The China-Pakistan Economic Corridor (CPEC), a flagship of China’s Belt and Road Initiative (BRI), was officially launched in April 2015, promising transformational gains. Five years later, a quarter of announced projects have been completed, energy projects dominate, and industrialization efforts are lagging.
In the current era, it is essential for political parties to state complete and accurate facts as prolonged deception is no longer possible. Beijing has stated that it is willing to upgrade China-Pakistan economic cooperation to work together for economic uplift. While this statement is encouraging Chinese loans and Pakistan’s security situation can hinder progress on CPEC projects. The joint working group meeting for CPEC is happening at a time when Pakistan and China are progressing towards the next phases of CPEC projects. China has provided initial funding for foundational projects under the Belt and Road Initiative and now wants to promote private investment and reduce reliance on public funding. China wants Pakistan to establish economic zones and facilitate Chinese investment to attract private investment. It emphasizes the need for functional economic zones in Pakistan with all facilities and improved security to accommodate Chinese companies wishing to relocate. Pakistan’s biggest challenge at the moment is how to repay the loans obtained under CPEC projects from China. It’s estimated that these loans amount to roughly $40 billion, which is about three-quarters of Pakistan’s external debt. Rather than seeking more loans from China Pakistan needs to promote investment in the country to avoid further debt burden. Coal-fired power plants like in many parts of Asia have not reached their peak yet in Pakistan. The country’s oldest coal-fired plant is only six years old. The use of local coal is beneficial and profitable for plant owners but phasing out coal presents a challenge as a significant portion of the investment in these plants could go to waste. Negotiations for the closure of the Sahiwal and Hub power plants require careful consideration of both parties’ interests. There are rumors that Beijing has lost interest in expanding China-Pakistan economic cooperation which is crucial for coal-fired power plants in Pakistan. Although Pakistan’s reliance on coal in its power grid cannot be as high as Indonesia’s thermal plants are responsible for producing 60% of the country’s electricity. By June 30, 2022, only 18.75 gigawatts of thermal capacity were privately owned and the Central Power Purchasing Agency, a government entity is responsible for ending contracts for purchasing electricity. Flexible terms like dollar indexation fixed capacity charges, and long-term electricity purchase contracts provide security for these plants against market forces. Thermal plants in Pakistan fueled by imported coal furnace oil and LNG face price fluctuations and supplystocks issues due to China’s problems. The volatile mix of imported fuels and overreliance on exchange rates has created a precarious situation for power plants’ performance which the Pakistani state cannot ignore. During a Senate committee meeting last August the Ministry of Energy revealed that it had paid IPPs Rs 1.3 trillion ($4.6 billion) as capacity payments for the fiscal year 2022-23. This is a significant amount considering Pakistan’s entire federal budget for 2023-24 is Rs 14.5 trillion. In such delicate circumstances are you retiring such assets appears to be a reasonable decision both economically and environmentally.
