Pakistan looks at alternative financing models for CPEC projects

Beijing, bent on its Silk Road initiative, however, is in no mood to review ongoing projects. At the most, the Chinese authorities may be willing to review projects that have not begun yet.

The rethink in Pakistan comes after the debt-wary Imran Khan government took over following last month’s general election.

It is exactly these concerns that have led to long delays in the $8.2 billion mega railroad project, the main component of China’s ambitious `Silk Road’ initiative to link the country with the Arabian Sea and establish a short-cut to the West.

China sees the rail project linking the country’s commercial capital Karachi to the north-western city of Peshawar as the biggest Belt and Road Initiative (BRI) project in Pakistan. But the project that mainly helps China to move its goods from south-west to the shipping channels in the west costs Islamabad heavily in financing terms.

The new government under Prime Minister Imran Khan, who has voiced alarm about rising debt levels and says the country must wean itself off foreign loans, is now questioning the benefits of the project.

"We are seeing how to develop a model so the government of Pakistan wouldn't have all the risk," Khusro Bakhtyar, minister in Pakistan's planning ministry, told reporters recently.

Khan's government has vowed to make the 1,872 km line a priority CPEC project, saying it will help the poor travel across the vast South Asian nation.

Left with the sole financing under Beijing’s costly BRI lending model, Islamabad is now exploring funding options inviting countries like Saudi Arabia and other countries to invest.

Pakistan is also looking at the build-operate-transfer (BOT) model, under which investors finance and build the project and recoup their investment from cashflows generated mainly by the rail freight business, before returning it to Pakistan.

Obviously, China’s investments elsewhere are solely based on returns and this is reflected in the growing unease of governments in Sri Lanka, Malaysia and Maldives, where new governments start realising the burden of deals struck by earlier governments.

For Pakistan, which is now more dependent on Chinese money after help from the United States stopped coming, the CPEC is debt trap with costly BRI contracts awarded to Chinese companies. 

Cash-strapped governments in the past cared little to negotiate favourable or at least reasonable terms in the deals, making them too expensive or to China’s advantage.

Beijing is not in a mood to review the projects either, reports quoting officials in Islamabad said. China's foreign ministry merely said both countries are committed to pressing forward with BRI projects smoothly.

Beijing would, however, proceed only with projects that Pakistan wanted.

While Pakistan remains committed to Chinese investment, officials say the price should be affordable. It also wants the $60 billion that Beijing has committed to be used on projects that deliver social development in line with Imran Khan's election promises.

Islamabad knows very well that China’s investments will only push the country towards a debt trap, but it has no recourse as no other country, even its Gulf friends are not interested in investing in Pakistan.