After lengthy delays, an US$8.2 billion revamp of a colonial-era rail line snaking from the Arabian Sea to the foothills of the Hindu Kush has become a test of Pakistan’s ability to rethink signature Chinese “Silk Road” projects due to debt concerns.
The rail megaproject linking the coastal metropolis of Karachi to the northwestern city of Peshawar is China’s biggest Belt and Road Initiative (BRI) project in Pakistan, but Islamabad has balked at the cost and financing terms.
Resistance has stiffened under the new government of populist Pakistani Prime Minister Imran Khan, who has voiced alarm about rising debt levels and said the country must wean itself off foreign loans.
Illustration: Mountain People
“We are seeing how to develop a model so the government of Pakistan wouldn’t have all the risk,” Pakistani Minister for Planning, Development and Reforms Khusro Bakhtyar told reporters.
The cooling of enthusiasm for China’s investments mirrors the unease of incoming governments in Sri Lanka, Malaysia and the Maldives, where new administrations have come to power wary of Chinese deals struck by their predecessors.
Pakistan’s new government had wanted to review all BRI contracts.
Officials have said there are concerns the deals were badly negotiated, too expensive or overly favored China.
However, to Islamabad’s frustration, Beijing is only willing to review projects that have not yet begun, three senior government officials have told reporters.
The Chinese Ministry of Foreign Affairs said in a statement in response to questions faxed by Reuters that both sides were committed to pressing forward with BRI projects “to ensure those projects that are already built operate as normal and those which are being built proceed smoothly.”
Pakistani officials said they remain committed to Chinese investment, but want to push harder on price and affordability, while reorientating the China-Pakistan Economic Corridor (CPEC) — for which Beijing has pledged about US$60 billion in infrastructure funds — to focus on projects that deliver social development in line with Khan’s election platform.
Chinese Ambassador to Pakistan Yao Jing (姚敬) told reporters that Beijing was open to changes proposed by the new government and “we will definitely follow their agenda” to work out a roadmap for BRI projects based on “mutual consultation.”
“It constitutes a process of discussion with each other about this kind of model, about this kind of roadmap for the future,” Yao said.
Beijing would only proceed with projects that Pakistan wanted, he added.
“This is Pakistan’s economy, this is their society,” Yao said.
Islamabad’s efforts to recalibrate the CPEC are made trickier by its dependence on Chinese loans to prop up its vulnerable economy.
Growing fissures in relations with Pakistan’s historic ally the US have also weakened the country’s negotiating hand, as has a current account crisis likely to lead to a bailout by the IMF, which might demand spending cuts.
“We have reservations, but no other country is investing in Pakistan. What can we do?” one Pakistani minister told reporters.
CRUMBLING RAILWAYS
The ML-1 rail line is the spine of Pakistan’s dilapidated rail network, which has in recent years been edging toward collapse as passenger numbers plunge, train lines close and the vital freight business nosedives.
Khan’s government has vowed to make the 1,872km line a priority CPEC project, saying it would help the poor travel across the vast South Asian nation.
However, Islamabad is exploring funding options for CPEC projects that depart from the traditional BRI lending model — whereby host nations take on Chinese debt to finance construction of infrastructure — and has invited Saudi Arabia and other countries to invest.
One option for ML-1, according to Pakistani officials, is the build-operate-transfer (BOT) model, which would see investors or companies finance and build the project, and recoup their investment from cashflows generated mainly by the rail freight business, before returning it to Pakistan in a few decades’ time.
Yao said Beijing was open to BOT and would “encourage” its companies to invest.
Rail megaprojects under China’s BRI umbrella have run into problems elsewhere in Asia. A line linking Thailand and Laos has been beset by delays over financing, while new Malaysian Prime Minister Mahathir Mohamad outright canceled the Chinese-funded US$20 billion East Coast Rail Link.
Beijing is happy to offer loans, but reticent to invest in the Pakistani venture, as such projects are seldom profitable, said Andrew Small, author of a book on China-Pakistan relations.
“The problem is that the Chinese don’t think they can make money on this project and are not keen on BOT,” Small said.
OFF-BOOKS DEBT
During Chinese President Xi Jinping’s (習近平) visit to Pakistan in 2015, the ML-1 line was placed among a list of “early harvest” CPEC projects that would be prioritized, along with power plants urgently needed to end crippling electricity shortages.
However, while many other projects from that list have been completed, the rail scheme has been stuck.
Pakistani officials said they became wary of how early BRI contracts were awarded to Chinese firms and are pushing for a public tender for ML-1.
Partly to help with price discovery, Pakistan asked the Asian Development Bank to finance a chunk of the rail project through tendering.
The bank began discussions on a US$1.5 billion to US$2 billion loan, but China insisted the project was “too strategic,” and Islamabad kicked out the bank under pressure from Beijing early last year, according to Pakistani and bank officials.
“If it’s such a strategic project then it should be a viable project for them to finance on very concessional terms or invest in?” said one senior Pakistani official familiar with the project, referring to the BOT model.
The Chinese Ministry of Foreign Affairs said Beijing was engaged in “friendly consultations” with Pakistan on the rail project.
Chinese companies participated in BRI projects in an open and transparent way, “pooling benefits and sharing risks,” it said.
Analysts said Pakistan will struggle to attract non-Chinese investors into the project, which might force it to choose between piling on Chinese debt or walking away from the project.
Last year, Pakistan turned down Chinese funding for a US$14 billion mega-dam project in the Himalayas due to cost concerns and worries that Beijing could end up owning a vital national asset if Pakistan could not repay loans, as occurred with a Sri Lankan port.
Khan’s government chafes at several Chinese intercity mass transport projects in Punjab, the voter heartland of the previous government, which now need hundreds of millions of US dollars in subsidies every year.
It also fumes about the risk of accumulating off-books sovereign debt through power contracts, where annual profits of above 20 percent, in US dollar terms, were guaranteed by the previous administration.
With the ML-1 line, there are also those who harbor doubts closer to home, including the previous Pakistani government’s finance minister, Miftah Ismail, who said his ministry had always had concerns about its viability.
“When people say it’s a project of national importance, that usually means it makes no sense financially,” he said.
Additional reporting by Asif Shahzad and Ben Blanchard
Recently, China launched another diplomatic offensive against Taiwan, improperly linking its “one China principle” with UN General Assembly Resolution 2758 to constrain Taiwan’s diplomatic space. After Taiwan’s presidential election on Jan. 13, China persuaded Nauru to sever diplomatic ties with Taiwan. Nauru cited Resolution 2758 in its declaration of the diplomatic break. Subsequently, during the WHO Executive Board meeting that month, Beijing rallied countries including Venezuela, Zimbabwe, Belarus, Egypt, Nicaragua, Sri Lanka, Laos, Russia, Syria and Pakistan to reiterate the “one China principle” in their statements, and assert that “Resolution 2758 has settled the status of Taiwan” to hinder Taiwan’s
The past few months have seen tremendous strides in India’s journey to develop a vibrant semiconductor and electronics ecosystem. The nation’s established prowess in information technology (IT) has earned it much-needed revenue and prestige across the globe. Now, through the convergence of engineering talent, supportive government policies, an expanding market and technologically adaptive entrepreneurship, India is striving to become part of global electronics and semiconductor supply chains. Indian Prime Minister Narendra Modi’s Vision of “Make in India” and “Design in India” has been the guiding force behind the government’s incentive schemes that span skilling, design, fabrication, assembly, testing and packaging, and
Singaporean Prime Minister Lee Hsien Loong’s (李顯龍) decision to step down after 19 years and hand power to his deputy, Lawrence Wong (黃循財), on May 15 was expected — though, perhaps, not so soon. Most political analysts had been eyeing an end-of-year handover, to ensure more time for Wong to study and shadow the role, ahead of general elections that must be called by November next year. Wong — who is currently both deputy prime minister and minister of finance — would need a combination of fresh ideas, wisdom and experience as he writes the nation’s next chapter. The world that
As former president Ma Ying-jeou (馬英九) wrapped up his visit to the People’s Republic of China, he received his share of attention. Certainly, the trip must be seen within the full context of Ma’s life, that is, his eight-year presidency, the Sunflower movement and his failed Economic Cooperation Framework Agreement, as well as his eight years as Taipei mayor with its posturing, accusations of money laundering, and ups and downs. Through all that, basic questions stand out: “What drives Ma? What is his end game?” Having observed and commented on Ma for decades, it is all ironically reminiscent of former US president Harry