China agrees to fund KKH realignment | The Express Tribune

ISLAMABAD:

Pakistan announced on Friday that China will provide 85% financing for the realignment of the Karakoram Highway and has also supported Islamabad’s plan to seek financing from multilateral lenders for a strategically important rail link after Beijing declined to extend concessional loans.

Beijing has long been recommending Pakistan to consider settlement of existing debt and finding ways to fund new projects without accumulation of more public debt.

But despite its concerns about Pakistan’s debt situation, China agreed to fund 85% of the Karakoram Highway project as a special case to keep the road link between China and Pakistan open under extreme weather conditions.

Both sides also agreed that roughly $7 billion Main Line-I project of the China-Pakistan Economic Corridor should now be financed by multilateral banks after Beijing did not extend a concessional $6 billion loan.

The discussions on the past and the future of CPEC took place during the 14th Joint Cooperation Committee (JCC) meeting that was held in Beijing. Zhou Haibing, Vice Chairman of the National Development and Reform Commission (NDRC) and Ahsan Iqbal, Minister of Planning, co-chaired the meeting.

We have agreed to start bidding on the Karakoram Highway in phases and the Chinese side confirmed 85% financing for the project, said Iqbal after the meeting while talking to The Express Tribune.

The highway needs realignment after parts of it submerged in water due to the construction of major dams. The government has approved the 241-kilometer long Thakot-Raikot section of the project at a cost of Rs576 billion or $2 billion.

The sources said that in the first phase the implementation of the 82-kilometer realignment project of the submerged section due to the Diamer-Basha dam will be taken up and work on the formulation of an innovative financing plan would also continue.

Both sides did not finalise the minutes of the JCC meeting, which still remain open for discussions.

According to proposed minutes that have not yet been vetted by Pakistan, the Chinese authorities suggested that Pakistan should comprehensively consider the disposal of existing debts. It further recommended that the loan requirements for new projects may also be reviewed and the government should find avenues for financing that do not add more public debt.

Iqbal said that the issue of the Pakistani debt was not discussed on Friday in the JCC meeting.

Public debt rose both in absolute and in terms of size of the economy in the last fiscal year, standing at Rs80.5 trillion or little over 70% of GDP.

China is in favour of formulating a practical and feasible financing plan without further increasing Pakistan’s sovereign debt, the sources added.

Beijing also hoped that the Pakistani authorities would strengthen communication to coordinate the progress of the N35 realignment and the Diamer-Basha dam. It had suggested that Pakistan should not store water in the dam, until the realignment project is completed and opened to traffic to avoid road interruption.

ML-I

Iqbal said that China and Pakistan agreed to proceed with the ML-1 project through multilateral financing by the Asian Development Bank and the Asian Infrastructure Investment Bank. The ADB has already sent its team for field surveys.

Pakistan and China also agreed to advance the upgrading and reconstruction project of Pakistan’s Main Line 1 (ML1) in phases on the premise of ensuring safety.

The two sides had discussed the financing terms of the ML1 project on multiple occasions, agreed to accelerate the research on the financing plan for the test section (Karachi – Hyderabad) and the subsequent consultations, and initiated the bidding and construction process after reaching an agreement on the financing plan.

“I wish to reemphasize the urgency we have agreed upon for the ML-I project and the realignment, necessitated by major hydropower dams, will preserve uninterrupted connectivity between our nations and the early implementation of both projects will yield far-reaching economic and strategic dividends for the entire region,” said Iqbal in his closing remarks.

Iqbal said that it has been agreed that China would help Pakistan prepare a climate resilience and preparedness plan and both the countries would coordinate in their efforts to revitalise Gwadar Port.

The Chinese also agreed to launch a new round of discussion on the revision of the China Pakistan Free Trade Agreement to provide tariffs for Pakistani products at par with ASEAN countries to allow better market access for promotion of Pakistani exports to China, said the Planning Minister.

Iqbal underscored that exports must serve as the main driver of economic growth in the next phase. Noting that China’s annual imports exceed $2 trillion, while Pakistan’s exports to China are just $3 billion, he urged that Pakistani products be given the same market access as the ASEAN countries.

He called for the development of two government-to-government special economic zones (SEZs) in Karachi and Islamabad as model export-oriented hubs, where industrial relocation from China in textiles, engineering, electronics, pharmaceuticals and electric vehicles could be prioritized.

The planning minister also proposed the establishment of a Pakistan–China Industrial Relocation Fund to de-risk investors and accelerate foreign direct investment.

The minister went on to say that in the light of geo-politics and to counter negative propaganda of anti-CPEC forces the 14th JCC’s minutes of the meeting will be agreed upon so that the JCC remains conclusive, decisive and result oriented.

LTP

Both sides also discussed the second phase of CPEC to align the CPEC Five Corridors (5Cs) Growth, Innovation, Green, Openness, and Livelihood with Pakistan’s URAAN (5Es) Framework, comprising Exports, E-Pakistan & Innovation, Energy & Infrastructure, Environment & Climate Change, and Equity, Ethics & Empowerment.

Iqbal said that to provide clear strategic direction, he proposed the publication of an updated CPEC Long-Term Plan within 45 days, aligning Pakistan’s URAAN 5Es framework with President Xi’s five corridors of CPEC 2.0.

The two sides agreed to continuously deepen the alignment between the CPEC Five Corridors with the URAAN Pakistan Framework based on 5Es.

The two sides agreed to jointly maintain the stability of the electricity price policy for energy projects under CPEC, resolve disputes through friendly consultation, and neither side shall seek to change the status quo through unilateral actions.

The Chinese side hoped that the Pakistani side would establish a circular account for electricity bill payment as soon as possible in accordance with the agreement on energy project cooperation under CPEC signed by the governments of two sides in 2014.

Acknowledging the special importance of Gilgit-Baltistan as the physical gateway of CPEC, Iqbal proposed a 300 megawatt solar project to end the region’s 18–20 hour daily blackouts and to transform its economy.

He also emphasized that the future of CPEC must pivot from government-to-government cooperation to business-to-business partnerships.