China Looks Again At Gwadar And Pakistan By Peter Lee

Gwadar could serve as a transshipment point for Gulf oil destined for China if the Rakhine State pipeline project in Myanmar falls victim to anti-Chinese political populism

In physics, every action has its equal and opposite reaction. In geo-diplomacy, “equal” isn’t a given. China has responded to India’s cozying up to Japan and Myanmar’s slide into the Western camp by tilting toward Pakistan and Afghanistan.

With all due respects to the strivers of Islamabad and Kabul, China is getting the worst of the bargain in trading nascent global power India and South Asian resource and agriculture powerhouse Myanmar for “failing state” Pakistan (the characterization recently offered by Ahmad Shuja Pasha, head of Pakistan’s own ISI security service) and landlocked and miserable Afghanistan, whose main domestic product and export are both violence. And then there is the contrast between the soon to be completed but politically vulnerable twin pipelines from Rakhine State in Myanmar to Yunnan in China and the “Gwadar-Kashgar corridor”, an US$18 billion road, rail, and energy corridor fantasy that involves tunneling through the Himalayan mountains and also requires passage through Balochistan, a Pakistan province filled with resentful Balochis ripe for anti-Chinese violence even without the encouragement of the United States and India.

Nevertheless, China has no alternative but to secure a set of costly contingencies in case hostility from India and Myanmar becomes overt.

The Chinese predicament is eased by certain South Asian elements that make engaging with Pakistan and Afghanistan marginally less costly and dangerous, and may even offer some genuine and valuable strategic advantages.

Pakistan ended its adventure with the haplessly pro-American and allegedly hopelessly corrupt Asif Zardari and his PPP party, which attempted to carry out Benazir Bhutto’s bargain with Washington and turn Pakistan into an anti-terrorist bastion, and gave a parliamentary majority and prime ministership to the PML-N, headed by the Islamist-friendly, China-friendly, and not particularly US-friendly Nawaz Sharif.

Afghanistan’s failed 10-year experiment in democracy and development through US-led counter-insurgency is winding down, and the local players are cautiously interested in what China has to offer and may be prepared to demand.

Sharif made his first overseas visit as prime minister to China for five days in early July. At his reception at the Great Hall of the People in Beijing, Sharif exulted: “Our friendship is higher than the Himalayas and deeper than the deepest sea in the world, and sweeter than honey.”

Sharif is in dire need of Chinese friendship to address the Pakistan crises that doomed Zardari and shadow his own political future. Pakistan’s economic, political, and social dysfunction are embodied in its extraordinary electricity crisis. Pakistan is generating only about 70% of the power it needs, with the result that every corner of Pakistan is experiencing “load shedding” (the euphemism of choice for blackouts), with poorer and politically powerless rural areas experiencing blackouts of up to 20 hours per day.

This state of affairs was a major political issue in May, when Sharif triumphed in the parliamentary elections; it continues to occupy the center of Pakistani consciousness as citizens swelter through the 40-degree Celsius summer, are unable to sleep at night and, when they get to their shops and factories, struggle with intermittent power through the days.

Pakistan’s notoriously intrusive Supreme Court has demanded data on whether load shedding is being implemented evenly and equitably throughout Pakistan, given the evidence that central government offices, foreign embassies, and prosperous neighborhoods in Islamabad are enjoying better than average access to electricity and air conditioning.

Sharif’s brother, Shahbaz, chief executive of Punjab province, the family power base, has taken to holding his meetings in a sweltering tent to deflect potential criticism of elite privilege.

Pakistan’s other heavyweight province, Sindh – stronghold of the Bhutto family and the PPP – complains that it is getting jobbed out of its fair share of electricity by the vengeful Sharif administration. Pakhtunkhwa, the mountainous frontier province, complains that it suffers load shedding even though it is a net supplier of electricity to the grid thanks to its hydroelectric capacity.

As for Balochistan, the miserable and impoverished home of both Gwadar port and the Quetta shura that directs the Taliban insurgency in Pakistan, it has been receiving only one-third of its electricity needs.

The main culprit does not appear to be generating capacity, a rickety distribution network, or extensive theft of electricity.

The fundamental problem appears to be revenue, $5 billion worth of missing payments and subsidies that, for reasons of direct theft, dishonest billing, and/or simple nonpayment are not making it back to the power companies, so the power companies can’t buy the imported fuel oil needed to run the generators.

Sharif’s plan is apparently to throw money at the power companies ($2 billion was disbursed to this purpose in late June) so they can import fuel and give the government some breathing space as it tries to impose the tariff, structural, and enforcement reforms that will prevent the crisis from recurring. A

recent report on the debt crisis prepared by Pakistan’s Planning Commission in co-operation with USAID identified “complete disarray between all entities at the policy level”, “authoritarian attitude at the regulatory level”, and “complete breakdown of governance at the [operating] entities level” as problems confronting reform.

Thoroughgoing reform of Pakistan’s energy sector, economic policy, and business and consumer culture is perhaps beyond the ability of any mortal, even Sharif, the “Lion of Punjab” as he is styled. However, he is doing his best to nibble around the problem, and the People’s Republic of China is doing its best to help.

Although Sharif’s patron is Saudi Arabia – which sheltered him after Pervez Musharraf deposed him in a coup during his first stint as prime minister, in 1999, and sponsored his political comeback this time around, and Sharif has supported Riyadh’s Sunni project, including an attempt to impose sharia law in his first term and an ongoing engagement with Islamist militants – it looks like Pakistan will have to look to itself for energy, and look to Central Asia – and China – instead of the Gulf for economic integration.

Energy was very much on the Sharif China agenda, as this report makes clear:

[Sharif] also mentioned a 969MW Neelum Jhelum Hydropower Project, three power projects Karot, Kohala and Taunsa to add 2,000MW being executed by Chinese companies.

Nawaz Sharif said his government looked forward to Chinese investment in renewable energy sector particularly wind and solar with the country having accumulated potential of 60,000MW.

He said Pakistan was also rich of coal reservoirs of 185 billion tons having capacity to generate 100,000MW for 300 years.

During meeting with President of China Southern Power Grid (CSG) Zhao Jianguo in Guangzhou, the Prime Minister sought suggestions and assistance in curbing power line losses, theft and pilferage in Pakistan and got affirmative response from the company. [1]

Significantly, coal (Pakistan’s energy planning now revolves around the idea of switching from gas and oil to coal-fired plants and exploiting a large domestic reserve of lignite, the Thar deposit), solar, and hydro are all domestic energy resources, indicating that Sharif has despaired of the difficulty of converting Pakistan into a high-productivity/high consumption economy that could expend billions in foreign exchange to sustain large imports of crude oil from Saudi Arabia, LNG from Qatar, or pipelined natural gas from Iran to meet its electricity needs.

The Sharif administration’s reorientation of its diplomatic and economic focus also provides a welcome boost to China’s heavy industry and contracting companies. The domestic infrastructure market is languishing as China attempts to restructure its economy and wean its financial system off the stimulus drug, and the opportunity to support China’s infrastructure enterprises by supplying credits for offshore projects is undoubtedly welcome to Premier Li Keqiang’s economic team.

One of Sharif’s items of business on his China trip was to clear up the bewildering two-year delay in the construction of the Nandipur power project, which was to have been supplied, constructed, and partially financed by entities from China. The Zardari government had held up the sovereign guarantees required to release the financing without explanation, leaving the government open to the accusation that it was maneuvering for additional squeeze as a price for its action.

The Chinese contractor terminated the project and 1,700 tonnes of Chinese equipment “sat-rusting!” according to the indignant PML-N, for whose Punjab base the equipment was destined – and incurring expensive demurrage charges for over a year while the Law Ministry sat on the application.

As soon as he became prime minister, Sharif arranged the guarantees and, after his visit to China, the Chinese contractor, Dongfang Electric Corporation, made the handsome gesture of immediately dispatching engineers to Karachi to inspect the equipment and restart the project.

The public relations boost Sharif perhaps hoped to enjoy was quickly dissipated by a letter by a former managing director of the government electricity utility, PEPCO, advising the Supreme Court that somehow the cost of the restarted project had increased by almost $200 million while Dongfang was only asking for a contract adjustment of $40 million, implying, in the words of the aggrieved director, there existed “a well thought out, well-conceived and white collar scam to cheat the public exchequer of $149 million, the benefit of which will go to a select private sector party”. Since the government had already stated its intention of privatizing Nandipur, perhaps the extra cash was arranged as some sort of dowry payment to the new owner. [2]

Nandipur also labors under the disadvantage of being gas-fired at a time when Pakistan has significantly depleted its own gas reserves and has no immediate source of imported natural gas, either by ship from Qatar or from Iran via the much-contested Friendship pipeline.

Hopefully, if privatized, it will also not be subject to the ruinous cost-plus guaranteed return provision for foreign-funded power stations that has saddled Pakistan with 50% of its generating capacity in plants that a) require imported oil that Pakistan can no longer afford to finance given its dismal foreign trade deficit and foreign exchange reserves situations and b) have no incentive to switch to cheaper sources of fuel, such as coal.

In addition to keeping Sharif’s and China’s heads above water in the matter of electricity generating equipment, China also generously offered support for the “Gwadar-Kashgar” corridor. In its most extravagant conception, the corridor will take the form of a high-quality road and rail link carrying goods and Gulf petroleum from the Gwadar port on the Indian Ocean through the Kunjerab Pass in the Himalayans over to the classical Silk Road entrepot of Kashgar in the Xinjiang Autonomous Region in western China. Prime Minister Sharif referred to the corridor as “a game changer”.

In an interesting example of the Internet’s ability to amplify and propagate misinformation, it was widely reported that this project would involve the construction of a 200 kilometer tunnel; actually, as ILF, the European company that performed the feasibility study tells us, the entire project would include 100 tunnels with an aggregate length of 200 km; the longest would be 24 km. [3]

The corridor, though it also reeks of export promotion boondoggle, also has a significant and positive strategic component beyond the opportunity to tweak India (Gwadar port was financed and constructed by China, much to India’s dismay; when the port – with no local manufacturing facilities and no inland links – failed to attract any cargo, the Singapore Port Authority terminated its management contract and China’s China Overseas Port Holdings Limited picked it up, to India’s vocal “string of pearls” horror).

Theoretically, Gwadar could serve as a transshipment point for Gulf oil destined for China if the Rakhine State pipeline project in Myanmar falls victim to anti-Chinese political populism – although the technical, economic, and security issues involved in trying to send trainloads of crude oil over the Himalayas to western China are, to say the least, non-trivial.

However, there are more immediate and practical advantages relating to the corridor.

The Chinese government has a Uyghur problem in the western region of Xinjiang, which manifests itself as discontent and resentment, with an alarming potential for separatism and terrorism as illustrated by the recent bloody eruption that claimed 35 lives. It appears that China would like to recapitulate its Tibet policy – stern repression and erosion of local identity under a Han economic onslaught – in Xinjiang.

A meaningful economic corridor between Kashgar and an invigorated Pakistan might mean that the Karakorum Highway would transport a steady two-way stream of goods and sober, avaricious businesspeople in addition to the destabilizing flow of militants, drugs, and HIV it allegedly brings into Xinjiang. A prosperous chain of towns and factories along the corridor would also give Pakistan greater resources and capabilities to crack down on Uyghur separatists training and operating in Pakistan (whom Sharif denounced in Beijing as the ETIM, the purportedly mythical – according to Xinjiang political activists – but quite possibly genuine East Turkestan Independence Movement).

As for Pakistan, it is anything but a favored investment destination at the moment and, under Sharif, would welcome the opportunity to receive investment from China, be it for strategic, security, or economic motives.

In Beijing, a fiber optic link following the Karakorum Highway out of China to Rawalpindi for $40 million will probably be built quickly, as will probably a significant improvement of the highway itself. The $18 billion rail link over the roof of the world (actually, through the roof of the world with those 200 km of tunnels) will probably come later, if at all; the time window in the Memorandum of Understanding is five years.

As for the extension of the corridor from central Pakistan down to the white elephant port of Gwadar, that will presumably depend on whether the Sharif administration can bring an end to the brutal, death-squad driven central government reign over Balochistan.

Sharif is anxious for reconciliation with Pakistan’s many antagonists – the Balochis, the Pakistan Taliban, even India and Afghanistan – on terms that armchair Churchills inside and outside Pakistan will probably condemn as appeasement. However, if there is to be any hope that the complete corridor from Gwadar to Kashgar will become a reality, Pakistan will probably have to move beyond the detested suppression of local dissent in Balochistan by Pashtun’s military and security services to an economically driven policy of engagement, economic development, and generous royalty payments and profit sharing with Balochi interests.

That is a tall order for an impoverished and incompetent civilian government whose control of its security and military apparatus is more notional and aspirational than actual. However, China – which has already experienced kidnappings and assassinations of its Gwadar personnel by Balochi militants – is unlikely to be party to an Afghan ISAF style counterinsurgency action in Balochistan, especially if conducted under the auspices of the Pakistani military. If Sharif is able to advance an accommodating policy in Balochistan, China can help by investing in economic activity in and around Gwadar that Balochis may come to regard as opportunities for employment and investment, rather than attack and/or extortion.

Similar flexibility – and Chinese support and buy-in – will probably be necessary to solve Pakistan’s Pashtun problem. Historically, Pakistan would like to see its Pashtun problem become its Afghan opportunity, by encouraging militant Pashtuns – especially the irritating and aggressive Pakistani Taliban – to seek suitable arenas for their ambitions on the other side of the Durand Line, in the plains of Kandahar rather than in the mountains of Pakhtunkhwa.

Sharif – and China – are no exceptions. Recently the Sharif government elicited howls of indignation from Hamid Karzai’s government in Kabul for allegedly raising the possibility of Afghan “federalism” – actually ceding the government apparatus in certain ethnically-Pashtun provinces of Afghanistan to the Taliban. Karzai’s anger was probably accentuated by the suspicion that the United States – which is preparing to depart Afghanistan in 2014 and appeared quite happy to bypass Karzai’s government and negotiate directly with a newly established Taliban office in Qatar – shares Pakistan’s feelings.

The sense that Afghanistan is in play and Karzai’s government is on the sidelines was reinforced by the appearance of Afghanistan’s other bloody-minded Pashtun warlord, Gulbuddin Hekmatyar, who enjoys the distinction of being the first non-9/11 related troublemaker to be targeted (unsuccessfully) for assassination by a US Predator drone back in 2002 – in a

video interview with Britain’s The Telegraph newspaper.

Hekmatyar called Britain’s Prince Harry, currently serving in Afghanistan, a drunken “jackal” and sternly insisted that the US and UK leave his country, but threw the West the obligatory bone by declaring his support for female education (in separate facilities of course) to distinguish himself from the school-destroying and schoolgirl-shooting brutality of the Taliban.

Considering that back in the 1980s Hekmatyar reportedly carried a vial of acid around Kabul University to throw into the faces of co-eds he considered to be immodestly dressed, his commitment to women’s education may be less than his desire to garner covert Western (and Chinese and Pakistani) support in the Pashtun civil war between his forces and the Taliban that will probably erupt after NATO draws down. [4]

China has allegedly remained in continual communication with Hekmatyar (whom it supplied with massive amounts of ammunition and weapons on behalf of the CIA when he was the leading figure in the anti-Soviet mujihadeen resistance), and is also apparently in communication with the Quetta Shura and Taliban leader Mullah Omar. [5]

Now that the pro-US/War on Terror policies of Asif Zardari have been sidelined, both Sharif and China would welcome a deal with the Taliban that would stop the politically polarizing (and retaliation-provoking) drone strikes on Taliban leaders inside Pakistan.

If the People’s Republic of China, through Pakistan, can come to an understanding with both Hekmatyar and the Afghan Taliban to respect Chinese interests, including investments in copper and energy exploitation in Afghanistan, there may be beneficial knock-on effects – like peace and prosperity – in Afghanistan, Xinjiang, and western Pakistan.

Peace and prosperity don’t come cheap, but neither is the alternative.

It is an interesting comment on the competing Chinese and American attitudes toward regional development and security that China is talking about spending $18 billion to create a zone of trade and prosperity linking Pakistan and China and that is, understandably, regarded as an enormous investment.

However, the total cost to the United States of the Afghan war is expected to exceed $2 trillion – for 10 years of invasion, counterinsurgency, and nation-building that will arguably leave Afghanistan little better than it was in 2001. Maybe Sharif and Li Keqiang can do better.

Notes:
1. PM’s China visit: Bright hopes to end Pakistan’s energy crisis, Business Recorder, July 11, 2013.
2. Wrongdoing allegations: Nandipur power project cost to be reviewed, The Express Tribune, July 11, 2013.
3. See here.
4. Meet Gulbuddin Hekmatyar, Counterpunch, March 9, 2013.
5. Why is China Talking to the Taliban, foreignpolicy.com, June 21, 2013.

Peter Lee writes on East and South Asian affairs and their intersection with US foreign policy.

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Source:

http://atimes.com/atimes/China/CHIN-02-120713.html