| Article | |||||
|
PROSPECTS OF PAKISTAN BECOMING A TRADE AND ENERGY CORRIDOR FOR CHINA Fazal-ur-Rahman *
With the inauguration of the Gwadar deep-sea port on 20 March 2007, another milestone has been added to the evolving economic relations between Pakistan and China. Since the construction of Gwadar port started in May 2002,1 Pakistan has been making concerted efforts to highlight the strategic importance of the port, while proposing to link it with Central Asia, Afghanistan, and China’s western province of Xinjiang Uigur Autonomous Region, through the Karakoram Highway (KKH). China’s western regions have been undergoing a multi-billion dollar economic uplift programme since 1999 under the Chinese government’s strategy for the development of western regions.2 With the growing prospects of economic development in the western regions of China, and the emerging economic opportunities in the land-locked Central Asian States, Pakistan, while realizing the potential of its strategic geographic location at the crossroads of three sub-regional systems–South Asia, West Asia and Central Asia–which are also represented by three overlapping multilateral co-operative frameworks: SAARC, ECO, and SCO, all envisioned to create a trade corridor for China, Central Asia, and Afghanistan. In the aftermath of the events of 9/11, and in view of growing demand for oil and gas by the fast developing Asian economies, the US has effectively used the war against terrorism to serve its other strategic interests, including securing the energy resources in the Middle East and Central Asia. Net assessments of the growing energy requirements of the rapidly developing economies of China and India have further strengthened Pakistan’s concept of serving not only as a trade corridor but an energy corridor as well.3 To realize the potential of becoming a “Trade and Energy Corridor” (TEC), Pakistan’s leadership in the past few years has primarily focused on China and also other neighbouring countries to join Pakistan’s endeavours for creating a “trade and energy corridor”. In this context, with India, the Iran–Pakistan–India (IPI) gas-pipeline project negotiations are at a fairly advanced stage and the project is expected to be finalized any time in the near future. Moreover, Iran has offered Pakistan land access through its territory to Central Asia and Russia for trade; in return, Iran has asked Pakistan for a similar access to China, through the KKH.4 India has also shown keen interest in obtaining access to Iran, Afghanistan, Central Asia, and Western China through Pakistan. However, Pakistan has made access for India conditional on the overall improvement in the political climate and progress on the contentious issues between the two countries. Saudi Arabia, reportedly, is also looking into the possibilities of using this corridor for energy supplies to China.5 While the importance and usefulness of Pakistan’s TEC is valid for many countries, Pakistan is specifically targeting China’s interest, as the two countries are cementing their economic relations and have an evolving strategic partnership. Moreover, the infrastructure for TEC requires multi-billion dollar financial commitments, for which only China has the interest and the capacity. Feasibility studies are being carried out for laying a railway track and a pipeline along the KKH up to the Chinese border. Despite the evident potential of the TEC that Pakistan has offered to China, the latter country, at the declaratory level, has shown marginal interest in the idea. In the absence of a firm commitment, there is a strong assumption in Pakistan that China ultimately will approve and invest in the TEC project. So far, there is not a single statement on record by any Chinese leader, or even an important official, explicitly expressing interest in availing Pakistan’s offer of using the trade and energy corridor. Some academics and media people in China have talked about the benefits and strategic importance of the concept, but, at the same time, many amongst them term it as a project of the future. However, despite China’s non-committal position, its support and participation in the infrastructural projects in Pakistan associated with the TEC cannot go unnoticed. China’s commitment to the construction of Phase II of Gwadar port and the new international airport at Gwadar, besides, upgradation of the KKH and interest expressed by Chinese companies in investing in an oil refinery and storage facilities are a few examples to substantiate the Chinese interest. In view of these facts, one can assume that, while there is no categorical commitment on TEC by China, it can be said with some confidence that it will support Pakistan’s initiative, while keeping a low profile, because of political and strategic considerations. A review of the existing literature on the development of Gwadar port and the concept of TEC reflects two types of perspectives: they are either alarmist views in the context of China’s emergence as a great world power and its engagement in the Indian Ocean for influence and energy security through Gwadar port; or the views expressed are mere rhetorical elucidations about the potential and benefits of Gwadar and TEC, especially in the regional context. There is indeed a very strong likelihood that, if successfully realized, TEC would have a profound impact on regional integration and would help in creating a web of regional interdependencies. Not only that, it would impact on the resolution of conflicts in the region as well. A well-known Indian scholar, Raja Mohan writes, “Whether we like it or not, normalization of relations with Pakistan holds the key to a successful ‘Look West’ policy. Whether it is in gaining overland access to Afghanistan and Central Asia, ensuring India’s energy security, expanding ties with the Gulf, or limiting the threat of Islamic extremism and terrorism in the subcontinent, co-operation with Pakistan is essential”.6 Similarly, once the internal political dynamics improve in Afghanistan, TEC will have a considerable positive impact on Afghanistan’s relations with neighbouring states and will contribute to the reconstruction and rehabilitation of the war-torn country. The first part of this paper primarily focuses on elaborating the concept of the TEC project and its various components such as the Gwadar port, energy pipelines, railways, and highways. Though the aspect of a trade corridor is equally important, this paper essentially focuses on the issues pertinent to the energy corridor. In the second part of the paper, an attempt has been made to identify China’s energy interests and relate those to the possibility of Pakistan becoming a viable TEC for China. The paper also attempts to identify the reasons for China’s lukewarm response to Pakistan’s TEC proposal, as, in the preceding one and a half years, Pakistani leadership has enthusiastically and persistently been seeking China’s commitment on the TEC project.7 The Concept of a Trade and Energy Corridor With the end of the Cold War, there has been an upsurge in the endeavours aimed at moving towards regional integration around the world. Asia has also been exhibiting a new zeal, aimed at connecting various sub-regions. In the process, the concept of creating trade, transport, and energy corridors emerged, as it will enhance inter-connectivity, economic activity, and people-to-people relations in the regional and intra-regional context. Pakistan has always supported multilateral frameworks for economic co-operation, such as SAARC, ECO, and SCO. The emerging geo-political and geo-economic environment brought to the fore Pakistan’s geographic advantage at the cross-roads of three most important sub-regions, west Asia, central Asia, and south Asia. To use Pakistan’s geographic advantage, President Musharraf has promised to make Pakistan a hub of trade and energy corridors. China has been the most sought-after country for the support of this idea for several economic and strategic reasons. It is important here to describe first the vision of President Pervez Musharraf relating to the concept and rationale of Pakistan’s offer to China to serve as a TEC. Although he has often mentioned the concept, the most elaborate account of it can be found in his address to the Pak–China Business Forum8 and exclusive interviews to the Chinese media during his five-day state visit to China in February 2006. President Musharraf’s visit was in connection with the ceremonies organized by China to commemorate fifty-five years of the establishment of diplomatic relations between the two countries. It was, thus, an appropriate occasion to introduce the concept of the TEC project. In an interview in the Beijing Review, published on 2 March 2006, President Musharraf was asked by the correspondent: “You have emphasized many times that Pakistan can serve as a ‘trade corridor’, ‘energy corridor’ and a ‘transport hub’ in the region. What are the unique conditions for Pakistan to play such roles as compared to other countries in the region?”9 While answering the question, President Musharraf said:
In another exclusive interview to the China Daily on 2 February 2006, President Musharraf said, “We are interested in setting up a trade and energy corridor for China, the route on which feasibility is being conducted is a shortcut compared with the one via Straits of Malacca”.11 President Musharraf said that he was looking forward to the results of the feasibility study on transporting crude oil via the mountainous region of Karakoram, and suggested that building a railway was an option.12 There were no comments by the Chinese leadership or any official on President Musharraf’s proposed TEC. However, some academics did express their individual views on the proposed concept. For example, Mr Sun Shihai, a researcher at the Chinese Academy of Social Sciences, said, “Although, the proposed pipeline is not a project that can be launched soon, it could work well in the long run”.13 Dr Wang Wei, Director of the Office of South Asian Studies of the China Association of International Friendly Contacts, pointed out that, “Pakistan’s proposed role, as China’s energy corridor, is a positive and inspiring proposition, which is worth active and serious consideration and assessment”.14 Dr Pan Zhiping, Director of the Central Asian Studies Institute of the Xinjiang Academy of Social Sciences, said, while commenting on the TEC, “Pakistan’s Gwadar port is capable of serving as China’s important energy transfer station. Oil from Africa and the Middle East will reach the port and go on to China via road, rail, or pipelines. This is China’s new energy channel”.15 Similarly, Mr Hu Shisheng, a prominent Chinese senior researcher on South Asia of the China Institute for Contemporary International Relations (CICIR) pointed out that, “Pakistani President Pervez Musharraf proposed an ‘energy corridor’ earlier this year [2006] when visiting China. Such an ‘energy corridor’, which will provide China easier access to oil and gas in Central Asia and the Middle East, would help China diversify the sources of its energy imports and would lead to the development of more roads, railways, and pipelines. It still needs feasibility studies and whether Pakistan is capable of ensuring the safety of the ‘corridor’ is the key issue”.16 Prime Minister Shaukat Aziz has also been promoting the idea of TEC at all relevant forums. In his address on the occasion of commemorating the fifty-five years of establishment of diplomatic relations between Pakistan and China at the Institute of Strategic Studies, Islamabad, on 23 May 2006, the prime minister revealed that, “Pakistan and China are considering a feasibility study for an oil pipeline from Gwadar port to western China to transport China’s oil imports from the Gulf. The Gwadar and Karachi ports offer the shortest access to the Arabian Sea for Western China. An oil pipeline from Gwadar to Western China would greatly reduce the time and distance for oil transport from the Gulf to China. A major oil refinery at Gwadar would further facilitate China’s oil imports”.17 In June 2006, President Musharraf again visited China to attend the Shanghai Co-operation Organization’s (SCO) summit meeting and during his stay, he addressed several important select gatherings. This time he was more assertive in promoting the idea of a TEC. Almost one-third of the text of his address at the SCO summit focused on highlighting Pakistan’s geo-strategic location for achieving the objectives of the SCO. He stated that:
His address to the senior executives of the All-China Federation of Industry and Commerce (ACFIC), and to the Shanghai business community, academics, and intelligentsia at the Shanghai Institute of International Studies, was more elaborate in terms of content of the concept of TEC. While persuading the Chinese government and the business community to support his vision of the future, Musharraf was well aware of the difficulties in realizing his idea. On many occasions, he reiterated that Pakistan and China together have been able to create the eighth wonder of the world, i.e., KKH, and the two can again create the ninth and tenth wonders of the world by linking the two countries through railways and energy pipelines.19 BBC reported on 15 June 2006, while covering his China visit, “The President spoke highly of the rail link between the two countries and said this project could be possible in the long run, in their efforts for strengthening communication links. He also underlines the importance of gas pipeline from Iran that is proposed to be extended to India as well through Pakistan. This gas link could also be provided to China, he added”.20 This time around, President Musharraf received some positive response from the Chinese business community as the Chairman ACFIC, Mr Hu Deping, while acknowledging the favourable investment environment in Pakistan, pledged that Chinese businessmen were prepared to set up an oil refinery with a capacity of 10 million tonnes at Gwadar.21 Given the way of Chinese business practices, such a big commitment could not have been made without the consent of the Chinese government. Also, Chinese businessmen expressed interest in the economic free-trade zone at Gwadar. However, they refrained from linking their growing business interest in Gwadar and Pakistan to President Musharraf’s idea of a TEC. Irrespective of China’s current position, Pakistan, with the strong conviction that it can exploit its geographic advantage, has begun to take initial initiatives in the direction of creating the relevant infrastructure for the TEC. Since the entire concept of the TEC revolves around the successful operation of the Gwadar port and timely construction of the affiliated infrastructural facilities for trade and energy supplies, let us first look at the development of Gwadar port and the progress on the other associated components of the TEC project. Components of the Trade and Energy Corridor Project Development of Gwadar Port Pakistan, with the partial financial and technical assistance of China, had, by March 2005, completed the first phase of a deep-sea port in the south-western city of Gwadar, located at the opening of the energy-rich Persian Gulf. However, the port was formally inaugurated on 20 March 2007 by Pakistan’s President, General Pervez Musharraf, and the Chinese Communications Minister, Li Shasheng. The need for Pakistan to have an alternative port facility, which could significantly reduce the threat of a total naval blockade in case of a conflict with India, became pressing after the 1971 debacle. However, it took Pakistan twenty-five years–primarily due to the non-availability of funding–to implement the plan by building such a facility along the Makran coast, at a tactically safe distance from India. Among the determining factors for building Gwadar–besides the Indian factor and economic incentives–were the considerations of international financial institutions, stemming out of the instability in the Gulf region and the Middle East and the energy potential of the newly independent states in Central Asia. Considering the risk factors to international shipping in the Straits of Hormuz, through which nearly forty per cent of oil flows to the outside regions, the Asian Development Bank’s Ports Master Plan studies considered an alternate to the Gulf ports to capture the transit trade of the Central Asian States as well as the trans-shipment trade of the region.22 Both Karachi and Port Qasim were considered for such development but found unattractive to major shipping lines, due to their remoteness from the main shipping routes, the limitation of draft for mother and large bulk oil carriers, and the comparative long turn-around time.23 With this background and the evident economic and strategic benefits that Gwadar Port could offer, thej government of Pakistan included the development of Gwadar Port in its Five-Year Plan (1993-4) as one of the most important objectives.24 The agreement between the governments of Pakistan and China was signed on 10 August 2001, for the construction of Phase I of the port. According to the agreement, for the first phase of Gwadar port, the government of China was to provide US$198 million and the government of Pakistan to provide US$50 million. The Chinese contribution consisted of the following segments: 1. Grant US$ 18 million 2. New Grant Assistance US$ 31 million 3. New Interest Free Loan US$ 31 million 4. Government Concessional Loan US$ 58 million 5. Buyer’s Credit US$ 60 million25
Out of the total Chinese financial assistance of US$198 million for the construction of Phase-I of the Gwadar port project, US$49 million is a grant and the rest is in the shape of loans and buyer’s credit. In the first phase, three multi-purpose berths 602 metres long; a 4.5 kilometre-long approach channel, dredged to 11.5-12.5 metres; a turning basin 450 metres in diameter; and one 100 metre service berth have been completed.26 China has also agreed to participate in Phase II of the Gwadar port project, which will be completed at a cost of US$600 million. Phase II will include: four container berths; one bulk cargo terminal (to handle 100,000 DWT ships); one grain terminal; one Ro-Ro terminal; and two oil terminals (to handle 200,000 DWT ships).27 Following the completion of Phase I of Gwadar, the Economic Co-ordination Committee of the cabinet met under Prime Minister Shaukat Aziz on 1 February 2007 and allowed the Gwadar Port Authority (GPA) to sign a 40-year agreement with the Port of Singapore Authority (PSA) and its subsidiary, Concessional Holding Company (CHC), for the development and operation of the tax-free port and duty-free trade zone.28 Interestingly, the concessions given to the operators had already been approved by the prime minister on 23 January 2007.29 In a highly competitive environment, in order to “enable Gwadar to compete with its regional peers, the port fees will be kept low by allowing a wide range of tax concessions to the PSA subsidiaries to cut operational and business costs. These include complete exemption from corporate tax for 20 years, duty-free imports of materials and equipment for construction and operations of the port and a free economic zone; and zero rate of duty for shipping and bunker oil for 40 years”.30 In addition to these incentives, the provincial government of Balochistan has been asked to exempt the CHC from the levy of provincial and district taxes. According to the agreement, the Gwadar Port Authority, the government of Pakistan would get a fixed share of nine per cent of the revenue from cargo and maritime services, and fifteen per cent of the revenue earned from the free-trade zone.31 SPA is expected to invest US$550 million in the next five to ten years on creating the operational facilities. Critics of this deal have raised many pertinent questions regarding the role of the port and benefits to the country. They ask, what is in the deal for the most impoverished province and the disgruntled people of the Balochistan, who are already waging a struggle against the central government, demanding their due share in the natural resources extracted from the province. In view of the enormous concessions given to the port operators, when Dr Ashfaq Hassan Khan, Economic Adviser to the Ministry of Finance was asked, while briefing newsmen on Gwadar, “What would the port operators give [to Pakistan] in return?”32 He answered, “They will make Pakistan an economic hub”.33 Was that all Pakistan can expect from the deal with the operators of Gwadar? The lease period of fifty years is another issue that concerns experts, as nowhere in the world is a long-term contract of more than twenty-five years, mid-term for ten to fifteen years, and short-term for five to seven years. Even in cases where the project is “based on the ‘build, operate and transfer’ basis, the lease period never exceeds 20-25 years–in no case 50 years, as has been the case with the Gwadar port”.34 Reportedly, experts on the subject of ports and cargo have a number of concerns regarding ambiguous government policy on the Gwadar port operation.35 Since the government has not revealed the details of the agreements with foreign companies and has not come up with a clear policy document on Gwadar, many aspects of the project remain unclear, generating all sorts of speculation. Immediately after the deal with PSA, a controversy broke out regarding the status of Gwadar, whether it would operate as a hub-port or a feeder-port. This is indeed an important issue. Gwadar port project was conceived as a hub-port from the very beginning, as the ADB wanted such a facility outside the Straits of Hormuz. The concept of a hub-port is based on the “hub and spoke system”, which is a physical distribution system based on a “hub” moving cargo to and between several “spokes” (spokes are either small ports or land cargo distribution areas).36 Hub-port is defined as a single concentration for the collection of numerous trades. The design and structure of Gwadar port suggests that it is to be a hub-port and not a feeder-port. The most obvious benefit of having a hub-port is that the income generated from the port increases because of the double handling of cargo. Another important advantage is that it facilitates direct shipment of the imports and exports of the country. Also, the creation of free-trade zones is directly linked with the concept of a hub-port. As the government of Pakistan has announced the creation of a free-trade zone in Gwadar, it is imperative that Gwadar should be a hub-port. In short, the advantages of having a hub-port are numerous as compared to a feeder-port. Strategic Significance of Gwadar Port It was evident from day one that the countries which had apprehensions about the strategic co-operation between Pakistan and China would feel uneasy over the development of Gwadar port and the TEC project. Many analysts, especially from India and the US, have been placing more emphasis on Gwadar’s strategic importance, especially in the Chinese future energy security strategy, and consider it a threat to their interests. For example, Robert T. McLean writes:
Similarly, there are others who have expressed apprehensions on China’s participation in Pakistan’s efforts to develop Gwadar. Atul Kumar, Research Assistant at India’s Institute of Peace and Conflict Studies, New Delhi, writes, “On the strategic front, Chinese dream of getting a foothold in the Indian Ocean, without having an aircraft carrier, is being fulfilled with the development of Gwadar port. Given the presence of the US Navy’s Fifth Fleet in the Persian Gulf, it is a big strategic feat to have a Chinese presence at Gwadar”.38 The construction of Gwadar has reminded many of China’s maritime history. The present Chinese maritime engagement is seen by many in the historic perspective when Chinese ships used to dominate the oceans. Christopher J. Pehrson, writes in his article “String of Pearls: Meeting the challenges of China’s rising power across the Asian littoral”
According to Pehrson, the phrase “String of Pearls” was first used to describe China’s emerging maritime strategy in a report titled ‘Energy Futures in Asia’ by defence contractor, Booz-Allen-Hamilton. The report was commissioned in 2005 by the US Department of Defence Office of Net Assessment. In this context, each pearl in the String of Pearls is a nexus of Chinese geo-political influence or military presence. For example, Hainan, a Chinese island in the South China Sea, is a pearl, as it presents a forward military base; Woody Island in the Paracel Archipelago, which is located at a distance of 300 nautical miles from Vietnam is a pearl, as the island has a military landing strip; a container shipping facility at Chittagong in Bangladesh is a pearl, as it could help China encircle India and maintain a presence in the Bay of Bengal; construction of a deep-water port at Sittwe in Myanmar is a pearl, as its strategic location is important for monitoring Indian activities in their Andeman and Nicobar Islands; and finally, Gwadar port at the mouth of Straits of Hormuz, in Pakistan is a pearl, as it is strategically located only 240 miles away from the main sea-lanes of communi-cation.40 In such assessments, loaded with strategic connotations, the commercial aspect of these facilities and expanding Chinese global economic interests are deliberately underplayed to portray an alarming situation. Even in these assessments, China’s growing energy needs and its concerns over energy security are often cited as reasons for Chinese maritime pro-activism. There are, however, some scholars, who have justified Chinese co-operation with Pakistan in the development of Gwadar port, while recognizing both the countries’ legitimate economic interests, also suggest that it should not be used by the Chinese for military purposes for the sake of regional stability. Regional stability indeed is one of the priority objectives of China’s foreign policy for the neighbouring regions. Nayan Chanda, a former editor of the Far Eastern Economic Review, writes:
While focusing on the strategic importance of Gwadar, many analysts tend to ignore the fact that Gwadar is a Pakistani port, though built with Chinese assistance and loans, and that Pakistan is a sovereign state which takes decisions according to its national interests. For Pakistan, Gwadar is indeed an addition to the country’s naval assets, as it has created a crucial strategic depth for its coastal defence. But Pakistan is focusing more on the commercial aspects of Gwadar than anything else. Upgradation of the Karakoram Highway The decision to upgrade the KKH was taken during President Musharraf’s visit to China in February 2006, when Pakistan requested China to help with the upgradation of the Karakoram Highway. President Musharraf said, “This road, when upgraded, will provide the shortest route to the sea for products manufactured in China. The same road can serve to provide overland route for trade between China and India, thus linking two of the largest markets in Asia”.42 In this regard, an MoU has been signed between China Road and Bridge Corporation and Pakistan’s National Highway Authority, for the upgradation of the 335 kilometre-long section of the road between the Raikot Bridge and the Khunjerab mountain pass. Under the upgradation programme, the road will be made an all-weather road, so that it remains open throughout the year; and its width will be expanded from ten metres to thirty metres so that it can handle long vehicles.43 The existing condition of the road does not allow handling of heavy traffic. It cannot handle 40-feet containers and has remain closed from 31 December to 1 May, due to severe weather conditions. On 4 July 2006, President Musharraf inaugurated a dry-port at Sust, some 200 kilometres from Gilgit, on the border with China. The dry port was built in 2004 as a Pak–China joint venture, at a cost of Rs 90 million, to expand and streamline border trade between the two countries.44 At the ceremony marking the inauguration, President Musharraf said, “This landmark project is poised to give further depth and strength to Pakistan–China economic and political ties and help expand Pakistan’s commercial linkages with the regional countries, including Central Asian states… We are talking of Pakistan–China inter-connectivity in terms of energy and trade, improvement in highways, development of railway link and gas and oil pipeline linkages and even fiber-optic connectivity along the highway under one project”.45 Pakistan has already signed a quadrilateral agreement with China, Kyrgyzstan, and Kazakhstan for transit trade facilitation, which has been operational since 2004. However, more concentrated efforts are required by Pakistan to iron out some of the outstanding issues, such as the number of permits to be issued to vehicles operating on the route, to make full use of this arrangement. The potential of KKH as a north–south trade corridor can be instantly realized with well-thought-out plans and a pro-active marketing approach for the use of KKH as a trade corridor. Pakistan is also constructing a network of highways and railways within the country to facilitate a north–south TEC. Karachi has been linked with Gwadar through a coastal highway, and plans are underway to link it to Iran as well.46 Another major 950 kilometre-long highway, connecting Gwadar to Turbat, Khuzdar, and Ratodero, will be completed in the next thirty months. A new road will soon link Quetta to Zhob, D. I. Khan, Loralai, and D. G. Khan, connecting Balochistan to the Punjab and the NWFP.47 The project for upgradation of the KKH should not be seen only in the context of Pakistan’s efforts for the TEC, but as a logical response by Pakistan and China to the various initiatives for establishing east–west and north–south trade corridors in the region. There are several emerging corridors which inherently compete with one another. Fredrick Starr, a professor at the Johns Hopkins University and Chairman of the Central Asia–Caucusus Institute, points out that, in the post-Cold War era, region-wide trade is again becoming an engine of economic development in Central Asia and adjacent regions. He further elaborates this point and writes:
China effectively has linked its western regions bordering Central Asia and Pakistan with central China and can use the KKH and other links for expanding trade with West Asia and South Asia. However, Professor Starr rightly points out that Russia, Iran, and India are making concerted efforts to establish a parallel trade corridor, with a focus on the Iranian port of Bandar Abbas, to compete with the Pak–China corridor. India is also helping Iran technically and financially in building a network of roads and another port at Chahbahar, closer to Pakistan’s port of Gwadar. Iran’s friendly gestures of helping President Karzai’s regime, along with India’s growing influence in Afghanistan, are efforts to woo Afghanistan into the Indo–Iranian scheme of things. However, peace and stability in Afghanistan are crucial for this route to be effective. Construction of Railways A railway line along the KKH, connecting Pakistan and the Western China, is being considered as an integral part of the Trade and Energy Corridor Project. The purpose of building a rail-line is not only for trade purposes but also to transport energy, in case a pipeline is not a viable option. This rail track will be linked to Gwadar, where oil-refining and storage facilities are being constructed. In this regard, as a first step, the Pakistan Railways authorities invited tenders from interested companies to prepare a feasibility study for the proposed project. Pakistan Railways has short-listed two companies, one from China and the other one a joint German-Austrian company, ILF Consulting Engineers, for the study of the 1000 kilometre rail-track.49 In Pakistan, the 750 kilometre track starts from Havelian, a small town near Abbotabad in the NWFP, and passes through the Karakoram mountains up to the Pak–China border at Khunjerab. The second part, consisting of a 250 kilometre-long track will be constructed inside the Chinese province of Xinjiang.50 The feasibility study is to be completed within a period of six to nine moths. According to expert opinion, the construction of this railway may take about ten years because of the mountainous terrain, which will require the construction of several tunnels, and also because the condition of the soil in some areas en route will require extensive concrete applications. In the view of experts, the cost of construction for this track could be compared to the cost of the rail-track construction in similar mountainous terrain in Tibet, which cost US$5 million per kilometre. It means that the total cost of the rail-track project up to Xinjiang will be around US$5 billion, which is an enormous financial commitment.51 Also, in 2001, China committed US$200 million to the modernization of Pakistan’s railway system, including the construction of a new rail-line, linking Gwadar port to the main east–west rail line linking Pakistan and Iran.52 This reflects the Chinese interest in strengthening Pakistan’s communication infrastructure, which, at some stage, could be directly linked with China’s western regions. India is also counselling Pakistan and other neighbouring states to develop rail links to the energy-resource-rich Middle East. Pakistan’s participation is crucial for any plans to link up India with West Asia. With China, India is developing a rail link through Myanmar. In what it calls the eastern international corridor, India will link Kohima in the state of Nagaland with Myanmar. It will reportedly connect India with Vietnam, Cambodia, and Laos, besides linking with this the prosperous Chinese regions in the southeast and with Russia as well.53 Similarly, in December 2006, the visiting Iranian Deputy Commerce Minister, Dr Sadegh Mofatteh, said, “We are ready to provide transit facilities through land route to Pakistan”.54 The Iranian offer demands reciprocity from Pakistan to allow Iran to use the KKH for transit trade with China. The two countries may reach an agreement for allowing use of land routes on a reciprocal basis. Energy Co-operation and Pipelines A Framework Agreement on Energy Co-operation was signed in Beijing on 20 February 2006, between the Ministry of Petroleum and Natural Resources of Pakistan and the National Development Reform Commission of China.55 In pursuance of this agreement, the first Energy Forum was held in Islamabad from 25-27 April 2006. The Forum was attended by a large number of Chinese energy corporations and financial institutions and their Pakistani counterparts. After two days of intense deliberations, the Forum decided that both countries will enhance existing energy co-operation and development, including, but not limited to, the following areas:
At the Energy Forum, a blueprint of the proposed 3300 kilometre-long Karakoram oil pipeline was also presented by the Pakistani side; this entails a 30-inch diameter pipeline from Gwadar to Khunjerab, passing through Awaran, Pir Muhammad, Khuzdar, Shikarpur, D. I. Khan, Kundian, Mianwali, Talagang, Ghaib, Fatehjang, Haripur, Mansehra, Patan, Dasu, Chilas, Bunjil, Gilgit, Sust, and the Khunjerab pass. The proposed pipeline will be able to handle 12 million tonnes of oil per year and would cost between US$4.5 and 5 billion.57 These were the broader parameters of the agreed areas of energy-related co-operation between the two countries. The Forum strongly recommended the institutionalization of energy-related co-operation between the two countries. As per the recommendations of the Forum, feasibility studies for various projects have since been contracted out. At another level, in terms of Pakistan’s efforts to become an energy corridor, Pakistan, Iran, and India have been negotiating for years a gas pipeline from Iran to Pakistan and onward to India (IPI). The growing energy demands of India and Pakistan have hastened the lingering process of negotiations and all sides have been able to resolve contentious issues relating to pricing and transit charges, and the project is now nearing commencement. As part of Pakistan’s growing co-operation with China in the energy sector, Pakistan has offered to allow China to participate in the project.58 Pakistan considers that China could also be linked to the IPI or may take part in the construction of the pipeline. The other pipeline which is under consideration is the Turkmenistan–Afghanistan–Pakistan (TAP), with the possibility of its extension onwards to India. A tri-lateral working group has been constituted to work out the modalities, with the assistance of the Asian Development Bank (ADB). The 1435 kilometre-long pipeline will cost US$4 billion, and will run 145 kilometres in Turkmenistan, 735 kilometres through Herat and Kandahar in Afghanistan, and 555 kilometres in Pakistan to the city of Multan.59 India has officially requested, through the ADB, to be included in the project. On India’s request, the ADB is simultaneously working on a feasibility of this pipeline’s northern route, which would pass through Mazar-i-Sharif and Kabul in Afghanistan, Peshawar and Lahore in Pakistan and on to Indian city of Baikaner.60 Now, the possibility of this pipeline opens up another possibility for China to chip in, as the distance from Peshawar to the Khunjerab pass is substantially less as compared to the route of the IPI. Recently, Saudi Arabia has also shown interest in using Pakistan as an energy corridor for transporting its refined oil to China. Saudi King, Abdullah bin Abdul Aziz, reportedly discussed this possibility during his visit to Pakistan in February 2006.61 Pakistan’s efforts to exploit its geographic advantage are drawing the attention of neighbouring regions and strengthening its prospects of playing a role as a regional hub for energy. Pakistan became an observer to the Energy Charter in December 2005 and now seeks accession to the Energy Charter Treaty.62 When President Musharraf met the Secretary General, Andre Mernier, in Brussels on 12 September 2006, his message to the Secretary General was clear: that Pakistan wants to become a major country for regional energy trade and his country’s accession to the Energy Charter Treaty would facilitate Pakistan becoming a bridge of economic connectivity. In response, Andre Mernier said that Pakistan’s strategic geographic location and political weight would give it a pivotal role in the Energy Charter, and welcomed Pakistan’s commitment to the Charter and to international energy security.63 Pakistan is gearing up to play its due role endowed upon it by its geographic location as an energy corridor for intra-regional energy cooperation. Factors Determining China’s Interest in TEC China’s Energy Needs The high level of sustained economic growth in China during the last two decades has tremendously increased its energy needs, which will grow further in the future, as the country prospers. “China was self-sufficient in oil until 1993, and its oil imports have been growing ever since. China now imports about 3 million barrels of oil per day, and that number is growing about 500,000 barrels per day, every year”.64 China is now the second largest consumer of primary commercial energy after the US, accounting for fifteen per cent of the world total.65 Over the last four years, 2002 to 2006 inclusive, China’s total commercial energy consumption grew by more than fifty per cent, increasing as, if not more rapidly than its GDP.66 Reportedly, sixty per cent of the world’s proven oil reserves are located in the Persian Gulf /Middle East and China imports fifty-five per cent of its oil requirements from this region.67 China’s Energy Policy China’s energy policy primarily focuses on two aspects: one, on constraining the energy demands; and two, on fulfilling the energy requirements. For constraining energy demands, China has undertaken measures to introduce relevant domestic policies for energy conservation; to fulfill its energy requirements, it has to engage and ensure secure energy supplies from various parts of the globe. China’s major energy supplies come from the Middle East, and are transported through the sea-lanes which pass through the narrow Straits of Malacca, an area prone to attack by pirates and terrorists and open to disruption in case of any hostilities between the US and China. As a strategic competitor, the US is seen as posing a threat to China’s energy security, since US naval power controls the global sea-lanes of communications. It is the fear of disruption or blockade of energy supplies that is forcing China to diversify not only the sources, but the transportation routes. Therefore, for China today, the main priorities are “to diversify and secure imports of oil, to gain access to primary resources in the ground, and to enhance the security of oil and gas transportation to China”.68 China’s Options for Energy Transportation To ensure secure and multiple routes of energy transportation has become a priority for China. As China wants to reduce its heavy reliance on the sea-lanes, it has started planning and constructing overland pipelines for energy transportation from neighbouring regions such as Russia and Central Asia. In 2006, a pipeline from Kazakhstan to the western regions of China began pumping oil, with a capacity of 10 million tones per year, which is planned to double by 2010. This 988 kilometre long pipeline was constructed in a record period of ten months by China. Under consideration is a pipeline from Russia, with a capacity of 20 million tonnes per year. More than 10 million tonnes of crude is already being transported by rail from Russia to China. There are other pipelines under negotiation from Turkmenistan and other Central Asian states, besides Russia.69 According to Philip Andrews-Speed, a professor of energy policy and Director of the Centre for Energy, Petroleum, and Mineral Law and Policy at the University of Dundee, these can be considered as the first type of pipelines.70 He argues that the second type of pipelines under consideration by China are the ones intended to reduce the risk or distance for tankers carrying oil from the Middle East. Among various options, he points out that one idea is to construct a pipeline across the isthmus of southern Thailand in order to reduce the amount of oil flowing through the Straits of Malacca. The likelihood of this project progressing in the near future is reduced by the cost of working in such difficult terrain and the risks associated with domestic unrest in that part of Thailand. The second pipeline project he mentions is a pipeline built from the Indian Ocean through Myanmar to south-west China. This would allow China to bypass the strategic choke-point–the Straits of Malacca, and also crossing the South China Sea. The second option, though viable and beneficial, certainly contain risks and high costs of construction in mountainous terrain.71 Interestingly, Professor Andrews-Speed, while discussing contemporary Chinese thinking on energy security policy did not mention the possibility of oil and gas pipelines proposed by Pakistan for China. Rather, he emphasized that Gwadar was part of the Chinese strategy for strengthening the security of the sea-lanes of communication, in line with the idea of a “String of Pearls”. Most energy experts agree that the route over the Himalayas would be an expensive and challenging engineering work, and, once the oil reached China, it would have to be transported 4500 kilometres further to the east, where the energy demand is concentrated.72 Does this imply that Pakistan’s proposed energy corridor for China is not currently under consideration by China as one of the options? Contrary to these views, there are other analysts who are convinced that the Chinese are interested in turning Gwadar port “into a transit terminal for crude oil imports from Iran and Africa to China’s Xinjiang region”.73 One of the leading US specialists on China, Professor John W. Garver of the Sam Nunn School of International Affairs, Georgia Institute of Technology, while discussing different crisis scenarios impacting China’s smooth energy supplies, points to the fact that, “development of a robust overland transportation system between Yunnan and the Bay of Bengal, and between western Xinjiang and Gwadar could subsequently strengthen the PLA’s ability to sustain intense military operations in the eastern and western Indian Ocean”.74 Whatever the case may be, the fact of the matter is that the Chinese government thus far has not defined its interest in using Pakistan’s TEC as one of the options. However, at the same time, the developments on the ground suggest that the government of Pakistan is determined that this project is materialized and a TEC is in the making; it may not be any time soon, but China will ultimately agree to use it. China’s Lacklustre Response to the TEC China seemingly wants to maintain a low profile on its involvement in Gwadar and other projects associated with Gwadar. This approach has been evidently reflected at least on two specific occasions; first, when the first phase of Gwadar port was completed twelve weeks in advance, to link its inauguration with the Chinese Prime Minister Wen Jiabao’s April 2005 visit. Contrary to general expectations, the inauguration was cancelled on the pretext of the unsatisfactory security environment in Balochistan. Almost two years later, Gwadar port was finally inaugurated by President Musharraf and the Chinese Communications Minister, Li Shasheng, on 20 March 2007. During these two years, there had been a few high-level visits from China, but none ended up in the inauguration of Gwadar port. The other important instance was early this year, when, despite their excellent record of port operations, Chinese companies showed negligible interest in winning the contract for operating Gwadar port. In order to assess China’s lukewarm response to the idea of an energy corridor, one could possibly identify three overlapping factors: first, politico-strategic considerations; second, the economic aspects in terms of costs and viability of the energy corridor; and third, the security aspect. Given below are some of the plausible explanations for China’s approach towards the energy corridor project.
Conclusion In light of the above-stated prospects and constraints, one may conclude that given Pakistan’s unique geographic advantage, the country has enormous potential to become a TEC for neighbouring regions. However, for China, the prospects of Pakistan becoming a trade corridor are more promising than becoming an energy corridor in the short and medium terms. With the competition becoming intense for securing energy resources in the future, Pakistan would surely serve as an energy corridor for China, notwithstanding the cost and other factors. However, in the short term, the chances China using Pakistan as energy corridor are remote. In the short term, Pakistan should place equal importance to providing TEC facility to its south Asian, central Asian, and west Asian neighbours, as they are eager to use Pakistan’s TEC facilities.
|
|||||
| References | |||||
|
* Mr. Fazal-ur-Rahman is Director, China Study Center, at the Institute of Strategic Studies, Islamabad.
| |||||