Gwadar sees the light at end of China Pakistan Economic Corridor: New Silk Road #2
When it comes down to tales to tell your grandchildren, being one of the first human beings to set foot on a new island that has unexpectedly shot up from the depths of the Arabian Sea takes some beating.
It is a story that will doubtlessly be passed down the generations in the Baloch port of Gwadar in south west Pakistan by those who were there that day in September 2013 when a massive earthquake released a build-up of frozen methane gas, which in turn caused millions of tons of mud and rock to be thrust up above the surface of its coastal waters.
Geologists do not expect the island to last long but, if China has its way, the good inhabitants of this half-forgotten outpost of the 19th century Omani Empire are about to witness a more enduring change to their landscape. Gwadar may be destined to become one of the star turns in China’s One Belt One Road initiative which could see it transformed from an obscure fishing village and port with a population in the region of 100,00 to a 1.7m strong, 21st-century, cyber-charged Smart City; a thriving economic and commercial junction where the roads and railways of the New Silk Road meet the shipping channels of the Maritime Silk Route Economic Belt.
There is a long way to go. Balochistan is Pakistan’s poorest province and the theatre for a low-level conflict between separatist insurgents and government troops that has been simmering and occasionally boiling over for decades. Gwadar itself is, by all accounts, the very epitome of a backwater compared to Karachi (population 9.3 million) 600 km down the coast. Only a handful of scheduled flights operated by the state-run airline PIA touch down at its dilapidated airport each week and the drab, concrete town’s most striking feature is Batal Gwadar, the long, low, hammer-headed mountain that rises out of its flat landscape by the water’s edge and which, crucially, serves as a natural breakwater for its port.
From a Chinese perspective, Gwadar has one other, very important thing going for it, and that is its proximity to the Strait of Hormuz and the oil fields of the Middle East. In April 2015, China overtook the US as the world’s largest importer of oil with around 50% of its supplies - 3m barrels per day - coming from the countries of the GCC, Iran and Iraq. In the absence of a land route, most of that oil has to be transported by sea, a journey that takes weeks.
Which is why one of President Xi’s earliest moves after unveiling the One Belt One Road vision was to commit $1.65 bn to the Karot hydropower scheme on the Jhelum river to the east of Islamabad. The scheme is part of the projected $40bn China-Pakistan Economic Corridor (CPEC), a massive network of rail links, special economic zones, dry ports and other infrastructure developments running all the way from Gwadar up to Kashgar in China’s north western Xinjiang Uygur Autonomous region. On completion, the corridor is supposed to slash the journey from the Persian Gulf from 45 days down to 10 and provide China with an overland oil transit route that bypasses rivals and awkward neighbours in the Indian Ocean and the South China Sea.
As with several other projects that have been retrospectively claimed by the One Belt One Road initiative, the CPEC predates President Xi’s grandiose initiative by several years. It also overlaps with Corridor Six of the Central Asia Regional Economic Cooperation (CAREC) programme. Set up in 1997 to encourage economic cooperation among the countries of Central Asia – including China and Pakistan – and supported by the Asian Development Bank, the IMF, the World Bank, the EBRD and the Islamic Development Bank, the last of its six transport corridors provides for the development of three routes linking Europe and Russia to Karachi and Gwadar Iran’s Bandar Abbas on the Persian Gulf.
China’s involvement, too, began more than a decade before the idea of One Belt One Road saw the light of day. Chinese contractors had already completed construction of a deep-water port at Gwadar by 2007, with the state-run Chinese Overseas Ports Holding (COPH) assuming ownership in February 2014. This September, the Gwadar Port Authority signed a 43-year rental agreement with COPH giving the Chinese company the rights to develop a Special Economic Zone over a 2,300-acre site.
Work is already under way to turn Gwadar into a global standard deep-water commercial port, and Pakistan and China have also signed agreements for the construction of an international airport there as well as for the upgrade of the 1,300km Karakorum Highway that links the two countries via the Khunjerab Pass, the highest paved international border crossing in the world.
New CPEC projects are now seem to be coming on stream with increasing frequency. On November 8th Pakistan’s state-run Inter State Gas Systems Limited (ISGS) indicated that It would almost certainly by awarding the $2.5bn contract for the construction of an LNG terminal at Gwadar and of a 711km pipeline connecting it to Nawab Shah to the China Petroleum Pipeline Bureau (CPPB) in a deal that will be 85% underwritten by the China Exim Bank.
Although such deals blatantly work in favour of China’s industrial sector and there are suspicions that China eventually wants to use Gwadar as a naval base, neither the authorities in the Baloch capital of Quetta or in Islamabad are in a mood to complain. The benefits to Balochistan of this level of infrastructure investment are almost incalculable, while Pakistan’s central government stands to earn millions of dollars as an oil transit country; the overall success of the One Belt One Road/New Silk Road initiative will depend on scores if not hundreds of such trade-offs.
Even putting aside the technical difficulties of both building and securing a transport and energy corridor through one of the world’s most rugged and hostile environments, the CPEC’s builders will also have to overcome Pakistan’s endemic corruption. For Gwadar’s sake, it is to be hoped that Quetta at least uses some its newfound fortune to find and fund a peaceful solution to the province’s long-running insurgency.
Eurasian Business Briefing