Guys!!! Is Pakistan in trouble regarding CPEC? Iran offers China | Page 13
As I mentioned in my earlier post, the Western route of CPEC would no longer be viable.
Seems like Pakistan & China were already aware of it based on the below.
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Making sense of the CPEC controversy
The CPEC offered the govt the formative moment to create new paths of economic development
By Rafiullah Kakar
Published: January 21, 2016
The writer is a Rhodes Scholar and an alumnus of the Blavatnik School of Government, University of Oxford
The
controversy around the China-Pakistan Economic Corridor (CPEC) seems far from subsiding. In recent developments, political parties from Khyber-Pakhtunkhwa (K-P) and Balochistan have upped the ante and have accused the ruling party of ignoring the smaller provinces in the multi-billion dollar project. In an attempt to make sense of the concerns advanced by representatives from Balochistan and K-P, I am going to examine the position taken by the federal government in a series of articles.
The CPEC is a mutli-route corridor that will be completed in multiple phases over a period of 15 years. As per the decision of the May 28, 2015 APC, the western route of the corridor passing through the relatively lesser-developed provinces of Balochistan and K-P is being built on a priority basis. To judge whether the federal government has actually prioritised the building of the western route or not, let’s develop a simple test and check if its claims about having prioritised this route passes the test. According to the test, the western route shall be considered prioritised if it meets the following conditions:
1) The quality of infrastructure of the western route should be better or at least similar to that of the eastern route. For this to happen, the government must have allocated the required financial resources to the route.
2) Ideally, the western route should be constructed first so that it can become functional before the other two routes. If circumstances are not ideal, as is often the case, then it should become operational at least simultaneously with the other routes. Timing is central to economic planning and development. The question of ‘which-route-to-take-first’ is very important and is likely to play a key role in shaping the subsequent path of development.
3) At least half of the proposed industrial parks and economic zones and other supporting components of the corridor, including energy projects, railway tracks and gas pipelines should be located along the western route.
Now let’s examine if the western route fulfills the criteria enumerated above.
The western route is a two-lane road whereas the eastern route is a high-speed six-lane modern motorway with controlled-access design. The pavement design of the eastern route is markedly superior to that of the western route. The latter can’t withstand loaded trucks. The superiority of the eastern route is not surprising given the government’s preferential funding for it. The allocation pattern of federal development funding clearly suggests that the eastern route is the government’s priority. In the 2015-16 federal PSDP, the government has allocated only Rs20 billion to the western route while earmarking a handsome Rs110 billion to the eastern alignment. Out of the Rs20 billion, approximately Rs5 billion have been allocated for the Gwadar-Turbat-Hoshab (M8) and Hoshab-Panjgur-Besima (N85) sections, which constitute the common route shared by all three alignments. In strictly technical terms, therefore, the funds earmarked for the western route in the 2015-16 federal PSDP are approximately Rs15 billion, of which not even a penny comes from the approximately $11 billion CPEC loans taken on for infrastructure development. As of December 31, 2015, only Rs1.6 billion of the Rs15 billion have been released.
Coming to the second pillar of the test, the two-lane road along the western alignment is likely to be completed by the end of 2018 whereas the six-lane motorway along the eastern alignment will be completed by the end of 2017. Lastly, the eastern route passes through the relatively developed parts of the country and is in geographical proximity of major urban centres, energy production sites and growth zones. Railway tracks and LNG pipelines will run parallel to it. As far as industrial parks are concerned, let’s hope they will be equally distributed among the three routes.
Given the huge contrast in the infrastructural quality and spatial proximity of the two routes, the eastern route is destined to effectively become the primary route, the government rhetoric about having prioritised the western route notwithstanding. The two-lane western route, if completed by 2018, will remain an auxiliary route at best. The reality is that the government had decided to change the corridor route in late 2013 or early 2014. This is proven by the 2014-15 federal PSDP in which the government had earmarked Rs49 billion for the CPEC, all of which was to be spent on the eastern route. When confronted with mounting political pressure in 2015, the federal government allocated a nominal amount for the western route in the 2015-16 PSDP.
Now let us come to the government’s claims that the revenue generated from the motorway on the eastern route will be used to upgrade the western route to become a four-lane and ultimately a six-lane motorway. Railway tracks will be laid from Gwadar to Peshawar passing through Quetta and DI Khan.
First, there are no credible guarantees that these commitments will be duly honoured, especially given the long time horizon — 15 years — it involves. If history is any indication, complacency will creep in and the urgency and motivation, if any, to upgrade the western route will wane once the eastern route becomes functional. The federal government will keep fabricating excuses to delay the upgradation of the western route. Fiscal constraints and political crisis of one or the other type will continue giving it plausible cover. Protesting voices from smaller provinces will be coerced into silence by appeals to ‘patriotism’ and ‘India’s malicious designs over the project’.
Secondly, even if the credible commitment problem is somehow resolved, the upgradation of the western route at a later stage is unlikely to alter the position of the eastern route as the primary route of the corridor. The western route will at best play second fiddle to the eastern one. Once the eastern route with its superior infrastructure and geographical proximity to the developed and prosperous urban centres takes the lead as a result of the initial preferential treatment it has received from the federal government, it is likely to stay ahead of the competing routes because of positive feedbacks and increasing returns to scale. Over time, development choices will be constrained within a progressively narrower range of possibilities that will tend to preserve the status quo. This is known as path-dependence, which among other things, partially explains the persistence of regional disparities. Nevertheless, the concept does not rule out the possibility of breaking out and establishing new paths, especially in the beginning of a process. The CPEC offered the government the formative moment to break out and create new paths of economic development by prioritising its under-developed regions. Unfortunately, the ruling elite have not taken advantage of this opportunity.
Making sense of the CPEC controversy - The Express Tribune
Making sense of the CPEC controversy — II
In my
last article, I deconstructed the government’s claims about having prioritised the western route of the China-Pakistan Economic Corridor (CPEC). In this piece, I critically examine the various justifications advanced by those defending the prioritisation of the eastern route.
The federal government claims that China is investing $35 billion in different energy projects with Sindh and Khyber Pakhtunkhwa (K-P) having the highest share, followed by Balochistan and Punjab. This is foreign direct investment (FDI), meaning that the Pakistan government has no say in deciding the location of the projects. Moreover, it has also been claimed that China prefers the eastern route and that there is no Chinese investment for constructing new roads.
While Chinese investment preferences should be respected, the federal government should not be oblivious to its negative distributional impact. Empirical evidence shows that FDI increases regional inequality in low and middle-income countries since the many different regions of a country usually do not receive it in equal measure. Nevertheless, the government through various policy instruments can mitigate the negative distributional impact of FDI on the state of regional equality. In this regard, China’s example is very relevant. In China, FDI has been concentrated on strongly urbanised coastal regions and has been a major driving force behind the strong increase in regional inequalities in the 1980s and 1990s. However, the Chinese government has implemented special development programmes for the lagging western part of the country, which seemed to have been quite successful. As a matter of fact, the CPEC is a part of the efforts aimed at bringing the underdeveloped western parts of China on a par with the rest of the country. Rather than following the Chinese way, the Pakistan government has ostensibly let the market shape and determine public policy choices.
Out of the $21 billion worth of “priority energy projects”, there is only one project in K-P (worth $1.8 billion) and two in Balochistan (worth $1.3 billion), accounting for 8.5 per cent and six per cent, respectively, of the total investment categorised as “priority”. The Gaddani power project, which was abandoned by the federal government in January 2015, has been re-included in the “actively promoted projects”. The government maintains that no project can be made area-specific except coal projects, which have an inherent area bias because of the natural location of the source. Based on this logic, it won’t be unfair to argue that the power generation potential of Balochistan’s coal reserves has been ignored. Balochistan has the second-largest coal reserves in the country. It has six developed coalfields, all of which are located in the province’s northern part. The coal quality is adequate for power generation through small power plants of up to 25MW capacity. Currently, 90 per cent of Balochistan’s coal is transported to other provinces for use in brick kilns. In contrast, most of the current coal power projects would be run on imported coal, thus increasing the country’s import bills significantly.
The argument that China prefers the eastern route and is providing loans only for upgrading existing infrastructure is untenable. The argument about respecting investors’ preferences only applies to the $35 billion worth of FDI. It does not apply to the approximately $11 billion concessionary and commerical loans taken for infrastructure projects. Decisions regarding the utilisation of loans can be made by the Pakistan government independent of the Chinese and other donors. And the government clearly prioritised building highly costly motorways in Punjab and Sindh over developing the western route. It has acquired loans from China and other donors to finance the building of the motorway. If the western route was the priority, the motorway project or parts of it could have been put on hold and the loans could instead have been used for building at least a four-lane highway on the western alignment. Out of the $11 billion CPEC loans for infrastructure, not even a penny has been earmarked for the western route. Secondly, if the Chinese are unwilling to finance the construction of new roads, then how can the financing of the Lahore Orange Line Metro Train Project be explained? China is providing a Rs162 billion loan for the mere 27.1km long metro train project, which not only involves building new infrastructure but also the destruction of some existing infrastructure. Lastly, if the route of the corridor depends on the availability of pre-existing roads and facilities, then the logical route appears to be the Karachi-Lahore-Rawalpindi-Hasan Abdal-Khunjerab one, with two developed ports already there (Karachi and Bin Qasim), two national highways (N-5 and N-55) and several economic centres along the way. If such justifications are used, the entire rationale for development of Gwadar port disappears.
There have also been claims by the authorities that the debate on the installation of energy projects in any specific province is futile as electricity generated anywhere will be injected into the national grid and will be available for all the provinces without any discrimination
(http://www.geo.tv/latest/9271-Three-confusions-on-CPEC-confronted-with-reality-check#sthash.B8gGktK7.dpuf)
This would be true only if all provinces had been fully connected to the national grid. At present, large swathes of rural Balochistan, Fata and K-P are not connected to the national grid. For instance, only 25 per cent of Balochistan’s population has access to electricity compared to 75 per cent in the rest of the country. The existing transmission lines are weak and old, and unable to sustain the additional power burden. So even if the national grid has surplus electricity, large areas of Balochistan, owing to non-connectivity to the national grid, are unlikely to benefit from it.
In the next part of this series of articles on the CPEC, I will examine the way our public policy is developed and the trade-off that often occurs between concerns for equity and those for efficiency.
Published in The Express Tribune, January 29th, 2016.
Making sense of the CPEC controversy — II - The Express Tribune
