change being around Pakhtunkhwa and Gilgit-Baltistan
the corner. Despite the many challenges, governments
especially when it comes to energy
projects, Pakistani Prime Minister Nawaz
Sharif remains optimistic as he boldly Constructed by China Gezhoube Group,
asserted that power sectors projects remain the US$1.8 billion project, which was
on track despite the impediments and supposed to add 870MW, has been
hurdles. On 1 September 2016, while delayed for a year again. And the dispute
inaugurating a number of projects in between the Khyber-Pakhtunkhwa
Gwadar he said, ‘Some of the projects are government and the central government is
going to be completed by the middle of not helping either. In fact, the delay is
next year. We will have electricity of about likely to continue especially given that
10,000MW by the end of 2017. We hope Chief Minister of Khyber-Pakhtunkhwa,
to eliminate load shedding by 2018 in the Pervez Khatak has openly accused the
country’ (Dawn 2016c). central government of stealing electricity
of the provinces (Daily Times 2016a).To
take another example of a project that is
Teething troubles
strictly not part of the CPEC, the Diamer
If one closely examines most of the Bhasha dam, in Gandlo Nala area in
updates and news about some of these Gilgit-Baltistan, which the Chinese agreed
projects individually, one can judge the to build in 2015, is embroiled in a dispute
overall efficiency and the actual progress between two rival tribes (The News 2015).
of this initiative. When the dots are joined,
the picture is very clear. For example, This stretch of land, which is at the border
some of the big energy projects which between Kohistan, in Khyber
were propped as being the solution to the Pakhtunkhwa province, and Diamer in

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Gilgit-Baltistan has witnessed multiple (second phase) and this seems to has
clashes in the recent past between rival woken up people at the helm of affairs in
tribes which are backed by the Khyber Pakistan. Growing Chinese pressure and
Pakhtunkhwa and Gilgit-Baltistan discontent are making the Pakistani
governments (Mohammad2016b). government issue warnings to all the
stakeholders involved in these projects to
Growing Chinese pressure and meet the deadlines or “risk deletion of the
discontent are making the project from the CPEC” (Rana 2016b).
Pakistani government issue
warnings to all the stakeholders to The water and power ministry has even
meet deadlines or risk deletion of changed deadlines and ordered projects
the project from the CPEC like Thar Block-II project, the 1,320MW
Engro Thar power plant to be completed
by December 2018. Similar warnings have
The project is expected to supply been issued to the Sino-Sindh Power Plant,
4,500MW of electricity and will make “to start construction of the project or face
available 7.89 billion cubic meters of demotion from the list of priority schemes
water storage to supplement irrigation to the list of actively promoted CPEC
during low flow period and is seen as projects or even deletion from the corridor
critical to solving Pakistan energy woes. altogether” (Rana 2016b).
Although the federal cabinet approved on
10 September 2016, the plan for the Apart from land disputes and slow
acquisition of land required for clearances, another set of hurdles, which
construction and promised compensation every project encounters at some point of
to the affected people, there is no time relates to taxes and concessions. Even
guarantee that this will be enough to as the government has brought certain
expedite the process on the ground measures in play, such as waiving off
(Ahmed 2016). bidding conditions for some CPEC
projects or backing the projects with
The project, which was scheduled to be sovereign guarantees, the main way to
completed by 2016, is of paramount dissuade Chinese investors from pulling
importance as it would help with irrigation, out has been the reduction of taxes (Rana
mitigate the threat of floods and more 2016c). Issues of tax exemption for import
importantly extend the life of the Tarbela of plant and machinery (Port Qasim
dam for 35 years (Zaafir 2016). Moreover, project), pending cases of tariff agreements
the project is now also facing funding (Salt Range power project in Punjab) and
problems as the ADB which was the lead availability of coal for many projects still
financier of the project declined to commit remain quite challenging (Kiani 2016c).
when it came to the massive financial
requirements of the project (Kiani 2016a). To make some headway, the Federal
Board of Revenue (FBR) and the Chinese
Multiple projects are facing the danger of authorities met to resolve the tax-related
being pushed out from ‘early harvest’ issues of projects under the (CPEC) on 29
timeline (first phase) to ‘actively promoted’ June 2016 (Sarfarz 2016). However,

INSTITUTE OF CHINESE STUDIES, DELHI ● NOV 2016 5


instances like the Gwadar Port Authority two years (The Wire 2016). Nevertheless,
(GPA) still being unaware if the project there remain fundamental problems in the
(Swad-Gwadar City Water Supply) is to be overall approach. Just increasing
developed through a grant, an interest-free production capacity is not enough
loan or a commercial loan from China especially when the demand is increasing
suggest a tale of confusion in the CPEC and power distribution remains poor.
(Kiani 2016c). Moreover, when it comes to Ignoring up gradation and numerous
coal projects, there is need for large failures of transmission lines and power
amounts of water (10 to 150 gallons per grids will be detrimental to progress made
ton of coal) for extracting the coal from the on other fronts. Technical losses and
ground as the most common method used default evasions combined with enormous
in the country is the strip-mining method. power theft add to the problems. The line
Hence, water supply is very essential for losses and electricity theft stands at 17.9%
even the day-to-day operations and any resulting in the loss of PkRs.29 billion in
delay or hurdle would hurt the chances of 2015-16.
the projects meeting their deadlines.
Islamabad has tried to soothe the
The government in an attempt to salvage anxieties of the Chinese
matters – given the coming elections – has government and investors by
been shifting priority projects around. In setting up revolving funds backed
July 2016, two coal projects in Sindh by sovereign guarantees
which were supposed to supply power to
Punjab were demoted and now three LNG-
based, 3,600MW power plants in Punjab According to Tahir Basharat Cheema,
former managing director of the Pakistan
have instead, become new additions to the
Electric Power Company, “the system
priority list (Rana 2016d). Apart from
citing the viability of the project as the losses stand at 20 percent of total power
reason for this shift, the Planning and generated and distributed, out of which
some five percent is electricity theft from
Development Minister Ahsan Iqbal also
the system, while another five percent is
said that “not having a transmission line”
the result of outdated system. Remaining,
played a big part (Rana 2016d). This
South-North transmission line, which was 10 percent is technical losses, which in
accordance with the total power sector
facing delays over “issues of payment of
infrastructure size of Pakistan is negligible”
minimum tax on turnover and payment of
(Rizvi 2016) .So adding capacity to the
alternate corporate tax for 10 years and the
tariffs”, is looking at complete deletion national grid will only get Pakistan so far,
especially if it does not also enhance
(Kiani 2016c).
capabilities and efficiency of existing
transmission networks.
The Asian Development Bank’s country
manager, Werner Liepach, recently
Suggesting that economic rationale might
remarked that the ADB is “broadly
halt Beijing’s generous contributions
satisfied with the progress” and the efforts
however, would also be neglecting the
of the Pakistani government could end
power rationing in the country in the next underlying strategic aspects of this grand

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project. If connectivity is something China Setting up revolving funds backed by
needs, there have to be sacrifices made sovereign guarantees, plans to set up
from its side in order to help Pakistan get numerous industrial parks and mineral
its house in order and Beijing probably economic processing zones are a few
knows this all too well. Although the idea methods it has chosen (Dawn 2016a). Also,
of incurring huge losses and slow progress in June this year, a new rule has been made
might worry Chinese investors and sow which makes it compulsory for all
seeds of hesitation for future inflow of ministries/governments/departments to
capital to Pakistan, the Chinese submit the anticipated future
government seems unlikely to abandon disbursements for the CPEC projects to be
their ‘all-weather ally’ so easily. included in the Public Sector Development
Programme for next financial year to
Having said that, if the Pakistani ensure smooth flow of funds as per the
government does not close the gap progress of works (Sarfaraz 2016). At the
between what it earns and what it pays, same time Pakistan’s government needs to
then the future of CPEC will remain rather be careful of the long-term effects on the
bleak (Pal 2015). Pakistani traders and the economy and take into consideration risks
business community represented by the of repayment obligations and profit
Federation of Pakistan Chambers of repatriation.
Commerce and Industry have raised their
voices asking the government to speed up Deepening Political Divisions
the process so that Pakistan can fully
utilize these investments (Daily Times Economic development according to the
2016c). Chinese has been the preferred way to
achieve peace for them. But this ambitious
The allocation of funds, projects endeavor of theirs seems to have deepened
and the prioritization of their the divide and inflamed tensions in the
completion appear unequal among politics of Pakistan. One of the main bones
the provinces of contentions apart from the route of the
corridor seems to be regarding the
resource-distribution-formula. One of the
Pakistan’s state-owned entities – the main biggest allegations against the whole
source of the circular debt problem –are project in Pakistan itself is that in terms of
run by the country’s elites and any allocation of the funds, projects and the
attempts to privatize these entities will be prioritization of their completion is
met with huge resistance from the political unequal amongst the provinces.
class. But how long things will stay the
same way is hard to say, as the Chinese Interestingly even when it comes to the
look to other ways to get things done. To energy projects, out of the total power to
be fair, Islamabad has tried to soothe the be generated through CPEC projects,
anxieties and concerns of the Chinese 4,4210MWis to be generated in Sindh,
government and investors. 3,640MWin Punjab, 960MW in
Baluchistan, 870MW in Khyber
Pakhtunkhwa and 720MWin POK

INSTITUTE OF CHINESE STUDIES, DELHI ● NOV 2016 7


(Business Recorder 2016b).Statistics around 500 young men by the Pakistan
presented in the Parliament reveal that 53% Army (ANI 2016). This tussle reflects the
of the total projects are being assigned to problems in the implementation process,
Punjab – out of the total of 330 projects, the provinces for example have in return,
176 are in Punjab (Qadeer 2016). This has expressed their dissatisfaction by not
led to some accusing Islamabad of giving the authorization yet for the
favouring the province of Punjab due its deployment of the special security forces
high population density and with the (The Express Tribune 2016b).
upcoming elections in mind.
Reports are doing the rounds that
The tussle between the K-P government suggest establishment of a separate
and the centre is well known but vehement ‘CPEC Development Authority’
opposition from some regional parties, with Pakistan Army involvement
especially the Baloch ones is also growing.
As of now only eight projects have been
allocated for Baluchistan, which could be a Increasing security concerns from the
huge headache in the long run considering Chinese regarding the safety of their
the strategic significance of Gwadar workers combined with growing
projects and the instability in that region. impatience over the speed of
implementation is prompting China to
The central government needs to allay any explore other options. There are numerous
sense of deprivation among the provincial reports doing the rounds that suggest
governments, parties and the people of establishment of a separate ‘CPEC
these federating units. Political division to Development Authority’ with Pakistan
this extent does not send a good signal and Army involvement, something the civilian
can worry people both at home and abroad. leadership rejects outright or denies
In fact, on 11September, the Vice Minister (Siddique 2016).
International Department of the
Communist Party of China, Zheng This can create friction in the already
Ziaosong while meeting a delegation of the tense relationship between the military and
Pakistan People’s Party in Beijing urged civilian establishment in Pakistan. One of
Pakistan to resolve these issues. He the reasons for this development can also
stressed that for a project like CPEC to be attributed to the emerging belief that the
maximize its potential there needs to be ruling dispensation, Pakistan Muslim
‘political consensus coupled with League (Nawaz) would not be able to
unanimity in approach’ (Ghauri 2016). deliver on its promise regarding
uninterrupted electricity. The promise of
However, Islamabad’s actions such as ending power shortages was in fact one of
charging protestors under anti- terrorism the reasons which led Nawaz Sharif and
law is hardly the answer and highly his party to power but now it could well be
counterproductive. Protests held in the one of the reasons for their downfall.
Gilgit area in August 2016 against the
CPEC projects and the ensuing police What could be worse for Beijing is a
crackdowns, resulted in the arrest of possibility of this civil-military rift

8 INSTITUTE OF CHINESE STUDIES, DELHI ● NOV 2016


becoming a hindrance to security and seen by the world community in a positive
affecting timelines of the projects. This light. However, the delays in CPEC
was demonstrated by the delay in the projects might deal a body blow to the
deployment of the SSD (Special Security business climate in Pakistan and for
Division) due to jurisdictional issues Chinese plans in the region. Strategic
between the government and the army. interests and ambitions of Beijing in the
Due to this the terms of reference (ToRs) region and on the global stage hinge upon
for deployment of the special security the success of these ambitious projects.
force has not yet been finalized (Rana These grand designs and visions like the
2016a). A year and a half later since the OBOR which has many similarities with
promise was made by the army to raise the 19th century’s ‘great game’ look like
such a force to protect the Chinese workers, masterstrokes on paper but they have yet
the government remains cautious about to yield results which are required very
wide-ranging ToRs, which could diminish soon, for Islamabad at least, if not also for
its own authority and influence on the law Beijing. Through Gwadar, CPEC is
enforcement agencies on the ground expected to play a vital role in China’s
(Sayed 2016). Maritime Silk Road.

Conclusion Investments in CPEC are more than just


Chinese Marshall Plan to resurrect the
Nevertheless, the mood in Islamabad Pakistan’s economy. The CPEC is also an
remains optimistic. According to Prime important flagship project of the Belt and
Minister Sharif the CPEC project seeks ‘to Road initiative to an extent because the
harness Pakistan’s geo-political position success of CPEC will send a clear and
into geo-economic advantage by positive message to the other countries in
connecting the three engines of growth – and around China. It is the supplementary
South Asia, China and Central Asia’ vein whose success or failure might have a
(Aftab 2016). And if the claim made by spill over effect or change perception of
Miftah Ismail, chairman of Pakistan’s the long drawn effort of turning the OBOR
Board of Investment about CPEC into reality from a vision. And mostly,
attracting US$150b, estimated by ‘working China would be the biggest benefactor
out on the basis of firm commitments with from the emergence of a stable Pakistan,
prospective investors’ is real, then there is something which will depend heavily on
more to look forward to (Aftab 2016). the energy projects that the CPEC has
Even countries like Turkey and Iran have promised.
expressed their willing to join the initiative
and reap the benefits (Aftab 2016). Ahsan The success of these energy projects will
Iqbal, in fact welcomed both Iran and be the harbinger of transformational
Saudi Arabia, saying ‘we will welcome change in the region and the result on
both the brotherly Islamic countries if they Pakistan’s economy will be phenomenal.
want to be part of CPEC’ (Dawn 2016a) Success of the projects will not only meet
the growing demand and end the power
So the opportunity for Pakistan is out there, crisis in the country but also meet the
to change the way it functions and to be energy needs of the industries and aid the

INSTITUTE OF CHINESE STUDIES, DELHI ● NOV 2016 9


other projects of development along the Business Standard. 2016. ‘China-Pakistan
economic corridor on track, says Chinese diplomat’,
CPEC routes. Revolutionizing Pakistan's 25 June,
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knows will first require, pulling the 2016).
country out of the darkness.
Daily Times. 2016a. ‘Centre versus the provinces’,
13 July
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