Pakistan to pay China $40 billion in 20 years

[SunilM]

Pakistan to pay China $40 billion in 20 years

Pakistan will pay $40 billion to China in 20 years in shape of repayments of debt and dividends on a $26.5 billion investment under flagship China-Pakistan Economic Corridor (CPEC), documents of the Ministry of Planning and Development reveal.


Out of $39.83 billion – to be precise – the 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, showed the official estimates.

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.

Pakistan, China agree to cast CPEC net wider

This suggests that unlike the claims of $50 billion to $62 billion CPEC investment, the actual investment likely to remain half of the initially announced investment figures.

The only major project that can materialise in the next few years is $8.2 billion Mainline-I Project of Pakistan Railways. The mainline project cost has not been included in these estimates.

The Ministry of Finance has also shared these estimates with the International Monetary Fund (IMF) last month, confirmed a government spokesman on CPEC affairs. The country on an average will return $2 billion per annum to China.

These are the first comprehensive estimates of inflows that are based on under implementation projects and the outflows have been estimated on account of debt servicing of energy and infrastructure projects and dividends payments of power plants. 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 2% to as high as 5.2%. There are three government loans totaling $774 million that have been obtained at 5.2% rate.

The commercial loans for setting up power plants have been arranged at an interest rate of London Interbank Offered (Libor) plus 4.5%. However, it is the return on equity, which in some cases is as high as 34.2%, that will cause outflow of $11.3 billion.

CPEC inflows of the existing under implementation projects will dry in 2022-23 when the country will receive $26.5 billion, according to the Planning Ministry’s working. On the basis of these inflows, Pakistani authorities have estimated that the country will return $39.83 billion to Chinese firms.

A Flourish data visualisation
“CPEC projects inflows will continue till 2030 on account of energy, infrastructure projects that will be based on pragmatic planning on their economic outlook and socio economic, agriculture and Gwadar projects,” said Hasan Daud Butt, official spokesman on CPEC affairs.

To a question, Hasan Daud said both the inflows and outflows have been prepared as per actual investment and are based on projects that are under implementations. He said the Planning Ministry has shared these estimates with the Ministry of Finance and they discussed it with the IMF.

The IMF and the United States have expressed concerns over CPEC debt without acknowledging the benefits of the investment that helped remove infrastructure and energy sector bottlenecks.

However, Pakistan can only sustain these repayments by enhancing its exports. In case the country still remains unable to increase exports despite removal of energy bottlenecks, it will be difficult to manage these repayments.

Assuming that Pakistan-IMF three-year relation will begin from fiscal year 2019-20, the country will repay $4.2 billion to China during this period on account of debt and dividend payments.

In the next fiscal year, Pakistan will return $1 billion to China that will reach to $1.9 billion during the last year of the IMF programme. The CPEC repayments will peak to $3.23 billion in 2025-26 and from that year it will start reducing and ending at $306 million in 2037-38, according to the documents.

Total inflows

The official statistics showed that CPEC inflows on account of 18 energy projects and 5 infrastructure projects that began in 2014-15 would end in 2022-23. Till last fiscal year, Pakistan has already received $11 billion worth of CPEC 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 amount to $4 billion, $3.73 billion, $2.53 billion and $1 billion in 2022-23.

Energy outflows

CPEC energy projects outflows have begun from this fiscal year that will continue till 2037-38. Against $2.4 billion Chinese investment in Kohala hydropower project, Pakistan will return $2.3 billion in loans and another $2 billion in dividend payments.

A Flourish data visualisation
Pakistan will get $1.7 billion Chinese loan for Karot hydropower project and payback $2.1 billion in loan and another $700 million in dividend in 20 years. Against $1.7 billion Chinese investment in Suki Kinari power project, the country will return $2.1 billion in loan and $1.94 billion in dividends.

The Port Qasim hydropower project is established at a cost of $2.1 billion and the repayment of debt will amount to $2.1 billion in addition to $1.73 billion on account of dividends. The Sahiwal power plant, setup with an investment of $1.8 billion, will cause $2.14 billion debt repayment and $1.37 billion in dividends.

Against an investment of $2 billion in Hubco power plant, Pakistan will pay $1.8 billion in loan and another $1.5 billion in dividends to the investors. The Engro power generation project, being setup with $1.1 billion investment, will result into $770 million in loan repayment and $407 million in dividends.

The Gwadar power project to be setup at a cost of $435 million will lead to debt repayment of $368 million and $417 million in dividend payments. The Thar electricity power plant is being setup with $1.64 billion Chinese investment.

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The country will return $1.64 billion in loan and $749 million in dividend. In addition to that, five clean energy projects are being setup at a cost of $1.1 billion and their debt and dividend payments are far higher than the cost.

Infrastructure projects

Against a loan of $5.9 billion for five infrastructure projects, Pakistan will return $7.5 billion to the Chinese government over a period of 20 years. Against a loan of $1.3 billion for Karakoram Highway phase-II project, Pakistan will pay back $1.63 billion.

This is inclusive of $164.4 million debt that has been contracted at 5.2% rate. China has given a $2.8 billion loan for Sukkur-Multan motorway and the country will return $3.6 billion in 20 years. This loan also has an expensive component of $361.2 million that has been contracted at 5.2% rate.

A Flourish data visualisation
For Orange Line metro project, the country received $1.6 billion loan including $203.3 million at 5.2% interest rate. It will return nearly $2 billion loan over a period of 20 years.


https://tribune.com.pk/story/1874661/2-pakistan-pay-china-40-billion-20-years/

CPEC details finally out. More than 30% ROI!!! Thats daylight robbery!

 

[Sine Nomine]

Thanks IMF.
@BHarwana

 

[SunilM]

More than 40 % return on investment by way of loans and dividends. Thats the truth!! Yeah, China is following the theme of merchant of Venice and seeks to extract its pound of flesh.

 

[ARMalik]

I will again caution you fellows that there is plenty of fake news being spread by news outlets in Pakistan. And this Tribune has a history of spreading propaganda.

 

[SunilM]

Yeah now that the truth is out, try to discredit the facts. 40 Billion dollars return on 26 Billion investment. Thats the truth and its out. These details were submitted to IMF and are now out. Leak may be from Finance ministry itself.

 

[maithil]

40 billion over 20 years on investment of 26 billion. Does not seem too shocking.

 

[Trango Towers]

Yeah now that the truth is out, try to discredit the facts. 40 Billion dollars return on 26 Billion investment. Thats the truth and its out. These details were submitted to IMF and are now out. Leak may be from Finance ministry itself.

Now try dividing that by the number of years. You indians and your tamasha

 

[SunilM]

Well, a) Its over 40% rate of return which is not seen now days in the commercial world. Hell Madoff who created the Biggest Ponzi scheme over 50 Billion dollars, offered 10 to 12 % returns on investment and people flocked to him like crazy.
b) Look at how the repayment is scheduled, it will be at its peak till 2032, which means the repayment is front loaded.( graph in the article) Hence, CPEC seems to be the swindle of the century. And now its out in the open.

 

[monitor]

I couldn't read the article as busy in office but my primary observation is the ROI seems excessive but not too bad as it's going to pay over many years. Payment of 2 billion is not impossible if Pakistan can earn more then 2 billion from cpec related investment.

 

[SunilM]

I couldn't read the article as busy in office but my primary observation is the ROI seems excessive but not too bad as it's going to pay over many years. Payment of 2 billion is not impossible if Pakistan can earn more then 2 billion from cpec related investment.

You do realize that their exports are still less in 2019 than what they earned in 2013. Therefore, dollar inflow is way less, and now there is additional burden of 2 Billion dollars an year. Add to it all of these projects are energy projects which are incurring heave losses due to theft and transmission losses, hence Circular debt which is around 1.3 Billion dollars now and increasing. Therefore, this seems to a debt trap rather than anything else.

 

[Super Falcon]

Half of those that our armed forces ordered weapons from china

 

[maithil]

Major portion of current investments are related to Power Plants. Will be interesting to see how Pakistan Uses this to increases exports. Especially when the circular debts in Power sector are increasing by day.

 

[Shabi1]

This article conveniently emits the earnings Pakistan will make from CPEC which expect to easily offset the repayments.

https://in.reuters.com/article/pakistan-economy-china-silkroad-idINKBN1870P7
How much annual revenue CPEC will generate for Pakistan: Report
26 Jan, 2018
ISLAMABAD: Pakistan’s debt and other repayments on China’s “Belt and Road” initiative will peak at around $5 billion in 2022, but will be more than offset by transit fees charged on the new transport corridor, says the Pakistan government’s chief economist.


China has pledged to invest up to $57bn in Pakistan’s rail, road and energy infrastructure through its vast modern-day “Silk Road” network of trade routes linking Asia with Europe and Africa.

Officials expect a huge uptick in trade between the two nations once Gwadar port is functional and work on motorways is finished allowing goods to cross the Himalayas to and from China’s western Xinjiang province.

The China-Pakistan Economic Corridor (CPEC), a flagship “Belt and Road” project, has been credited with helping revive Pakistan’s sluggish economy, but investors have raised concerns that Pakistan’s currency could come under severe pressure once debt repayments begin and Chinese firms start taking profits home.

Nadeem Javaid, who advises Prime Minister Nawaz Sharif’s government and works closely on the CPEC programme, told Reuters that such fears are misplaced as Islamabad would earn vast fees from charging vehicles moving goods from and to China.

Javaid said the Gwadar-Xinjiang corridor should be operational from June next year, and Pakistan expects up to 4 per cent of global trade to pass through it by 2020.

“The kind of toll tax, rental fees that the Pakistani system will gain is roughly $6-$8bn a year,” Javaid, chief economist at the Planning Ministry, said in an interview. “By 2020, I expect we will get this much momentum.”

He said China has huge incentives to transport oil and other goods bound for its western regions through Pakistan as the Gwadar-Xinjiang corridor shaves some 15,000 kilometres off other traditional routes.

It doesn’t take long to imagine the savings on the many millions of litres of fuel, he said.

Predicting future trade is, of course, an inexact science, as is predicting toll income, and Pakistan’s ambitious targets could unravel if its improved security situation deteriorates.

Chinese officials have urged Pakistan to improve security, and Islamabad now restricts movement of foreigners to its vast western Baluchistan province that will host a key transport artery.

BALANCE OF PAYMENTS RISK? Investors, too, are watching Pakistan’s ballooning current account deficit, which widened by more than 160pc to $6.1bn in the nine months to March, largely due to imports of machinery for big CPEC projects.

Javaid said debt repayments and profit repatriation from CPEC projects will begin in 2019, totalling about $1.5-$1.9bn, and rising to $3-$3.5bn by the following year.

“It would be low in the beginning, and in 2022 it will peak at around $5bn — not more than that,” he said, adding the government does not think it likely that Pakistan will face a balance of payments crisis.

The last such crisis in 2013 saw Islamabad turn to the International Monetary Fund for help.

Javaid said the CPEC should boost economic growth, which he expects to hit 5.2pc in 2016-17. Exports should also pick up once CPEC power projects totalling 7,000 megawatts come online and reduce often crippling energy shortages.

Deepening political and military ties between Pakistan and China have helped closer financial integration, too, with Chinese companies starting to buy Pakistani firms and land.

Javaid said the two countries have also discussed using a currency swap agreement between their central banks to create a mechanism to avoid any third currency in international transactions.

“If some mechanism is going to be finalised on that, it will work as a buffer or a cushion that’s going to basically avoid or prevent any kind of default that could happen in unforeseen circumstances,” he said.

But he added: “It’s only a contingency arrangement in case something bad happens.”

 

[fiza200]

Why Pakistan is taking loan on high interest rate?

 

[Pakhtoon yum]

And here I present a prime example of what an Indian obsess over, all his life. Calm down sweetheart and let us deal with our own economy.