One Belt One Road: PPP Alchemy

28 Pages·2017·3.86 MB·English

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One Belt One Road:
PPP Alchemy –
is the Silk Road
paved in Gold?
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Contents
OBOR and PPP Projects 4
What is OBOR? – an overview 5
What are the objectives of OBOR? 6
Current Investment in OBOR 9
Types and locations of OBOR projects so far 9
OBOR and the PPP Model 11
Types of PPP 12
Key Challenges for OBOR 14
China’s true agenda 15
Funding 15
Political 16
Legal 17
Competition or cooperation 17
Resourcing and quality 18
Security 18
OBOR Case Studies 19
Karot Hydropower Project – Pakistan 20
Almaty Ring Road Project (BAKAD) – Kazakhstan 21
Conclusion – is the Silk Road paved in gold? 22
Biographies 24
Neil Cuthbert 25
Atif Choudhary 26
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OBOR and PPP Projects
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What is OBOR? – an overview South East Asia, Russia, the Persian between. It will encompass in excess
The “One Belt One Road” project Gulf, the Middle East, North Africa, the of 65% of the world’s population and
(OBOR) is one of China’s key initiatives Mediterranean and in between. This include over 65 countries, which
as part of its plan to assert its position as has been dubbed the New Silk Road have a combined GDP of over US$20
one of the world’s strongest economic Economic Belt (Silk Road). The second trillion and growing. The primary
powers. OBOR was initially launched comprises a maritime route which purpose of OBOR is to create a
by China’s President Xi Jinping in late runs southbound down the east coast gateway for China’s burgeoning
2013 as one of the Asian superpower’s of China, through the South China capital and other resources in a
ambitious plans to accelerate outbound Sea and into the South Pacific before manner and on a scale not seen
investment and to consolidate its heading westbound through the Indian before. Once the wheels of OBOR
position generally across the globe. Ocean and Mediterranean Sea to are fully set in motion it will lay a
Physically, OBOR is best understood Europe (Maritime Silk Road). platform for economic investments
with reference to its two key tangible in almost every sector, but with an
cornerstones. The first is an overland OBOR is China’s ambitious economic inclination towards infrastructure
route from China through to Western road map which seeks to link Asia and trade. However, while it is easy to
Europe, sweeping through South and and Europe and most quarters in consider OBOR as a project focused
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on tangible outcomes in the form entered into a letter of intent with the corridors, whether it be roads, rail,
of roads, railways, airports, ports, oil United Nations Economic and Social pipelines, airports, ports and more
pipelines, power plants and the like, Commission for Asia and the Pacific which will not only link China with
it is just as important to recognise (UNESCAP). For the United Nations to other OBOR nations but also OBOR
that it is in fact modelled on a much throw its support behind OBOR in this nations themselves.
wider premise. It is intended that manner goes some way to showing just
OBOR, once fully fledged, will create how powerful this strategy is. The Silk Road and Maritime Silk
everything from cooperation and Road can be broken down into six
collaboration between members in Some commentators, mostly in the specific “economic corridors” which
sectors of technology sharing and west, have likened OBOR to the have been identified by China, being
flow of financial capital to wider Marshall Aid programme introduced the New Eurasian Land Bridge, the
economic, political and social co- by the US after the Second World China-Pakistan Corridor, the China-
operation between its members. War to energise and relaunch the Central Asia-West Asia Corridor, the
economies of Europe battered by Bangladesh-China-India-Myanmar
Following the launch of OBOR, many the devastating impact of six years of Corridor, the China-Mongolia-
nations along its path have rushed war. There are similarities with some Russia Corridor and the China-
to enter into bilateral treaties and of the overall goals of OBOR and the Indochina Peninsula Corridor. These
agreements with China. To date, Marshall Aid programme, but there corridors identify sectors of special
China has entered into well over are many structural, economic and importance along the route; however,
30 such agreements and trade political differences that make such a the reach of OBOR has no defined
negotiators are working on overdrive comparison somewhat superficial. footprint per se and no country (or
to increase this number. In some body of ocean) should be considered
cases these agreements have already What are the objectives of as being outside its potential scope.
gone through rounds of extension OBOR?
and expansion, such has been the Although the true extent and detail of However, it is not only physical
early success for all involved. It should the objectives of OBOR can only be connectivity which the Chinese are
be noted that we are talking here of known within the corridors of power in concerned with. OBOR seeks also
significant deals with countries such Beijing, the following are some of the to connect people along the route
as Russia, Turkey, India and Pakistan, key objectives which are apparent in a through cultural understanding,
which goes some way to showing just programme of this scale: financial integration, social integration
how seriously OBOR is being taken and interaction, educational ties and
among some of the regions and the Connectivity other intangible connections.
world’s economic heavyweights. OBOR seeks to map out and construct
more developed and efficient physical Export markets
In a show of its intention that OBOR routes to support China’s unparalleled OBOR will assist Chinese enterprise
will not just be a series of bilateral deals export market. The same routes would in tapping new markets and
throughout the wider Eurasian region, be used to facilitate imports from strengthening China’s position in
but something much more far reaching the same trading partners. What is existing markets. Many, but by no
and global, earlier this year China envisaged is all manner of transport means all, of the OBOR member
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nations are underdeveloped Over capacity the provision of vital infrastructure
nations with huge demand for new OBOR will provide an outlet for the investment, the scale of which no
infrastructure and materials which release of China’s vast amounts of other country currently has the same
China is uniquely well placed to economic capital and production appetite for as China. Beijing has made
provide. China would be primed to capacity which have built up both it clear to all and sundry that OBOR
provide an “end-to-end” solution domestically and overseas. China is intended to facilitate collaboration
in that it can put up the required is the world’s largest producer of and cooperation between China
finance (through debt and/or equity), many sought after commodities, and its neighbours (and beyond). A
construction expertise, provision including cement and steel. However, natural outcome of this is that China’s
of raw materials and goods and at the present moment there is not geopolitical power along the route will
operational services. enough worldwide demand for the consolidate and strengthen.
level of supply which China is able to
While China has traditionally been provide. The launch of OBOR-driven By also providing the majority of
strong in Asia, the Middle East and projects should see levels of utility the required financing for such
Africa, it has not been able to force increase in order to close that gap investment China is encouraging
its way as deep into the European and see China’s export markets begin and stimulating growth along OBOR
market as it would like. Through to live up to their true potential. that otherwise might take decades
OBOR, China will eventually be able to realise. As with the Marshall
to present itself as a viable partner in Political Aid programme in Europe, the
European markets, which is the next All states which sign up to OBOR beneficiaries of the aid programme
frontier for them in many respects. undoubtedly have something to gain became inextricably “connected” to
out of the strategy. For most, it will be the US and nowhere was this more
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apparent than the collaboration on which make up the Special Drawing coming years and decades, there
historical projects such as the General Rights (SDRs). This takes the RMB is a clear opportunity for financial
Agreement on Tariffs and Trade into the elite class of currencies of markets both domestically in China
(GATT), the International Monetary which the only other members are and abroad to develop and flourish
Fund (IMF) and NATO. It will be the US Dollar, the Euro, the Japanese in sectors of the financial world
interesting to see if there is a similar Yen and the Great British Pound. where China has so far been a less
alliance of interests flowing from significant participant. A prime
OBOR and how this manifests itself. In addition, China has entered into over example is that of Islamic finance
30 bilateral swap agreements with debt and equity capital markets in the
Chinese growth jurisdictions all over the world, including Middle East. Today the finance sector
One of the key objectives of OBOR a number of states on the OBOR route in the Middle East, led by the financial
is that it should serve for the and significant players such as the gateway of Dubai, is experiencing
general betterment of the Chinese EU, Great Britain, Russia, Switzerland growth in numbers which makes it
population generally, particularly and Canada. Supplementing and a serious challenger to the likes of
on the Western side of China complementing these agreements are London and Kuala Lumpur, certainly in
which has long grappled with the some 20 offshore RMB clearing centres, the Islamic finance space. It is already
influence of unruly neighbours, including in hubs such as New York, clear that there is a significant role
lack of coastal access and lack of London, Hong Kong, Paris, Frankfurt and for Chinese financial institutions to
investment generally. Western China Zurich. play here and Dubai’s International
is an important part of OBOR’s plans Financial Centre has already attracted
and OBOR will increase the quality So while this financial infrastructure interest with four of China’s largest
of life whether it be through job is continually evolving in support of banks (Industrial and Commercial
creation, education or other new RMB internationalisation generally, Bank of China, Agricultural Bank of
opportunities. it is widely expected that OBOR will China, China Construction Bank and
provide a further significant boost Bank of China) having established
Internationalisation of the renminbi to Beijing’s efforts to increase the there. OBOR will ensure that such
Development of China’s financial sector RMB’s influence across the financial financial footprints in new markets will
both at home and abroad will be an world. With the sheer scale of only get larger.
important by-product of OBOR. In numbers being thrown around in the
particular, OBOR will provide a platform context of OBOR-related investment, To date a number of Chinese banks
for the further internationalisation of the it is expected that both outflows have listed conventional bonds on
renminbi (RMB), a strategy which China and inflows of RMB capital will be Dubai’s NASDAQ and it is touted
has been actively pursuing over the last significantly boosted, which will have that it is only a matter of time before
decade. a very positive impact for Chinese this evolves to their listing of Islamic
importers and exporters. bonds (known as sukuk) and other
Significant ground has already been Islamic finance instruments. OBOR
made on this front. As recently as Financial markets and Islamic finance projects are already starting to see
October 2015, the IMF added the In light of the level of spending direct benefits of Islamic finance with
RMB to the basket of currencies foreseen by OBOR projects in the the financing package of the 660MW
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coal-fired power plant in Tharparkar, Although not formally tied to OBOR, Although the establishment of
Pakistan including Islamic finance the establishment of the Asian the AIIB was met with a degree of
tranches of funding in its structure. Infrastructure Investment Bank (AIIB), hesitance and some suspicion from
with headquarters in Beijing, can the likes of Japan and the US, it has
Current Investment in OBOR naturally be seen as an institution which already shown that it is willing to be
Although OBOR has been met with will back OBOR with some strength. collaborative and cooperative with
pessimism in certain quarters, the The AIIB was established with the other institutions of similar stature
government has already taken steps backing of 57 prospective founding and standing. The M4 road project in
to show just how seriously OBOR is members, although this number is set Pakistan, for example, is being jointly
being taken as one of its centrepiece to rise with other states who do not financed with the ADB in what can
initiatives. In pursuit of OBOR objectives, hold such status showing an interest only be a positive sign for relations
a new US$40 billion fund (the Silk Road in becoming members. These states between the institutions.
Fund) has been established and is include influential powers such as Great
earmarked to receive a further boost Britain, France, Italy and Germany. Outside the headline-grabbing figures
to US$100 billion. With the backing With initial capitalisation to the tune being bandied about when discussing
of the likes of the China Investment of US$100 billion and room to grow the larger funds such as the Silk
Corporation, Export-Import Bank of significantly, the AIIB is already being Road Fund and the AIIB, numerous
China and China Development Bank, spoken of in the same breath as the small funds are being established
it is easy to see that the Silk Road Fund Asian Development Bank (ADB) and the by individual institutions, the sum of
means serious business. World Bank. which will have a serious impact. Earlier
this year the Industrial and Commercial
The ink has barely dried on the After formally opening in early 2016, Bank of China launched a GBP 10
establishment of the Silk Road Fund, the AIIB has not wasted any time in billion fund to facilitate infrastructure
yet it has already kicked into gear announcing projects it is willing to projects in Central and Eastern Europe.
with its first investment being in the fund. The first raft of projects were
multi-billion dollar Karot hydropower finalised in the middle of 2016 and Types and locations of OBOR
project in Pakistan in early 2015 the geographical spread of these, projects so far
(discussed further below). Later that and the diversity of the sectors in OBOR does not have an explicitly
same year the Silk Road Fund entered which these projects are located, stated mandate in terms of the types
into a formal agreement by way of go some way to showing how broad of projects it will provide and support.
a Memorandum of Understanding the mandate of the AIIB will be. However, it is inevitable that it will
with Russia’s Vnesheconombank These initial projects include road strongly back all sectors in the wider
and the Russian Direct Investment projects in Pakistan and Tajikistan, an infrastructure space, with a focus
Fund for the construction of energy electricity project in Bangladesh and on the transport sector i.e., roads,
infrastructure projects. Subsequently a housing scheme in Indonesia. It is rail, ports, airports and pipelines. As
it has also taken a stake in Novatek no coincidence that there is a distinct geographical connectivity is one
Inc’s Yamal LNG project in Russia and alignment between these projects of the key objectives of OBOR, it is
made an investment in Italian tyre (particularly the roads in Pakistan and natural that the transport sector will
producer, Pirelli. Tajikistan) and the OBOR philosophy. be a major beneficiary. However, this
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is not to say that other sectors will advertisement of what OBOR has to a power purchase agreement entered
miss out. In taking into consideration offer its member nations. By way of into with one of Pakistan’s national
the various objectives of OBOR example, the pioneer project for the utilities providers. At the conclusion of
as referred to earlier in this article, Silk Road Fund is the 720MW Karot the concession period the asset will
one can foresee that the energy, hydropower project which is currently be transferred to the government of
petrochemicals, education and under construction on the Jhelum river Pakistan.
healthcare sectors will all benefit, in Pakistan. The project forms part of
whether directly or indirectly. the China-Pakistan Economic Corridor CPEC generally is one of the initial
(CPEC) and is a significant investment offshoots of OBOR. It is a series of
Out of an increasingly large bloc of with US$2 billion currently allocated projects flagged between the Chinese
nations showing a very keen interest, by the Silk Road Fund to finance its and Pakistani governments, with the
Pakistan has been a major beneficiary completion. The project has been overarching goal being to link China’s
of OBOR in its early years. This is a nod structured under the BOOT model with Xinjiang region with the strategically
to the strong and enduring relationship a construction period of five years to located Gwadar deep sea port on
the two counties have and, by some be followed by a 30-year concession the southern tip of Pakistan (which is
measure, Pakistan is becoming an period which is underwritten by way of already under operation by Chinese
Source: Mercator Institute for China Studies (https://www.merics.org)
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