Pakistan can’t afford turning CPEC into another KBD (Part II of II)

The following article has been published in Daily Nation, dated 25^th May 2015

(E-Paper (Print Edition): http://nation.com.pk/E-Paper/lahore/2015-05-25/page-9)

(Online: http://nation.com.pk/business/25-May-2015/pakistan-can-t-afford-turning-cpec-into-another-kbd-part-ii)

Pakistan can’t afford turning CPEC into another KBD (Part II)

By: Omer Zaheer Meer

Link to Part I (Published): https://omerzaheermeer.wordpress.com/2015/05/18/pakistan-cant-afford-turning-cpec-into-another-kalabagh-dam-part-i-or-ii/

PART II

CPEC is strategically very important for China as it imports 60% of its oil from the Gulf of which 80% is transported by ships travelling over 16,000 kilometers in approximately three months on average through Strait of Malacca to Eastern China. This existing route is not only longer but is ridden with regular attacks by pirates, bad weather and political rivals under American and Indian influence. So the strategic benefits to China can be categorized in four major areas:

1. China is heavily dependent upon the oil from Gulf for its energy needs. China will reduce the transportation distance from 16,000 km to just 5,000 km resulting in huge economic savings and quicker business all around the year sans the threat of blockade by political rivals.
2. China will gain access to the untapped markets of the energy rich Central Asian states and Afghanistan which are termed as the next big thing and “Gulf replacement” for coming century. With this early access, developed secure routes and trade ties China can not only secure its energy needs for the next century but place itself as the world leader re energy security by having taps on the future energy sources, a place currently held by the USA.
3. China will be able to spread its economic development benefits to its lesser developed western areas including the troubled Muslim-majority region of Xinjiang. Furthermore with enhanced security co-operation with Pakistan and economic developmental gains, China hopes to curb its troubles in its underbelly.
4. Last but not the least, CPEC will not only provide China with an opening to the world from its western side but also ensure that by having a potential naval presence at Gwadar, not only does it hold an additional sea-port but has the capability to blockade the oil supplies to any future adversaries. Any attempts to encircle China such as those currently pursued by USA would become futile in such a scenario.

The benefits to Pakistan are numerous too. Some of the major ones are as below:

• Uplift and development of badly needed transportation, technical and energy infrastructure.
• Economic development through industrial and commercial zones setup along the CPEC.
• Potential to earn billions of $ in transit fees, cargo handling and transportation charges.
• Becoming economic connectivity hub for the entire region and beyond.
• Security benefits of Gwadar port as outlined above.
• With enhanced security ties with China and the economic developmental benefits, Pakistan also expects of stemming out the terror in lesser developed areas of Balochistan and KPK.

Considering all the significant benefits and strategic potential of the CPEC it was unfortunate that it became controversial. The controversy is two pronged. There are those who genuinely felt that the economic benefits of the CPEC were moved away from their provinces to Punjab, being the political constituency of the incumbent Government. However, there are also efforts led by India to disrupt the CPEC as is evident by the recently created desk at RAW with initial allocation of $ 3 billion for this purpose. Furthermore by signing accord to develop Chahbahar port with Iran, India has aligned Iranian interests with itself too. Moreover UAE’s interests also clash with Pakistan’s as the success of CPEC will render Dubai port an invalid. Furthermore, the strategic great game means that USA would rather not have it to see CPEC successful.

None of the external efforts would have been and can be successful without some genuine internal dissent though. Unfortunately the lack of transparency and undue secrecy around the CPEC allowed the propaganda as well as the genuine concerns to grow. Moreover the eastern route was the most talked about during the Chinese President’s visit to Pakistan, further raising concerns of depriving smaller provinces of their due. Absence of KPK, Sindh and Balochistan CM’s while CM Punjab was in attendance didn’t help the situation either. Therefore, KPK Assembly passed a resolution demanding the original route to be retained while Balochistan Assembly’s resolution demanded clarification on CPEC benefits to provinces from the federation. ANP then convened an “all parties’ conference” pressing the controversy and concerns forward.

Though late but some positive steps were taken. A meeting of the leaders of all parliamentary parties was convened to enlighten them on CPEC but the “Safora Goth” tragedy overshadowed the effort. However, the meeting didn’t address concerns with regard to greater transparency as little is revealed regarding the technical and financial parameters of the CPEC projects. The funding sources were also clouded in mystery but it now seems that most of the “investment” is in the form of soft loans with Chinese firms to execute several projects. Federal Minister for Planning and Development Mr. Ahsan Iqbal has claimed that all routes of CPEC are being worked at simultaneously and the western route will be the first one operational. Similarly he has claimed that Sindh and Baluchistan will be the biggest beneficiaries of power generation under CPEC with 36% and 26% shares respectively.

The government should use media to educate masses about the above claims as well as share why the alternate routes were developed. Was it to ensure connectivity across the country with developed areas, out of Chinese concerns for safety of passage in case of trouble on the route via Balochistan (as mentioned by some Chinese scholars in their write-ups in international media), to cater for the huge trade volume expected or some other reasons? Also more transparency such as clarifying that why the current PSDP contains allocations under CPEC only for the eastern route and not the others will help dispel the concerns and negative propaganda. CPEC is a game changer for Pakistan and the Government has the responsibility to ensure its successful completion. Pakistan cannot bear the potential loss and the dire consequences of CPEC turning into another “Kalabagh Dam”.

The author is Director of the think-tank “Millat Thinkers’ Forum”. He is a leading economist, CFA Charterholder, experienced fellow Chartered Certified Accountant and anti-money laundering expert with international exposure who can be reached on Twitter and www.myMFB.com @OmerZaheerMeer or omerzaheermeer@hotmail.co.uk

Pakistan can’t afford turning CPEC into another Kalabagh Dam (Part I of II)

The following article has been published in Daily Nation, dated 18^th May 2015

(E-Paper (Print Edition): http://nation.com.pk/E-Paper/lahore/2015-05-18/page-9)

(Online: http://nation.com.pk/business/18-May-2015/pakistan-can-t-afford-turning-cpec-into-another-kalabagh-dam)

China Pak Economic Corridor: way forward (Part I of II)

By: Omer Zaheer Meer

PART I

The biggest gift of nature to Pakistan besides all kinds of terrains and weather as well as hardworking young manpower is its strategic location. In this context the strategic significance of Gwadar adds to this dimension of Pakistan’s international importance. Gwadar is a strategically located area on the shores of the Arabian Sea just outside the Strait of Hormuz. It is situated near key shipping routes of global oil transportation with the surrounding areas having two-thirds of global oil reserves. Furthermore it is the closest warm-water port to landlocked Central Asian region and Afghanistan, both rich in untapped natural resources and economically undeveloped with huge potential. As if that was not enough, from a military standpoint, Gwadar is located at the eastern bay of the key passing which if blocked by a strong naval force, can cut off the oil supplies to any adversary with dire repercussions as any military expert will testify.

Before moving ahead on the core matter of China Pakistan Economic Corridor (CEC), let us briefly visit the history of Gwadar. Pakistan identified Gwadar as a site for its future port in 1954 when it was still under the rule of Oman. Government of Pakistan successfully negotiated with the Sultanate of Oman and purchased the enclave in the fall of 1958, ending a 200 year Omani rule of the small undeveloped fishing town. It wasn’t until 1977 that Gwadar was made a part of Balochistan by the Federal Government of Pakistan. Currently it has a population of approximately 85,000 people as per most studies.

Now moving onto CPEC, it is a mega project worth $ 45.6 billion, to connect Gwadar port with Northwestern China (Xinjiang) via Khunjrab (the last connecting point on the Pakistani side) along with development and uplift of transportation, energy and technical infrastructure in Pakistan. A network of road and rail links besides energy pipelines are envisaged.

There are three land routes planned to link Gwadar to Xinjiang in addition to a long-term “route adjustment link”. The three main routes are outlined below:

1. The “original”, shortest and most popularized route passes through Quetta, Zhob, D.I.Khan and Peshawar. It is termed as the “western route” and is just over 2400 km long.
2. The second route passes through Ratodero, Sukkuar and the Indus Highway.
3. The third route which has stirred up the controversy actually passes through Sukkur and Karachi in Sindh and then via Lahore and Peshawar to connect with Khunjrab. This is termed as the “eastern route”.

All the routes are envisioned to be interconnected with industrial and commercial zones along the routes at key sites.

Furthermore other major projects that are part of the CPEC are as below:

•  320-kilometre-long Sukkur-Multan motorway
• 120-kilometre-long Thakot to Hawalian road

• upgradation of Karakoram Highway
• 19-kilometre-long Gwadar port East Bay Expressway Project
• development of Gwadar itself
• building Gwadar airport

• upgradation of Karachi – Peshawar “Main (Railway) Line”
• commission of armed division (Economic Corridor Support Force) for security of CPEC
• Havelian Dry Port
• Orange Line Metro (Lahore)
• Port Qasim 2x660MW Coal-fired Power Plant

• 720MW Karot Hydropower Project
• Zonergy 9×100 MW solar project (Quaid e Azam Solar Park) in Punjab
• Jhimpir wind Power project
• Thar Block II 2x330MW Coal Fired Power project

• Hubco Coal-fired Power Plant Project
• Gwadar-Nawabshah LNG Terminal and Pipeline Project
• China-Pakistan joint cotton bio-tech laboratory
• Cross-border fibre optic data communication system project, a digital terrestrial multimedia broadcast pilot project at Murree
• Development of Private Hydro Power Projects, e.t.c.

As can be seen from the above non-exhaustive list, a lot of the projects are related to developing energy and technical infrastructure in Pakistan in addition to the transportation infrastructure projects. Infact more than 70% of the $ 45.6 billion is expected to be spent on these projects. However it is the transportation infrastructure that caught most attention due to its long term strategic significance, revenue generation and potential to be the game changer for the region.

to be continued next Monday  ……

The author is Director of the think-tank “Millat Thinkers’ Forum”. He is a leading economist, CFA Charterholder, experienced fellow Chartered Certified Accountant and anti-money laundering expert with international exposure who can be reached on Twitter and www.myMFB.com @OmerZaheerMeer or omerzaheermeer@hotmail.co.uk

Pak economy: curing cancer with anti-fever medicines?

The following article has been published in Daily Nation, dated 4^th May 2015

(E-Paper (Print Edition): http://nation.com.pk/E-Paper/lahore/2015-05-04/page-9)

(Online: http://nation.com.pk/business/04-May-2015/pak-economy-curing-cancer-with-anti-fever-medicines)

Pak Economy: Curing Cancer with Anti-Fever Medicines?

 

By: Omer Zaheer Meer

Due to some personal engagements, a write-up dated 22^nd March 2015 by Mr. Ejaz Wasti, a gentleman working for finance ministry, questioning my 16^th March 2015 article published in The Nation, titled “IMF-Driven policies: Destroying Economy & inciting revolts?” missed my attention. Recently it was brought to my notice. The initial thought was to let it be but the lack of substance all but forced this scribe to pen this piece in the hopes that it may be taken not as a rebuttal but as constructive feedback aimed at helping the decision makers improve for the betterment of our beloved Pakistan. For, while we appreciate the positive endeavors of our policy makers as evident from the past articles of this writer, pointing out the shortcomings is also our moral obligation.

Unfortunately Mr. Wasti ignored important questions raised in the original article of 16^th March and instead focused on inking a column seemed to have been compiled in a rush. What’s more tragic is that just days afterwards the denial penned by the gentleman, World Bank as well as Asian Development Bank issued damning reports vindicating this writers’ perspective while blowing off the lid of the misconstrued arguments of the finance ministry employee/consultant. It’d therefore be surprising to see how any neutral economist could possibly justify the worst growth rate in the region even below the likes of Afghanistan and Bhutan as outlined by the above mentioned reports?

It’s tragic that the stats often shared by certain quarters of the ministry reminds us of Mr. Shaukat Aziz who pursued similar gimmicks, building an economy on a bubble rather than on solid foundations of increasing GNP and GDP by focusing on national output. Remember, Shaukat’s bubble got busted not long after the end of his Government. This time around we don’t want a similar “feat” from a Government famous for its economic achievements.

Coming back to the 16^th March write-up, some of the major questions were left unanswered including the fact that why the whole 500 billion payment to IPPs was made in one go without ensuring the availability of the loudly trumpeted “40%” unused capacity? Why the payment of this huge sum was not done in installments with ensuring availability of additional capacity in the national power system at the release of each tranche, particularly considering Pakistan went to IMF for a $ 6.7 billion installment based bailout package, 75% of which was paid to IPPs?

Furthermore, I humbly dare to question why has the circular debt again reached Rs. 600 billion, surpassing the previous level? Would it not have been better to focus on structural reforms and cutting the line losses as proposed earlier by this writer instead of treating it as a matter of wounded ego?

Furthermore as to the claims of adding 1700 MW “additional” capacity in the system by “IPPs”, can Wasti provide any evidence to this since it has not even been claimed by the IPPs or even the finance ministry represented by him. Having said that, the claims of forensic audits and verification by Ministry of the huge payments are commendable and should be released to the public, but the question of bypassing AG office was still left unanswered.

Next the scribe from finance ministry referred to income tax notices issued with the aim to broaden the tax base. Perhaps he should spare some time to check the ground realities. Never mind, let us try to assist our decision makers here.

Recently notices claiming no existing tax registration based on “economic activities”, usually citing vehicle purchases were sent out to masses. Sounds good? Hang on, what if it’s shared with you that many of those receiving these notices were not only tax payers already registered but paying millions in Income Taxes annually? This exemplifies a total lack of coordination within the systems and functions of FBR. Missing out on the records already held by FBR simply reinforces the misconceptions that Government policies are to bother the already registered tax payers and not to act as a facilitator or initiator of genuine drives to catch tax evaders. Instead of helping the underlying objective, the manner in which this drive is performed is actually pushing genuine tax payers on the brink of undesirable actions.

What’s tragic is that while on one hand such steps are undertaken citing the need to broaden the tax base but on the other hand proposals with huge potential to achieve a larger tax base such as brining agricultural income within the tax net as well as allowing use of CNIC as National Tax Numbers (NTN) and Sales Tax Registration Numbers (STRN) have been falling on deaf years for almost a decade now. Of late, there has been news that CNIC may finally be allowed as NTN. If done, this will be a step in the right direction.

Similarly the question about the petrol crises was also conveniently ignored. While repeating the point outlined by this writer that the incumbent Government did pass on some of the benefit of reduction in Oil prices in international market owning to political pressures, he again preferred to ignore the question of how much? As per last available data, Government of Pakistan amassed a benefit of $ 2 billion by the price reduction and as per most mainstream studies (as the government has not shared the exact data), not more than a quarter of this was passed on to the people of Pakistan. Perhaps the finance ministry can share exact data about this to enlighten us all in this regard.

To sum it up, let’s examine an extract from my original 16^th March article: “While we can give some space to government’s economic team citing the tough challenges they inherited and are facing, what is unfortunate though is that even the steps possible within the ambit of Finance Ministry are not taken ……. the painful but obvious fact remains that the necessary reforms required to revamp the tax system and structures are not been followed either. Instead of extending the tax base by bringing in Agriculture and other exempt areas in the tax net the existing base is being taxed more along-with higher indirect taxes imposed on the common citizen, both of which are disastrous in the long run. Had we actually taken the tough but necessary decision to broaden our tax base and executed proper financial management especially in the power circular debt payment we would not need to go to the IMF. The lack of these reforms has led to exorbitant borrowings, with the internal borrowings alone reaching the mark of a trillion.”

With this, let’s conclude by asking whether those officials representing the present Government will review the IMF driven economic policies and carryout the necessary reforms while providing relief to the ordinary citizens or will they continue to focus more on short-term cosmetic measures without any bearing to the economic condition of a common man? Perhaps even more important is the question whether these officials have the stomach to digest constructive criticism and engage positively to ensure beneficial proposals for the national economy?

Links to both articles are as below:

http://nation.com.pk/business/16-Mar-2015/imf-driven-policies-destroying-economy

http://nation.com.pk/business/22-Mar-2015/pak-economy-the-right-perspective

The author is Director of the think-tank “Millat Thinkers’ Forum”. He is a leading economist, chartered financial analyst, fellow chartered certified accountant and certified anti-money laundering expert with international exposure who can be reached on Twitter and www.myMFB.com @OmerZaheerMeer or omerzaheermeer@hotmail.co.uk