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Hidden costs of CPEC

Updated Jan 05, 2017 10:08am


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AN important announcement from the government went relatively unnoticed given the atmosphere that prevails, so let me reconstruct a timeline here to give everybody a better idea of what is going on.

Last year on April 21, the day after Chinese President Xi Jinping’s visit to Pakistan, the military put out a press release announcing the creation of a ‘Special Security Division for Pak-China Economic Projects’, which would consist of nine army battalions and six wings of civil armed forces, to be commanded by a major general.

The force was supposed to be one of several being created for protection of Chinese investments and personnel in the country. The fact that the press release came the day after Xi Jinping’s visit, during which he also met the army high command, suggests that the matter was discussed between them during the meeting.

In May, the finance minister told a Senate standing committee that Rs136 billion would be required for completing the military operation in North Waziristan, including the cost of rehabilitating the displaced people, and other security-related expenditures, which according to at least one report included the cost of raising the CPEC security force. The funding was programmed into the budget in June, and a waiver was obtained from the IMF from including this expense in the ceiling on the fiscal deficit, since it was a “one-off” measure.

By September of that year, the fiscal deficit target had already been blown by more than Rs100 billion, and the finance minister was busy putting together a package of new, midyear revenue measures to help plug the shortfall. This package became a prior action under the IMF programme, which said in its eighth review that the federal government took measures to contain its expenditures “despite unforeseen expenditures of PRs 53 billion on account of Zarb-i-Azb military operations, hosting of Temporarily Displaced People (TDPs)”.

Security expenditure has been growing at an alarming rate over the past couple of years, and all of it has been in the dark.

By December we had reports that the CPEC security force had already been deployed, with 9,000 army personnel and 6,000 civil armed forces. One of the reports, sourced to unnamed “official sources” had a little more detail: “[t]he Pakistan government had already placed two projects under the Public Sector Development Programme (PSDP) for 2015-16 for raising 22 additional wings of the civil armed forces with an estimated cost of Rs7.546 billion and through another project raising six additional wings of the CAF with a cost of Rs2.350 billion so the total cost of projects stood in the range of Rs10 billion. This cost might go up by 20 to 30 percent with the inclusion of escalated land cost”.

Meanwhile, the Gwadar Security Task Force, another formation similar to the force just raised, commanded by a brigadier, also became operational at the same time, with its expenses to be borne by the government of Balochistan and the federal government. Since almost half of Balochistan’s revenue comes from federal transfers anyway, clearly the bulk of the cost of creating and maintaining this force would come from federal revenues.

In any case, in February of 2016, the COAS visited the headquarters of the CPEC security force and vowed that “the security forces are ready to pay any price” for realising the “long-cherished dream” of CPEC.

By May, the finance minister said that the Rs100bn extraordinary expenditure on security, which was included as a “one-off” item last year and was to be outside the fiscal deficit ceiling, would be renewed again this year. And it surely was.

In July, a number of parliamentary committees were given presentations about the force. In one of these, the CPEC project director, retired Major Gen Zahir Shah, reportedly told a Senate committee that “[o]ne per cent of the total Chinese investment for CPEC would be spent on the security-related arrangements”.

All along this timeline, there are repeated clues that the Chinese are not happy with the security arrangements. The clues take the form of repeated assurances from the Pakistani side, including at the highest levels, that security of Chinese investment and workers is something Pakistan attaches high priority to.

In August, a leading business daily carried a report which opened with this sentence: “China on Tuesday urged Pakistan to ensure foolproof security to Chinese workers engaged in different projects under the CPEC. This was conveyed by Vice Administrator of Chinese National Energy Administration (NEA), Li Fanrong at a meeting with the Federal Minister for Water and Power and Defence Khawaja Muhammad Asif to review progress of CPEC energy projects.”

On Sept 21, the military announced a meeting between Finance Minister Ishaq Dar and the COAS Raheel Sharif, during which “[f]inancing matters related to capacity building for effective Pak-Afghan border management including raising of fresh 29 Civil Armed Forces wings were discussed.”

A few days later, in an ECC meeting, the federal government decided that the capital cost of all CPEC power projects that are under construction would be raised by 1pc to pay for the running cost of the CPEC security force, and that Nepra should be given a policy directive to include this cost escalation in the tariff given to these plants. The cost of the force was now going to be bundled into the power tariff and passed on to the consumers.

The regulator, Nepra, has objected, and rightly so. Security expenditure has been growing at an alarming rate over the past couple of years, and all of it has been in the dark. Having blown the fiscal framework, they are now being offloaded directly onto the public through electricity bills.

Nobody doubts that CPEC carries tremendous promise for Pakistan. And nobody doubts that our security forces have made major sacrifices in the war on terror, as well as facing the looming threat from a belligerent India these days. But greater transparency is needed in the financing of CPEC projects. Otherwise, hidden costs of all sorts will start getting bundled into whatever recovery machinery there is, whether power tariffs of gas surcharges or whatever else.

The writer is a member of staff.

Twitter: @khurramhusain

Published in Dawn September 29th, 2016


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The views expressed by this writer and commenters below do not necessarily reflect the views and policies of the Dawn Media Group.

Comments (83) Closed

alla bux Sep 29, 2016 03:48am

What are the benefits of the CPEC then with all these expenses? Besides this we are also building the world's dirtiest power plants which even China does not use and seemed to have been dumped on us. May be powers that be never thought this through. That is the reason why a public discussion is of utmost importance in these vital matters and Pakistan is probably the only major country in the world that does not subscribe to this view.

Alba Sep 29, 2016 04:35am

The Chinese are interested in results. Nothing else.

Proud Indian Sep 29, 2016 05:30am

CPEC appears to be a big white elephant that Pakistan is inviting in its tent.

Zak Sep 29, 2016 05:41am

In any case, in February of 2016, the COAS visited the headquarters of the CPEC security force and vowed that “the security forces are ready to pay any price” for realising the “long-cherished dream” of CPEC.

Zak Sep 29, 2016 05:40am

We are ready to pay any price , these are short term costs which should be borne at any expense , the long term results will be astounding and unimaginable.

bk Sep 29, 2016 05:45am

obort CPEC right away.

Mohan Bhide Sep 29, 2016 06:21am

very interesting article. an eye opener !!

Salim Khan Sep 29, 2016 06:19am

The main beneficiary of CPEC is China. But the main bearer of the expenditures is Pakistan. In spite of such huge unnecessary expenditures by Pakistan, is there a guarantee that whatever small benefits we are supposed to get will really be actualized? Already we are seeing Chinese companies are withdrawing from the construction of power plants due to reduction of the high electricity tariffs demanded by them. They want 30% guaranteed profits out of any factory they will put here. How can a sovereign nation give such guarantee to a private company? There are lots of issues that are going to affect our economy badly and permanently. We must look into that and stop taking decisions that are not in our interest even if it involves our best friend- China.

Zafar Baloch Sep 29, 2016 06:52am

First, create a security problem and cash it. This formula has worked, is working, so it will work in future too. Then why should they let the politicians (civilians) resolve the political (security) issue in a political (civil) way ?
You get it ? Thats is the whole game. As long as they are in charge, it will go on. This insecurity is there security.

brr Sep 29, 2016 06:59am

How far will $46B loans with 18% interast go, when over 15K security personnel will have to protect it for decades to come even before it ever goes operational.

rahul Sep 29, 2016 07:01am

This CPEC will be the undoing for Pakistan. Pakistan already had the "strategic location" advantage, which has been wasted all through. In short Pakistan needs policies and not roads to flourish. Entire world is running for cover from the cheap manufacturing prowess of China and Pakistan is running full steam to hug the monster. Trust me this will be the road to hell.

Indian Sep 29, 2016 07:01am

How much money has the "leaders" made from CPEC till now? Any estimates ?

Zaheer Sep 29, 2016 07:13am

This is a very timely article unravelling the financial maze cloaking the CPEC project. Security is indeed a very important concern and security costs need to be factored into the operating budget. There will be some one-off costs that we will have to absorb. But I had the impression that the operating security costs will be factored into the toll taxes that will be levied on China for transporting goods using CPEC. This would be a fair arrangement since China stands to save well over $2B every year "just" by using CPEC to transport half of their oil shipments from the Middle East. Our annual security costs will be a small fraction of China's overall cost savings. Since we will be paying back the money loaned to us by China for CPEC over the next few decades, a sustainable toll tax system is essential. If the security costs are passed on to us via increased power tariffs, etc., that would be grossly unfair - in effect, us ordinary citizens will be subsidizing China's economy.

vs Sep 29, 2016 07:53am

And this is just the beginning. I read somewhere in one of the Pak's newspapers that CPEC is a 10-12 year plan. So let's see what are the eventual costs at the end of it, or even midway through it.

good luck.

Ibby Sep 29, 2016 07:55am

Electricity bills now have CPEC Security Fee item added to them. This is China and our Govt.'s gift to CPEC loving Pakistanis.

Hi Sep 29, 2016 08:05am

China is using Pak

kensam59 Sep 29, 2016 08:12am

Great article. Not to worry. The Chinese will send people to protect their investment.

hnr Sep 29, 2016 08:28am

@Alba and returns on its investments.Ask nations like Malaysia and Indonesia on their experience of dealing with the Chinese community and you will be surprised.

SB Sep 29, 2016 08:41am

Nice quote "Security expenditure has been growing at an alarming rate over the past couple of years, and all of it has been in the dark. Having blown the fiscal framework, they are now being offloaded directly onto the public through electricity bills." Good, but where is it going..

Basit Ali Sep 29, 2016 08:41am

Rs 10 billion to protect $46 billion investment is nothing

Suraj Sep 29, 2016 09:22am

I would like to know current status of cpec and deadline of completion

Baaligh Sep 29, 2016 09:27am

@Mohan Bhide : "very interesting article. an eye opener !! Fully agree. But can the eyes be opened forcefully ? if any one chooses to keep them closed ?

Sachin Sep 29, 2016 09:33am

After creating the power plants can you compete with Chinese goods in manufacturing. Only then you can export the goods to other countries. Also will Chinese allow you to be their competitor in exports?

Akhhil Sep 29, 2016 09:52am

China is taking full advantage of Pakistan's fear or concern about India. This is like true business man.

Manish Sep 29, 2016 09:54am

a nuclear armed country shouldn't have problem meeting such small expenses..

Sam Sep 29, 2016 09:58am

Often hatred affects ones ability to think. In this case, Pakistan's obsession with India may be making it run to China without thinking. While CPEC is a step in the right direction, not sure if Pakistan is in it as an equal partner. Overall cost at the end of the day may far outweigh the benefits.

wellwisher Sep 29, 2016 11:27am

looting the nation is the caption

mir aftab Sep 29, 2016 11:39am

We will always be paying much more than what is due. With drastic reduction in shipping costs, transportation through CPEC will not be feasible both for China and Pakistan. However, this route, in its western part, will help promoting farm to market access.

Madhusudhan Sep 29, 2016 11:37am

Like their products, Chinese are the most un reliable. To accomplish their perceived goals they can go to any extent. I am worried that politicians and military will settle their corrupted goals in the name of the huge investment.

ak Sep 29, 2016 11:55am

Great rewards come with great sacrifice, Pakistan has got an opportunity like this for the first time, surely it will cost a lot, but at the end, its good for us. God knows Metro isn't. Do some research, you'll find that its not as "alarming" as it seems.

John Sep 29, 2016 11:57am

It seems Bollywood movie in the climax friend will turn villain

grehband Sep 29, 2016 12:04pm

Chinese are waiting to invest more than 50 billion in india right away but are not getting permissions

Farida Sep 29, 2016 12:07pm

It is not fair to pass on the security costs to the common man via increased power tariffs, levies, etc. Shouldn't this be included in the CPEC user fees paid by China for transporting goods such as oil using the corridor?

Parsi Sep 29, 2016 12:07pm

@John "It seems Bollywood movie in the climax friend will turn villain"

Also happens in Hollywood movies and in some South Asian countries.

jalil yousaf Sep 29, 2016 12:13pm

how come you expect transparancy from the plunderers? CPEC is a huge opportunity for the politicians. Time will prove if it really is a game changer for the lay man.

sanjeev Sep 29, 2016 12:23pm

This is only about security. The actual problem will be return on investment and interest payments to China. If that part is also included in the tariff to the consumers, there wont be any consumers left on their feet.

neutral Sep 29, 2016 12:21pm

Baraq girti hai to bechare Musalmanon par ! Failed to manage economy on all fronts, only option is to raise price of electricity and Gas which the common man will bear. Nothing could be done to expand the tax-net and those sitting in the Assemblies DO NOT pay taxes. Neither could the flight of the Foreign currency from the country could be controlled. The Finance Minister himself a regular remmiter of millions of Dollars to Dubai for his personal business. Gulshan ka khuda Haafiz.

point of view Sep 29, 2016 12:25pm

Expectation are high since Pakistanis are associating the solution of every problem with CPEC. But I feel, over a period of time Pakistan will realize that they got cheated by China through CPEC.

moaz Sep 29, 2016 12:29pm

when only 10% people out of 190 million decides to pay taxes..(what ever the reason be for not paying) gov is right to recover it this way, there is no other way to suck it up and regarding your hi opinon regarding tranprency kindly first try to find the same in your own lives, we as nation have championed one habit after another but above all is..."you change" and i will carry on, its duty of every pakistani if they ever have any civic sense to pay their taxes fairshare and then we can talk about tranperency

Vaibhav Sep 29, 2016 12:29pm

Keep creating enemies inside and outside the country, let the countrymen feel threatened and keep enjoying the gems from public money and debt if taxpayers money is not sufficient. Well done!!

Rawal Jogi Sep 29, 2016 12:29pm

In India there is groundwork done for DMIC (Delhi Mumbai Industrial Corridor) which is 100 Billion USD.Chinese and Japanese are fighting to get the maximum of it,but India is keeping its national interest at the top

rehan Sep 29, 2016 12:36pm

@Proud Indian Well that's Pakistan's problem , isn't it? You really need not be so concerned about it and start sending "businessmen" to Pakistan !

rehan Sep 29, 2016 12:35pm

@Indian Well , a certain "businessman" met with a huge loss when he came to Baluchistan to "invest" in the CPEC.

Mahmood Sep 29, 2016 12:50pm

In other words, get ready for painful new taxes and fees!

patriot Sep 29, 2016 12:54pm

The article confirms my worst apprehension that CPEC could turn into the beginning of the end of the long Pak-China cameraderie

Riz Hassan Sep 29, 2016 01:08pm

CPEC is the political Decision by both Govts,Interference must be discouraged from people outside Govts

Vikas Sep 29, 2016 01:25pm

Don't worry these are all costs. Once the project is completed Pakistan would be the richest nation on earth. A paradise. The most powerful nation leaving behind US to the third position after Pak and China. Pakistan will collect so much toll tax that the GDP of several nations including EU, US, India and China combined would be insignificant.

Being Human Sep 29, 2016 01:59pm

Very nicely written article and an eye opener for all Pakistani citizen. China is simply making use of Pakistan and after that no attention to Pakistan once China's interest get over. Gear up guys.

Abdul Qadir Sep 29, 2016 02:01pm

i think its the cost you bear to achieve something remarkable .... nothing comes without cost ...... and CPEC is the only good thing happening to pakistan right now .... don't make it controversial....

Being Human Sep 29, 2016 02:11pm

CPEC will lead to leasing out PAK. land to China. Pak. should know that no one work without any benefits.

KT Sep 29, 2016 02:23pm

One thing is crystal clear China has to gain more than Pakistan. CPEC will serve to Pakistan easy route to China. But China will get easy trade route to entire world ! So why Pakistan should spend so much for CPEC. Better make small way prom Peshawar to China via Afghanistan and Tajikistan. When Karachi Port is operational why spend immediately for Gwadar. Alternatively Chabhar Iran port can be used in case consignments approaches there .

Karim Mombani Sep 29, 2016 02:27pm

How many schools and hospitals are the Chinese making in the CPEC?

Numbers Nawab Sep 29, 2016 02:38pm

@moaz : where on earth did you get the figure of 10 million? Today, LESS than one-half of one percent . i.e., (< 1/2 %) pay direct Income tax in pakistan. Check this out yourself: The total number of people who are in the income tax directory in 2015 is 1,074,000 (00.565% of pak population). Of this, it is known that a significant number never paid anything. pak is really a very free country.

Well Wisher Sep 29, 2016 02:41pm

@Zafar Baloch . You are very right.

K-Ashwani Sep 29, 2016 02:49pm

USA was still OK, but partnering China is dangerous. They are very selfish people. Go and check Africa which China has exploited beyond limit.

Kamal Gupta Sep 29, 2016 03:05pm

@Zaheer China imports most of its crude oil in supertankers carrying 250,000 to 300,000 tonnes. Land transport will cost 20 times as much. China's refineries are on the eastern seaboard.

JM Sep 29, 2016 03:17pm

@Zaheer You got it right my friend.

Shahid Sep 29, 2016 03:45pm

There should be no hidden cost of this project particularly if it is to land on shoulders of public which is being kept least aware about it. It is an important project with tremendous potential. Why not educate public about it so that they also own it by being part of it instead of being dragged into it through power, gas or any other surcharges.

ninja Sep 29, 2016 03:47pm

@Zafar Baloch well said

Sudhanshu Swami Sep 29, 2016 04:11pm

@Zaheer One ship can carry lakhs of barrels of Oil While Road or rail tankers dont have huge capacity. Many takers are needed to carry that much oil. And road transport is costlier than Sea. Fact is that Oil wont be diverted to CPEC to china's eastern industrial cities. Gawadar have strategic importance for China not Commercial. Some trade can take place through Western undeveloped parts of China, but that wont be huge as exaggerated in media. 46B$ is not huge amount for China that a big part is given as loan and rest with agreement of Gauranteed return of upto 27%.

Irfan Khan Sep 29, 2016 04:21pm

Our Pakistani friends are dreaming about great fruits that they are going to reap afterwards, they forget that there political elite had guaranteed 27.2%/ year of profits on CPEC to Chinese, plus maintainance and security cost, in case Chinese are unable to get those figures then Pakistan has to pay from his peoples pocket

Kamal Gupta Sep 29, 2016 04:33pm

Hidden costs? The 1,000 MW solar has a fixed tariff of $0.14 per unit for 25 years. India has been getting this @$0.065 for the last two years. UAE (they have better yields, more sunny days) has recently contracted at $0.04. All of this is Chinese solar panels & inverters.

Likewise, thermal power has a tariff of $0.06, against $0.029 currently. Pakistan will be saddled with phenomenal cost of electricity, crippling its economy forever.

shoaib Sep 29, 2016 04:33pm

The writer has collected the figures of expenditures required for security of CPEC. He should also high light the actors due to which we need security for this project...!

Mohammed Sep 29, 2016 04:41pm

What type of country is ours ! we need to speant this much to protect our assets, who are we fighting, why not think about that aspect

Ashirvad Singh Sep 29, 2016 05:05pm

@Basit Ali $46 B.... do you know.. chinese gov is paying only $11 B rest of the $35 B is given to pakistan from various money lenders who will take back their money along with some interests

Muhammad Ayub khan Sep 29, 2016 05:37pm

well Articulated !!! The CPEC would be consider a milestone in the emerging politics of this region and both countries would get benefited of its Geo -strategic importance. The CPEC would be a strategic and Economic game changer in the region. The Pakistan would gain its strategic and Economic advantages. we need to develops a scientific approach for its cost and routes in a deep rooted way scientifically and economically. The India and USA has developed a long term strategic partner ship & both countries have been seeking new ways to work together to counter chines influence in this region. .we should not make isolated our self having total dependency on china.we should adopt a balance Foreign policy which is need of time .China’s strategic and economic positions would not be damaged if Pakistan continued to use its strategic advantages to balance regional politics and manage its relationship with the US.

Iftikhar Bhutta Sep 29, 2016 05:57pm

Existing government all politics and development programme revolve around CPEC . In political upsurge and movement may disturb development program and democratic process . But this one sided perception of PMLn ruling elite who has been badly failed to kick start economy engine and meet with energy crisis . Only depending on investment on Pak China corridor and attaching progress with is not reasonable approach . We have to bear additional cost for defence and other relating subsidiary expense on our cost . We have also regional threats from India and our foreign policy is not running with time . These circumstances need serious approach of government for policies for meeting with the challenges . The involvement of other provinces in activities of CPEC is necessary by allotting projects to strengthen national unity and integrity . However it is good thoughtful analysis by Kurram Hussain .

Voice of Reason Sep 29, 2016 06:20pm

The interest rate quoted by some on CPEC is 18% - if that is true then Pakistan will have to pay over $8 Billion every year in interest even before it starts paying back the loan. There are the operational and security costs for CPEC to add to this. So Pakistan will have to generate over $10 Billion every year before it makes any profit on this. How does Pakistan generate revenue from CPEC on this scale?

psm Sep 29, 2016 07:16pm

Why is the loan in dollar terms? Surely a confident and powerful China should have given this loan in its own currency -Yuan? What happens if Pak rupee falls? If China going to devalue its currency, as it often does, Pakistani exports will be badly hit as China become a competitor for the same export textile market.

Mubashir Munir Sep 29, 2016 07:59pm

the benefits for cpec for pakistan,we use our coal,know how to mine it,how to make most efficient power plants from coal,get power all the times,initially our workers engineers will get training ,it is a lifetime achievement for Pakistan as we had coal in in very big quantity and we shall gain so much that we shall after sometime will not need any help from outside our local workers technicians and investors from pakistan will be the owners of coal power plants made in pakistan,be optimist,bearing security cost is nothing as compared to benefits we get in the long run

Hussain Sep 29, 2016 08:52pm

What if our government has taken an appropriate measure to prevent terrorism, like investing in education which was neglected, then accepting Refugees without checking them what are their background after suffering from terrorism then Army came in action and now we are crying on increasing expenditure on security. Is there is any goal has been set where we want to be after 20 30 or 50 years where are we now after so-called independence ? I don't think we are independent yet.

TZaman Sep 29, 2016 09:54pm

In 2016 we would not be speaking nice about CPEC. All the experts (same one from 2015) would give evidence about its futility.

Aftab Sep 29, 2016 10:24pm

And the government is feeding us as if the CPEC is a panacea for all the problems and predicaments, Pakistan is going through. No doubt, it will take us far in infrastructure, economy but still some genuine issues need to be redressed. And those matter. How can CPEC assures competent leadership? National integration? Which is the children of lack of education and awareness. Government should invest in people too.

AHA Sep 30, 2016 07:19am

There is a law in India called RTI (Right to Information). Anyone can seek info on any public project/department/development. Is there something similar in Pakistan? Do anyone get details of the projects like cost & income, interest on loan etc.... I understand as a mega infra project this ma bring some FDI, do anyone have an idea how much that could be?

bulesha Sep 30, 2016 12:19pm

@Mubashir Munir The Power Plant can only be run by imported coal of certain specification. Please check your facts.

vish Oct 01, 2016 02:15am

Consider for IPEC - India Pak economic Corridor. Much cheaper.. and you get Indian IT companies and jobs as bonus.

KP Oct 01, 2016 03:33am

The CPEC initiators has not considered two important factors: 1. Baluchistan condrum, and 2. the maintenance costs of security as well as of the power plants, etc. It seems, these costs are not considered, as to who & how to bear, or, if they are, they are not publicized for the general public to gauge the impact of CPEC on them. How would these costs be shared between the two nations. Under the present conditions, 18% interest on loans sounds exorbitant burden. OAB, the Chinese wants profit guarantees. For the Chinese it is a win win scenario.

Putho mamon, karachi Oct 01, 2016 05:47am

The rich is going to get richer and poor get more children.

Zok Oct 01, 2016 06:30am

Look! The cat just swallowed a canary!

y-fi Oct 01, 2016 10:03am

@Zafar Baloch I thought i m the only one with these findings and research .... gland to know there are few others on earth who dig inside deeper and keep close eyes on surrounding

Indian Oct 01, 2016 02:49pm

@Mubashir Munir

Yeah, CPEC is the best option you have. You are right about it.

Gaurav Oct 01, 2016 02:52pm

Is there a way of checking bank balances of those linked to the project - politicians, bureaucrats and even army officers? The truth will come out.

akram Oct 01, 2016 03:16pm

good article,