IRSHAD SALIM– This week the influential South China Morning Post published a report by its correspondent Adnan Aamir who wrote that “China is spending more than US$55 billion on different projects in Pakistan. Although the project agreements have yet to be publicized despite public pressure, experts claim that a major part of this amount is comprised of loans. This could lead to a situation similar to Sri Lanka’s, and it is feared that Pakistan could end up handing over control of Gwadar port and other assets to China. These fears are not unfounded…”
A similar report appeared in the Forbes in August which also claimed that Sri Lanka’s Hambantota port debt scenario could repeat for Pakistan on its Gwadar Port in Balochistan.
Both reports appear to peg their apprehensions and conclusions on subjective observations by third parties, and competing geopolitical dynamics the region is already pregnant with.
Gwadar port is said to be strategic in nature (in principle) while its revenue model is couched in the geoeconomic of the strategic energy corridor the two “iron brothers” (China and Pakistan) signed off in 2006 and announced it in 2015 calling it the China Pakistan Economic Corridor (CPEC).
China is expected to be the largest beneficiary in the short-term and Pakistan as the host will be the biggest beneficiary in the long run– once the loans for CPEC are paid off incrementally through its revenue generation infrastructure and energy projects.
We must also realize that Gwadar port construction deal precedes CPEC while its operations is tied to the CPEC operations. The new deep-sea port has been built on soft loans going back to the 2000s. A new international airport at the port is being built entirely on grant valued at approx $800 million from China. Several other ancillary projects are also being built near the port on grant, according to reports.
The port loan and the CPEC-related loans are mutually exclusive, while their revenue models are significantly inclusive– the latter is expected to pay off the loans, and expenses of the former to quite extent but not all. Other earnings from the port are also expected– some are of defense and geostrategic in nature, some experts say.
Also, in order to comprehend the economic viability and the financial windfall of the port and the CPEC– one complementing the other, we ought to look at the following infomatic below indicating a whopping $300 trillion economic envelop the port and the CPEC are housed in. A sizable amount of this is expected to churn up– notwithstanding geopolitics, in trade and shipping revenues through the port and the energy corridor over the next 30 years or more, thus having attracted several regional players and beyond– a similar scenario is however amiss with Sri Lanka’s Hambantota port– there’s no corridor and regional players to piggyback on or become one of the stakeholders. With CPEC “the more the merrier” mantra continues to make many countries look at it as a happy hunting ground for future investments and value-addition.
There is therefore no CPEC-type initiative which would or can pay off the Hambantota debt– we should also note the fact that it is not a geostrategic initiative whose cost can be paid off by a geoeconomic initiative straddling it like the Gwadar-CPEC package. Lanka’s neighbor India made sure such did not happen to its detriment.
Pakistan has been lucky despite its tyranny of geography that its thought-leaders have looked beyond a 100-year horizon and envisioned the port and the CPEC as the pot of gold at the end of the rainbow– other things being equal, specially geopolitics in the wider region and the polemics of a great game in the region.
Related article: China’s Hambantota Port Deal Is Not So ‘Bad News For Pakistan’
In order to further understand the financing and operations of Gwadar port and CPEC we must also first discern the two’s qualitative and analytical attributes assuming that risks associated with them have been mitigated or will be mitigated going forward– here’s where the hiccups start though:
As latest as this week, the US envoy in Pakistan was reported to have shown his country’s interest in joining the CPEC. Earlier, the envoy had voiced US full support for the venture highlighting its potential to bring peace and connectivity in the AfPak region. On Tuesday, Afghanistan was invited by China and Pakistan to join the CPEC, and according to reports, the landlocked country has agreed to join in on incremental approach basis. India for obvious reasons continue to oppose it. But China has offered its southern neighbor to join the bandwagon calling CPEC as geoeconomic and not geopolitics.
Lastly, the sovereign guarantees Pakistan has placed for CPEC do not cover the Gwadar port loans and debt if any which may accrue going forward. The port to the best of my knowledge has separate guarantees in place. They can’t be swapped nor surrogated for each other’s liabilities. Secured and assured supply-demand model heavily skewed toward more than a decade’s worth revenue generation starting as early as 2022 and latest by 2030 is expected to reduce operational and geopolitical risks associated with their success.
I think we can also take a leaf from Venezuela’s case, where they took a loan of about US$20–30 billion from China (out of US$150billion).
Instead of extracting a pound of flesh, China is said to be looking at the root of the problem ( low oil prices , poor infrastructure, low level of industrialization, persistent sanctions by the US) and assist accordingly so that Venezuela will be able to generate the required cash flow for repayment.
“How China tackle the issue of its international debtors when they face difficulties in repayment will probably be emulated across the board in the Belt and Road countries, by encouraging self-regeneration of wealth rather than transfer aid or payments,” commented Lin Xieyi in Quora.
We should also retrospectively analyze the Panama Canal and the Suez Canal models and compare Gwadar-CPEC “Canal” with these. The potential of the new “Pak-China Suez Canal” are humongous and can’t be just brushed painted off with wide brush strokes of “concerns, discomfort, fear, apprehensions” of institutionalized analytical tools which I consider no longer relevant below the 38th Parallel.
To cap the discussion, the China-Pakistan bonhomie articulated in their “Iron Brothers” slogan says it all– almost akin to, I dare to say, like the US-Israeli relations.
(The author, a business analyst, is Founder & Editor of PKonweb and DesPardes)