Page 1 of 2 China looks again at Gwadar and Pakistan
By Peter Lee
In physics, every action has its equal and opposite reaction. In geo-diplomacy, "equal" isn't a given. China has responded to India's cozying up to Japan and Myanmar's slide into the Western camp by tilting toward Pakistan and Afghanistan.
With all due respects to the strivers of Islamabad and Kabul, China is getting the worst of the bargain in trading nascent global power India and South Asian resource and agriculture powerhouse Myanmar for "failing state" Pakistan (the characterization recently offered by Ahmad Shuja Pasha, head of Pakistan's own ISI security service) and landlocked and miserable Afghanistan, whose main domestic product and export are both violence.
And then there is the contrast between the soon to be completed
but politically vulnerable twin pipelines from Rakhine State in Myanmar to Yunnan in China and the "Gwadar-Kashgar corridor", an US$18 billion road, rail, and energy corridor fantasy that involves tunneling through the Himalayan mountains and also requires passage through Balochistan, a Pakistan province filled with resentful Balochis ripe for anti-Chinese violence even without the encouragement of the United States and India.
Nevertheless, China has no alternative but to secure a set of costly contingencies in case hostility from India and Myanmar becomes overt.
The Chinese predicament is eased by certain South Asian elements that make engaging with Pakistan and Afghanistan marginally less costly and dangerous, and may even offer some genuine and valuable strategic advantages.
Pakistan ended its adventure with the haplessly pro-American and allegedly hopelessly corrupt Asif Zardari and his PPP party, which attempted to carry out Benazir Bhutto's bargain with Washington and turn Pakistan into an anti-terrorist bastion, and gave a parliamentary majority and prime ministership to the PML-N, headed by the Islamist-friendly, China-friendly, and not particularly US-friendly Nawaz Sharif.
Afghanistan's failed 10-year experiment in democracy and development through US-led counter-insurgency is winding down, and the local players are cautiously interested in what China has to offer and may be prepared to demand.
Sharif made his first overseas visit as prime minister to China for five days in early July. At his reception at the Great Hall of the People in Beijing, Sharif exulted: "Our friendship is higher than the Himalayas and deeper than the deepest sea in the world, and sweeter than honey."
Sharif is in dire need of Chinese friendship to address the Pakistan crises that doomed Zardari and shadow his own political future. Pakistan's economic, political, and social dysfunction are embodied in its extraordinary electricity crisis. Pakistan is generating only about 70% of the power it needs, with the result that every corner of Pakistan is experiencing "load shedding" (the euphemism of choice for blackouts), with poorer and politically powerless rural areas experiencing blackouts of up to 20 hours per day.
This state of affairs was a major political issue in May, when Sharif triumphed in the parliamentary elections; it continues to occupy the center of Pakistani consciousness as citizens swelter through the 40-degree Celsius summer, are unable to sleep at night and, when they get to their shops and factories, struggle with intermittent power through the days.
Pakistan's notoriously intrusive Supreme Court has demanded data on whether load shedding is being implemented evenly and equitably throughout Pakistan, given the evidence that central government offices, foreign embassies, and prosperous neighborhoods in Islamabad are enjoying better than average access to electricity and air conditioning.
Sharif's brother, Shahbaz, chief executive of Punjab province, the family power base, has taken to holding his meetings in a sweltering tent to deflect potential criticism of elite privilege.
Pakistan's other heavyweight province, Sindh - stronghold of the Bhutto family and the PPP - complains that it is getting jobbed out of its fair share of electricity by the vengeful Sharif administration. Pakhtunkhwa, the mountainous frontier province, complains that it suffers load shedding even though it is a net supplier of electricity to the grid thanks to its hydroelectric capacity.
As for Balochistan, the miserable and impoverished home of both Gwadar port and the Quetta shura that directs the Taliban insurgency in Pakistan, it has been receiving only one-third of its electricity needs.
The main culprit does not appear to be generating capacity, a rickety distribution network, or extensive theft of electricity.
The fundamental problem appears to be revenue, $5 billion worth of missing payments and subsidies that, for reasons of direct theft, dishonest billing, and/or simple nonpayment are not making it back to the power companies, so the power companies can't buy the imported fuel oil needed to run the generators.
Sharif's plan is apparently to throw money at the power companies ($2 billion was disbursed to this purpose in late June) so they can import fuel and give the government some breathing space as it tries to impose the tariff, structural, and enforcement reforms that will prevent the crisis from recurring.
A recent report on the debt crisis prepared by Pakistan's Planning Commission in co-operation with USAID identified "complete disarray between all entities at the policy level", "authoritarian attitude at the regulatory level", and "complete breakdown of governance at the [operating] entities level" as problems confronting reform.
Thoroughgoing reform of Pakistan's energy sector, economic policy, and business and consumer culture is perhaps beyond the ability of any mortal, even Sharif, the "Lion of Punjab" as he is styled. However, he is doing his best to nibble around the problem, and the People's Republic of China is doing its best to help.
Although Sharif's patron is Saudi Arabia - which sheltered him after Pervez Musharraf deposed him in a coup during his first stint as prime minister, in 1999, and sponsored his political comeback this time around, and Sharif has supported Riyadh's Sunni project, including an attempt to impose sharia law in his first term and an ongoing engagement with Islamist militants - it looks like Pakistan will have to look to itself for energy, and look to Central Asia - and China - instead of the Gulf for economic integration.
Energy was very much on the Sharif China agenda, as this report makes clear:
[Sharif] also mentioned a 969MW Neelum Jhelum Hydropower Project, three power projects Karot, Kohala and Taunsa to add 2,000MW being executed by Chinese companies.
Nawaz Sharif said his government looked forward to Chinese investment in renewable energy sector particularly wind and solar with the country having accumulated potential of 60,000MW.
He said Pakistan was also rich of coal reservoirs of 185 billion tons having capacity to generate 100,000MW for 300 years.
During meeting with President of China Southern Power Grid (CSG) Zhao Jianguo in Guangzhou, the Prime Minister sought suggestions and assistance in curbing power line losses, theft and pilferage in Pakistan and got affirmative response from the company. [1]
Significantly, coal (Pakistan's energy planning now revolves around the idea of switching from gas and oil to coal-fired plants and exploiting a large domestic reserve of lignite, the Thar deposit), solar, and hydro are all domestic energy resources, indicating that Sharif has despaired of the difficulty of converting Pakistan into a high-productivity/high consumption economy that could expend billions in foreign exchange to sustain large imports of crude oil from Saudi Arabia, LNG from Qatar, or pipelined natural gas from Iran to meet its electricity needs.
The Sharif administration's reorientation of its diplomatic and economic focus also provides a welcome boost to China's heavy industry and contracting companies. The domestic infrastructure market is languishing as China attempts to restructure its economy and wean its financial system off the stimulus drug, and the opportunity to support China's infrastructure enterprises by supplying credits for offshore projects is undoubtedly welcome to Premier Li Keqiang's economic team.
One of Sharif's items of business on his China trip was to clear up the bewildering two-year delay in the construction of the Nandipur power project, which was to have been supplied, constructed, and partially financed by entities from China. The Zardari government had held up the sovereign guarantees required to release the financing without explanation, leaving the government open to the accusation that it was maneuvering for additional squeeze as a price for its action.
The Chinese contractor terminated the project and 1,700 tonnes of Chinese equipment "sat-rusting!" according to the indignant PML-N, for whose Punjab base the equipment was destined - and incurring expensive demurrage charges for over a year while the Law Ministry sat on the application.
As soon as he became prime minister, Sharif arranged the guarantees and, after his visit to China, the Chinese contractor, Dongfang Electric Corporation, made the handsome gesture of immediately dispatching engineers to Karachi to inspect the equipment and restart the project.
The public relations boost Sharif perhaps hoped to enjoy was quickly dissipated by a letter by a former managing director of the government electricity utility, PEPCO, advising the Supreme Court that somehow the cost of the restarted project had increased by almost $200 million while Dongfang was only asking for a contract adjustment of $40 million, implying, in the words of the aggrieved director, there existed "a well thought out, well-conceived and white collar scam to cheat the public exchequer of $149 million, the benefit of which will go to a select private sector party". Since the government had already stated its intention of privatizing Nandipur, perhaps the extra cash was arranged as some sort of dowry payment to the new owner. [2]
Nandipur also labors under the disadvantage of being gas-fired at a time when Pakistan has significantly depleted its own gas reserves and has no immediate source of imported natural gas, either by ship from Qatar or from Iran via the much-contested Friendship pipeline.
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