Chinese projects in south Asia facing hurdles

The much touted Chinese infrastructure projects in important South-Asian countries, like Bangladesh, Pakistan and Nepal are reportedly bedevilled by delays, complications and increasing cost for the host countries.

Despite all efforts and public posturing by Pak officials that CPEC project in Pakistan was on track and beneficial for the country, a section of the Pak bureaucracy is believed to be unhappy with the Gwadar Port project. At a recent high-level meeting on CPEC, some members raised objections over the marketing plan proposed by the China Overseas Port Holding Company Pakistan Ltd. (COPHC), the Chinese operator of the Gwadar Port.

However, the Chinese company representative blamed Pak government’s inability to provide requisite infrastructure, including power, water and road connectivity as the bottlenecks for operationalizing the Gwadar Port and free zone project. Although a key project of the CPEC, Gwadar lacks reliable sources for power and water supply to support industrial development in the free zone and two other planned industrial zones. At present, the power demand is being met by imports from Iran (100 MW), while water requirement is met partially from the 0.2 MGD desalination plant set up to meet the needs of the Gwadar port. Construction of the proposed 300 MW coal fired power plant and the 1.2 MGD desalination plant are expected to be completed only in 2023.

3. Interestingly, inspite of efforts by both Islamabad and Beijing, Chinese investors have shown little interest to invest in CPEC projects. They are apparently discouraged by the poor investment climate in Pakistan, including high cost of land in industrial parks & SEZs, delays in registration, security clearance as well as lack of tax incentives, exemptions and export rebates. Further, the high tariff on import of raw material, exorbitant license fees, delays in repatriation of profits, clearance of consignments, lack of warehouse facilities at ports and high costs of inland transportation also puts off potential investors.

4. The recent suicide bombings targeting Chinese personnel working on CPEC in Pakistan has further highlighted the risk involved for the Chinese and has apparently slowed down the pace of work with Chinese companies unwilling to endanger their staff. They are reportedly nearly 7,000 Chinese working on projects in Pakistan.

5. Meanwhile, Bangladesh authorities too have expressed concern over slow progress of Chinese assisted infrastructure projects agreed under the bilateral MoUs in 2016. The latest project facing uncertainty and delay is the construction of the Double Line (DG) Rail Link between Joydebpur-Ishurdi section of Bangladesh Railway. Estimated to cost USD 1.68 billion, the project faces delay due to objections raised by the Chinese side in its evaluation report.

6. 27 MoUs / Agreements were signed during the October 2016 visit of Chinese President Xi Jinping to Dhaka worth about USD 20 billion for implementation of various projects under government-to-government (G2G) arrangement. However, China has been very slow in completing the financial modalities and pursuing implementation of these projects despite Bangladesh’s repeated requests. China has so far extended financial support to only 9 projects worth USD 7.11 billion and the rest are in various stages of negotiations. A total amount of USD 1.78 billion only has been disbursed for these 09 projects so far.

7. In Nepal too, Chinese involvement in hydro-power projects is reportedly mired in controversies. The contract of 30 MW Chameliya Hydro-power Project (HPP) in Darchula district was awarded (December 2006) to China Gezhouba Group Co. Ltd (CGGC) and was to be completed by June 2011 at an estimated of NRs. 7.5 billion. The Chinese contractor started the work on the project in January 2007 but exceeded the project deadline by over seven years only to complete it in August 2018. On completion of the project, the Chinese contractor inflated the project cost to NRs 16 billion, which was more than double the initial estimated cost. Instead of compensating the Nepalese government for the inordinate delay of 7 years in completing the project, the Chinese company blamed the Nepalese government for delaying payments and failing to settle various claims.

8. Similarly, the Marsyangdi hydro-power project also awarded (2017) to a joint venture formed by 3 Chinese companies namely Sichuan Provincial Investment Group (SCIG), Chengdu Xingcheng Investment Group Co. Ltd. (CXIG) and Qing Yuan engineering Consulting Co. Ltd (QYEC) has run into trouble with the Chinese side demanding signing of a project development agreement with an explicit guarantee clause to ensure that the Nepalese authorities fulfils its payment obligations. Developments around Marsyangdi hydro-power project appear typical of China- funded projects that invariably lead to Beijing’s enhanced economic grip on the host country – by delaying the project under the pretext of financial and other difficulties. These are used to justify cost overrun, implicitly increase profits for Chinese investors and force the host country to modify the terms of contract in favour of Chinese developers.

9. Such instances raise doubts over Beijing’s intentions and its commitment to the development and upliftment of these South Asian countries.