By Shahbaz Rana
Published: September 29, 2018
CPEC route. PHOTO: AFP
ISLAMABAD: The International Monetary Fund (IMF) is looking for contract details of the China-Pakistan Economic Corridor (CPEC) projects amid the West’s deepening interest in the strategic arrangement between the two “all weather” friends.
The visiting IMF delegation raised the issue of CPEC deals during a meeting with the officials of the Ministry of Planning and Development, according to the sources.
The Pakistani side was led by Federal Minister for Planning, Development and Reform Makhdoom Khusro Bakhtiar.
“The ministry gives an overview of the macroeconomic outlook and progress on the CPEC initiative to the IMF team,” said the sources.
The IMF staff-level delegation is visiting Pakistan to assess the country’s macroeconomic situation. Its Washington-based Mission Chief, Harald Finger, is leading the delegation that comprises officials from the fund’s Lending Policy Division.
The sources said the IMF delegation inquired about the contract agreements of the energy projects of CPEC. However, the ministry did not provide any information, arguing that only the Ministry of Energy has the details.
The sources said the government was under no obligation to provide details of the CPEC contracts to a third party, particularly when there was no formal arrangement with the IMF at this stage.
“The disclosure of Chinese financing deals under CPEC has been described as one of the disadvantages of going for an IMF bailout programme during a briefing to Prime Minister Imran Khan,” said the sources.
The PTI government is currently assessing its options to arrange about $11 billion loans to deal with the external-sector problems. Among the options are IMF programme, Chinese financial assistance and oil on deferred payments from Saudi Arabia.
The issue of the progress on CPEC projects and official bilateral flows from China also came up for discussions during the plenary meeting between the IMF and Finance Minister Asad Umar, which was held on Thursday, the sources said.
CPEC has remained a matter of interest for international financial institutions and the western countries since its launch in 2014. Initially, the size of the CPEC portfolio was $46 billion which, after the inclusion of some new projects, has grown to $60 billion.
The US embassy officials also raised the issue of transparency in CPEC deals during their interaction with the Ministry of Finance officials on Friday.
Pakistan has already brushed aside criticism on growing indebtedness of the country due to CPEC, saying the share of the CPEC loans was only $6 billion or 6.3% in total outstanding external debt of $95 billion as of end June this year.
“The CPEC deals are open and transparent,” said Noor Ahmad, a spokesman for the Ministry of Finance.
“The IMF delegation was informed that at present, 22 projects worth $28.6 billion were under various phases of implementation in CPEC,” said Hasaan Daud Butt, the CPEC project coordinator.
The planning minister informed the IMF delegation that Pakistan was exploring the possibility of completing the $9 billion mainline project of Pakistan Railways on the build-operate-transfer (BOT) basis.
Over a year ago, the IMF had done an in-depth analysis of CPEC as part of Article-IV consultations.
The IMF report has then stated that the CPEC infrastructure and transport projects are financed by long-term concessional government borrowing from China. It adds that the CPEC projects in the energy sector involve foreign direct investment and commercial borrowing from Chinese financial institutions, either by majority foreign-owned joint ventures or Chinese investors.
But the fund’s report has mentioned risks to Pakistan’s debt sustainability It underlines that the CPEC-related outflows would peak at about $3.5 billion to $4.5 billion per annum by fiscal year 2024-25.
More than one and half years ago, the Ministry of Energy had provided financing details of eight energy projects having cumulative generation capacity of 7,880 megawatts and being set up at a cost of $12.54 billion.
Their sponsors have obtained $9.5 billion loans at an interest rate of London Interbank Offered Rate (Libor) plus 4.5%, according to these documents. The debt to equity ratio for all these eight projects is 75% debt and 25% equity except in case of Karot hydro power project where the debt ratio was shown at 80%.
Besides, the China Export and Credit Insurance Corporation (Sinosure) would charge 7% fee on the insurance of the loans given to these companies.
Pakistan and China had signed the CPEC Energy Framework Agreement in November 2014.
However, return on the equity in case of coal-fired power plants was between 27.2% and 34.49%. It was almost double than the standard 17% rates. In case of hydel-based projects, the internal rate of return (IRR) was 17%.