CPEC-A Economic Revolution for Pakistan

CPEC-A Economic Revolution for Pakistan

By: Rashid Ahmed Mughal

A multidimensional revolution in the shape of CPEC is on its way to Pakistan which will surely end years of economic isolation of Pakistan and tackle two fundamental issues of Poverty and un-employment which have

daunted Pakistan’s growth and resulted  in  reduced GDP over the years.CPEC,therefore,is going to usher in a  new era of prosperity, rapid economic development  and wellbeing of  the country.

The China Pakistan Economic Corridor ‎; also known as CPEC and North-South economic corridor) is an economic corridor comprising a collection of projects currently overland route that connects Kashgar and Gwadar, through the construction of a network of highways, railways, optical fiber and pipelines.

Roadway Projects

The CPEC projects call for reconstruction and upgrade works on National Highway 35 (N-35), which forms the Pakistani portion of the Karakoram Highway (KKH). The KKH spans the 887 kilometre long distance between the China-Pakistan border and the town of Burhan, near Hasan Abdal.

The term Eastern Alignment of CPEC refers to roadway projects located in Sindh and Punjab provinces – some of which were first envisioned in 1991. As part of the Eastern Alignment, a 1,152 km long motorway will connect Pakistan’s two largest cities, Karachi and Lahore with 4 to 6-lane controlled access highway designed for travel speeds up to 120 kilometres per hour. The entire project will cost approximately $6.6 billion, with the bulk of financing to be distributed by various Chinese state-owned banks.

The CPEC project envisages an expanded and upgraded road network in the Pakistani provinces of Balochistan, Khyber Pakhtunkhwa, and western Punjab Province as part of the Western Alignment upgrading . In total, the CPEC project envisages re-construction of 870 kilometres of road in Balochistan province alone as part of the Western Alignment.

Asian Development Bank funded projects

The 184 kilometre long M-4 Motorway between Faisalabad and Multan does not fall under the scope of CPEC projects, but is nevertheless considered vital to the CPEC transportation project. It will instead be financed by the Asian Development Bank and the Asian Infrastructure Investment Bank, and will be the first project jointly financed by those banks. Further funding comes from an additional $90.7 million grant announced in October 2015 by the government of the United Kingdom towards the construction of portion of the M4 Motorway project.

Railway Projects

The CPEC project emphasises major upgrades to Pakistan’s ageing railway system, including rebuilding of the entire Main Line 1 railway between Karachi and Peshawar by 2020.This single railway track currently handles 70% of Pakistan Railways traffic. In addition to the Main Line 1 railway, upgrades and expansions are proposed for the Main Line 2 and Main Line 3 railway. The CPEC plan also calls for completion of a rail link over the 4,693-meter high Khunjerab Pass. The railway will provide direct access for Chinese and East Asian goods to Pakistani seaports at Karachi and Gwadar by 2030.

The $1.6 billion Orange Line of the Lahore Metro  is under construction  and is regarded as a commercial project under CPEC. Construction on the line has already begun, with planned completion by Winter 2017. The line will be 27.1-kilometre (16.8 mi) long, of which 25.4 kilometres (15.8 mi) will be elevated, with the remaining portion to be underground between Jain Mandir and Lakshmi Chowk.When complete, the project will have the capacity to transport 250,000 commuters per day, with plans to increase capacity to 500,000 commuters per day by 2025.

Longer term projects under CPEC also call for construction of the 682 kilometre long Khunjerab Railway line between the city of Havelian, to the Khunjerab Pass on the Chinese border, with extension to China’s Lanxin Railway in Kashgar, Xinjiang. The railway will roughly parallel the Karakoram Highway, and is expected to be complete in 2030.

Energy sector projects

Pakistan’s current energy generating capacity is 24,830 MW, though the country currently faces energy shortfalls of over 4,500MW on a regular basis  with routine power cuts of up to 5 hours per day, which has shed an estimated 2–2.5% off its annual GDP. Energy generation will be a major focus of the CPEC project, with approximately $33 billion expected to be invested in this sector. As part of the “Early Harvest” scheme of the CPEC, an estimated 10,400 MW of electricity are slated for generation by March 2018 as part of CPEC’s “Early Harvest” projects.

The energy projects under CPEC will be constructed by private Independent Power Producers, rather than by the governments of either China or Pakistan.The Exim Bank of China will finance these private investments at 5–6% interest rates, while the government of Pakistan will be contractually obliged to purchase electricity from those firms at pre-negotiated rates.

Projects in Sindh

The Shanghai Electric company of China will construct two 660MW power plants as part of the “Thar-I” project in the Thar coalfield of Sindh province, while “Thar-ll” will be developed by a separate consortium. The facility will be powered by locally sourced coal and is expected to be put into commercial use in 2018. Pakistan’s National Electric Power Regulatory Authority (NEPRA) has agreed to purchase electricity from both Thar-l and Thar-ll at a tariff of 8.50 US cents/kWh for the first 330 MW of electricity, 8.33 US cents/kWh for the next 660 MW, and 7.99 US cents/kWh for the next 1,099 MW as further phases are developed.

Projects in Punjab

The $1.8 billion Sahiwal Coal Power Project is an under construction project in central Punjab that will have a capacity of 1,320MW.  Pakistan will purchase electricity from the consortium at a tariff of 8.36 US cents/kWh.

The $589 million project to establish a coal mine and a relatively small 300MW coal power plant to be built in the town of Pind Dadan Khan by China Machinery Engineering Corporation in Punjab’s Salt Range. Pakistan’s NEPRA has been criticized for considering a relatively high tariff of 11.57 US cents/kWH proposed by the Chinese firm  which had been initially agreed at 8.25 US cents/kWH in 2014.

Projects in Balochistan

In Balochistan province, a $970 million coal power plant at Hub, near Karachi, with a capacity of 660MW to be built by a joint consortium of China’s China Power Investment Corporation and the Pakistani firm Hub Power Company as part of a larger $2 billion project to produce 1,320MW from coal.

A 300MW coal power plant is also being developed in the city of Gwadar, and is being financed by a 0% interest loan.

Liquified natural gas

Liquified natural gas power( LNG) projects are  considered vital to CPEC. The Chinese government has announced its intention to build a $2.5 billion 711 kilometre long liquid natural gas pipeline from Gwadar to Nawabshah in province as part of CPEC. The pipeline is designed to be a part of the 2,775 kilometre long Iran–Pakistan gas pipeline, with the 80 kilometre portion between Gwadar and the Iranian border to be connected when sanctions against Tehran are eased; Iran has already completed a 900 kilometre long portion of the pipeline on its side of the border.

Agriculture

The long-term plan for the period 2025-30 during the CPEC summit was held in Islamabad on August 30, 2016. The plan includes cooperation over livelihood, water resources, livestock, people-to-people communications and financial matters. Under the plan, agricultural information project, storage and distribution of agricultural equipment and construction project, agricultural mechanisation, demonstration and machinery leasing project and fertilizer production project for producing 800,000 tons of fertilizer and 100,000 tons of bio-organic fertilizer will be implemented.

Project financing

Approximately $11 billion worth of infrastructure projects being developed by the Pakistani government will be financed by concessionary loans, with composite interest rates of 1.6%,after Pakistan successfully lobbied the Chinese government to reduce interest rates from an initial 3%.The loans are subsidized by the government of China, and are to be dispersed by the Exim Bank of China and the China Development Bank. For comparison, loans for previous Pakistani infrastructure projects financed by the World Bank carried an interest rate between 5% and 8.5%  while interest rates on market loans approach 12%.

The government of China in August 2015 announced that concessionary loans for several projects in Gwadar totalling $757 million would be converted 0% interest loans. The projects which are now to be financed by the 0% interest loans include: the construction of the $140 million East Bay Expressway project, installation of breakwaters in Gwadar which will cost $130 million, a $360 million coal power plant in Gwadar, a $27 million project to dredge berths in Gwadar harbour, and a $100 million 300-bed hospital in Gwadar. Pakistan will only repay the principle on these loans.

In September 2015, the government of China also announced that the $230 million Gwadar International Airport project would no longer be financed by loans, but would instead be constructed by grants which the government of Pakistan will not be required to repay. Pak-observer