Pakistan is reviewing a proposal to receive upfront 20% of the total cost of five China-Pakistan Economic Corridor (CPEC) projects as deposits in the central bank in a bid to get breathing space amid declining foreign exchange reserves.
The proposal has been discussed at the highest level as the prime minister has given instruction to further fine-tune it, a cabinet minister told The Express Tribune.
He said that at least five CPEC projects were discussed during a meeting, having total estimated value of $7 billion.
As per the proposal, Pakistan can receive at least $1.4 billion in its central bank out of the total cost of $7 billion. In return, these five projects that are facing years of delay will be put on the fast track for implementation.
Pakistan’s gross official foreign exchange reserves have dipped below $8 billion and will get a $1.2 billion boost by the end of this month once the International Monetary Fund (IMF) approves its loan tranche on August 29.
Sources said that Finance Minister Miftah Ismail had some concerns, including over the preferential treatment that those schemes could get in the process, which might also antagonise the IMF.
According to the proposal, the sponsoring Chinese firm will bring 20% of the total cost in US currency and will keep the money in a special account. The Chinese firm can draw the money in Pak rupee for the expenses that it will incur in Pakistan, including paying salaries to the staff.
The proposal had initially been discussed between Pakistani and Chinese authorities before it was discussed with the prime minister this week.
Chinese companies will not be allowed to take back these funds in any shape including for opening Letters of Credit, according to the proposal.
Pakistan is required to borrow $40 billion in the current fiscal year for meeting its external financing needs. The placement of 20% of CPEC projects’ cost can provide some breathing space.
In return, Pakistan will remove hurdles in the way of these five projects, according to the sources.
The projects that were discussed under the scheme were 1,124-megawatt Kohala hydropower project having estimated cost of $2.4 billion, 700.7MW Azad Pattan hydropower project costing $1.6 billion and second phase of 600MW Quaid-e-Azam Solar Park (Bahawalpur) with a price tag of $500 million.
The $2.6 billion Karachi Comprehensive Coastal Development Zone (KCCDZ), which has been included as a project for industrial cooperation under the CPEC umbrella, was also considered as part of the proposal.
The Pipri freight train project was the fifth scheme but it was at the feasibility study stage.
Sources said Pakistan also discussed the possibility of including the $7 billion Mainline-I project but no final decision was made due to serious issues hampering its execution for a long time.
After reviewing the proposal, the prime minister directed the Board of Investment, planning ministry and finance ministry to jointly devise a comprehensive plan to implement the scheme. Prime Minister Shehbaz Sharif has also constituted a committee to deliberate the proposal.
A handout, issued by the PM Office after the meeting, stated that the prime minister was apprised of the investment of $10 billion by companies in the areas of energy, infrastructure, railways and other projects.
“It was told that in the first phase, an investment of $1-2 billion was expected in the projects, which will lead to the creation of 45,000 employment opportunities besides improving the ‘Ease of Doing Business Index’ of the country,” according to the PM Office.
Chinese authorities are irritated because of Pakistan’s decision to put CPEC on the backburner over the past four years. They were particularly irked by Islamabad’s failure to honour its contractual obligations under the CPEC framework.
The establishment of a revolving account has been pending since the signing of the CPEC Energy Projects Framework Agreement in 2014.
In February, a day before departure to China to seek a major bailout, the then government had announced that it would open the account. But when a summary was presented to the Economic Coordination Committee (ECC) for approval on April 1, 2022, then finance minister Shaukat Tarin deferred the final approval.
This week, the government decided to abolish the CPEC Authority, subject to the Chinese consent. PM Shehbaz has instructed that China should first be taken into confidence before going ahead with the move to ensure that the strategic ally does not get the impression that Pakistan is rolling back CPEC.
The CPEC Authority Act will be repealed once the Chinese authorities give their consent. The old institutional arrangement that helped the implementation of CPEC projects from 2014 to 2018 will be revived.