Pakistan鈥檚 desire to maintain strategic relations with China has resulted in the $62 billion China-Pakistan Economic Corridor (CPEC), a set of infrastructure projects, being mired in insufficient transparency.
But a formed by Pakistani Prime Minister Imran Khan to examine the causes for the high cost of electricity to Pakistani consumers has lifted the lid on corruption involving Chinese private power producers in Pakistan.
The report reveals that the Huaneng Shandong Ruyi (Pak) Energy (HSR) or the Sahiwal and the Port Qasim Electric Power Company Limited (PQEPCL) coal plants under CPEC inflated their set-up costs.
For Pakistan鈥檚 citizens, who are always told how China is their in the world, it was a shock to discover that China does business mercilessly and unscrupulously.
Successive civilian governments and Pakistan鈥檚 military have looked upon China as their principal backer against India.
China鈥檚 consistent including with Pakistan鈥檚 nuclear program, is often held out by Pakistan鈥檚 military establishment favorably in contrast with the more conditional Pakistani alliance with the United States.
But it seems now that China is not in Pakistan to help its people but rather as a predatory economic actor.
The 278-page by the 鈥淐ommittee for Power Sector Audit, Circular Debt Reservation, and Future RoadMap鈥� listed malpractices to the tune of 100 billion Pakistani rupees ($625 million) in the independent power generating sector, with at least a third of it relating to Chinese projects.
Given the close ties between CPEC and the all-powerful Pakistan military 鈥� the is currently chaired by Lt. General Asim Saleem Bajwa, who is also the Prime Minister鈥檚 Special Assistant on Information and Broadcasting 鈥� the Committee treaded softly in relation to the Chinese projects.
According to the committee鈥檚 report, 鈥渆xcess set-up costs of Rs. 32.46 billion (approximately $204 million) was allowed to the two coal-based [Chinese] plants due to misrepresentation by sponsors regarding [deductions for] the 鈥業nterest During Construction鈥� (IDC) as well as non-consideration of earlier completion of plants.鈥�
The interest deduction was apparently allowed for 48 months whereas the plants were actually completed within 27-29 months leading to entitlement of an excess Return on Equity (RoE) of $27.4 million annually over the entire project life of 30 years in the case of the Sahiwal plant.
The estimated excess payment, keeping in mind the 6 percent annual against the dollar, works out to a whopping Rs. 291.04 billion (approximately $1.8 billion).
The Chinese company HSR claimed IDC based on a long-term loan at the rate of LIBOR +4.5 percent for the length of the entire construction period, even though it borrowed no money during the first year of construction and used only short-term loans at substantially lower interest rates during the second year.
The magnitude of profiteering by the Chinese companies is incomprehensible. The two projects examined by the Pakistani experts鈥� Committee were worth $3.8 billion at the time of their launch. The Committee found over颅payments of Rs. 483.64 billion, which amounts to $3 billion at current rates of exchange.
This includes overpayment of Rs. 376.71 billion (approximately $2.3 billion) to HSR and Rs. 106.93 billion (approximately $672 million) to PQEPCL on account of excess set-up cost, excess return due to excess set-up cost in 30 years, and excess return due to miscalculation in Internal Rate of Return (IRR).
In its report, the Committee recommended that Rs. 32.46 billion (approximately $204 million) be deducted from the project cost of PQEPCL and HSR; the return payment formula be corrected to reflect actual construction time; and Tariff of PQEPCL and HSR be adjusted accordingly.
Under the current formula, in two years of operation, HSR has already recovered 71.18 percent of its original equity invested whereas PQEPCL has recovered 32.46 percent of its original equity in the first year of operation.
This is over and above the profits that the companies would have made without subterfuge. Imagine the return the Chinese will generate on the $62 billion CPEC projects. These numbers are way too large to have been missed as oversight or malfeasance of individuals within the companies and their Pakistani counterparts.
The experience of the and governments suggests that these overpayments are generated with the complicity of leaders in the Pakistan government and the loot shared by all parties.
Pakistan鈥檚 economy has been teetering on the for some time and the COVID-19 pandemic has made the even worse.
Instead of reforming their country鈥檚 policies, Pakistan鈥檚 leaders, once again, and waivers on account of the pandemic, just as they previously sought as a reward for fighting terrorism.
But expecting the international community to repeatedly bail Pakistan out from one economic crisis after the other is unrealistic. Massive military expenditure, deep rooted corruption, and lack of accountability are at the heart of Pakistan鈥檚 perennial and ever widening gulf between revenue and expenditure.
Now, it seems, Chinese investments have become a new liability. The International Monetary Fund (IMF) has been pushing Pakistan鈥檚 officials to raise taxes and power tariffs, effectively asking the Pakistani public to foot the bill for China鈥檚 rapacious practices.
The United States and Western financial institutions should not help Pakistan鈥檚 ruling elites in their own and China鈥檚 predatory behavior. The people of Pakistan deserve better.
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