It’s been a terrible month for Chinese hydropower projects in South Asia.
On November 13 Nepal announced its government was cancelling an agreement with Gezhouba Three Gorges to build a 1,200 megawatt dam across the Budhi Gandaki river.
Then, a day later, China’s “all weather friend” Pakistan pulled out of the $14 billion Diamer-Bhasha deal that was supposed to be a showpiece of President Xi Jinping’s Belt and Road Initiative.
For some observers the two cancellations point to problems with China’s grand plan to build infrastructure across Asia, Europe and beyond.
In the case of Nepal, the federal parliament found that the original agreement signed in May violated local laws because the $2.5 billion project was not put out to public tender. Instead, the outgoing communist-led cabinet signed the deal as one of it last acts, as it sought to embrace Xi’s flagship development strategy. Kamal Thapa, the new energy minister, announced his decision to pull out of the agreement via Twitter saying it had been “signed illegally and haphazardly”.
Pakistan’s withdrawal from the even larger 4,500 megawatt hydropower project was the more surprising, coming only days before ministers from both governments were due to meet in Islamabad to sign the “Long-Term Plan” for the China Pakistan Economic Corridor (CPEC). Shocking too was the reason given: Pakistan didn’t like the terms it was being offered.
The chairman of Pakistan’s Water and Power Development Authority announced the decision in a briefing to lawmakers, citing concerns over ownership, operations, maintenance costs and the securitisation of the project via another already operational dam.
“Chinese conditions for financing the Diamer-Bhasha Dam were not doable and against our interests,” the Karachi-based Express Tribune quoted him as saying.
Islamabad has now said it will fund the project itself. It originally turned to China because it was unable to get loans from international organisations like the World Bank because the project is in a Pakistan-controlled area of Kashmir – territory that neighbouring India also claims.
The details of the Diamer-Bhasha deal were unknown but it’s telling that one of China’s closest allies and a country desperately in need of more generation capacity would turn down Chinese finance.
Discontent over the CPEC has been brewing for some time in Pakistan – a highly federalised and rambunctious democracy.
In the run-up to a meeting to finalise the ‘Long Term Plan’ for the corridor this week many provincial leaders claimed they had not seen a copy of the document.
Furthermore, some are unhappy that Pakistan foots the bill for the security of facilities in the troubled province of Baluchistan while getting just 9% of revenue from Gwadar – the Chinese-run port there.“The Chinese companies play smart and get excellent returns on their investments. It has proven difficult to extract much from them,” economist Kaiser Bengali told Pakistan newspaper TNS.
Other signature CPEC projects have also run into trouble. According to Pakistan’s Dawn newspaper, work on the $2 billion high-voltage transmission line between Lahore and Matiari has all but stopped because of disagreements over funding, fees and maintenance of the project. A second line has now been placed on hold while the two sides work out a solution.
Yet the ‘Long Term Plan’ – which sees a future for CPEC through to 2030 – was still signed this week. Speaking to reporters afterwards Ahsan Iqbal, Pakistan’s Planning and Development Minister, said a new circular railway around the southern city of Karachi had been approved, as had two smaller hydropower projects in the northern province of Gilgit-Baltistan.
But the issue of adding five more free trade zones hasn’t been decided and nor has the question of whether to allow the use of the renminbi in the Gwadar free trade zone.
There are setbacks elsewhere, AFP noted, as Belt and Road projects from Indonesia to Uzbekistan stall due to local opposition, regional rivalry, the threat of violence or simply the messy workings of democracy.
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