Coastal Province of Balochistan & Reko Diq Copper Gold Project

The province of Balochistan covers almost 44% of the country in term of area yet the population is only 5% of Pakistan’s population. Its potential natural resources are still geologically undiscovered. Alarmingly net foreign direct investment in Pakistan dipped by 2.9% in the period of July-December, 2017-18 as compared to the corresponding period of the previous financial year. The Reko Diq Copper Gold project which was awarded to a joint venture of Barrack Gold of Canada and Antofagasta of Chile, with a combined market capitalization of over USD 25 billion and a projected annual export of copper ore of USD 1 billion, fell prey to internal bickering and intrigues. The international mining community had been looking at this project and its dismal failure jeopardized future investment in Balochistan. In order for Balochistan to become economically developed a holistic approach is needed instead of relying on assumptions that strategic factors will ensue in foreign investment flowing in. Whenever we are tempted to adopt economic success models like Singapore the population, demographics and form of governance must be compared minutely.

Balochistan & Foreign Investment

Realistically speaking the service sector in Balochistan is not developed to provide a conducive environment to foreign investment. Its strengths lie in the long coastline, mineral resources and hydrocarbon deposits despite the depleting reserves of gas at Sui. Average household incomes are low, industrial activity is on a small scale with employment opportunities restricted to traditional agriculture and mining. The worst aspect is that the cost of public service delivery being linked to population density (19 per skm compared to a national average of 166) remains high. The visibility of international developmental agencies is muted despite depressing human development indicators including infant mortality, gender disparity and female literacy. The steep gradient causes flash floods in view of which the Mirani dam was built through indigenous resources. Water is a scarce resource whether in the provincial capital or the only port city despite alluring images of Gwadar Port city being floated to attract expatriates into investing in dubious real estate projects.  Predatory real estate practises flourish. Access to clean drinking water due to shortage of water with accompanying pollution owing to the presence of toxic metals and pesticides causes water borne diseases with 250,000 mortalities annually. Industrial activity, transportation and cooking reliance are predominantly fossil fuel centric producing greenhouse gas emissions.

Balochistan’s Coastline remains under utilized

The coastline of Pakistan extends 1050 km with 250 km falling in Sindh province and 800 km in Balochistan but contributes only 30% of Pakistan’s marine catch owing to the want of contemporary processing facilities at Gwadar. The continental shelf of the province of Sindh extends to a distance of 150 km whereas that of Balochistan extends 15-40 km thereby impacting on the strategic significance of Balochistan. Sandy beaches are common along Balochistan’s shores yet tourism is unheard of.

Rail infrastructure as a strategic asset

Any economic initiative entailing movement of goods in Balochistan will involve railway expansion as on account of the steep gradient wear and tear on highways freight movement is feasible through rail. Going by a rule of thumb the estimated capital cost of conversion from a narrow gauge railway to standard gauge is between USD 1.5 million and USD 5.0 million per route km, however, estimates vary. The Gwadar port was completed in 2007 with Chinese technical and financial assistance and in 2015, a Chinese company was awarded a 43-year concession to manage the port and develop 930 hectares free-trade zone in three phases expected to be completed by 2030. Pakistan must remain vigilant as in the previous experience of exclusive economic zones foreign exchange as a policy did not find its way into banks in Pakistan and export proceeds were not realized in Pakistan but offshore. Such exclusive economic zones militate against the global environment of anti money laundering as documentation, fiscal propriety, access to accounts and transparency is compromised. As regards internal movements of goods in the country the commercial port city of Karachi is a preferred destination for offloading and loading of cargo from a logistics and cost point of view. Presently the population of Gwadar city is 85,000 with a limited capacity for any high value added service sector activity. Three berths are operational at the port but the container traffic is low at this south western port city of Gwadar being far (a 540 km coastal highway exists) from the commercial port Karachi (120 km east of the Iranian border) yet in the future may provide unfettered access from the lesser developed western provinces of China to the warm waters of the Arabian Sea. Any international linkage to Gwadar would entail digital customs integration, logistics and interface between broad gauge and narrow gauge rail track.

 

Gwadar Port & New Eurasia Land Bridge

The port city of Gwadar may, in a decade, be in a position to replicate the New Eurasia Land Bridge through which China has transported its goods westwards to Europe including the city of London. If one evaluates logistical complications the average shipping mileage from the coast of China to the West coast of Europe is around 20,000 km with a travelling time of 40 days and if we were to critically review the total capacity of the rail route from China to Eurasia through the New Eurasia Land Bridge it is the equivalent, in cargo terms, between 1-4 days of the port of Shanghai. Furthermore, Shanghai continues to enhance its port capacity as economically sea freight for volume is superior to land movement. Rail freight through New Eurasia Land Bridge route is five times the price of marine transportation from China to Europe and also lacks the climate control facilities available on the marine route. The rail track gauge width differences result in reloading thereby increasing travel time and enhancing freight costs. Goods going westwards are mostly production goods and household items whereas those returning eastwards are bulk cargo including coal, wood and grains which do not need to be shipped in containers and sometimes may return empty.

 

Multilaterals vs Chinese Financing

Pakistan has the advantage that many valuable lessons will have been learned from the rail route experience of the New Eurasia Land Bridge by the time the rail corridor from China to the port city of Gwadar is established. Along the way Pakistan can build basic infrastructure and improve value added service sector in order to negotiate from a position of strength and at its own pace without succumbing to momentary financial or political pressure. We must evaluate investors as to it whether its domestic debt to GDP ratio is worse than ours as then the investors investment policy will be oriented to its internal job market and outlet for its goods and services even if it has to subsidize. Generally speaking concessional loans from the multilateral lending agencies being plush with funds to lend on soft terms, if utilized properly, may enable Pakistan to convince domestic and foreign investors to enter Balochistan on favorable terms and conditions.

 

Authors ;  Razeen Ahmed & Nadir Mumtaz

Credit ; Business Recorder  , Published Jan 30, 2018

https://epaper.brecorder.com/2018/01/30/20-page/697044-news.html