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CPEC financing

China has stopped funding of some projects particularly those related to the road network under China-Pakistan Economic Corridor (CPEC) on the pretext of new guidelines to be issued from Beijing, a senior government official revealed to the media. The decision seems to have come in the backdrop of 7th Joint Coordination Committee (JCC) meeting held in Islamabad 20-21 November. In this meeting China may have pressed once again the demand for making its currency Rinminbi (Rmb) a legal tender for trade purpose in Gawadar.  The State Bank has already objected to granting the legal tender status to Chinese currency.

This currency has yet to establish its International status for global trade because Rmb payments collapsed in 2016. International payments using Chinese Renminbi fell by 29.5 percent in that year. The Rmb has now fallen out of world’s top five payment currencies like US dollar, European Union Euro, UK Pound Sterling, Japanese Yen and Canadian dollar.

The decision of stopping funds could affect over Rs. 1 trillion road projects of the National Highway Authority. It is not yet fully clear how wide the impact of delay will be, but initial reports confirm that at least work on three road projects will be delayed. The projects to be affected include the 210 kilometer Dera Ismail Khan Zhob road, to be built at an estimated cost of Rs. 81 billion and the Rs 19.76 billion 110 kilometer Khyzdar  Basim road. The Rs. 8.5 billion 136 kilometer remaining Karakoram Highway from Rackot to Thakot is also impacted. Funds for these three road projects were approved in the 6th JCC meeting held last year. But during the Joint Working Group (JWG) meeting on the eve of 7th JCC moot, Pakistan was informed that new guidelines will be issued under which new modus operandi for release of funds will be described.

Delay in the release of funds results in escalation of project cost. The CPEC cost has already gone up from $ 46 billion to $ 56 billion.  Pakistan is paying demurrage charges to Chinese contractors because of delay in construction work on Dasu Dam. The tough conditionality for the construction Diya Mir-Bash dam has compelled the federal government to withdraw this project from the financing frame work of CPEC.The Minister for Planning and Development Ahsan Iqbal, who beats the drum of CPEC to be the game changer, is not revealing the details of long term plan of this Corridor and its related projects. There is a consensus among the independent economists about the debt servicing aspect of CPEC. They are of the view that Pakistan will pay back $ 3.5 billion annually for the FY 18 and FY 19. And from 2020 to 2030 the pay back debt liability will be $ 5 billion during each financial year. The cumulative debt obligation will be $ 90 billion. Against this debt liability the income to Pakistan from road tax will be $ 500 million per year. It is not clear as to whether the cost of roads maintenance will be born by China or Pakistan. The ministry of planning must bring out the cost-benefit analysis of CPEC and should not keep it secret from the people of the country.

 

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