Looking at CPEC costs amid hype

Updated April 30, 2017


Enthused officials jetting in and out of CPEC-related meetings were too focused on details to care much for the bigger picture.

Despite the frantic activity, Islamabad had yet to determine the expected cost and benefit, expressed in monetary terms, of the mega project.

The relevant officers, however, claimed they have a fair idea of the CPEC’s impact on the job market. Based on the profile of workforce engaged on projects in progress, officials insist that over 80pc direct new jobs will be filled by locals in the initial years. However, if the multiplier effect over the next 10 years is taken into account the ratio would be no less than 1: 150: for each Chinese national inducted in a job, 150 Pakistanis will be employed.

Many jet-lagged officials, shuttling between Beijing and Islamabad, were not perfectly comfortable with questions raised over transparency and the perception that Pakistan might end up giving more than getting from China in the $56bn mega project.

Unable to provide a corresponding figure of expected gains against the projected cost of Rs150bn (one estimate) to the national exchequer, on account of tax and duty cuts to Chinese investors, a senior officer’s reaction was curt.

For each Chinese national inducted in a job, 150 Pakistanis will be employed

“Please stop this propaganda against the CPEC. Yes, we can’t invent numbers to please anyone. Currently we have more on our plate than we can chew. It will take sometime for the government team to re-adjust, shake officialdom out of its slumber to manage the increased work load, remove initial regulatory irritants and forge complementary relationships between varied layers and levels of ministries and departments involved in the project.”

A key member of the government team said, “We intend to hire consultants for a proper cost benefit analysis based on data. The results will be shared with the media”.

Last week the finance ministry, in a written reply to the National Assembly, detailed a series of exemptions, duty and tax breaks offered to Chinese investors. The ministry, however, did not quantify the cost.

According to the ministry the facility of duty-free import of machinery, not locally available, has been granted to the Chinese for roads, mass transit power projects, Thar Coal field sector, and Gwadar port. The beneficiaries include the China State Construction Engineering Corporation Limited and the China Communication Cons­truction Company.

Besides income and dividends from port operations by the China Overseas Ports Holding Company, the China Overseas Ports Holding Company Pakistan, the Gwadar International Terminal Limited, the Gwadar Marine Services Limited and the Gwadar Free Zone Company Limited have been granted 23 years exemption from income tax.

Similarly, income and interest earned by a foreign lender or a local bank by virtue of a financing agreement with the China Over­seas Ports Holding Company Limited enjoy 23 years exemption from income tax.

Similar exemptions have been given to the China Railway Corporation for the Orange Line and rail-based mass transit projects in the four provincial capitals.

Dr Nadeem Javed, Chief Economist, Planning Commission, who recently returned from China, was confident that CPEC enjoys the support and backing of all political parties and segments of the establishment and that its popularity among the public will grow when gains start touching their lives.

“Any criticism on the fringes will die down with time as power availability and connectivity improves and the job market expands with the broadening base of the economy”, he said.

“Over the last three years the investment to GDP ratio has already shot up from 11.6pc to 12.5pc. The incremental net capital formation to GDP ratio is expected to increase at the rate of 1.5pc because of CPEC”, he said.

There was both excitement and optimism in official circles at both federal and provincial levels. Many senior officers told Dawn that they have never, in their career, seen anything of this magnitude ever before. They were over-awed by the discipline, efficiency and the speed of work on CPEC projects.

“Structures are emerging fast in the middle of nowhere. Please go visit Thar coal-mining, Gwadar or other sites of road projects in progress if you have doubts”, an officer commented.

Corporate heads gave a guarded response. They tried to veil their fear of competition and hammered on issues such as transparency and sovereignty to oppose CPEC and demanded terms similar to those offered to the Chinese for future projects.

The public appeared to be confused. They liked the idea of China being on Pakistan’s side historically but were found to be a little uncomfortable with the sudden influx of Chinese nationals in their midst.

Pakistan-based Chinese officials dismissed such concerns and advised critics to shed bias. They were cautious and mailed some printed material and text of Chinese Ambassador’s speeches when asked to share their views.

Ambassador Sun Weidong recently talked about expected tangible benefits from the CPEC for the people of China and Pakistan. He said, “… it will release huge development dividends benefitting all aspects of people’s livelihood in Pakistan”. He said CPEC is a corridor of prosperity, long-lasting peace and inclusive development.

Published in Dawn, The Business and Finance Weekly, May 1st, 2017