Fresh attack on China-Pakistan Economic Corridor (CPEC)

Pakistan’s relations with China, especially CPEC is not digested by many countries, like the US, and its allies. On and off, the West is criticizing China-Pakistan relations and using various coercive tools to damage the ideal relations ship between the two “Iron Clads”.

The most typical tool is the media, which, spread fake news, distorted narrative, and fabricated stories to damage China-Pakistan relations. Social media is frequently used for destructive purposes. Unfortunately, the West is dominating the media and controls major world media. The worst thing is that our youth trust them and believe them without any investigation or research. Many youths are serving their objectives knowingly or unknowingly. 

Some of the Western powers have penetrated into local media and hired some local journalists to serve their objective. Being a poor country, many people are used by them on hefty payments too.

However, there are many other tools too. Like IMF, World Bank, Paris Club, FATF, and International Financial Institutions, to coerce Pakistan. West has been using all such International institutions to achieve its political goals. Despite this, Pakistan has fulfilled almost 90% of the demands of FATF, yet, has not been removed from the Grey List. They find any reason or impose new conditions, once Pakistan is close to fulfilling all conditions. They are in fact using lame excuses to keep Pakistan under the grey list. Looking at the black list or grey list, one can conclude that only the countries not aligned with the West politically are placed under these two lists. It is very much obvious that the institutions are politicized highly.

IMF was created with the objective of bailout countries if they are in economic trouble, but, the intuition is highly politicized and used only to coerce nations with different ideologies. Pakistan is in the INF program for the 22nd time, but, the current program is rather different. In the past, Pakistan was on the right side of America and the West, the IMF was not so strict. But, this time, when, America considers Pakistan in the opposite camp, IMF is applying harsh terms and conditions to Pakistan. Although Pakistan has no intention to offend the US, the US has unilaterally considered Pakistan in the opposite camp. Unfortunate! Unfair! 

Recently,  the International Monetary Fund (IMF) has asked Pakistan’s government to renegotiate the China-Pakistan Economic Corridor (CPEC) energy deals before making payments of around Rs300 billion to the Chinese power plants, putting Islamabad in a tight spot.

The global lender has asked the government to treat the Chinese CPEC power plants at par with the power plants established under the 1994 and 2002 power policies.

The IMF’s demand came after China’s refusal in the past to renegotiate the terms of agreements with the independent power producers (IPPs). Sources said the IMF suspected that the Chinese IPPs might have been overcharging Pakistan and there was a need to reopen these deals. It is estimated that the IPPs had identified an overpayment of about Rs41 billion to the Chinese IPPs.

Top officials in the Ministry of Finance confirmed that the IMF had raised the issue of payments to the Chinese IPPs with their willingness to renegotiate the deals.

IMF urged that Pakistani authorities should be cognizant of the limited fiscal space available to clear any outstanding arrears of the sector stakeholders, and thus there should be a trade-off between this and other government priorities, and the potential to unlock lower capacity payments for electricity as part of the aforementioned burden-sharing across stakeholders. In order to contain circular debt in the power sector, the government of Pakistan had engaged efforts to reduce the cost of power generation as part of a broad power sector reform strategy, including concluding renegotiations of the capacity payment terms with over 30 IPPs last year. A number of partners of Pakistan were supporting those reforms, including the World Bank and the IMF.

Pakistan’s Finance ministry sources said that the IMF had also objected to giving Rs50 billion to the Chinese IPPs in February this year without first renegotiating the agreements.

However, the country is facing the worst load shedding and some areas of Pakistan are in dark for 12-18 hours. In big cities like the Capital city of Islamabad, the load shedding is almost four hours. The government is under immense pressure to eradicate the shortage of power. If the government fails to meet the demand of the public, it might lose political popularity, which is a high price for any political government.  

Due to the IMF’s objections, the government did not directly make a payment of Rs50 billion to the Chinese IPPs last week. Prime Minister Shehbaz Sharif had announced that the Chinese IPPs would be given Rs50 billion to ensure fuel supplies.

Instead, the government released Rs50 billion for the Power Division under the general subsidy claims for July. In return, the Power Division made the payment to the Chinese IPPs and some others to address their “liquidity crunch”, said sources. Sources added that after knowing about the indirect payment to the Chinese IPPs, the IMF asked Pakistan to provide the list of power plants that received the Rs50 billion injection.

The IMF’s objections to clearing the outstanding dues of the Chinese IPPs may jolt Pakistan’s efforts to address the Chinese concerns over the slowdown of CPEC during the past four years and its desire to put the multibillion-dollar initiative back on track.

So far, 11 Chinese IPPs, set up with an investment of $10.2 billion, are operational, having a total generation capacity of 5,320 megawatts. Out of these, nearly 2,000MW of power plants had been shut last month due to the depletion of imported coal inventories.

Pakistan’s Information Minister Marriyum Aurangzeb said that the 600MW units each of Sahiwal and Port Qasim power plants would be back on the national grid from June 16 to 30.

As of May 13, Pakistan owed Rs340 billion to these power plants, out of which the government has now indirectly cleared some of the dues, leaving behind around Rs300 billion. The Chinese IPPs had threatened to stop their plants if the payments were not immediately cleared, prompting the prime minister to convene a meeting to address their concerns. Six more Chinese IPPs, being set up with an investment of $6.8 billion, are at various stages of implementation and will add 3,584MW to the generation capacity of Pakistan.

The previous government had renegotiated the power purchase and implementation agreements with the 46 IPPs established under the 1994 and 2002 power policies. The renegotiation is expected to save Rs770 billion over a period of 20 years. The government had won concessions on account of a reduction in the return on equity and other cost-saving benefits from the power plants of 1994 and 2002 policies. In return, the government agreed to pay Rs403 billion to them in two installments. The payments were made in the shape of one-third in cash, one-third in five-year Sukuk, and one-third in 10-year PIBs at the floating Treasury bill rate plus 70 basis points.

Sources said that the IMF wanted the same treatment with the Chinese IPPs and after renegotiating the deals, payments should be made in cash and treasury papers.

Pakistan is trying its best to fulfill the demands of the IMF, even the government has taken unpopular and hard decisions like a hike in fuel prices, electricity prices, and gas prices, resulting in a sharp rise in inflation and surprisingly a hike in food and basic necessities of daily commodities. But, the IMF is coming up with new demands, once Pakistan is close to fulfilling their all demands. Afraid, that, despite Pakistan’s full commitments to meet their all conditions, yet, may not get the due installment in time. Whereas Pakistan is dire in need of funds, in case of non-release of funds in time, Pakistan may enter into political chaos in addition to the economic crisis.

IMF’s this demand is a fresh attack on China-Pakistan Economic Corridor (CPEC) and China–Pakistan relations. The aim might be to harm the “pure friendship” between China and Pakistan. However, China and Pakistan, both understand such tactics and will not fall victim to their conspiracies.

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  1. Absolutely realistic. It’s clear IMF is twisting arms of Pakistan to an unfair degree. Pakistan will and must continue with cpec program.. It enhances our economic health, progress and more so friendship with China.

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