CPEC to Benefit all SCO member States      

Col (R) Muhammad Hanif

On 9 June 2017 Pakistan became a regular member of Shanghai Cooperation Organization (SCO).  Pakistan’s membership of this Organization is going to be beneficial to itself and for all other member states of SCO in many ways including their connectivity and trade using CPEC. This Corridor has come at a very right time, when Pakistan has also become a permanent member of the SCO.  With Pakistan being a member it will get easier for SCO members to become a part of the CPEC project by joining it during its construction phase through investments and its operational life by using it for trade by having an access to the warm waters of the Arabian Sea. These two timely happenings are likely to act as the fate changers in the context of adding to the economic development and prosperity of this part of the world, including South Asia, Central Asia, West Asia, China and Russia.

CPEC will benefit above mentioned regions and countries, especially SCO member states through the trade of goods and services, investments in these areas, transportation of energy through pipelines, sharing of technology and industrial development, spread of communication network, including access to the internet through high quality fibre optics, increase in employment opportunities, and enhancement in people to people contacts and tourism. While other regions and countries will also benefit from the CPEC, the maximum benefit in any case will be drawn by SCO member countries, since it will be easier for them to exploit CPEC related advantages due to mutual contacts at the SCO platform and the resultant ease of doing business with each other.

For trade purposes, all old SCO members, including China, Russia, Kazakhstan, Kirghizstan, Uzbekistan, Turkmenistan and Tajikistan, would be able to carry out their trade with South Asian countries, ASEAN, the Middle East and North Africa and vice versa by using the CPEC. This will be the shortest and the cheapest route to and from the Arabian Sea. Till the time peace is established in Afghanistan, the Central Asian Republics (CARs) and Russia will be able to connect to the CPEC using the route defined by the Quadrilateral Traffic in Transit Agreement (QTTA), which is a transit trade deal between China, Pakistan, Kyrgyzstan and Kazakhstan for facilitating transit traffic and trade. From China the route can join the Karakoram Highway to reach Pakistan. Recently, Tajikistan has also expressed interest in joining the deal. The initial work on this road project was initiated in 1995.The road project is related to the China-Pakistan Economic Corridor, which aims to provide China and Central Asia access to Pakistani ports. Using CPEC trade in services in this larger region will greatly help in enhancing employment opportunities for the people of the region.

When the trade of the CARs with the outer world will flourish, it will add to their growth rate and economic development. With more demand of their products, industrialization will multiply and foreign investors would be attracted to invest there. Industrialization will create jobs, employment opportunities for the people, thus adding to their incomes and economic well being. Rising incomes will enhance the educational level of the masses and job security and economic wellbeing of the CARs will act as a barrier to the extremist tendencies in the people thus helping in ending the root causes of terrorism in these areas.

The CARs have lots of energy resources (hydro electricity and gas) to export to the energy hungry countries of South Asia, especially Pakistan and India. In this context, with Pakistan and India having become the regular members of the SCO, the prospects of the completion of Turkmenistan, Afghanistan, Pakistan and India (TAPI) gas pipeline and Central Asia South Asia (CASA) 1000 electricity line may become a reality. While the concerned Central Asian States will earn from the export of gas and electricity, energy demands in Pakistan and India will be met, which will have a substantial impact on the industrialization of these countries. By using CPEC, CARs and South Asia will become markets for each other and the same will happen between China, Russia and South Asian countries.

With the increase in the communication channels people to people contacts will multiply, thus improving trade and commercial activities in a major way. With the increase in trade and the industrialization, technology transfer will take place and all countries of the region will get an equal opportunity for their economic development. With increased incomes due to enhanced economic growth and development and wider and speedy communication networks and travelling facilities tourism in the region will also flourish. Thus the tourism industry of all the countries will flourish, which will be good for the happiness of the people and increased tourism will create further jobs for poorer sections of these areas and add to their economic well being.

In the final analysis, it can be concluded that development of the CPEC is going to make an inter regional Corridor, which will facilitate trade, travelling, sharing of industrial progress, cross regional investments, communications, people to people contacts, tourism, increase in economic growth and development and enhancement in the welfare of people of SCO member countries, Russia, China and the people of other regions that will use the CPEC for all these purposes. Thus a cycle of rising production, trade, employment and development in these regions and countries will add to the wellbeing of their people and this process will help the realization of the Chinese dream of the shared destinies and development of China, its neighbours and other parts of the world, since all these activities in this area to be done using CPEC would create a feeling of brotherliness and it will bring a message of peace and prosperity.
[The writer works for the Islamabad Policy Research Institute (IPRI), Islamabad]

Chinese company withdraws offer to buy 66.4% stakes of K-Electric

China’s Shanghai Electric Power Company has withdrawn an offer to buy 66.4% stakes of K-Electric Limited after the power utility’s key shareholder failed to secure a national security clearance certificate to complete the transaction, an official said on Tuesday.

“We have received a copy of the withdrawal of public announcement of intention for acquisition – directly or indirectly – of up to 66.4% of the voting shares of K-Electric Limited by Shanghai Electric Power Company,” Mohammad Rizwan, director finance at K-Electric said in a notice sent to the bourse.

Stocks market cheered the news as K-Electric’s share surged 2.7% in the intra-day trading, and settled with a gain of 0.28% because of profit-taking.

On August 30, 2016, Shanghai Electric made a public announcement of intention to acquire 18.335 million shares in K-Electric Limited, representing 66.4% of the total issued share capital.

Abraaj Group, a Dubai-based private equity, in partnership with alJomaih Group of Saudi Arabia and National Industries Group of Kuwait, holds a total shareholding of 66.4% in K-Electric. The three-firm consortium operates in the name of KES Power, which is the parent company of K-Electric.

Manager to the offer Ahmed Rajani at Arif Habib Limited said the time period for making the public announcement of offer, after an extension by the Securities and Exchange Commission of Pakistan, would lapse as of June 30 on the basis that “certain regulatory and other approvals for the transaction remain outstanding.”

Sources said K-Electric’s failure to secure continuance of the pre-existing multi-year tariff was not welcomed by the Chinese and then a disagreement over almost $1.0 billion dues outstanding against the power utility soured the fate of the $1.77 billion deal between Abraaj and Shanghai.

K-Electric is faced with claims roughly worth Rs98 billion, filed by Sui Southern Gas Company and National Tariff and Despatch Company on account of late payment surcharges.

Since the acquisition was contingent upon all the settlements, a K-Electric delegation in February this year briefed the minister on the status of payables and receivables of K-Electric with regard to various government entities and suggested ways to resolve the pending issues.

However, the Privatization Commission could not be convinced to issue the national security clearance certificate before all the outstanding dues are cleared.

Rajani said Shanghai Electric continued to be fully committed to consummate the transaction and, “they will make a fresh public announcement of intention to acquire stake in K-Electric immediately with effect from the expiry date of the earlier intention i.e. June 30, 2017.”

Sources said the fresh intention to acquire K-Electric’s voting shares might be much less than the existing offer of $1.77 billion, as the Chinese acquirer would price in the outstanding dues in their offer.

They said K-Electric had assured Shanghai Electric that some Rs50 billion of the outstanding Rs98 billion would be waived. “That, however, didn’t happen.”

The sources said the Chinese offer had already factored in Rs54 billion of outstanding dues and the fresh intention to acquisition would certainly be down by another Rs50 billion.

Assuming that K-Electric’s share would reach Rs9.20 by June 30, the Shanghai Electric’s fresh offer will be around $1.2 billion.