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Pakistan To Request China For $2.7 Billion Loan To Fund CPEC Project, May Be Charged Higher Interest Rate

Tarkesh Jha

Nov 16, 2020, 09:17 AM | Updated 09:17 AM IST


Imran Khan and Xi Jinping ( Photo Credit : PTV World)
Imran Khan and Xi Jinping ( Photo Credit : PTV World)

Pakistan will request for a loan of $2.7 billion from China for the construction of package-I of the Mainline-1 project of China Pakistan Economic Corridor (CPEC), ANI reports.

The ML-1 project includes the dualisation and upgradation of the 1,872 km-long railway track from Peshawar to Karachi.

The Express Tribune has reported that Islamabad has decided to plea China to sanction $2.73 billion in loan out of their total financing of $6.1 billion. China will finalise its financing plans for the next year by the end of November and hence Pakistan’s Ministry of Economic Affairs will formally send a Letter of Intent to China next week.

“In April this year, Pakistan had shared a term sheet for Chinese loan, seeking 1 per cent interest rate. But China has not yet formally responded to the request. They said that informally Chinese authorities conveyed that the interest rate could be higher than the one mentioned in the term sheet,” government officials from Pakistan said to the newspaper.

He further added, “China's consistent strategic support, including help with Pakistan's nuclear program, is often held out by Pakistan's military establishment favorably in contrast with the more conditional Pakistani alliance with the United States. But it seems now that China is not in Pakistan to help its people but rather as a predatory economic actor.”

The “Committee for Power Sector Audit, Circular Debt Reservation, and Future RoadMap” has prepared a 278-page report that highlights malpractices of up to $625 million in the independent power generating sector. Moreover, a third of it is connected to Chinese projects.

The report states that, “excess set-up costs of (Pakistani Rupee) Rs 32.46 billion (approximately $million) was allowed to the two coal-based [Chinese] plants due to misrepresentation by sponsors regarding [deductions for] the 'Interest During Construction' (IDC) as well as non-consideration of earlier completion of plants.”

The deduction of interest was permitted for 48 months. However, the plants were completed within 27-29 months. The Sahiwal plant project’s entire life was of 30 years. This scenario has led to an entitlement of an excess Return on Equity (RoE) of $27.4 million on a yearly basis.

Pakistan’s economy is reportedly on the brink of bankruptcy and is bearing the brunt of the Covid-19 pandemic. Husain Haqqani, the country’s former ambassador the USA, had written for the Diplomat in May that the construction of $62 billion worth of CPEC is a result of Pakistan’s desires to maintain strategic relations with China. However, Haqqani mentioned that the set of infrastructure projects is entangled in insufficient transparency.


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