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Win-Win solution with China on CPEC: SAPM Khalid Mansoor

On the eve of the Prime Minister's visit to meet President Xi Jinping, and attend the Winter Olympics being held in Beijing, GVS editor Dr. Moeed Pirzada sat down with Khalid Mansoor, state minister and special assistant to Prime Minister on CPEC Affairs, to understand the challenges of CPEC phase II, what is the current status of CPEC, where is it going, is it stalled as it is increasingly being said in the media, and what is his current agenda in the Beijing visit.

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Moeed Pirzada: I want to understand the broad vision you have for CPEC now that you have been heading this portfolio for almost five months now. This is your first official visit and a very important visit to China in this capacity. What is your specific agenda? What are you going there to achieve?

Khalid Mansoor: I think it is a very pertinent question, and no doubt it is going to be a highly critical visit of the Prime Minister because Prime Minister would not only be meeting President Xi Jinping and the Chinese Premier but also there is a very specific agenda to meet the top industrialists of China. I am sure you are also aware that we have been successfully embarked onto the phase II of CPEC, where the scope and the order of magnitude is more than phase I.

When we talk about phase I, the scope was limited, we constructed a number of power plants; 5300-megawatt power plants are already up and running, and almost 3500-megawatt power projects are in the advanced stage of completion and in the next six to nine months, they would also be up and running.

Moeed Pirzada: This is a very significant comment when you say that phase II has a more extensive scope than phase I. Why do you say that?

Khalid Mansoor: I will explain that to you. The second very important scope of the early harvest project of phase I is as per the framework of CPEC. We had a prior understanding of what would happen in phase I and how it will be characterized in phase II and phase III. So phase I scope was essentially driven to alleviate the power crisis in Pakistan and boost our economy, which was not doing well because of the non-availability of power. You will recollect the 12 to 18 hours of load shedding and industry not getting adequate power.

From the Chinese perspective, they are very desirous of creating regional connectivity. That’s why all the infrastructure projects were given focus. There were several motorways and road connectivity projects, the Central alignment, the Eastern alignment, Western alignment, etc. Last but not least is the development of Gwadar Port and Free zones. If we add these three, the total investment in Pakistan is 25 billion US dollars, which is very historic and has already materialized. What is in the pipeline is additional remaining infrastructure, remaining power projects, and some other projects. That is considered to be about 28 to 30 billion US dollars. So the total investment would be more than 50 billion US dollars. That is the number that was envisaged at that time.

Now let’s understand what phase II is and why we call it that even more. It is the order of magnitude. Phase II is characterized as industrialization. What Pakistan needs is a revolution and that revolution, in my humble opinion, is industrialization, industrialization, industrialization because if we achieve two main objectives, import-substitution, because Pakistan has been virtually importing everything, and export orientation, it will transform the economy and its trickle-down effect will be manifold times. That means a massive opportunity for the youth to get employment. The last JCC, conducted in September 2021, was the first accomplishment.

Read more: Energy projects under CPEC: Financial lifeline for Pakistan

Moeed Pirzada: We believe that you worked very hard to make it possible.

Khalid Mansoor: There are 10 Joint Working Groups, and there are a variety of sectors, and we look at different kinds of projects. In each joint working group, several projects are mutually agreed upon. That is the modus operandi that for a joint working group, a detailed discussion takes place with the counterpart. Once they agree, they sign off, but JCC does the ratification. Only then the development work starts.

Out of those ten joint working groups, there are three, the latest one that includes agriculture, science, and technology, and most importantly, the information technology, which was added in the last JCC. All those joint working group projects have been ratified. So we have got multiple projects in various sectors, which now need to be developed. When I say developed, you know, you need to identify the scope, where they will be constructed, what the feasibility is, or what we are going to locate in this specific special economic zone. And then you know, you have to start working on the financing. Once the financial flow takes place, then they get into the execution.

The approach I have used ever since I have joined in all those multiple sectoral projects is how do you approach leading Chinese industrialists to become part of it, to avail the opportunity, rather than getting into the conventional statements of ‘we are Iron Brothers or our All-Weather Relationship.’

Moeed Pirzada: Chinese have so many options; what incentives have you provided them that they should choose you?

Khalid Mansoor: That’s the work which we needed to do. What are the specific competitive advantages of those opportunities in Pakistan where the Chinese should be focusing on Pakistan more than the alternative investment destinations, such as Bangladesh, such as Cambodia, such as Vietnam, Africa, etc.

Moeed Pirzada: Cambodia is doing very well in getting Chinese investment.

Khalid Mansoor: That is because they do their work, they have a deep dive, and when they go, they present a business case to the Chinese investor that comes to Cambodia. That deep dive we have done in all those sectors, particularly textile, pharmaceutical, footwear, and furniture, IT, agriculture, and so on, and so forth.

So what we started to do there, rather than just saying that come and invest, we had a very detailed type of research done in all those sectors, with the proper competitive analysis in relation to the other alternative destinations for China and what kind of incentives are available? What is the status of readiness of the Special Economic Zones? And what kind of facilitation has been created for those investors to provide them with all sorts of facilities.

Read more: Pakistan’s 1980s policy failures are responsible for today’s Energy Crisis: Chairman WAPDA

Moeed Pirzada: So three new groups in the 10th JCC, we had heard about agriculture, but now we are hearing about science and technology and information technology, what is the vision, what would you desire to happen in IT and science?

Khalid Mansoor: That is what we have captured in detail, I would say in a pitchbook. Why I call it a pitchbook, for each sector, there is a good business case for Chinese, that these are the areas where they can invest, and why it will be a win-win situation.

All those pertinent details, you know, we can’t cover that in this interview, but what are the kind of areas for opportunity, with proper research, with documentation of a compelling business case for Chinese and not only that, prior to my visit to Beijing, we contacted all those business groups through the coordination of Chinese Embassy in Pakistan.

The first one was textile, 35 leading manufacturers of China from various provinces, they participated in that webinar, then obviously, after we made the presentation, there was question and answers session, we received further questions from them, and we responded, and that is going to be now creating their serious interests, that they would like to come to Pakistan and then with the proper facilitation of CPEC Authority, the project will get into the development phase. Then we had parallel sessions with the pharmaceutical, footwear, and I am trying to have another webinar on information technology before I leave.

Moeed Pirzada: As you know, there is a lot of negativity in the Western or the Indian media. Pakistani media also started expressing some disillusionment, and one aspect is that nothing is happening. CPEC is failing; it’s falling apart. The Chinese have lost interest. They are not investing anything more. The Chinese investors come, and they go, they are not impressed. Pakistani system has a lot of capacity limitations, and that’s it.

Khalid Mansoor: There is no answer. You see, the perception is this, and that is what I confronted as soon as I took up this assignment. I have given a number of interviews, I appeared in discussions on electronic media as well, but the reality is totally different.

I just mentioned that 25 billion US dollars investment has already happened in phase I. So, I don’t understand that from which context then CPEC is failing. The entire world was stalled because of Covid in the past year. The manufacturing jobs in China have shut down, all the approval authorities, including financial institutions, closed down, people were virtually working from their homes, but the bureaucracy requires that you need proper approval.

Despite that, the projects under construction never totally stalled, and the Chinese contractor never demobilized. However, they delayed, which is pretty natural because the rest of the world is stalled. Look at what happened in the rest of the world, and also, because shipping lines were not available, we were not able to have the major equipment and material transported through sea shipment because containers were not available.

One important project I would like to mention and which is very important from the power sector is the Matyari-Lahore transmission line. It is state of the art 660 kilowatts; otherwise, we have either 500 kilowatts or, you see, we have got 132 kV and so on and so forth. The primary significance is HVDC, which is high voltage and direct current. The advantage it offers is very insignificant transmission and distribution losses, but if you look at our existing, average transmission and distribution losses with all is about slightly over 17 percent, which is one of the highest in this region.

Read more: Understanding the real potential of CPEC

Moeed Pirzada: You have been an energy and power person all in your life; what is the international standard acceptable for the losses in Western countries?

Khalid Mansoor: I have not only been in the power sector, but I have spent a lot of time in petrochemical also, and this is the experience I bring to the table. In the development of the food sector, the FMCG, and petrochemical, I played a very major role, and then I took over the development of Thar because that was needed for the country to have this huge indigenous resource develop.

Having said that, transmission losses, I give you two examples; you see, when Bangladesh was part of Pakistan, their losses were over 33 percent, and then they started to bring in the transformation, and now they are less than 10 percent. The rule of thumb is that if any country has transmission distribution losses, more than 10 percent, they are not in a good position.

Moeed Pirzada: What about India? Any idea?

Khalid Mansoor: India is not also doing so great, but they have definitely reduced, and even in our country, there is a good example, Karachi electric, when it was taken by the private sector, its transmission losses were over 35 percent, but they are now slightly over 20 percent that includes theft also.

This indicates that there is room for improvement. Still, you have to have the governance, you have to alleviate the technical or technological issues, and these specialized technology solutions are available. I would say that this is one of the focus areas that the power sector of Pakistan would need to focus on. After having added capacity, it has alleviated the power crisis in the country; that’s the area where we need to focus.

Moeed Pirzada: Of the CPEC power projects, the hydroelectric power projects like Karot and Kohala, and you know Azad Pattan, how many of these projects will be commissioned, any deadlines?

Khalid Mansoor: The one which is the most advanced is Karot, and the other is Suki Kinari; these are all in Khyber Pakhtunkhwa, well Karot is in Azad Kashmir and Khyber Pakhtunkhwa because it is on the borderline, but you see whenever any part of the project is part of Azad Jammu Kashmir then they have to be the signatory along with that like the Laraib Power Project.

The Laraib is the one that is part of HUBCO, and it is in Punjab, and you have to have the signatory Punjab and Azad Jammu Kashmir. Karot is ready, and it is going to be commissioned in June this year, and Karot has the capacity of 720MW.

Moeed Pirzada: There is some sort of problem going on in Kohala about which media keeps on talking?

Khalid Mansoor: Look, whenever you have such kind of billions of dollar project, and they are going through the development phase, there are always issues. In my life, I have done billions of dollars of projects. So, each project had so many spanners in the work issues, whether you know, with the development of the joint venture, agreements, and then the approval from the various entities. These are very typical of any mega project.

Read more: Emerging challenges and opportunities for Gwadar and CPEC

Moeed Pirzada: I was reading somewhere that the Azad Kashmir government thinks that the water to Muzaffarabad will further reduce as a result of the tunnels of Kohala.

Khalid Mansoor: Well, if there are some kinds of issues, there is always mitigation to address those, and for handling such types of operational problems or policy issues, I am quite blessed that there are a couple of forums that are made available to me to facilitate. If there are any policy-related issues, we have a Cabinet Committee on CPEC.

All the related interfaces are part of that. Whenever I receive any kind of issue, either from the provinces or from the developers, we take it over there and try to expedite.

Moeed Pirzada: You said very positively that Karot would become operational and start in June.

Khalid Mansoor: Yeah. Today I have received a letter from the senior management of Karot that they wanted the Prime Minister’s consent to inaugurate that in June.

Moeed Pirzada: Excellent! So what about Suki Kinari?

Khalid Mansoor: Suki Kinari, I think in the next nine months will be done this year. It is also at a very advanced stage. It is being done by a very big company, the Three Gorges. So they are the ones who are sponsors; their subsidiary is the sponsor for that.

Moeed Pirzada: What other key projects do you think will be done?

Khalid Mansoor: I think the message is that we have done very important projects, which are the thermal projects, because, to have a sustainable uninterrupted supply of power, you have to have a significant proportion of thermal energy.

Thermal power projects offer the biggest load factor. Let me explain that, first of all, the first objective is that you have to have an uninterrupted power supply. You need to have such kinds of projects which are either based on gas, that is why we have our natural gas projects, or they can be on furnace oil, which is now hardly operating. That is where Pakistan did not do a good job because most of the power generation in Pakistan has been based on furnace oil, and that too on imported one. So that is a double-edged sword.

Furnace oil is not environmentally friendly, and you see the majority of the furnace oil requirement had been imported. So that’s the reason the cost goes up. The cost was also higher because it’s very expensive. If you compare the fuel cost component of furnace oil and coal, coal is 1/4 of the cost of the furnace oil. As a country planning, we should have done better. To have a sustainable uninterrupted power supply, you have to have a baseload power plant, which is thermal.

As I said that it could be furnace oil, it could be a high-efficiency gas-based combined cycle power plant, or a coal-based power plant, the state-of-the-art technology. We had an issue that in our energy fuel mix, we had zero power generation based on coal. In any developing or developed country, the majority of power generation had been on coal; it is 60 percent in India and in China 80 percent.

In Pakistan, firstly, we were not generating, and secondly, we were blessed with one of the largest reserves in the world in Thar -seventh-largest in the world, but there was no conviction, no belief to develop it. But now, that has been developed, and two 330 megawatt power projects are up and running, two are under construction, and two more are going to be constructed very soon. There will be six power projects on a coal basis, but the success will depend on the scalability of Thar.

Scalability is that first of all, if you have to construct the mine, you have to remove millions of tons of overburden because coal is sitting down about 190 meters below in Thar. There is also water you have to get it sucked out, there are some aquifers and whenever you dig for example when you construct a house, and you are making the foundations, after certain depth there is water which you have to suck out to build the foundation, but to keep the mine dry, you know, there are technologies available, they will keep on sucking that water and draining it.

So, once the mine is opened up, it is very easy to keep expanding the capacity, which is called scalability. The subsequent development is very cost-effective, and to give you an example, when phase I of Thar mine was done, it cost close to about 700-800 USD million. Phase II is about to be completed in less than 200 USD million. That is what is called scalability. When the scalability happens, it reduces the cost of coal per ton, which will, in turn, reduce the cost of power per megawatt or per kilowatt-hour, and that is cheaper in the long run.

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Moeed Pirzada: Is coal cheaper than hydroelectric in the long run?

Khalid Mansoor: In hydroelectric, there is no fuel cost component, but the major issue is that its load factor is hardly 50 percent. Load factor means availability in Pakistan; when you have water running in the river, you have close to 7500-8000-megawatts power generation from that, and it is preferred because you do not have to pay for the fuel. But to have sustainability, when you know you have winters, the capacity reduces to less than 1000 megawatt.

Moeed Pirzada: After the initial dams like Warsak, Mangla, and Tarbela, we really didn’t go for the dams, and we had so much more capacity, and now we are making Suki Kinari, Diamer-Bhasha, Karot, and Kohala. So you had these sites, but we didn’t make these.

Khalid Mansoor: We can only regret it because Pakistan is blessed with a potential of about 150,000 megawatts minimum from hydroelectric, out of which 70,000 megawatts is what we are making. Now we have these CPEC projects, and our objective is that as we go along, and whenever there is going to be a gap in supply and demand, our focus would be the scalability of Thar, and I have already explained why scalability is essential and also renewable projects and those renewable are hydro, solar and wind.

Moeed Pirzada: What is your progress on solar and wind?

Khalid Mansoor: The biggest solar park was Quaid-e-Azam Park, where you see it was envisaged that we would have at least 1,000 megawatts. So 400 megawatt is already up and running, and for 600 megawatts, as per the new policy, there will be competitive bidding. Chinese are also eyeing for that, and there are several local developers who are interested. The policy envisages that by 2030, we should have at least 25 to 30 percent of our capacity based on renewables.

Moeed Pirzada: So you have a total of four hydroelectric projects under CPEC, but some of them are not under CPEC, like Diamer Bhasha and Dasu?

Khalid Mansoor: Karot, Azad Pattan, and Suki Kinari will be done very soon, and then Kohala. Azad Pattan will take time because it is still going through the developmental phase, and we are trying to facilitate to achieve the financial flows. Part of my job is to keep on coordinating between the financing institutions of China. The good thing is that the co-sponsor is a Chinese company in all those projects. So they are also coordinating.

Moeed Pirzada: Moving on, one thing that disturbs my mind is the ML-1. For this publication, when we met your predecessor in October 2020, he was very hopeful, he said we had resolved all the issues regarding ML-1, the cost has come down to 6.8 billion US dollars, and the work will start soon, but now we are in January 2022, and ML-1 appears to be stuck?

Khalid Mansoor: Look, you see, this is the project, which is very close to my heart, because this will improve the logistics from Peshawar to Karachi. So there is no question of its importance. On top of that, it involves the refurbishment of Pakistan’s existing vulnerable tracks, which is why some accidents have been happening.

There were a couple of issues, the financing requirement, which the Chinese initially proposed, and there have been discussions after discussion in the financing committee headed by the Deputy Chairman of Planning Commission looking at many of these issues such as what is going to be the interest rate, what is going to be the tenor, and what kind of currency is to be utilized and so on.

So I worked with this committee, and I said, you know, whatever your requirements are, you put it on a piece of paper and send it to the Chinese financial institution, through not only the Embassy of China and Pakistan but through NDRC as well. State that these are our requirements but considering our long-term relationship and how you have been funding or financing G to G projects, please let us know what your term sheet is? That is the beginning.

Secondly, there were some question marks about whether the project is 9 billion or 6.8 billion, which you mentioned. The estimated costs were about 9 billion when the feasibility study was done. But, when the PC-1 was produced, they kept some aspects out, which should have been an integral part, and again, I had a meeting with the committee, including the Deputy Chairman Planning Commission. So, we offered a very good solution, and that has been communicated to the NDRC through the Minister for Planning and Development that why don’t you do the bidding, because, at the end of the day, the executor is going to be one of the Chinese contractors. So, you have the competitive bidding, and let that competitive bidding decide what the cost is, and rather than having a dispute, whether it is 9 billion as per the feasibility or the PC-1.

So, this specific conclusion of Pakistan has gone into it, and as a matter of fact, you see before leaving, I have again followed up with the Chinese institution through obviously the Embassy of China that please let us know what your position is, I strongly recommended we go ahead and have the competitive bidding, because, in our system, there is a flexibility that you can have the revision for PC-1 through the PSDP projects. So that is where the situation is, and I am particularly hopeful that after this visit, we would have at least phase one to begin the execution.

Read more: What PM needs to do to get it right in Beijing

Moeed Pirzada: So you expect work to start on the ML-1 this year in 2022?

Khalid Mansoor: That is what my objective is, and I am trying my level best because the idea is to bridge the gap in the understanding, what Pakistan is offering, and what flexibility Pakistan offers, not just verbally but in a proper letter that has been written to them.

Moeed Pirzada: One last question given the negativity in Pakistani media, and also the international media, could you create a mechanism of briefing like foreign office does after every 15 days or maybe once in a month, which is which brings more genuine accurate information to the media regarding CPEC projects?

Khalid Mansoor: Well, that has already been started. I have given interviews to all the lead anchors; we have been calling the prominent journalists, and I have given a very detailed presentation based on reality regularly, and they have started to write positively also. Then whenever there is a negative report, we immediately hold a media briefing, where journalists come in they ask the questions.

So, as I said, this is what I have been requesting to the media that they also have a role to play rather than just talking negatively. There is so much positivity because it is a tipping point for Pakistan to have industrialization and make Pakistan a manufacturing hub. So, rather than saying nothing had happened, and everything has been stopped, I have given you so much actual statistics; I would say accomplishments we have completed, then there should be positivity that we are moving in the right direction.

Given the international resistance we need to get our act together, we have to be having very detailed preparation, we need to be approaching those Chinese industrialists who are very savvy commercially to give them the proper business case that come to Pakistan you will make money, and you will have a profit. Last but not least, let me tell you a critical aspect that the cost of manpower in China has risen.

For instance, some of the industry whether it is textile, whether it is the footwear of which they are the major exporters. Everybody you see, and you know he is wearing a jogger or a shoe you will see that is made in China. China has already started to relocate its labor-intensive industry to other countries. They have done it to Bangladesh, Cambodia, and Vietnam, and we have been sleeping.

So those are other industries, which I have focused on, and proper business cases have been part of the pitchbook I mentioned earlier. So we have started to approach them. I am very optimistic that if they relocate to the special economic zones, especially those close to the coast, it will ensure for the Chinese that when they export, a lead time -from 21 to 24 days -shorter than if they were to export from elsewhere. The cost of shipping will also be almost 50 percent of what it would have been otherwise for them.

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