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Pakistan

Is CPEC really costly?

A recent story published by the The Express Tribune, and authored by Shahbaz Rana, revealed that Pakistan was to “pay China $40b on $26.5b CPEC investments over 20 years”. The story further claimed that “out of $39.83 billion, 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”.

However, Yasir Masood – Deputy Director Media and Publications at the Centre of Excellence-China Pakistan Economic Corridor – has a different opinion on these statistics presented by Shahbaz Rana.

“The China Pakistan Economic Corridor (CPEC) is a flagship and most active project of the Belt and Road Initiative, with CPEC finances comprising of Government to Government loans, Private investments and grants. To date, 22 projects are progressing in various stages of implementation. Government of Pakistan’s financial liability is only to the tune of US $6 billion, comprising of low interest loans and grants in infrastructure projects spread over 20 to 25 years payback period. Therefore, giving the impression US$ 40 Billion as liability on Pakistan is false, baseless and distorted”, Masood said.

Clarifying on the debt related to energy sector projects, Masood said, “The Energy projects are being executed purely under Independent Power Producers (IPPs) mode and finances are mainly taken by the private companies against their own balance sheets. Therefore, debt would be borne by the investors instead of any obligation on part of the Pakistani government. The dividends of the energy sector projects are also based on profit and loss and are subject to individual company’s financing policies. Debt accruing is also amortized in the financial structure and is included in the project viability analysis and business plans of the private enterprise. Therefore, CPEC is not imposing any burden with respect to loans repayment and energy sector outflows.”

In terms of CPEC outflows, Masood believes that the benefits of CPEC for the Pakistani economy far outweigh the outflows, spread over 20 to 25 years. “CPEC outflows would start from the year 2021 and spread over 20 to 25 years. The resultant benefits of these investments to the Pakistan economy would far outweigh these outflows. It may be highlighted that the data on the inflow/outflow is prepared in consultation with relevant stakeholders including Ministry of Finance and the same is available in public domain for discussion with relevant institutions.”

On various statistics quoted in the Experience Tribune story, Masood concludes, “with mutual consultation of the two Governments, it has been decided to broaden the scope and expedite pace of CPEC. Innovative financing mechanisms are being developed for financing new projects in CPEC. Therefore, the inflow of CPEC projects will continue to increase in the form of private investment in Special Economic Zones (which were prioritized in the recent JCC meeting), Energy projects through indigenous resources, agriculture, socio economic development sector and infrastructure based on pragmatic planning and due diligence on both sides.”

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