China calls halt to Gwadar refinery
By Syed Fazl-e-Haider
QUETTA, Pakistan - Cash-strapped Pakistan, which has had to accept more than
US$11 billion from the International Monetary Fund, is threatened with the loss
of a huge foreign investment after China said it had shelved its multi-billion
dollar coastal oil refinery project at Gwadar, in southwest Balochistan
province.
China has formally informed the Pakistani authorities that the refinery project
has been deleted from the list of financial development plans agreed with
Islamabad for the financial year ending next June as there has been no progress
on the project, according to a Business Recorder report.
The decision, which follows suspension in January by the
United Arab Emirates state-run International Petroleum Investment Company
(IPIC) of work on the $5 billion Khalifa Coastal Refinery (KCR) project at Hub,
also in Balochistan, creates uncertainty about the future of the planned $12.5
billion mega oil city project in Gwadar, of which the refinery there was to be
a key element.
It also casts doubt over plans for a corridor carrying energy pipelines and
refinery products the length of Pakistan from Gwadar onto western China.
The global recession was a factor in forcing the Chinese and UAE governments to
shelve their refinery projects, the Business Recorder report said, citing
sources in Pakistan's Petroleum Ministry. Local analysts, however, believe that
security concerns were also an important factor.
The province has battled with a low-level insurgency for the past five years.
Most recently, a security forces' checkpoint was attacked on Wednesday in
Quetta, Balochistan's capital, killing four people and injuring five others.
The United States is also turning its attention to the province, which borders
Afghanistan to the north, as part of its battle against Taliban insurgents in
the region.
Many Chinese nationals have been attacked, kidnapped and killed in the country
since May 2004, when three Chinese engineers were killed in Gwadar.
While its nationals are under threat in Pakistan, China is also concerned about
Islamist militants operating in China's western Xinjiang Uyghur Autonomous
Region. It says some have been trained in Pakistan's unruly tribal areas to the
north of Balochistan. Xinjiang, a Muslim-dominated region, was the scene of
riots last month in which 197 people were killed. Beijing claimed Uyghur
separatists were responsible for the violence.
Great United Petroleum Holdings Company Limited (GUPC) of China started work on
the Gwadar petrochemical city project in December 2006. Under a memorandum of
understanding signed between Pakistan and China that year, GUPC was committed
to conduct a feasibility study and preparation work. The GUPC was also to build
1,000-2,000 service stations in the country.
China had expressed interest in building the refinery during a visit to China
in February 2006 by Pakistan's then-president General Pervez Musharraf, who
also offered a "trade corridor" that would carry imported Middle East oil and
refined products from Gwadar to Kashghar, in western China.
China had planned to build a refinery and petrochemical complex with an initial
10 million tonnes per year (200,000 barrels per day) capacity, later expanding
to 21 million tonnes. Pakistan has allocated 5,000 hectares of land for the
proposed oil city.
Gwadar is close to the entrance to the Persian Gulf and the Middle East,
China's biggest source of crude, and a pipeline to western China would greatly
reduce the time and distance required to transport the fuel, while cutting out
the congested seaways around Singapore.
The earlier halted UAE-built Khalifa refinery was originally planned for
Gwadar, before being moved east to Hub district. In 2007, the UAE signed an
implementation agreement with Islamabad to establish the $5 billion refinery,
which Abu Dhabi's IPIC was to build with a target refining capacity of 200,000
to 300,000 barrels per day. So far the UAE government has not started work on
the project, which was scheduled to be completed by 2012.
In March, Pakistan told the UAE government that if work did not start within 60
days, Islamabad would seek other investors or expand the capacity of the
Pak-Arab Refinery (Parco), in central Pakistan, by 100,000 barrels of oil per
day.
It was not possible for the UAE to immediately start work on the refinery, with
a huge investment, due to the global economic meltdown over the past year,
according to a report published in The News on March 30. In view of the
expected delay in initiating the Khalifa project, the government would ask
Parco, the country's largest refinery, to start increasing capacity, the report
said, citing Asim Hussain, adviser to the prime minister on petroleum.
China is playing an increasing role throughout Pakistan's economy, from sales
of consumer goods to developing natural resources, with several mining projects
underway in Balochistan. It has been the biggest foreign investor and partner
in the development of Gwadar port for commercial shipping as well as an energy
hub.
The port was officially declared functional last December, yet the outlook
there is also uncertain. The government is in dispute with the Pakistan navy,
which is reluctant to vacate 582 hectares of land it is using at the port and
which is wanted for development. Ports and Shipping Minister Babar Khan Ghauri
said late last month that the port may be shut down if the navy did not vacate
the land, the Daily Times reported.
Syed Fazl-e-Haider, sfazlehaider05@yahoo.com, is a Quetta-based
development analyst in Pakistan. He is the author of six books, including
The Economic Development of Balochistan (2004).
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