Hidden costs of CPEC

Published September 29, 2016

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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