Is Pakistan getting suckered by China in infrastructure costs

Pakistan is a basket case in terms of infrastructure like most of South Asia. Its citizens and industries to not get power, roads are in pathetic shape and the less said about ports and railways the better. Infrastructure construction is also rife with conflict of interests and corruption. Power is quiet expensive and governments have kept making huge mistakes with this sector. The GDP is crawling at a very slow pace, despite the low level of development. Pakistan recently signed up with China to build infrastructure using Chinese money and expertise. China wants to invest $46 billion in Pakistan’s non-existent infrastructure as part of its new China Silk Route.

Read about Indian Infrastructure Companies here.

However, I am skeptical about how much Pakistan will gain out of the Chinese investments. Note Chinese investment has not always led to positive outcomes as many countries in Africa, Myanmar and Sri Lanka will attest. The Chinese do not stop corruption and bribery like the western countries which have stringent anti-bribery laws. In fact, they help in propping up corrupt rules in many of these countries. Bribery which is rampant in these undeveloped countries is not stopped by the Chinese government.

Pakistan recently got a 100 MW solar power plant built in a short span of time by the Chinese company TBEA SunOasis. This was all well and good given that it was built in a power deficit area in record time. However what caught my attention was the price tag of more than $215 million, which meant that the power plant cost more than $2 million a MW in an age when solar power plants are being built at $1-1.5 million/ MW. This means that the cost of the power plant is almost double that of comparable plants.

The costly plant will have to be paid by the Pakistani citizens, who I don’t think will be overjoyed by paying high tariffs. I am not sure how much benefits Pakistan is going to get from Chinese investments. These investments are not being given for free and will require good returns for the Chinese companies. In addition these projects will also have a hefty price tag in terms of corruption payments made to Pakistani bureaucrats and politicians built in.