THE IMPACT OF CPEC ON THE ENERGY SECTORS OF PAKISTAN

I. INTRODUCTION

This Study analyzes China Pakistan Economic Corridor (CPEC) and its impact on the
energy sector of Pakistan. Historically, after partition of subcontinent, Pakistan inherited 60
MW of electricity. Pakistan is suffering energy crisis since 1947. Pakistan is counted
among developing countries, because its economy is not strong. That’s why, due to low
budget, the government of Pakistan is in a difficult situation to take serious steps to
improve the existing energy infrastructures. However, the energy sectors due to outdated
infrastructure is not capable to fulfill the increasing energy demand. By the low annual
budget, the government of Pakistan was seeking foreign investors to invest in energy
sectors to fulfill the demand and make it sustainable. Eventually, the governments of
Pakistan and China agreed to sign different agreements under CPEC during XI Jinping’s
visited to Pakistan, in 2015. CPEC is a $46 billion mega project spearheaded by China
(Stevens, 2015).

China Pakistan Economic Corridor (CPEC) is a big part of One Road One Belt (OBOR)
initiatives. CPEC is also called North-South corridor. It is connecting Kashghar China’s
western region with south of Pakistan’s Gawadar port on Arabian Sea edge. CPEC is a
short route for China to have easy access to Gulf Oil Rich Kingdoms through Pakistan’s
geography. CPEC project is to be focused on developing multiple infrastructure projects
throughout Pakistan. The China-Pakistan Economic Corridor (CPEC) is a series of energy
and infrastructure projects, some of which connect China’s western Uighur Autonomous
Region of Xinjiang to the Arabian Sea coast of Pakistan’s Baluchistan province. Initiated in
mid-2013 and formally launched in April 2015, CPEC is generally described as a $46
billion package of Chinese aid to and investments in Pakistan, though Pakistani officials
claim the total had reached $62 billion by April 2017.(Salman Siddiqui,2017)

CPEC is the first large-scale attempt to bolster economic ties between Beijing and
Islamabad after decades of robust diplomatic and military relations. During the 1950s,
relations between the two countries were frosty, given Pakistan’s alignment with the West
during the Cold War and China’s embrace of India.(Andrew Small,2015)Also during this
period, however, Pakistan became the first Muslim country to recognize the Peoples

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Republic of China. However, friendly relations between the two emerged after border war
Between China and India in 1962 and border agreement between China and Pakistan in
1963. The border agreement brought the two states closed together. In this context China
back Pakistan militarily and economically during war with India in 1965. Also supporting
Pakistan’s stance on Kashmir issue (Ibid). Pakistan played key role in providing legal seat
to China in United Nations (UN). In 1970s Pakistan facilitated secret talks between United
States of American Secretary of state Henry Kissinger and Chinese Premier Zhou Enlai.
This paving the way for US recognition of the People’s Republic of China (ONE CHINA
POLICY). Pakistan also played vital role in establishing ties of China with Muslim world
(Nihao-Salam, 2013).

China and Pakistan have developed strong bilateral trade and economic ties and
cooperation over the last decade. China has gradually emerged as Pakistan’s major
trading partner both in terms of exports and imports. Bilateral trade and commercial
links between the two countries were established in January 1963 when both signed the
first bilateral long-term trade agreement (Ministry of Finance, 2014:126). Under the Free
Trade Agreement (FTA) between the two countries – signed on November 24, 2006 and
implemented from July 1, 2007 – Pakistan secured market access for several products of
immediate export interest. Later, both countries signed the FTA on Trade in Services on
February 21, 2009 that became operational from October 10 that year (Ibid).

The China-Pakistan Economic Corridor (CPEC) is expected to further strengthen

trade and economic cooperation between the two countries. Chinese Premier Li Keqiang
emphasized the construction of the CPEC during his May 2013 visit to Pakistan (Tiezzi,
2014). The incumbent Pakistani government has also shown much enthusiasm for the
project since then. The corridor will connect Gwadar Port in Baluchistan (Pakistan) to
Kashgar in north-western China, which will make Gwadar not only fully operational but
also a significant deep sea port in the region. Opened for operations in 2007, the control of
Gwadar Port was transferred to China’s state-owned China Overseas Ports Holding in
February 2013. Since then, Gwadar is undergoing a major expansion to turn it into a
full-fledged, deep-water commercial port (South China Morning Post, 2014). When the

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corridor is constructed, it will serve as a primary gateway for trade between China and the
Middle East and Africa. The corridor is expected to cut the 12,000-kilometre route that
Middle East oil supplies must now take to reach Chinese ports (Ibid).

The whole project of CPEC is roughly divided into three categories. These are; the
transportation networks, energy projects and creation of trade zones. As far as the energy
sector is concerned over $33billion worth of projects are being planned to be constructed in
Pakistan (Bilal khan, 2018). CPEC became an integral part of Pakistan to shift toward a
more diverse, less costly electricity fuel mix. Pakistan purpose for and will likely to be
succeeded in achieving a massive reconfiguration of its electricity fuel mix (Pakistan
Today, 2014). These are all 21energy projects across Pakistan under CPEC If all these go
well and on schedule, of the 21 energy projects including gas, coal, solar and hydro
projects 14 of them will be able to generate up to 10,400 MW energy capacity between
2018 and 2020 (Daily Time, 2015).

According to China daily; these projects would provide up to 18,400MW of energy

altogether. These projects aims and envisages to fight off electricity shortfall of almost
5000MW until the end of 2018 which are facing currently to Pakistan (China Daily, 2013).
By the end of 2018 the projects will add about 10,000MW energy into the grid station
through a series of developments labeled as ‘Early Harvest’ project. The projects aims to
eradicate the energy crisis of Pakistan. This from a long time is one of the major hurdles in
the economic growth of Pakistan. For years the shortfall of energy keeps on growing
despite multiple efforts being made by different governments (ibid) Pakistan’s Planning
Commission (PPC) originally touted that a total of $34 billion in CPEC electricity projects
would generate around 17,000 MW by 2020 (Ahsan Iqbal, 2015).

Under CPEC the energy infrastructure will be constructed to alleviate Pakistan’s chronic
energy shortages. And providing a much needed base to kick start its economic
development in Pakistan(Abid and Ashpaq, 2015). These projects will be built by an
Independent Power Producer company (IPPC) rather than by either governments of China
or Pakistan .The Exim Bank OF China (EboC) will be financing these projects at 5% to 6%

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interest rates. while the government of Pakistan will be obliged to purchase the energy from
these firms at pre-negotiated rate (kashif Mughal, 2016).

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STATEMENT of the PROBLEM

Pakistan’s energy infrastructure is not well developed. Rather, it is considered to be

underdeveloped and poorly managed. Currently the country is facing severe energy crisis.
despite strong economic growth the energy demand is being raised during past decade.
Serious efforts have been made to install new capacity of generation (Tashifahmad, 2013).
Moreover rapid demand growth, transmission losses due to out-dated infrastructure ,power
theft and seasonal reductions in the availability of hydropower have worsened the situation.
Consequently, the demand exceeds supply and hence load-shedding has been a common
phenomenon through power shutdown (ibid).

AIMS AND OBJECTIVES

1. To examine the level of energy crisis in Pakistan for years.

2. To investigate the investment in the energy sectors under CPEC in Pakistan.
3. To find out the impact of CPEC on energy sectors in Pakistan.

RESEARCH QUISTIONS

1. What is the level of energy security in Pakistan?

2. What is the impact of CPEC on the energy sectors of Pakistan?
3. How CPEC’s energy projects will can ensure sustainable energy in Pakistan?

Hypothesis

Greater cooperation between China and Pakistan could be one of the most effective ways.
To deal with this Pakistan‘s internal and domestic energy crisis and will ensure energy
security in Pakistan. This over $33billion of CPEC energy projects investment will be
proved monsters to curb energy crisis across Pakistan.

Methodology

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Qualitative method is used to collect data .The research project used descriptive
methodology to make analysis of the collected data from various national and international
sources. The sources include surveys, different books, articles journals, different papers and
interviews.

Significant of the Research

This research project is significant. The study focuses on factors effecting the energy
projects as well as infrastructure of Pakistan. This research elaborates that CEPC is
beneficial for the energy sector of Pakistan. Also providing different methods that how
CPEC would be well affected on the energy sectors of Pakistan. Moreover, it identifies the
role of the CPEC’s $33 billion energy projects in abolishing of energy crisis in Pakistan.
However this research assessing and evaluating, aftermath completion of CPEC’s energy
projects would become socio-economic development in Pakistan. Because socio-economic
development greatly relying on energy sectors

II. LITERATURE REVIEW

Muhammad Asif, “Energy Crisis in Pakistan” (2007). New York’s press. The book
primarily aims to educate various stakeholders of society i.e. (policy and decision makers,
energy circles, academia, business community, NGOs and civil society) on the subject of
energy particularly in the wider context of the energy crisis facing Pakistan. In a global
perspective it presents an amount of the key dimensions of energy in the modern age.
Having discussed the energy challenges facing Pakistan. The book provides
recommendations and policy guidelines. To achieve energy prosperity in the country. It has
a holistic ,yet easy to follow approach. It presents a coherent blend of the technical and the
social aspects of energy. Using appealing diagrams and data presentations. It explain the
subject in a reader friendly way.

Xiangmingchen,S-K Joseph and Amnatariq,” Betting Big On CPEC”, 2018. In this article
the authors described ,with the launch of the China Pakistan Economic Corridor CPEC one
another fundamental question to ask is if this ambitious project will transform Pakistan and

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boost China’s ambitious Belt and Road initiative (BRI). In this article the authors assess the
potential and prospects of CPEC in terms of its various opportunities constraints. Also
examine the economic potentials and social impacts of CPEC from the Pakistani national
perspectives. Using a subnational and local lens as well as the Chinese vantage point draw
the broad implications of this two sided analysis of CPEC towards a parliamentary policy
oriented conclusion.

Arif Rapiq,’’THE CHINA-PAKISTAN ECONOMIC CORRIDOR;BARRIERS AND

IMPACT.’’ 2017.In this the researcher applied every concern aspects of Pakistan’s energy
sectors. He highlighted that CPEC’s industrial potential cannot be realized without an
ample and reliable energy supply both electricity and gas. For the past decade, Pakistan has
suffered from endemic electricity fuel mix, an inefficient and lagging transmission system ,
and shortages of gas for industrial units. Adequate cost competitive electricity and fuel
supplies are prerequisites for Pakistan’s further industrialization. As a result, around 64 per
cent of CPEC’s phase one (1) expenditures will go toward electricity generation and
transmission projects. Electricity projects offer guaranteed rates of return for Independent
Power Producing Companies (IPPC) and are attractive investments.

Yousafali et al, ‘’Energy Optimization in the Wake of China Pakistan Economic

Corridor’’, 2017. In this article the researchers discussed that the energy crisis has become
a significant bottleneck in Pakistan‘s economic progress. To end this problem Pakistan
have to capitalize and get benefits from CPEC ‘s investment which has great potential of
benefits. This study aims to help Pakistani government in selecting the best set of CPEC
energy priority projects to be completed in the first wave of development. The second part
of the research guides the small and medium scale industry. And business owners to select
the best available alternative for tackling the energy shortfall while CPEC projects are in
the process of materialization Forecasting electricity shortfall decrease and its impact on
various economic and industrial sectors like (services, industrial, textile and agricultural) is
also performed to gauge the effect of CPEC on the economy using linear regression. This
research generated a new list of recommended CPEC energy priority projects which are
more evenly distributed across Pakistan. this also concluded solar panels to be the best

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alternative for small scale businesses as short term solution while the projects are under
construction.

Riazahmad and Hong Mi,’’China Pakistan economic corridor and its social implications on
Pakistan ;how will CPEC boost Pakistan’s infrastructures and overcome the challenges’’,
Aril 27, 2017. In this the authors discussed the CPEC long term infrastructural project as a
major part of the one Belt one Road (OBOR). The major global initiatives by Chinese
government scheduled to complete by 2030. CPEC is a joint project that Beijing and
Islamabad agreed to finance through Chinese investments. Utilizing investment loans
largely by Chinese financial institutions; nevertheless ,Pakistan will also be responsible for
investing approximately $15 billion on its own in the process .while the project has been
welcomed by greater Eurasia including; Russia, Iran And Central Asian Countries besides
the UK and European Union albeit vehement opposition by India. This paper elaborates
upon the positive and negative elements that will likely impact the project process, from
internal political, economic dynamics of Pakistan and consequent security challenges to the
related transit tariff issues ,quality labor force supplies. Just as well the inter-provincial
competition between Baluchistan and KPK besides the reaction of some south Asian
countries, namely India and Bangladesh. it highlights the opportunities ,challenges and the
impact that this mega project will likely have o the existing socio-economic infrastructure,
job opportunities, poverty level index and regional peace and security.

Kashif Mughal ‘Energy Sector Projects Under CPEC’ May 26,2016. In this the researcher
highlights that Pakistan’s current energy generating capacity is 24,830 MW. Though the
country currently faces energy shortfall of over 4500MW on a regular basis .With routine
power cuts off up to 5 hours per day which has shed on estimated 2-2.5% off its annual
GDP. Energy generation will be a major focus of the CPEC project with approximately
$33billion expected to be invested in this sector. As part of the ‘’Early Harvest’’ scheme of
the CPEC an estimated 10,000MW electricity are slated for generation by 2018 as part of
the CPEC’s ‘’Early Harvest’’ projects. The energy projects under CPEC will be finance by
an Independent Power Production company rather than by either governments of China or
Pakistan. The Exim Bank of China will be financing these projects at 5% to 6% interest

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rates, while the government of Pakistan will be obliged to purchase electricity from these
firm at pre- negotiated rates.

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== EXTRA FORMATE not A PART OF THE AFOREMENTIONED DISCUSSION

Pakistan and China celebrated 2017 as a year of friendship to mark 66 years of the
diplomatic relations. Pak-China friendship, which is described by the leadership of both
countries as “higher than Himalayas mountains, deeper than the oceans, and of late,
sweeter than honey, is a unique case has been based on robust relationship in defence and
security fields (The Economist, 12 May 2017).

The relations between the two countries were established in 1950 when Pakistan decided to
recognize the People’s Republic. However, the relations got strengthened in later 50s and
60s and since then both countries have cooperated and supported each other on various
forums. China ended Pakistan’s search for a balancer in its relations with India(Rashid
Ahmad Khan,2016). Both countries exchange high-level visit regularly. China provides
Pakistan with economic, military and technical aid and assistance and on its part; Pakistan
supports China on issues of Tibet, Xinjiang, human rights etc. Pakistan played a pivotal
role in bringing US and China together and arranged a secret visit of Kissinger to smooth
things and then President Nixon visit to China. Pakistan also supported and assisted China
in establishing contacts with the Muslim world(Smith, Paul, 2011 Pakistan and China
celebrated 2017 as a year of friendship to mark 66 years of the diplomatic relations. Pak-
China friendship, which is described by the leadership of both countries as “higher than
Himalayas mountains, deeper than the oceans, and of late, sweeter than honey, is a unique
case has been based on robust relationship in defence and security fields (The Economist,
12 May 2017).

The relations between the two countries were established in 1950 when Pakistan decided to

recognize the People’s Republic. However, the relations got strengthened in later 50s and
60s and since then both countries have cooperated and supported each other on
various forums. China ended Pakistan’s search for a balancer in its relations with
India(Rashid Ahmad Khan,2016). Both countries exchange high-level visit
regularly. China provides Pakistan with economic, military and technical aid and
assistance and on its part; Pakistan supports China on issues of Tibet, Xinjiang,

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 THE IMPACT OF CPEC ON THE ENERGY SECTORS OF PAKISTAN

human rights etc. Pakistan played a pivotal role in bringing US and China together
and arranged a secret visit of Kissinger to smooth things and then President Nixon
visit to China. Pakistan also supported and assisted China in establishing contacts
with the Muslim world(Smith, Paul, 2011

Between the two neighbors, multiple contrasts have existed at many levels since the very
beginning. Ideologically, China was on a path to establish a strong socialist state under the
supreme leader Mao Zedong whereas Pakistan under its founding father M. A. Jinnah was
clearly tilted towards the United States. The whole idea behind establishing Pakistan was
to create a federation with autonomous provinces based both on Islam and liberal
democratic principles. These obvious differences, however, did not keep them from
establishing diplomatic relations in 1951, as Pakistan withdrew its recognition for the
Republic of China (Taiwan).

In early Cold War years, US concerns of Soviet expansion in Asia coupled with Pakistan’s
India compulsions provided incentive and opportunity for US and Pakistan to form a close
relationship. However, Pakistan was careful not to antagonize China by engaging in direct
or indirect conflict with it. In this regional context, China was establishing close ties with
socialist regimes in Eastern and Central Europe (the Soviet Union and its satellites) as well
as in South and East Asia, with countries like India, North Vietnam, North Korea and
Laos. On the other hand, Pakistan’s diplomatic and political ties with the US were
growing. Despite Pakistan’s efforts to stress its neutrality to China during the Bandung
Conference 1955, Beijing was well-aware of Pakistan’s growing dependence on US - for
aid and military assistance. Pakistan grasped the opportunity to sign the Mutual Defense
Assistance Agreement when U.S extended its security assistance package in 1954 followed
soon by regional treaty pacts: the South East Asia Treaty Organization (SEATO) and the
Central Treaty Organization (CENTO)1. Pakistan’s diplomatic agility at the time was such
that these pacts and its alliance with the US at the time did not inhibit it from forming a

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friendly and non-confrontational relationship with China. Also, Pakistan navigated

cautiously to avoid participation in the Korean War and refrained from criticizing China’s
annexation of Tibet2. It also supported the “One China Policy” while it received
diplomatic backing from China on Kashmir, which is a disputed territory partly
administered by India and partly by Pakistan, and also on the Bangladesh issue almost
twenty years later. Hence for reasons stated above a number of observers see the first
decade as a decade of “correct” Pakistan-China relations the South East Asia Treaty
Organization (SEATO) and the Central Treaty Organization (CENTO)1. Pakistan’s
diplomatic agility at the time was such that these pacts and its alliance with the US at the
time did not inhibit it from forming a friendly and non-confrontational relationship with
China. Also, Pakistan navigated cautiously to avoid participation in the Korean War and
refrained from criticizing China’s annexation of Tibet2. It also supported the “One China
Policy” while it received diplomatic backing from China on Kashmir, which is a disputed
territory partly administered by India and partly by Pakistan, and also on the Bangladesh
issue almost twenty years later. Hence for reasons stated above a number of observers see
the first decade as a decade of “correct” Pakistan-China relations.

It was in the 1960s that relations began to shift from “correct” into the domain of regional
compulsions, which were primarily targeted to tip the balance of power away from India.
Border tensions increased causing a limited war in 1962. The Sino-Indian border dispute is
still unresolved and still causes tensions. China claims India-controlled Arunachal Pradesh
and India claims China-controlled Aksai Chin. In 1963, Pakistan and China signed a
border agreement in which 5,180 sq. kilometres of Pakistan-controlled Kashmir was ceded
to China, triggering a strong Indian protest.

In Pakistan’s 1965 war with India, Pakistan was disappointed when the US imposed an
arms embargo on Pakistan and also on India. However, China provided Pakistan with not
only diplomatic but also military support without entering the war, yet posing credible
threat of a two-front war with India.

Structural changes in Pakistan-China relations began to occur in the early 1970s. Through
secret diplomacy Henry Kissinger was flown into Beijing via Islamabad to work out US

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relations with China. Pakistan utilized the Sino-American rapprochement to develop

military and even nuclear co-operation with China. Although Washington was aware of the
nuclear cooperation between Pakistan and China3, it overlook it due to Pakistan’s high
utility in U.S’s own South Asia policy.

In December 1971 the Eastern Wing of Pakistan, which is Bangladesh today, became
independent from the Western Wing. Earlier in the summer of 1971, an Indo-Soviet
Treaty of Strategic Cooperation had already alerted China. However, China’s reactions to
the 1971 Indo-Pakistan war were measured and no credible threats towards India were
made as it had been the case in the 1965 Indo-Pakistan war4.

As a result of Bangladesh’s independence, a downward trend was recorded in Pakistan’s

share of total Chinese assistance and loans to third world from 1970-1978 with the
exception of the year 1977- when it grew by 3.4%5. In 1974, India successfully tested its
first nuclear device which shifted the balance of power significantly in its favour.

Evidence suggests that as early as mid-1970s the Pakistani military was getting involved
with the Afghan Mujahedeen for achieving geopolitical objectives. It was laying the
groundwork needed for cultivating a “Strategic Depth” in Afghanistan - a process that sped
up after the Soviet invasion and throughout the period of 1980’s and 1990’s. The vision
was to have a pliant government in Kabul which would serve Pakistan’s goal’s vis-à-vis
India and Central Asia 6. Through the 1980s, after the Soviet invasion and occupation of
Afghanistan in December 1979, US and Saudi money poured into Pakistan to spread
religious war doctrine (Jihad) against the “godless” Soviet threat using the Jihadi syllabus
developed and distributed by the University of Nebraska7. The separatist elements in
Muslim population of Xinjiang were directly influenced by this new strategic environment
and Pakistan became one of the many recruiting and training grounds for the East
Turkmenistan Islamic Movement8. But China utilized Pakistan Inter Services
Intelligence’s leverage with the Afghan Taliban to keep Uighur separatists out of Xinjiang.
The Soviet invasion of Afghanistan had ushered a convergence of interests between US,
Pakistan and China. Pakistan became a frontline state in countering the Soviet military in
Afghanistan and took advantage of this new context to extract resources from the US and

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China which it then invested in building its own defence capacity against India. During the
Afghan Jihad, China permitted over-flights from its territory and provided anti-tank
rockets to Pakistan 9.

In South Asia the results of the end of the Cold War - just nine months after Soviet
withdrawal from Afghanistan (1989) - complicated the existing structure. Following this
withdrawal, Pakistan’s utility for the US in its South Asian policy had dropped and it
imposed harsh sanctions, due to Pakistan’s nuclear program that China had helped
developing considerably10. US suspended all military sales and economic aid to Pakistan
in 1990 by invoking the Pressler Amendment. Pakistan-US relations were so strained by
mid 1990s that US was on the verge of declaring Pakistan a state sponsoring terrorism11.
Then, China became Pakistan’s leading arms supplier.

Pakistan kept a close military cooperation with China. The co-operation expanded
gradually over the years as China began to build its own capacity to produce and export
arms. In 1992 China sold 34 short-range ballistic M-11 missiles to Pakistan12. When
Pakistan conducted its first nuclear tests in May 1998, China condemned the tests but it
continued its nuclear cooperation by assisting Pakistan setting up the Khushab reactor
facility in Islamabad13. The facility is a 40-50 MW production reactor of weapon grade
plutonium.

Three incidents underscored China’s support for Pakistan in the years 1990-2001: 1) The
1990 confrontation between Pakistan-India forces on the line of control in Kashmir; 2) The
1999 Kargil mini war; and 3) The standoff in Kashmir in the aftermath of 2001 Indian
Parliament attacks. High-level Chinese officials visited Pakistan after each of the
confrontations listed above assuring Pakistan that China’s “comprehensive cooperative
partnership with Pakistan would continue and so will the aid and military cooperation”14.
Furthermore, Stockholm International Peace Research Project (SIPRI) yearbooks reveal a
number of new orders of arms that were placed by Pakistan during the timeline of the
above mentioned confrontations15. While Pakistan-China defence, nuclear and diplomatic
ties grew in scope and strength, areas of co-operation as trade relations and people-to-
people contacts remained weak.

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The resulting analysis helps understanding the current status of the relationship between
Pakistan and China. The paper looks at various dimensions of China Pakistan Economic
Corridor and highlights its political, security and strategic implications for Pakistan and
China.

The Pakistan-China friendship as described “higher than the Himalayas and deeper than
the ocean and sweeter than honey” by both China and Pakistan, has been based on robust
relationship in defence and security fields. Over the last decade, the two countries have
made a strategic shift by moving in the direction of expanding and promoting bilateral
trade, investment, and economic cooperation. The agreement on constructing the China-
Pakistan Economic Corridor (CPEC) represents the latest stage in the process of
strengthening strategic partnership through investment in infrastructures and energy
sectors, increased trade, and economic cooperation(Rashid Ahmad Khan,2016. Impact of
the China Pakistan Economic Corridor on the People-to-People Contacts,2016.p14-14)

On April 20, 2015, Pakistan and China signed a landmark agreement to start work on a
project worth US$46 billion known as the China-Pakistan Economic Corridor (CPEC).
The project aims to connect Pakistani seaport of Gwadar, located on the Balochistan coast
of the Arabian Sea, with the Chinese city of Kashgar, located in north-western region of
Xinjiang through a network of rail, roads and oil and gas pipelines. The project is a
continuation of Pakistani and the Chinese policies, pursued over the last decade, to expand
and deepen traditional Pakistan-China friendship, economic and trade relations.( Mehreen-
Zehra Malik, “China commits 29 billion pounds for economic corridor with Pakistan,”
Reuters, Yahoo News, November 21, 2014.).US$33.8 billion out of total US$46 billion
will be spend on the energy projects in Pakistan under CPEC.According to the agreement
signed between China and Pakistan in 2015, the Exim Bank of China(EBoC) will be
financing these projects at 5 to 6 percent interest rate .And Pakistan will be obliged to buy
the energy from these firms at pre-negotiated rates(Reuters, China Commits US$45.6
billion for economic corridor with Pakistan, Express Tribune (Islamabad), November 21,
2015).

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Historical Background

The CPEC is a comprehensive 15-year development project between Pakistan and China
spanning 2015-2030 that entails the linking of Gwadar Port to China’s north-western
region of Xinjiang through highways, railways, oil and gas pipelines, and an optical fibre
link. Strategic energy cooperation between the two countries had been implemented before
the proposal of the conception of the corridor. During the former Chinese Premier Wen
Jiabao’s visit to Pakistan in December 2010, the National Energy Administration (NEA) of
China and the Ministry of Petroleum and Natural Resources of Pakistan issued a
Memorandum of Understanding (MoU) on the establishment of energy working-group
mechanism. The first meeting of this group was held in August 2011, during which both
sides had a thorough exchange of views on the development of electricity, coal, oil, gas
and new energy industries. A cooperative programme was generated to help Pakistan
alleviate energy shortages at the second meeting in Pakistan in May 2012. The group was
absorbed in the framework of the CPEC in 2013.At the third meeting in January 2014, both
the countries reached consensus on nuclear power, electricity, coal and renewable energy,
and agreed to set up a research team to promote energy cooperation for the construction of
the CPEC, mainly including coal exploitation, oil and gas extraction, mining and
transportation, electric wire net arrangement, etc (Zhang Yuan, “The Significance of
China-Pak Economic Corridor,” Blue Chip (Islamabad), January 19, 2016).

In November 2014, Chinese Government announced that it will finance Chinese

companies to build energy and infrastructure projects in Pakistan as part of the CPEC.
Documents show that China has promised to invest around US$33.8 billion in various
energy projects and US$11.8 billion in infrastructure projects which will be completed by
2017. The deal includes US$622 million for the Gawadar Port. Under the CPEC
agreement, US$15.5 billion worth of coal, wind, solar and hydro energy projects will add
10,400 megawatts of energy to the national grid of Pakistan(19Mian Abrar, “The case of
CPEC funding,” Pakistan Today, (Islamabad), June 6, 2015.).

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Relations of China and Pakistan

Pakistan has been through many good and bad times since its formation in which few
friend countries celebrated and grieved with Pakistan. The top friends of Pakistan include
USA, Saudi Arabia, United Kingdom, China and many others. Among these friends, China
is a friend which has always supported Pakistan in its matters. Pakistan and China enjoy
brotherly relations and keep supporting each other. A friend in need is a friend indeed is a
widely used quote which is fully able to describe the friendship of Pakistan and China.
China has never left Pakistan in its bad times and has supported it in all means whether it is
technology, finance or skills. It is not the case that China is giving and Pakistan is taking.
Both the countries are providing somehow equal benefits to each other. Pakistan has
supported China’s interest in getting the SAARC membership while China has supported
Pakistan’s interest in getting the Shangai Cooperation Organization (SCO) membership
(Vandewalle, 2015). It is true that the position of China is much stronger in terms of
economy than Pakistan and China is dominating the world market. However, Pakistan may
not be as stable in quantitative terms as China is but Pakistan has got a very good location
in the world and in geostrategic way it is very important. Some critics often interpret
reason behind the good relations between Pakistan and China is that both are against India
which has lead them to share interest in all the manners whether it is diplomatic policy,
armed forces or the economy (Ritzinger, 2015). This criticism also however cannot be
avoided as the relations of Pakistan and China became friendlier in the 1960s after the
China India and India Pakistan war. But it is also the fact that the relations of Pakistan and
China become stronger after China supported Pakistan in other manners also like in the
nuclear program which built the trust of Pakistan over China (Ramay, 2016). China has
been supporting Pakistan in economy throughout its friendship. The results of the long
Pak-China friendship are the agreement between China and Pakistan to build an economic
corridor with a large investment. This corridor is expected to get Pakistan’s
economy,energy and infrastructure on track and Chinese economic position more stable.

2ND CHAPTER BIBLIOGRAPHY

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 THE IMPACT OF CPEC ON THE ENERGY SECTORS OF PAKISTAN

“Pakistan and China: Sweet as Can Be?”, The Economist, 12 May 2011, at
http://www.economist.com/node/18682839.

Rashid Ahmad Khan,2016. Impact of the China Pakistan Economic Corridor on the
People-to-People Contacts,2016.p14-14

Smith, Paul: “The China-Pakistan-United States Strategic Triangle: From Cold War to the
“War on Terrorism”, Asian Affairs: An American Review, vol. 38 (2011), pp.199,
202

CHAPT#2 BIBLIOGRAPHY

http://www.pakistaneconomist.com/database2/cover/c2001-31.php (16/02/2016)

Restructuring of electricity sector has been accelerated in{{Pakistan}} the world in recent
years due to burgeoning electricity shortfall and financial crisis at the same time. Driving
forces for restructuring process vary among developed and developing countries depending
upon their particular political and economic conditions. In Pakistan, aspects such as lack of
efficiency and under-investment drove the restructuring of vertically integrated electricity
industry. All the segments of value chain were concentrated in a single public sector entity
known as WAPDA. The restructuring of electricity industry was greatly motivated by
international development partners such as Asian Development Bank (ADB), International
Monetary Fund (IMF) and World Bank at a time when Pakistan became unable to finance
the maintenance and development of electricity related “critical infrastructure” [6G.
Tomassi and O. Timone, "Il misantropo. eitr ge ur Altertumskunde", (2011), Berlin; New
York: De Gruyter. x, pp. 598] that was key to successfully perform the technical functions
of different components of electricity value chain due to intense financial burden on
national exchequer [7K. Harijan, M. A. Uqaili and M. Memon, "Renewable Energy for
Managing Energy Crisis in Pakistan", Wireless Networks, Information Processing and
Systems, vol. 20, (2008), pp. 449-455.]

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 THE IMPACT OF CPEC ON THE ENERGY SECTORS OF PAKISTAN

From 1990/91 to 2004/05, Pakistan’s total installed power generating capacity increased
nearly threefold, from 7000 MW to 17,500 MW with thermal power units producing 64%
of that total, while hydro power units producing for 33%, and Pakistan’s nuclear power
plants produced 3% of the total( Ibid ). Currently installed capacity is 24857 MW and the
shortfall is also increased to 6000-7000 MW

In Pakistan at least 50 million or 27% people out of total 185 million population have no
access to electricity.

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