Can CPEC land Pakistan in hot water? Dr Shabir Choudhry
London 10 February 2017
I like Pakistan to be prosperous, but surely not at my cost and by plundering and looting resources of former Princely State of Jammu and Kashmir. I want Pakistan to be stable and peaceful, but not by usurping my rights and by oppressing my fellow citizens.
CPEC and Pakistan’s relations with China are always in news. Sometimes news is positive and sometimes it is negative. Whenever there is a negative coverage, Pakistan government, lovers of China Pakistan friendship and foot soldiers of Pakistan shout out conspiracy against Pakistan.
Latest in this series is the cancellation by Water and Power Development Authority (WAPDA) of Dasu project. WAPDA has terminated 2 important contracts with Chinese firm on allegations of ‘fundamental breaches’. WAPDA raised has not only questioned the ‘performance guarantees of the two contracts awarded to China Railway First Group (CRFG) in November 2015 — worth Rs5.4bn — but also ordered the contractor to vacate the project area immediately, while calling for fresh tenders to make up for lost time’. 1
This is a major setback to the Rs 5.4 billion Dasu Project. The World Bank was providing lion’s share of finance for the Dasu Project which was to produce 4,320MW. However, the World Bank was not satisfied with certain aspects of progress or lack of it. China Railway First Group (CRFG) Project Director Fan Lingang was for obvious reasons, not very happy with this termination. While talking to Dawn, he said:
“The termination of the contract is un-contractual, illegal and fiercely unfair.” In his view, it was responsibility of the WAPDA to acquire the required, and hand over the required area to the contractor. He said all Dasu contracts were suffering because of this. WAPDA Chairman retired Lt Gen Muzammil Hussain, differed with the claim made by Fan Lingang, and said WAPDA “provided the partial possession of the site to the contractor M/s CRFG in line with the Contract Discussion Agreement/Conditions of the Contracts”. 2
The Chinese company CRFG is not happy with these developments as this is tarnishing their reputation. The Project Director Fan Lingang asserted:
“We are going to approach the local courts to allow us to approach an international court of arbitration to protect our rights because Wapda is not willing to resolve [the issue] amicably. Arbitration is our right and we have to protect ourselves, not only financially but also our reputation and image.” He also expressed his Company’s intention to complain to the World Bank in this regard, because in his view “Wapda is the defaulter because it didn’t provide the land”. 3
Mr Fan Lingang further claimed that the WAPDA terminated the contract without any prior legal notice, caution and without giving his company an opportunity to ‘rectify any violation, if any, by the contractor’.
Soon after termination of the contract WAPDA invited new bids; and claimed that “There will be no delay in project completion if the contractor opts for [international] arbitration”. WAPDA still believes it can complete first phase of the project on time in 2019; and the second phase should be completed by 2022. 4
Criticism on CPEC or holy cows is not a crime
Some ‘holy cows’ are extremely perturbed with Speakers Corner TV programme which I anchor from London. They are also exceptionally annoyed with my writings. They wanted me to stop Speakers Corner TV programme and stop writing, and do what some other political leaders with hat of nationalism on their heads do. I refused to surrender; and reacted sharply. In return they blocked renewal of my ID card.
In the past, I used to get one book published in a year. After this open confrontation I got 3 books published, one from Pakistan, right under their noses, and two from America. To my reaction they activated their foot soldiers to defame me in social and political circles, in my family and tribe and family friends. I have also challenged their immoral, illegal and unconstitutional act in the court. CPEC is very close to hearts of holy cows; and my next book will be on this topic; and the fight will continue.
I am not the only one of who has serious apprehensions about the CPEC. My concern has two dimensions. 1/ How CPEC and the Chinese presence in Gilgit Baltistan will affect status of Jammu and Kashmir dispute; and how it will affect the local people and environment.
2/ How it will affect Pakistan’s integrity and stability, because if the CPEC proves to be a white elephant for Pakistan, and the country gets in to very serious economic problems that will surely have a great negative impact on people of Gilgit Baltistan and Pakistan Administered Jammu and Kashmir as well.
So I have every right to ask questions and criticise this white elephant in making, as it will do to us what elephants of Porus did to his army. If economically Pakistan goes down on its knees - the CPEC has all the ingredients to bring economic disaster to Pakistan. If that happens we will suffer more because we are occupied by them. They will wrench our resources in POJK and in Gilgit Baltistan to pay off their debts. They may give some more territory of Gilgit Baltistan to China to settle their debt.
Originally the CPEC related cost was 46 billion US Dollars; and even at that time many economic experts questioned if Pakistan had the ability to pay back the debts. I was among those who at that time said that the cost will increase and can rise up to 60 or even 70 billion Dollars. In less than 2 years the size of the Chinese-led investment projects has increased to about $55 billion.
While talking about the payment of the loan, Ahsan Iqbal, Minister for Planning and National Reforms said:
“With 6 to 7 percent growth Pakistan will be in a very comfortable position. The bulk of investment coming into CPEC is private sector investment, foreign-direct-investment, so that’s not going to disturb our debt-to-gross domestic product ratio.” 5
Pakistan’s economy is only $271 billion. Million Dollar question is from where he is going to get 6-7 percent growth rate? Pakistan’s exports are dropping due to various reasons; and economic growth has also slowed down and will not meet the set targets. Bilal Khan, a senior economist at Standard Chartered Plc in Karachi agrees that public infrastructure projects will increase debt, but he thinks may be able to manage the debts if the rupee remains stable against the dollar and economy grows at 6 percent for some years.
Pakistan’s exports for the year 14-15 were 24 US dollars; and in the year 15 – 16 it declined to 18.8 billion US dollars. Despite all the claims Pakistan also missed the economic growth target by a wide margin. The Gross Domestic Product (GDP) grew by 4.7 per cent against the target of 5.5pc. If all goes well in Pakistan politically and economically, the IMF experts anticipate GDP to reach 5% in FY 2016/17. This is far below what Pakistan’s economic policy makers want to achieve in order to pay off loan installments.
Apart from that, due to failure of Pakistan’s foreign policy and India’s growing influence in the Middle East more and more Pakistani workers, the main source of foreign exchange are sent back to Pakistan which will add to Pakistan’s social and economic problems. In 2015 tens of thousands of workers were sent back from Saudi Arabia, UAE and other Gulf States; and the figure is likely to rise this year.
Some sources suggest that India has decided to undercut prices on certain products to force out Pakistani exports from the international markets. If that happens, Pakistan will face more economic problems and will struggle to pay their debts. Kamran Haider and Chris Kay in their article in Bloomberg think Pakistan government is playing a gamble:
“Essentially, the economy is embarking on a gamble that the surge in externally-funded investment will generate sufficient growth to allow the economy to pay back its foreign loans. The economy could find itself in the difficult position of having to repay large foreign loans with insufficient export revenues, similar to the situation that Sri Lanka currently finds itself in.” 6
Although Pakistan and China like to call it an economic Project, but many thinkers and analysts think under the disguise of economic project it has significant defence and strategic aspects. This factor adds to importance of the Project; and also creates more hurdles and enemies.
There is saying: Whoever controls the Indian Ocean controls Asia. Analysts think Gwadar will provide a strong base for the Chinese to play an important part in the region. In a view of some analysts, already China has control of the port and their ships and submarines control the security of Gwadar Port.
Pakistan and China are giving top priority to safety and security of the CPEC. For the protection of Chinese workers and the CPEC, Pakistan has established a special division of army called a Special Security Division, which has cost huge amount of money. They have also established intelligence networks along the long routes of the Corridor; as they face terrorist attacks, especially in Balochistan. They are also concerned about political resentment and possible unrest of the people of Gilgit Baltistan which has been slowly building up due to Pakistani injustice and oppression since 1947.
As maritime traffic will increase this will require manifold the maritime security for the success of the CPEC. At minimum, there will be the port security, vessel security and security of sea-lanes. Apart from threat of terrorism there could be challenges of piracy, human trafficking and smuggling. Given the likely threats and challenges to the CPEC maritime traffic, the Pakistan Navy will have a huge task at its hand.
To deal with all these challenges, the Pakistan Navy has also established a separate security unit called Force Protection Battalion consisting of Pakistan Marines for the protection of Gwadar Port and Chinese personnel. It must be pointed out that just the maintenance of this level of security will cost Pakistan a fortune; and sadly that is not included in the equation when they talk about debts and its repayment.
Apart from that, in June 2015 Pakistan ordered China for construction of
4 x 600 Tones and 2 x 1500 Tones Maritime Patrol Ships. According to the contract, four ships will be constructed in China while the remaining two ships will be constructed at Karachi Shipyard and Engineering Works. 7
No matter which route they take all CPEC traffic will have to travel through unstable area of Balochistan before they reach Gwadar. The government of Pakistan can claim anything, however, the bitter fact remains that some local groups of Balochistan are unhappy with Pakistan and the CPEC. It will be pertinent to point out that these people took arms against Pakistan many years before the start of the CPEC and many years before Prime Minister Modi made that controversial statement about supporting these rebels.
What will be the outcome of this armed struggle it is difficult to say, especially now that China also has an interest to ensure that this rebellion is crushed by force? However, these groups and various other groups like Taliban and Daaesh are strong enough to pose a serious threat to the CPEC related projects and the CPEC traffic.
To make matters worse, Pakistani authorities are also creating instability in Gilgit Baltistan, which means more trouble for nationalists of Gilgit Baltistan as Gilgit Police Deputy Inspector General Shoaib Khurram claims to have arrested some more 'terrorists'. This makes the total arrests 20 in one week.
Apart from that Dunya News of Pakistan also reported that Foreign Office has stated that at least six covert operatives of Research and Analysis Wing (RAW) of India have been nabbed in Gilgit-Baltistan, who were tasked to conspire against China-Pakistan Economic Corridor (CPEC).
It is a known fact that in order to crush political movement of nationalists of Gilgit Baltistan the authorities arrest and intimidate political activists. All these people are political people who have disagreements with Islamabad and especially CPEC because people feel their resources are exploited and they are not getting anything in return.
As it happens in cases like this police always recovers weapons and the arrested people are charged. The following charges are levelled: Cases (No. 19/2017 under section 13 AO of the Anti-Terrorism Act and 20/2017 under section 9C of the Anti-Narcotics Act have been registered against the suspected terrorists. 8
Hitherto the local people have not used any violent measure to demand their rights. I know personally that all the Movement there is only political. However, situation can change anytime; and the Pakistani ruling elite and establishment must understand that people can only tolerate so much; after that they will react and that will not be good for the peace and stability of the region. A drowning person will do anything to save his life; and don’t complain afterwards that these people have resorted to terrorism. 9
A Swedish think-tank Stockholm International Peace Research Institute (Sipri) has pointed out an interesting observation about serious Indian reservations on the CPEC and likely Chinese encirclement of India. Indian strategic thinkers fear that ‘China will ultimately pose a threat by possessing a clear edge, though a toe hold in the beginning, in the Indian Ocean with direct access to the Arabian Sea. India considers that the toehold will culminate into a military presence at some stage....India is also concerned that China will leverage Gwadar port to monitor Indian naval activity and possibly exploit it for an expansion of China’s own naval presence’. 10
The report predicts that the CPEC can lead to further polarization in the region, where the bloc rivalry between the US-India and China-Pakistan already exists. Furthermore, the SIPRI report has ‘identified three areas where the CPEC has the potential to activate three fault lines in South Asian security’. According to the report the first fault line is between China and India, meaning some kind of clash between the two neighbouring giants.
In the second fault line China and Pakistan on one side and India on the other; and the third is between China and India and its partners – the US, Japan and, to a lesser degree, Vietnam. Also China’s reliance on CPEC means that China will ensure that Pakistan becomes a ‘stable, ‘responsible’ and a viable State. 11
Some people are propagating that India is also willing to join the CPEC, and in this regard invitations have been sent. In my opinion this is kite flying. I can’t see India joining the CPEC, as India fears encirclement of India by this project. The Indian strategic experts believe the CPEC has hidden military and strategic agenda; and China’s control of Gwadar can endanger Indian interests in the Arabian Sea and in the Indian Ocean.
Furthermore, India still claims that Gilgit Baltistan belongs to India; and China and Pakistan are building the CPEC through this disputed territory. If India joins the CPEC it means they acknowledge that this area belongs to Pakistan; and India no longer contest this.
Who are the main beneficiaries of the CPEC
Foot soldiers of Pakistan and the Pakistani establishment do not understand that opposition to a project is not opposition to Pakistan or opposition to Islam as some fools claim. We have every right to criticise and oppose this project because it can change the status of Jammu and Kashmir dispute. Furthermore, it runs across a land – Gilgit Baltistan which does not belong to Pakistan. Sentiments and interests of the local people cannot and must not be ignored and political activists arrested should be released immediately.
People with common sense need to think and think carefully. Who will benefit from the CPEC? Of course industrialists of Pakistan and China and Chinese bank will benefit, but questions, will there be something for the people of Pakistan, Gilgit Baltistan and Azad Kashmir? Remember, Capitalists always strive to make maximum profits; and they only leave a tiny bit for the masses that they can survive and continue to work for them.
Furthermore, inherent corruption and share of local commission agents will not leave anything significant for the people. Similarly it is not true that the CPEC will create seven hundred thousands of technical, professional and skilled jobs. How is this possible when Chinese economy is struggling to meet its growth targets; and there is growing unemployment in China? The Chinese companies will bring their own technical and skilled staff because they can rely on their own people and it will help to reduce unemployment in China. Also a substantial amount of money will return to China.
Yes, some professional jobs will be given to the local people. After all some have to manage these projects after the Chinese go back after completing their tasks. However, be assured mainly low level jobs will come to the local people.
Apart from that the contracts are awarded with profits and commissions in mind, and the system will create sub contractors; and the system will look after itself and its managers. There will hardly be much left for the workers. Investors always invest their time and money to make profits; and they don’t invest because of kind heart or friendship. Whether the investor is European or Chinese, the people of Pakistan will have to pay back.
If you study third world economy, you will note that loan giving country always ensures that a big chunk of the investment comes back to their country. A mechanism is established whereby in the form of advisors, reports, analyses, studies, research, technical and IT support or training, supervision etc money goes back to the loan giving country; and China is more ruthless in this regard.
First beneficiary of the CPEC is China, as the CPEC will support slowing down Chinese economy and help them to achieve its growth targets. Furthermore, it will provide China a strategic and military edge; and strengthen Chinese position in this important region and in the Indian Ocean.
Chinese Banks and Chinese companies will also benefit enormously as they managed to provide big loans with high interest rates with sovereign guarantees from Pakistan, something which does not happen in business deals. For example, if I invest one million pounds of my money in London, and obtain two million pounds loan from a British bank; and if my business does not do well I will lose my investment and I will have to pay the bank as well, unless I go bankrupt. Chinese companies and banks are lucky their investment and loans are protected by a sovereign guarantee of the Pakistani government. In other words, they will get profit on their investments and loans no matter what happens to the CPEC.
Apart from the Chinese, major beneficiaries will be some Pakistani politicians, bureaucrats and of course the Pakistani establishment, especially Pakistan Army’s Frontier Works Organization (FWO), which has won some big projects and is busy building significant parts of the China-Pakistan Economic Corridor (CPEC).
Let us see who will be the loser, if the CPEC does not prove to be the golden goose which was supposed to lay many golden eggs daily. The politicians, bureaucrats, and senior officers of the establishment who have creamed off the profits they won’t be there to be held accountable or pay back the loans. Ultimately, it will be the people of Pakistan who will have to pay the loans and suffer; but isn’t that the case in Pakistan anyway, so some say why worry or cry.
Some comments on the CPEC
Pakistanis under influence of propaganda may continue to sing laurels and claim that their relationship with China is deeper than sea and sweeter than honey, but to many thinking people cancellation of contract related to Dasu Project is a serious issue which casts doubts on the ability of some Chinese firms to fulfil their obligations related to the CPEC and other projects. It also shows that all is not well with the working relationship between the Chinese and the Pakistanis. Chinese are good at producing things but their quality is not always up to the required standard.
One critic said after this cancellation, ‘China will push for payment with interest to the Chinese companies and they have too much muscle over Pakistan that Pakistan has to follow. Worst part is another Chinese company will get the new project at higher price.’
If under the pressure of China, the Chinese company CRFG, gets compensation with interest; and another Chinese company wins the contract with much higher price, then question is who is the winner. Ultimately, it will be people of Pakistan who will have to pay the costs.
A Skardu born political and human rights activist Senge Hasan Serring claims, “We are under a silent invasion from China. We are staring at ethnic cleansing. Pakistan, since the late 1990s, has already affected the settlement of around 3.5 lakh Urdu-speaking Sunni Muslims in GB which makes for nearly a fifth of the population now. They also run terror camps here. On the other hand, China is into a lot of projects here from mining to highway construction and a huge number of Chinese workers have also settled here.” He further said ‘the native people of Gilgit-Baltistan are suffering rape, torture and economic exploitation at the hands of non-state actors from Pakistan, as well as China, which has been given free access to the region by Pakistan for mineral exploration’. 12
Senge Hasan Serring further claims that people of Gilgit Baltistan do not have social, economic and political rights. He says ‘while Mandarin or Chinese language and its script has been introduced as an optional language in schools in the region, there is a complete ban on the teaching of the native Balti language, which is similar to Tibetan. Such is the level of cultural assault on us that we cannot teach our children our own language. Balti is not an optional subject and not even the medium of instruction. This is pure cultural subversion under colonial occupation”. 13
MALKIYAT ANSARI writes:
‘The Chinese are exploiting Pakistan like they have done across all of Africa. They do shoddy job, resort to corrupt practices and have no regard for locals, neither for their culture, nor for their economic concerns. They delay in starting projects and use blackmailing tactics to increase price, huge Advance Payments, and never ever insure those works with local insurance companies, take the money out and start working on projects after lapse of considerable time, and then rush to do a shoddy job. Politicians and authorities (the Procuring entities) accept those shoddy jobs as they have to show to the public that they achieved growth and brought them development to get votes’. 14
From the comments on the article, Wapda cancels Rs5.4bn contracts for Dasu project, I have selected the following comments, and reference is the same for all of them:
ZUBAIR AHMAD says: ‘I think WAPDA has taken a bold step after seeing the negligence of Chinese contractor, CRFG. How come the company with railway background have the expertise which is required for Dam Construction of this level?
Imran Khan writes: ‘So called friend is not here for charity. They are here to make money. Pakistan should also ensure that its interests are protected ...let us not cancel the contract and make our "all weather friend" annoyed. This will bad for future of Pak-China relations.
Another critic said: All eggs in one basket with a country with ruthless business acumen and known unethical practises. This is going to be interesting. Also 40% of Stock Market sold to Chinese firms. The prestige of a nation's financial structure. And all projects seem to be going to Chinese.
MAJID KHAN writes:
On the third mistake, do you realize the Chinese send major portion of the required manpower from China including labourers. They do not employ Pakistani labour on these projects which is not how it should be. The reason being given by the Chinese companies is that their Government provides the funds, thus they can bring people from China to fill in the vacancies.15
Apart from the points discussed above the CPEC have some other serious issues.
Many people within Pakistan and outside are seriously concerned about lack of transparency and accountability. Many important details of the project are not shared even with provincial governments and other senior federal government officials. Only handful of people knows what exactly is happening. If it was purely an economic project they why this secrecy?
There is no public bidding for these projects. One analyst writes:
‘Clearly, the intention is that the major proportion of these loans will be channelled back to China to benefit only Chinese companies. Worse, since there is no transparency, issues such as cost efficiency, economic feasibility and viability, environmental concerns are likely to be ignored that could lead to serious economic and environmental issues later on. Recently, the federal minister for planning and development, Ahsan Iqbal, has laid to rest the debate about transparency by telling the Senate that the CPEC agreement is sensitive and cannot be disclosed’. 16
Some overzealous supporters of the CPEC claim that along the CPEC route new towns and industrial zones will emerge. It is a wishful thinking. They need to be reminded that when Lahore – Islamabad motorway was being constructed; and critics opposed it they were told that the motorway will generate industrial development with new villages and small towns along the route of the motorway.
This motorway has been in existence for the last twenty years, one can see what industrial development it has generated. How many modern villages, small towns or industrial zones have emerged? Yes, it is there for to be used; and it has benefited the elite of Pakistan with quick and comfortable ride between Lahore and Islamabad. What will be the fate of the highways under CPEC it remains to be seen?
For Sharif brothers priority is to win the next general elections due to be held in 2018; and for this purpose they want to complete the ‘early harvest’ projects on urgent basis. One cans see from this that the ‘bulk of these projects are planned in Punjab and Sindh. Out of $28.6 billion early-harvest projects, Punjab has the lion’s share of $13 billion, Sindh has $4.6 billion, KPK has $1.8 billion, and Islamabad has $1.5 billion and Balochistan $920 million’. 17
It must also be noted that many of ‘early harvest’ projects are facing serious delays or are in danger of being closed. These projects include ‘the $1.8 billion, 870-MW Suki–Kinari hydroelectric power project; the $590 million, 330 MW coal-based power project in Punjab; a coal mining project in Thar; and four power plants listed to generate 4,620 MW of power; and also the $2.1 billion, 878-km-long Matiari–Lahore transmission line listed to supply 4,000 MW of electricity produced from coal in Sindh to cities in Punjab’. 18
If China transports its oil by ships, as they are doing now, it costs them less than a dollar (around 70- 80 Cents) per barrel; and the ships take the oil where it is most need – in ports of East China where 94% population is and where the most of the industry is located. If they use Gwadar port and then transport the oil by land to even West China, it costs them 8-9 dollars per a barrel. From there it has to be transported to East China where the industrial bases are, and that would add more to the costs.
This eliminates the argument that they are constructing the CPEC because it will reduce the distance, and it will save them time and it will be cheaper too. Surely it reduces the distance, but transporting goods on roads increases the cost. Then question arises why China is so keen to invest huge amount of money in the CPEC? It clearly indicates there is some hidden agenda.
China’s hidden agenda is military and strategic objectives. Some reports suggest that China has already control of Gwadar Port. Their navy ships and military experts are already there; and their military and navy experts are already calling the shots there. When Pakistan will have difficulty in paying the instalments of high interest on this huge loan, they will take full control of the areas of interest in this strategically important region. They have already leased a substantial area of Gwadar.
Chinese control of this area will greatly enhance its ability to combat and control supply of oil and other items going to most of the world heavily rely on this route. It will surely give China an edge, especially if there is some military clash in South China Sea; and Strait of Malacca is blocked. To counter that move China will be in a position to block supplies to many countries, including India and countries of South East Asia, Australia, Europe and Africa etc. Of course at that time the Chinese can use land route for their supplies.
Powerful countries will not and cannot allow China to take this drastic action, but when China is in a state of war in South China Sea, and then they can do anything that suits their economic, strategic and military interests.
Common sense dictates that other countries will not allow China to block this supply route, which means Gwadar and its peripheries will also become a battleground. Also common sense dictates that all those countries that could be affected in some way will not sit idle and let China complete this project and become a threat to this jugular vein of many countries. This means they can try to create such situation, for example, law and order situation whereby the CPEC remains a dream.
Writer is a political analyst, TV anchor and author of many books and booklets. Also he is Chairman South Asia Watch and Director Institute of Kashmir Affairs. Email:drshabirchoudhr
5. Kamran Haider and Chris Kay January 29, 2017
7. Vibrant security measures for CPEC Mehr Tahir Daily Times 01 Feb 17
16. CPEC A Game Changer Or Debt Enhancer For Pakistan? 05/02/17 http://www.eurasiareview.com/05022017-cpec-a-game-changer-or-debt-enhancer-for-pakistan-analysis/