FeaturedNationalVolume 14 Issue # 11

CPEC mystery deepens

Concerns about the actual outlay, debt and interest payment on the China Pakistan Economic Corridor (CPEC) have deepened after Pakistan provided shocking details to the International Monetary Fund (IMF) during talks regarding a loan. Voices are also growing to make the details public to ensure transparency in the multi-billion dollar project, which is being seen as a “game-changer” in Pakistan.

According to statistics of the Ministry of Planning and Development, Pakistan will have to pay China $39.8b on $26.5b CPEC investments in 20 years. It means Pakistan, on average, will return $2 billion per annum to China. It also suggests that unlike the claims of $50 billion to $62 billion CPEC investment, the actual investment is likely to remain half of the initially announced investment figures. Out of $39.83 billion, debt repayments of energy and infrastructure projects amount to $28.43 billion. The rest of $11.4 billion will be paid in shape of dividends to the investors, official estimates say. The figures are significantly lower than the projections made by some private institutions, primarily because the outflows have been worked out on the basis of only $26.5 billion investment, a media report said.

The only major project that can materialise in the next few years is the $8.2 billion Mainline-I Project of the Pakistan Railways. The mainline project cost has not been included in the estimates. The Ministry of Finance has also shared the estimates with the IMF. These are the first comprehensive estimates of inflows that are based on projects and the outflows have been estimated on account of debt servicing of energy and infrastructure projects and dividend payments of power plants. The CPEC portfolio currently comprises energy projects, being setup by private investors, and infrastructure schemes undertaken by the government. The government loans of $5.9 billion have been signed at an interest rate, ranging from 2pc to 5.2pc. Three government loans of $774 million have been obtained at a 5.2c rate. According to the Ministry of Planning and Development, CPEC inflows of the existing under implementation projects will dry in 2022-23, when the country will receive $26.5 billion. On the basis of the inflows, Pakistani authorities have estimated that the country will return $39.83 billion to Chinese firms.

The official statistics show CPEC inflows on account of 18 energy projects and five infrastructure projects that began in 2014-15 would end in 2022-23. By the last fiscal year, Pakistan has already received $11 billion inflows. For the current fiscal year, CPEC inflows have been estimated at $4.2 billion –which is the peak of the inflows. During the next four years, the inflows will be $4 billion, $3.73 billion, $2.53 billion and $1 billion. CPEC energy projects outflows have already begun from the current fiscal year that will continue till 2037-38. On $2.4 billion Chinese investment in the Kohala hydropower project, Pakistan will return $2.3 billion in loans and another $2 billion in dividends. It will get $1.7 billion Chinese loan for the Karot hydropower project and pay back $2.1 billion in loan and another $700 million in dividends in 20 years. Against $1.7 billion Chinese investment in the Suki Kinari power project, the country will return $2.1 billion in loan and $1.94 billion in dividends. The Port Qasim hydropower project, established at a cost of $2.1 billion, will repay $2.1 billion and another $1.73 billion in dividends. The Sahiwal power plant, set up with $1.8 billion, will repay $2.14 billion in debt and $1.37 billion in dividends. Against an investment of $2 billion in the Hubco power plant, Pakistan will pay $1.8 billion in loan and another $1.5 billion in dividends. The Engro power generation project, being set up with $1.1 billion investment, will pay $770 million in loan and $407 million in dividends. The $435 million Gwadar power project will have to pay $368 million in debt and $417 million in dividends. On the $1.64 billion Thar electricity power plant, Pakistan will return $1.64 billion in loan and $749 million in dividends. Besides, five clean energy projects are being set up at a cost of $1.1 billion and their debt and dividend payments are far higher than the cost.

On five infrastructure projects, Pakistan will return $7.5 billion to the Chinese government over a period of 20 years against a loan of $5.9 billion. Against a loan of $1.3 billion for the Karakoram Highway phase-II project, Pakistan will pay back $1.63 billion. It includes $164.4 million debt at 5.2pc. The country will return $3.6 billion to China in 20 years for $2.8 billion loan for the Sukkur-Multan motorway. The loan also has an expensive component of $361.2 million, at a rate of 5.2pc. For the Orange Line Metro Train project, the country received $1.6 billion loan including $203.3 million at the 5.2pc interest rate. It will return nearly $2 billion loan over a period of 20 years.

After the report was published, China said the figures and estimates were misleading. The Chinese embassy in Islamabad also released a list of 22 “early harvest projects” in Pakistan totalling US$18.9 billion that have already been completed or are under construction. “Other debt was not owed by the government but was from private deals. The Chinese companies and their partners invested US$12.8 billion in energy projects in Pakistan, along with nearly US$10 billion raised from commercial banks,” the embassy said in a statement. Adding to the confusion, Pakistan’s Planning and Development Ministry also said the US$40 billion estimate was wrong, as the government owed US$6 billion to China in low-interest loans and grants for infrastructure projects spread over a repayment period of 20 to 25 years.

Experts say the confusion about the CPEC has compounded after the report and its rebuttal by China. The IMF and the United States have already expressed concerns over the project. If Pakistan’s three-year programme with the IMF begins from the fiscal year 2019-20, the country will repay $4.2 billion to China during the period on account of debt and dividends. In the next fiscal year, Pakistan will return $1 billion to China that would reach $1.9 billion during the last year of the IMF programme. The CPEC repayment will peak to $3.23 billion in 2025-26, and from that year it will start reducing and end at $306 million in 2037-38. Despite the confusion, it is clear that Pakistan will have to curtail its expenditure and increase exports significantly to repay the loans.