About investments and loans
Once again the Nawaz government seems to be riding the tide of destiny – moving forward with its mega projects, etc, towards the next election – however, history suggests that the party comes across patch tracks whenever it gets serious about something. Be it moving ahead with motorways or corridors, deals or transactions, it simply lands into odd situations and leaks.
Right from yellow-cab scheme to CPEC, many quarters grumble about the lack of clarity and vision.
The latest deal is CPEC, after liquefied natural gas (LNG), some call it a ‘game changer, while others say it is more a ‘fate changer”. Finance Minister, Ishaq Dar went as far as saying that CPEC would change the destiny not only of Pakistan but of the whole region. However, it seems Pakistan is going to change the destiny of whole of the region without making any transport policy for its own self.
Transport is the seventh pillar of Pakistan’s Vision 2025 but unfortunately this vision is not yet on track to come into existence to become a strategic road-map – the first step has yet to be taken in developing of a holistic national transport policy.
On the other hand, many wonder if CPEC is a state-to state deal, others think the inflows as FDI not loans, while some also mention the inflows as inter-company credit equity of Chinese firms. In order to understand it better, one has to wait for State Bank data, which still is silent on these inflows. It may well be FDI but it is for the state bank to confirm or rebut this claim. It could even be a loan from a direct investor in a Chinese parent company that gives inter-company loans to its sister/subsidiary companies incorporated in Pakistan, which could be reflected as FDI.
Nevertheless, in the four months of present fiscal (Jul-Oct), net FDI inflows were down exactly 42 percent. And it is not because of the higher outflows; outflows in fact tamed to $164 million from $317 million last year in the same period. It is the gross inflows that nearly halved to $480 million.
Gross and net FDI flows from China have also almost been cut in half during this period — both down 47 percent year-on-year. Net inflows from the US, which have been tanking for some time, rose to $63 million — though only because US outflows in 4MFY17 were only three percent of what they were in the same period last year.
This is not the first time that the government has left all stake holders and investors scratching their heads. The planning commission has the economic, social and political experts to develop ideas, feasibility plans and technical reports for such strategic projects which also ensure equity and sustainability.
Unfortunately, its website till now reflects little such use of these capacities, containing only a skeletal list of projects and a few maps. Until such strategic thinking emerges, even Nawaz Sharif’s less ambitious plans to link Kashgar with Gwadar will remain dreams like Iqbal’s desires to link Kashgar with the Nile’s banks.
Senator Kalim Agha reminded that during the All Parties Conference (APC) held in January this year, Prime Minister Nawaz Sharif did not inform any party about any eastern or central route. Agha further said that an amount of Rs50 billion were allocated for eastern route however eastern route does not fall under CPEC.
On the other hand, despite all promises and tall claims made by the government, CPEC received meager allocation in the federal budget.
The budget 2016-17 contains Rs800 billion development funds, an amount that is Rs100 billion higher than last year. The massive amount, however, still falls short with respect to the huge financing requirements of about 866 projects, including numerous CPEC projects. Public Sector Development Programme (PSDP) points out that it has been slashed the allocations of CPEC projects by Rs9 billion compared to last year, taking them down to only Rs115 billion for the current fiscal 2016-17.
Scores of projects under the CPEC are being carried out by the Communication Division, Railways Division, Ports and Shipping Division and Water and Power Division. These projects have been allocated only Rs76 billion out of the total PSDP outlay of Rs800 billion, despite being in their second year.
It is all about the corridor, however, Pakistan still doesn’t have any national transport policy. The transport policy has gone through several drafts, even a finalised policy, but final approval hasn’t yet been achieved.
The main policy issues in the transport sector are (i) the continued need for physical works to expand the road network to connect more villages and upgrade existing main roads to support efficient transport operations; (ii) improving road maintenance to preserve the assets and improve road safety; (iii) controlling excessive axle loads, or truck overloading, which causes rapid road deterioration; (iv) reforming road agencies to achieve greater service efficiency, coupled with establishing a road sector policy to help guide future development and overcome fragmentation of responsibility and low coordination within the sector; and (v) increasing private sector involvement to help relieve development funding constraints and further enhance efficiency.
Trucks comprise almost 50 percent of non-urban road traffic, cars and light vehicles 30 percent, and buses 20 percent. Trucks are the preferred mode of transport as there is a single-person responsibility for delivery and payment. Services provided are simple and mostly consist of direct movements between factories and ports. With an estimated 500 road haulers, it is a competitive industry, owing largely to uninhibited access to the industry and small firms and limited market power in relation to their clientele. Ninety-five percent of the industry is said to be in the informal sector. Operators belonging to the informal group are not registered, apparently do not pay taxes, rely on informal and costly financing to buy vehicles, and their drivers are not well trained.
The trucking fleet consists of an estimated half a million vehicles. The fleet is diverse with respect to its composition by model, type, and age. However, fleet productivity is mirroring the legacy of Pakistan’s import substitution policy that, while protecting the local assembly of trucks, has in the past impeded access of road haulers to a more modern and efficient truck technology. As a result, the existing fleet still has a sizeable share of two- and three-axle rigid trucks and tractor-trailer units, contributing substantially to the axle load problem and the premature deterioration of pavement.
The provincial road departments—unlike NHA at the national level—are supply driven and oriented toward construction rather than a greater service culture. Most work is done by departmental staff, leading to large bureaucracies, and most of the available non-development budget is used for salaries and wages. This limits the range of work that can be done and results in relatively low operational efficiency. Operational systems tend to be manual, rely upon experience-based assessments, and are subject to influence and subjectivity. Ultimately, these institutional constraints, combined with insufficient maintenance funding and instances of political interference, result in inefficient attention to overall road service quality.
Overloading of trucks is a common problem in Pakistan and a major reason for premature road deterioration. The problem is a sector-wide issue. High import tariffs on high-capacity multi-axle trucks hinders local manufacturers producing low-capacity and low-powered trucks. The environment becomes very competitive, with many truck operators coming into play, but with outdated fleets. The trucks have to be overloaded to stay in the market.
Attempts to mitigate the problem at the provincial level by installing weighbridges and penalising overloading have not been effective. Most of the existing weighbridges can be bypassed and the level of fines is not a deterrent to drivers. Draft legislation to impound overloaded trucks has not been enacted so far. While the improved design of the project roads can accommodate larger vehicles, the pavements are not strong enough and already show signs of imminent failure.
International donors studies indicate that slow progress under the investment component and low achievements under the provincial policy and reform components suggest that the provincial governments and WSD were ill-equipped to successfully implement the projects.
An Asian Development Bank (ADB) study regarding restructuring said that the government did not pursue the policy and institutional reform agenda with sufficient enthusiasm and decision making took more time than expected. The difficulties encountered included poor planning, prolonged decision making, inadequate contract management experience, and noncompliance with ADB’s requirements.
Issues related to environmental mitigation measures also contributed to delays. Important other factors impeding implementation included (i) limited supervision and commitment; (ii) limited guidance, reviews, or inputs by the steering committee; (iii) late realisation of project implementation efforts; (iv) delayed activities and an inability to make up for lost time or achieve targets; and (v) inconsistency and discontinuity of project team members, these studies added.
A world bank study also mentioned that the government’s commitment and ability to implement the institutional development and capacity development (particularly in procurement, loan and contract administration, disbursement processes, monitoring and evaluation mechanisms, periodic reporting, and social and environmental safeguards) could have been carefully reviewed.
A flexible approach could have been adopted with adequate supervision support for sector specialists in capacity development activities. Discussions at the technical level should have led to higherlevel discussion as the proposed reforms were far-reaching.
There are just too many loose ends for the government to consider now that CPEC is taking off. And so far it has not provided much clarity on most of them.
