Despite the political hurdles, the government has finally been able to formalise the much-delayed cooperation agreements with China worth $45.65bn under the China-Pakistan Economic Corridor Project, with a clear implementation schedule.

The investment-cum-loan package of $45.65bn would be utilised from now to year 2025. This would involve about $34bn in private sector investment by Chinese companies, insurers and banks.

The remaining $11bn will be in the shape of ‘very concessional loans’ and some grants, according to Planning and Development Minister Ahsan Iqbal. The only explanation about the ‘very concessional loans’ extended by the minister was that the mark-up on these credits would be much lower than those on domestic loans.

These would be used mostly for projects that are not attractive enough even for public-private partnership (PPP) mode, like some sections of the Lahore-Karachi Motorway or the highway from Hazara division to up north.

In some cases, insiders suggest, the mark-up works out as high as 9pc in dollar terms, and hence the government should keep its future repayment capacity in mind. But even in the larger scheme of the overall investment package, the Chinese knew very well the difficulties in raising funding from western nations.

They have, therefore, made it a point to have a greater say in the economic and financial conditions.

In the first phase, 10,400MW worth of power projects, involving an investment

of $15.5bn, would be completed by 2017

For example, Pakistan has committed to set up a sovereign revolving fund of about Rs20bn (on the pattern of standby letters of credit) to ensure repayments against loans and investments beyond the normal payment cycle of the client companies and on top of sovereign guarantees, despite the fact that Pakistan has never defaulted on its international financial commitments.

A new project — the $1.6bn Orange Line (mass rail transit project) — was included in the package for Lahore during the recent visit of Prime Minister Nawaz Sharif to Beijing. Already having spacious roads and infrastructure, the historic city would be another step ahead of the country’s other mega cities in terms of modern transport facilities.

“This is a lifetime opportunity for Pakistan” to get out of cyclical foreign assistance and economic growth and improve its fundamentals, says Mr Iqbal. “We have had enough of a role in the geo-strategic game theatre in the 1980s and after 9/11. The benefits were enjoyed by a few, and even those benefits evaporated as the players moved out.”

This is for the first time that Pakistan is getting an opportunity to be a part of a geo-economic plan that would not only benefit the country, but also its people at large, he said. This is because China — the country with the largest surplus cash in its hands — has planned to integrate its western region with South Asia on one side, the central Asian region on the other, and also with the Middle East.

“This is going to be a game changer. If we are unable to take full advantage of this, it will be a historic national failure and we are unlikely to get another chance like this in decades and perhaps centuries,” he argued.

“This is also important because even major global players are running behind China to get its investment. If we do not grab this opportunity, China could consider other options to unlock its underdeveloped regions.”

But the recent political tension in Pakistan has disturbed Chinese investors and leadership. This has, in fact, weakened Islamabad’s negotiating capability and laid bare a sort of desperation to strike the deal for political face-saving. China could not have been expected to hold its plan for developing its under-developed areas hostage to the agitation of Imran Khan and Tahirul Qadri.

Meanwhile, the two countries signed agreements to develop 16,400MW worth of energy projects in two phases. In the first phase, 10,400MW projects, involving an investment of $15.5bn, would be completed by 2017. This will be followed up with $18bn worth of another 6,600MW projects, besides transmission lines, the Gadani power park and a jetty.

A total of 7,560MW worth of projects in the first phase would include coal-based power stations. These, on completion in three years, would help bring down power tariffs as they would be producing energy at about Rs10 per unit, against the expensive Rs20-22 per unit generated from furnace oil.

Mr Iqbal said 1,600MW worth of hydropower projects would further bring down the tariff, but these would take a little while longer to materialise because of the longer gestation period involved in their engineering works.

About $5.9bn worth of road projects would be developed, including 832km of the Karakoram Highway and the Lahore-Karachi Motorway put together. Another Rs3.69bn would be spent on improving the 1,736km rail network, which would increase the speed of travel between the north and the south from 80km per hour to 120km per hour.

Another $700m would be utilised for the improvement of the Gwadar Port, including its airport and road links, and on the cross-border optic fibre cable system. “Converting projects from paper to reality would be the real test. As they say, the taste of pudding is in eating,” said a senior government official

The planning minister said Pakistan did not offer any special benefit to Chinese investors, and a majority of the projects were planned under the PPP mode, offering similar benefits to all investors (including domestic ones), irrespective of their origin.

Published in Dawn, Economic & Business, November 17th, 2014