April 20, 2015, has gone down as a historic day in the history of Pakistan, China, and the region. The Chinese have always been welcomed with open arms and brotherly love in Pakistan. But expectations from this visit by the President of the People’s Republic of China, Xi Jinping, are unprecedented.
The two-day visit of the Chinese President kicked off with a stellar welcome followed quickly by the signing of eight Memorandum of Understanding (MOUs). These include a number of projects to improve the road and rail network of the country, boost national defense capabilities and perhaps most importantly, address the energy crisis.
While the route of the road and rail network had been the buzz in the days leading up to the Chinese President’s visit, the biggest chunk of the pledges is earmarked for the energy sector. At least $18 billion is to be spent over the next three years in the energy sector, primarily on coal-based power plants. Other projects in this realm include solar, wind and hydropower generation projects as well as distribution infrastructure. Overall, the energy sector pledges are envisioned close to $34 billion, but it is not yet clear what the proportions of loans and equity will be.
In addition to this, more than $12 billion in pledges have been announced for improving logistics and transport infrastructure in the country. The total quantum of funding needed for the road and rail networks is estimated at $5.9 billion and $3.69 billion, respectively. Here, the eastern corridor is expected to be prioritized. Concurrently, the Pakistan Army has been mandated to prepare a specialized force to provide security to the infrastructure and the people who shall develop and maintain it. The Lahore Mass Transit project is planned at an estimated cost of $1.6 billion while another $44 million is to be spent on laying out a fiber optic network between the two countries.
These columns will attempt to highlight the most pressing challenges, opportunities, and considerations that must be heeded to ensure fruition of this epitome of Pak-China collaboration. Foremost, it is important to ensure that the MOUs are followed up with effective actions on the ground. This country has a long history of signing MOUs and developing plans that wither away without any implementation. There are signs that this time is different; China is pressing ahead with its vision of developing “One Belt, One Road” and the incumbent government of Pakistan has come to power promising an end to the energy crisis.
The pledges also need to be reviewed in detail to assess what is the actual quantum of support to be received from the brotherly state and the nature of these (proportion of loans and investment). The energy sector may be funded through comparable proportions of loans and aid, or even with a higher component of loans as there is pressing the need for energy and the sector is also capable of generating returns. However, road and rail networks may be feasible only with a higher proportion of investments or aid.
Indeed, the impact of the projects to be undertaken over the next few years, as part of the Pakistan-China Economic Corridor (PCEC), can be profound and far-reaching. But in order for the PCEC to be a “fate changer” for this country, it is imperative that the envisioned plans are translated into on-ground development very swiftly.
This article originally appeared on April 21, 2015 in the Business Recorder (BR) Research.
