Pak plans to bear the initial cost of CPEC projects to increase foreign exchange reserves

Pakistan is considering a proposal to receive 20% of the total cost of five China-Pakistan Economic Corridor (CPEC) projects upfront in the form of central bank deposits in a bid to find respite from dwindling reserves of changes, according to a media outlet. Sunday.

The proposal has been discussed at the highest level, with Prime Minister Shehbaz Sharif instructed to refine it further, a cabinet minister told The Express Tribune.

He said at least five CPEC projects were discussed in a meeting, with a total estimated value of $7 billion.

According to the proposal, Pakistan can receive at least $1.4 billion from its central bank out of a total cost of $7 billion. In return, these five projects that are years behind schedule will be put on the fast track for implementation.

Pakistan’s gross official foreign reserves have fallen below $8 billion and will be increased by $1.2 billion by the end of this month once the International Monetary Fund (IMF) approves its tranche of ready on August 29.

The daily quoting its sources said Finance Minister Miftah Ismail had concerns, including about the preferential treatment these regimes might get in the process, which could also upset the IMF.

According to the proposal, the sponsoring Chinese company will provide 20% of the total cost in US dollars and keep the money in a special account. The Chinese company can withdraw cash in Pakistani rupees for expenses it will incur in Pakistan, including payment of staff salaries.

The proposal was initially discussed between Pakistani and Chinese authorities before being discussed with the prime minister this week.

Chinese companies will not be allowed to take back those funds in any form, including for opening letters of credit, according to the proposal.

Pakistan is required to borrow $40 billion in the current fiscal year to meet its external financing needs. Investing 20% ​​of the cost of CPEC projects can provide some relief.

In return, Pakistan will remove obstacles in the way of these five projects, according to the report. The projects that were discussed under the program were the 1,124 megawatt Kohala hydroelectric project estimated to cost US$2.4 billion, the 700.7 MW Azad Pattan hydroelectric project costing US$1.6 billion and the second phase of the 600 MW Quaid-e-Azam solar park (Bahawalpur) with a price of 500 million dollars.

The $2.6 billion Karachi Comprehensive Coastal Development Zone (KCCDZ), which was included as an industrial cooperation project under the umbrella of CPEC, was also considered as part of the proposal.

The Pipri freight train project was the fifth project but it was at the feasibility study stage.

The daily reports that Pakistan has also discussed the possibility of including the $7 billion Mainline-I project but no final decision has been made due to serious issues that have long hampered its execution.

After considering the proposal, the prime minister asked the Board of Investments, the Ministry of Planning and the Ministry of Finance to jointly design a comprehensive plan for implementing the program. Prime Minister Sharif has also set up a committee to deliberate on the proposal.

A document, released by the prime minister’s office after the meeting, said the prime minister had been briefed on the $10 billion investment by companies in energy, infrastructure, railways and other projects.

“It was said that in the first phase, an investment of 1 to 2 billion dollars was planned in the projects, which will lead to the creation of 45,000 job opportunities in addition to improving the ‘Ease of Doing Business Country Index’, according to the PM’s office.

Chinese authorities are angered by Pakistan’s decision to put CPEC on the back burner for the past four years. They were particularly upset by Islamabad’s failure to meet its contractual obligations under the CPEC.

The establishment of a revolving account has been pending since the signing of the CPEC framework agreement on energy projects in 2014.

In February, a day before departing for China to seek a major bailout, the then government announced it would open the account. But when a summary was presented to the Economic Coordination Committee (ECC) for approval on April 1, 2022, then-Finance Minister Shaukat Tarin postponed final approval.

This week, the government decided to abolish the CPEC Authority, subject to Chinese consent. Prime Minister Shehbaz asked that China be given confidence first before moving forward to ensure that the strategic ally does not feel that Pakistan is backing down on CPEC.

The CPEC authority law will be repealed once the Chinese authorities give their consent. The old institutional mechanism that helped implement CPEC projects from 2014 to 2018 will be revived.

(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)