Will China ease Pakistani power sector's woes?
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As China has agreed to construct the $1.5 billion Azad Pattan Hydropower Project in Azad Jammu and Kashmir (AJK), the investment will expedite the second phase of China-Pakistan Economic Corridor (CPEC) and bring foreign capital to the economy that is reeling from the COVID-19 crisis. But not only that. The agreement has important geopolitical consequences as well.
The fact that this project will be based in AJK is going to send a strong signal to all players in the region that it is a priority area for Pakistan, and that China sees it as an integral part of Pakistani territory. In the past, India and some donor organizations had questioned if CPEC projects could be located in the region, which is considered disputed.
The signing of the agreement also comes after last month's foiled attack on the Pakistan Stock Exchange which has tested Pakistan’s security. China's decision to proceed with the project shows that it considers Pakistan a safe investment destination.
While work on special economic zones has been painstakingly slow in CPEC's second phase, just like the government's regulatory reform to facilitate joint ventures with the Chinese in the private sector, the Azad Pattan Hydropower Project agreement between China Gezhouba Group and private enterprise Laraib Group Pakistan may now act as a template for other private sector players to move forward with confidence and connect with Chinese counterparts, not only in the energy sector.
All this is a strong boost to local investor sentiments, but there is some serious homework to be done in Islamabad before benefits of such projects reach the masses.
Continued electricity load-shedding in the country has proven that the early harvest projects under CPEC were no guarantee of more certain and cheaper power supplies to industry and residential consumers. Without much-needed reform across electricity generation, transmission and distribution, Pakistan will continue to run its power sector by expanding the size of circular debt, which will lead to high fiscal deficits in the future.
The fact that Azad Pattan Hydropower Project will be based in Azad Jammu and Kashmir is going to send a strong signal to all players in the region that it is a priority area for Pakistan, and that China sees it as an integral part of Pakistani territory.
Dr. Vaqar Ahmed
Members of Pakistan Tehreek-e-Insaf (PTI) before coming to power always demanded comprehensive financial details of CPEC projects. The same will now be relevant to them. The Private Power and Infrastructure Board of the Ministry of Energy should reveal on its website how future cashflows for the companies engaged have been estimated. How have revenue gains for the governments of AJK and Punjab been calculated? What economic assumptions were made around job creation and in the sectors of water management and tourism?
The Azad Pattan Hydropower Project will help harness the potential of hydroelectric power which, unlike several coal-based projects in the past, will prove to be environmentally friendly. The additional 700 MW it will bring to the grid will also reduce Pakistan's reliance on foreign fuels and, in turn, also pressure on the current account.
But it is important to understand that dividends from improved power and gas supplies cannot be fully realized unless these gains are also offered to neighbors.
The Ministry of Energy should, therefore, continue its efforts to strengthen transboundary energy cooperation whereby Pakistan will be able to export energy resources. Successful economies are not-inward looking and proactively aim to export what they produce once local needs are met.
– Dr. Vaqar Ahmed is joint executive director at the Sustainable Development Policy Institute (SDPI). He has served as an adviser to the UN Development Programme (UNDP) and has undertaken assignments with the Asian Development Bank, the World Bank, and the Finance, Planning, and Commerce Ministries in Pakistan.
Twitter: @vaqarahmed
