In the short space of just a few weeks, Pakistan, Nepal and Myanmar have canceled or sidelined three major hydroelectricity projects planned by Chinese companies. The rejection of the three projects, worth nearly $20 billion, comes as a serious jolt to China’s ambitious trade-linking project, the Belt and Road Initiative (BRI).
Pakistan cited tough financing terms imposed by China as its reason for canceling the $14 billion Diamer-Bhasha Dam project.
Nepal’s deputy Prime Minister recently announced a decision to scrap a $2.5 billion contract for a hydroelectricity project, accusing the Chinese company of financial irregularities. And Myanmar, which halted a $3.6 billion Chinese-backed dam three years ago, declared last month that it no longer is interested in big hydro-electric power projects.
The decisions by China’s neighbors could mean a serious loss of image for BRI, which involves plans to build infrastructure across the globe, including in developed countries like the United States and those in Europe.
While there are also diverse local political and economic reasons behind the three decisions, there is a growing realization among poorer countries that Chinese proposals to build massive infrastructure projects come at an extremely high price, analysts said.
Asked about these decisions by Pakistan and Nepal, the Chinese foreign ministry said it was not aware of it. “I am not aware of this information,” Geng Shuang, foreign ministry spokesman, said at a media briefing. “China and Nepal have sound relations and bilateral cooperation covers a wide range of areas.”
“Against our Interests”
According to the local media accounts, Muzammil Hussain, chairman of Water and Power Development Authority (Wapda) in Pakistan told the Public Accounts Committee (PAC) of parliament that the Chinese company involved in the project there had imposed very difficult financing conditions, which included pledging the new dam, as well as an existing dam, as loan security.
“Chinese conditions for financing the Diamer-Bhasha Dam were not doable and against our interests,” Hussain said.
Himanshu Thakkar, coordinator at the South Asia Network on Dams, Rivers & People, a New Delhi based NGO, said, “For Pakistan, the biggest ally has been China. …They [Pakistanis] would not take out this project without consulting them [the Chinese].”
Indeed, China and Pakistan frequently describe their relationship as “all-weather” and “iron brothers.”
“As far as Pakistan is concerned, they really want financing for this project,” Zorawar Daulet Singh, an analyst at the Center for Policy Research in New Delhi said. Singh said he would not take the Pakistani official’s statement at face value. Islamabad had approached the World Bank and Asian Development Bank for funding but was turned down, he pointed out.
It is the Chinese, which do not want to go ahead with the project in the face of Indian protests, he said. India has been objecting to the Chinese constructing projects in the sensitive Kashmir area, which it claims as its own, because that amounts to backing Islamabad’s view of the Kashmir issue.
“They are probably wanting to sort of put this on the backburner for the moment,” Singh said adding, “I think there is some sort of policy debate within the Beijing establishment on how can they modify feedback to make it somewhat more acceptable to rest of the subcontinent, particularly India, of course.”
China even tried to save face for Pakistan he said.
“They [Chinese] gave the Pakistanis sort of face-saver, that okay, ‘we let you withdraw this but we actually don’t want to get into this now’,” Singh said.
Salvo from the Himalayas
In Nepal, deputy prime minister Kamal Thapa recently took to Twitter to announce, “The agreement [with China], marred by irregularities with the Chinese company - Gejuwa Group regarding the construction of Budhi Gandaki hydropower project, has been scrapped in a cabinet meeting as directed by the parliamentary committee.”
Thapa said the agreement had been signed with the Chinese company “illegally and haphazardly.”
Both the awarding and cancellation has resulted in political controversies in Nepal. The cancellation came immediately ahead of an election, which will take another two weeks to complete.
“The contract for 1200 MW dam project was awarded to a Chinese company some six months ago by the coalition government comprising [the] Maoist Party and the Nepali Congress, but in a manner that was not clearly transparent,” said Yubaraj Ghimire, an analysts of the Nepal political scene.
"There were questions raised about the transparency. You know it was quite a controversial deal. That was six months ago. Then, a parliamentary committee recommended that this deal be scrapped, but nothing happened."
Talking about the latest decision to scrap the contract, Ghimire said, “What has caused controversy now is that this is a election [time] government which is not expected to take major decisions. It has generated debate and criticism.”
One of Nepal’s political leaders and a contender for prime ministership has even said he would reverse the decision if he comes to power.
Some analysts said there is also some rethinking in Beijing in favor of scrapping projects that offer a poor return on investments. China has come a long way with its BRI plans since it tried to sell projects to neighbors like Myanmar, Nepal and Pakistan.
It is now looking at a large part of Europe and the Americas as potential markets.
China is also keen on exporting its hydroelectricity related machines and construction services across the globe. But it is taking a different view in the case of projects in neighboring countries which are mired in political conflicts and instead focusing on other markets like Latin America and Africa.
“They [Chinese] are looking for markets in Africa, Latin America and South East Asia, those regions where neighboring considerations are not very strong, they are looking for industry and machine [exports],” Thakkar said.
Incidentally, it is the same Chinese company, Gezhouba Water and Power (Group) Co Ltd. (CGGC), which won the contracts and was consequently rejected by Pakistan, Nepal and Myanmar.
“I am not sure we can blame the company for this. They are more [due to] investment and political considerations,” Thakkar said.
The recent project cancellations also show a growing realization among governments that the cost of per unit electricity produced in hydropower projects is a lot more than those coming from other sources of renewable energies like solar and wind power, Thakkar said.
In the case of Myanmar, the country’s Construction Minister told Reuters in an interview last month that big hydropower projects are no longer a priority in tackling the problem of power shortages.
Instead, Construction Minister Win Khaing said Myanmar is looking to LNG and smaller dams as an alternative solution.