Tuesday, March 24, 2009
China Signs Power Plant Deals With Pakistan
China has agreed to build several power plants in Pakistan to help the South Asian nation deal with its worsening electricity crisis. When completed over the next several years, these plants, including Nandipur (425 MW, Thermal), Guddu(800 MW, Thermal) and Neelam-Jhelum(1000 MW, Hydro), Chashma (1200 MW, Nuclear) will add more than 3000 MW of power generating capacity for the energy-hungry country. Pakistan is currently facing a deficit of 4,000 to 5,000 megawatts, resulting in extensive load-shedding (rolling blackouts) of several hours a day.
China has already installed a 325-megawatt nuclear power plant (C1) at Chashma and is currently working on another (C2) of the same capacity that is expected to be online by 2010. The agreements for C3 and C4 have also been signed. The United States has objected to China supplying C3 and C4 on the grounds that any Pak-China nuclear cooperation would require consensus approval by the NSG, of which China is now a member, for any exception to the guidelines. The US is applying double standards since it supported and got approval for such an exception from NSG for its own nuclear deal with India.
Under another agreement, China has agreed to invest about $600 million for setting up an integrated coal mining-cum-power project in Sindh. The project will produce 180 million tons of coal per year, which is sufficient to fuel the proposed 405 MW power plant. Pakistan is currently world's seventh largest coal-producing country, with coal reserves of more than 185 billion tons (second in the world after U.S.A.'s 247 billion tons). Almost all (99 percent) of Pakistan's coal reserves are found in the province of Sindh. Pakistan's largest coal field is Thar coal field which is spread over an area of 9100 square kilometers, and contains 175 billion tons of coal. So far this coal field has not been developed but efforts are underway.
The Export-Import Bank of China will lead the multi-national bank financing and China Export and Credit Insurance Corporation (Sinosure) will provide political risk and credit default insurance for the first 425 MW project at Nanipur, Gujranwala estimated to cost $329m, according to Associated Press of Pakistan. Other participating banks include BNP-Paribas, HSBC Bank plc, and CIC France. The lead contractor is China's Dongfang Electric Corporation Limited, with G.E. France as a sub-contractor.
Political risk has been rising in many developing nations, including the South Asian nations of Bangladesh, India, Pakistan and Sri Lanka (see 2008 political risk map). The cost of insurance against political and economic risk has also been going up, as the global economic crisis unfolds. Hong Kong-based Political & Economic Risk Consultancy Ltd. has recently rated India as the riskiest of 14 Asian countries, not including Pakistan and Afghanistan, it analyzed for 2009.
With their national coffers bulging and their exports driven economy slowing, the Chinese see opportunity in the developing world where others see political and economic risks. It is an opportunity for China to assure the continuing availability of raw materials and oil for its growing industries and to diversify its export markets. In addition to helping bail out the ailing US economy, China is using some of its vast cash reserves of $2 trillion to offer supplier financing as well as insurance for the non-Chinese partners to cover political and credit risk in the emerging markets. With bilateral trade volume of about $7 billion, Pakistan is only one example of Chinese interest. Others include politically-risky Afghanistan, and many nations of Sub-Saharan Africa where the Chinese are financing and building major infrastructure projects. In Afghanistan, China has committed nearly $2.9 billion to develop the Aynak copper field, including the infrastructure that must be built with it such as a power station to run the operation and a railroad to haul the tons of copper it hopes to extract. The Aynak project is the biggest foreign investment in Afghanistan to date, according to Reuters. The trade between Africa and China has grown an average of 30% in the past decade, topping $106 billion last year.
Looking at how the Chinese are working with many developing nations in Asia and Africa, it appears to be an unwritten Chinese policy to offer trade and investment in projects rather than direct cash aid. Given the rampant government corruption in many developing nations, including Pakistan, the Chinese policy is a sound one. It attempts to benefit the people and the nation more than the corrupt politicians and government officials who they must deal with.
In terms of Chinese dominance in power infrastructure development, one only needs to look at the heavy Chinese presence in the Indian power sector development. According to the Wall Street Journal, Chinese companies are now supplying equipment for about 25% of the new power capacity India is adding to its grid, up from almost nothing a few years ago. They have sent thousands of skilled workers to Indian plant sites, some of which boast Chinese chefs, Chinese television and ping pong.
Clearly, the Chinese objectives are not entirely altruistic. Their strategy is driven by enlightened self-interest in the developing world, which they see as source of commodities that their industries need as well as growing export market for their products and services. But the Chinese want to do good and do well at the same time by helping to lift people out of poverty in the developing world. By doing so, they want to be seen as friends and partners by the people in Asia, Africa and Latin America. The strategy enhances China's status as the new superpower that takes its global leadership role seriously.
Chinese Do Good and Do well in Developing World
World's Largest Solar Deals
Pakistan Inks Neelum-Jhelum Deal
Political Risk Insurance
Political and Economic Risk Consultancy
Pakistan's Electricity Crisis
Forget Chinindia! It's Chimerica to the Rescue!