The Energy Dilemma for Pakistan in CPEC

The Energy Dilemma for Pakistan in CPEC

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Monika Kumari

Energy Resource development has been a key factor in Pakistan’s economic growth and development. The national Power policy of 2013, by the Government of Pakistan highlighted its vision of developing an efficient, consumer-centric power generation and distribution system which would meet the needs of its people and the state in a sustainable as well as in an affordable manner. However, over the years, the gap between the energy demand and supply has only grown due to impediments in institutions and policy implementation by the state. The crisis in the energy sector of Pakistan is neither new nor novel. While domestic oil reserves are few and meet only 20% of the national requirement, the rest of the 80% required is imported from other countries. Similar is the fate of natural gas which has depleted due to increasing demands. Pakistan’s shift from being hydroelectric to fuel-based led to a massive increase in imports of fossil fuels. On one hand, there was a growth in energy demands due to rising population, income, and urbanisation, the supply on the other hand suffered due to financial inefficiency, mismanagement, and corruption in the energy sector. The lack of a permanent solution has made Pakistan to welcome its all-weather friend China which made substantial investments in the country’s energy sector under the flagship project of the China-Pakistan Economic Corridor (CPEC).

Of all the OBOR projects, CPEC gains more prominence for being the only project of strict bilateral significance. More than 35% of the overall investments worth $62 billion has been for the energy sector that includes solar, coal, natural gas, and hydroelectric power projects and the remaining on infrastructural development. Official estimates claim that 21 new power projects will generate nearly 17000 MW of energy. Five years after China and Pakistan signed the “game-changing” multi-billion initiative, a big question remains. Has CPEC been able to fulfill what it had promised to deliver?

With the perpetual financial crisis plaguing the national economy of Pakistan, China has begun reevaluating the feasibility of continuing its investments in the region. The former’s inability to repay the project loans has pushed it yet again to renegotiate the terms of energy deals of CPEC. Bailed out by the IMF on the pre-condition to not use the money for commercial purposes, it has no option but to expect a concessional grant from China. A report by DAWN warned about the failure of the early harvest projects worth $19 billion to usher in the level of development and prosperity that was claimed. The little hope that progress of coal-fired power plants gave through an increase in the supply of energy is marred when one looks at the worsened pollution in the country where toxic air pollution results in 128,000 premature deaths annually. Assistant Programme director of a Beijing based NGO ‘Greenovation-Hub’, Guo Hongyo who analyzed Chinese investments in Pakistan said that if Coal continues to be built as planned under CPEC, Pakistan will be locked into a high-carbon emissions pathway, which is against the ‘Green policy’ adopted by it in 2019 committing to 30% usage of renewable sources by 2030.

Looking at Pakistan’s renewable resources potential, it is an attractive investing ground for both private as well as public investors. CPEC is, however, a state-led agreement and private renewable energy companies of China will find it hard to engage as easily as with the state-owned companies. Here, Pakistan should take a lesson from China which has witnessed massive economic growth at the cost of its environmental front making it the largest carbon-emitting country in the world. Despite its net-zero assurances by 2060, achieving such a target is certainly next to impossible without serious efforts. Currently, the production of renewable energy in Pakistan amounts up to one-third of the total energy production confined mostly to the northern hydroelectric plants, while solar energy shares only 4% of the whole. Only 14% of the total estimated 60000 MW hydropower potential is currently exploited. Several wind energy resources remain untapped. Nuclear power generation contributes a little over 7.5% to the electricity generation in Pakistan. Prime Minister Imran Khan’s regime has taken a few notable steps in this direction by proposing the elimination of taxes for solar power and wind power manufacturing. Although it would be unrealistic for Pakistan to give up on its coal resources entirely, a wiser call would be to revamp its policies in favour of renewable energy resources.

While Pakistan should welcome the Chinese presence in its developmental projects, it should watch out against China monopolising its energy sector. The State of Industry Report by NEPRA brought focus to the corruption in power purchase agreements, where Chinese IPPs are being favoured to Pakistani companies as well as the excess payments made, furthering the consumer expenses as well as the massive circular debt burden on the state. From raw materials to equipment and even labor is being imported from China, even as domestic companies and millions of unemployed youths lie idle.

Global pandemic and the pressures of economic slowdown saw a reduction in demands of energy. Pakistan observed a 15% drop in electricity demand due to the shutting down of factories, institutions and lowered industry and commercial energy demand. The oil sector had already been witnessing a collapse even before COVID-19. The World Bank has projected a negative 1% GDP growth in the upcoming fiscal year 2020-2021 and Energy finance analyst at IEEFA, Simon Nicholas has argued that Pakistan will face an overcapacity in energy supply by 2022 and a huge financial burden of power capacity payments. The change in circumstances has made both countries more cautious and CPEC will witness a modest trajectory in the coming years. Despite that, the significance of CPEC will not fade away anytime soon, looking at its status as the BRI flagship and the wider geopolitical and geo-economics of Sino-US rivalry in the region.

Ms. Monika Kumari is a research scholar at the Centre of East Asian Studies, School of International Studies, Jawaharlal Nehru University, New Delhi