Gwadar critics see lessons in Hambantota debt woe
Gwadar critics see lessons in Hambantota debt woe
Beijing has built a school, sent doctors and pledged about $500 million in grants for an airport, hospital, college and badly needed water infrastructure for Gwadar, a dusty town whose harbor juts out into the Arabian Sea, overlooking some of the world’s busiest oil and gas shipping lanes.
The grants include $230 million for a new international airport, one of the largest such disbursements China has made abroad.
“The concentration of grants is quite striking,” said Andrew Small, author of a book on China-Pakistan relations and a Washington-based researcher at the German Marshall Fund think-tank.
“China largely doesn’t do aid or grants, and when it has done them, they have tended to be modest.”
Pakistan has welcomed the aid with open hands. However, Beijing’s unusual largesse has also fueled suspicions in the US and India that Gwadar is part of China’s future geostrategic plans to challenge US naval dominance.
“It all suggests that Gwadar, for a lot of people in China, is not just a commercial proposition over the longer term,” Small said.
The Chinese Foreign Ministry did not respond to a request for comment from Reuters.
Beijing and Islamabad see Gwadar as the future jewel in the crown of the China-Pakistan Economic Corridor (CPEC), a flagship of Beijing’s Belt and Road initiative to build a new “Silk Road” of land and maritime trade routes across more than 60 countries in Asia, Europe and Africa.
The plan is to turn Gwadar into a trans-shipment hub and megaport to be built alongside special economic zones from which export-focused industries will ship goods worldwide. A web of energy pipelines, roads and rail links will connect Gwadar to China’s western regions.
Port trade is expected to grow from 1.2 million tons in 2018 to about 13 million tons by 2022, Pakistani officials said.
But the challenges are stark. Gwadar has no access to drinking water, power blackouts are common and separatist insurgents threaten attacks against Chinese projects in Gwadar and the rest of Balochistan, a mineral-rich province that is still Pakistan’s poorest region.
Security is tight, with Chinese and other foreign visitors driven around in convoys of soldiers and armed police.
China’s Gwadar project contrasts with similar efforts in Sri Lanka, where the village of Hambantota was transformed into a port complex — but was saddled with Chinese debt.
Last week, Sri Lanka formally handed over operations to China on a 99-year lease in exchange for lighter debt repayments, a move that sparked street protests over what many Sri Lankans view as an erosion of sovereignty.
The Hambantota port, like Gwadar, is part of a network of harbors Beijing is developing in Asia and Africa that have spooked India, which fears being encircled by China’s growing naval power.
But Pakistani officials said comparisons to Hambantota are unfair because the Gwadar project has much less debt.
On top of the airport, Chinese handouts in Gwadar include $100 million to expand a hospital by 250 beds, $130 million toward upgrading water infrastructure, and $10 million for a technical and vocational college, according to Pakistani government documents and officials.
“We welcome this assistance as it’s changing the quality of life of the people of Gwadar for the better,” said Senator Mushahid Hussain Sayed, chairman of the parliamentary committee that oversees CPEC, including Gwadar.
China and Pakistan jointly choose which projects will be developed under the CPEC mechanism, Sayed added.
The scale of Chinese grants is extraordinary, according to Brad Parks, executive director of AidData, a research lab at the US-based William and Mary university that collected data on Chinese aid across 140 countries from 2000 to 2014.
Since 2014, Beijing has pledged more than $800 million in grants and concessional loans for Gwadar, which has fewer than 100,000 people. In the 15 years before that, China gave about $2.4 billion in concessional loans and grants across the whole of Pakistan, a nation of 207 million people.
“Gwadar is exceptional even by the standards of China’s past activities in Pakistan itself,” Parks said.
But there are major pitfalls ahead.
Tens of thousands of people living by the port will have to be relocated.
For now, they live in cramped single-story concrete houses corroded by sea water on a narrow peninsula, where barefoot fishermen offload their catch on newly paved roads strewn with rubbish.
Indigenous residents’ fear of becoming a minority is inevitable with Gwadar’s population expected to jump more than 15-fold in coming decades. On the edge of town, mansions erected by land speculators are popping up alongside the sand dunes.
For its investment in Gwadar, China will receive 91 percent of revenues until the port is returned to Pakistan in four decades’ time. The operator, China Overseas Ports Holding Company, will also be exempt from major taxes for more than 20 years.
Saudi Arabia seeks stable, not soaring, oil prices
- Due to market tightness, Brent rose to nearly $80 per barrel but deteriorated to $78.80 on Friday.
- The average price for Brent crude per barrel over the past five months has been between $72.11 and $76.98
RIYADH: Oil prices rose this week on continuing market tightness. With the price rise, some Saudi-bashing has begun. Bloomberg reported that increasing prices were due to Saudi Arabia’s comfort with Brent crude above $80 per barrel. Such “analysis” is hogwash.
Due to market tightness, Brent rose to nearly $80 per barrel but deteriorated to $78.80 on Friday. WTI rose above $70 per barrel for the first time in three months and settled at $70.78 per barrel by the week closing.
The average price for Brent crude per barrel over the past five months has been between $72.11 and $76.98. As may be noted in those numbers, the Brent crude price has been resisting the psychological barrier of $80 per barrel. The fact is that, since October 2014, the Brent monthly average has never gone above $80.
The oil price outlook might be raised as a result of this upward tendency and the continuing tight oil market. For instance, with the latest numbers in hand, HSBC has revised its oil price forecast upward with Brent to average $80 per barrel in 2019 and $85 in 2020, before settling at about $75 in 2021.
Bloomberg was inaccurate about Saudi Arabia’s comfort with a Brent price above $80 per barrel. The Kingdom has never been among the bulls when it comes to oil prices. Again and again, Saudi Arabia has been a major advocate for stable oil prices, not increasing oil prices, which it views as unsustainable and damaging to the global economy. Bloomberg is also predicting that Saudi Arabia will follow its allegedly bullish nature and refrain from ramping up production to compensate for the oil lost once the US sanctions on Iran come into effect.
US Secretary of Energy Rick Perry has confirmed that Saudi Arabia, Russia and the US are well able to add enough crude oil supply into the market to compensate for Iran. Indeed, the Kingdom has begun to increase output to adjust for market needs, from 9.87 million barrels per day (bpd) in April to 10.42 million bpd in August.
The upward movement in oil prices came after strong fundamentals showed market tightness that spurred record levels of speculative traders, with nearly all betting on higher prices. The price rise also recognized that total US inventories are below the five-year average for the first time since May 2014. Oil prices have been gradually trending upward with gentle fluctuations. There have not been any steep surges or declines. There is nothing artificial about the trend. In reality, it is boringly predictable.
Last month, the International Energy Agency (IEA) reported OECD commercial crude oil inventories at 32 million barrels below the five-year average. Stocks at the end of Q2 2018 were up 6.6 million barrels versus the end of 1Q 2018, the first quarterly increase since 1Q 2017. The IEA also noted that global refinery throughputs in the second half of 2018 are expected to be 2 million barrels higher than in the first half of the year. These refined products stocks will draw down before building again in 4Q 2018.
Global crude oil inventories peaked in 2016. The OPEC+ agreement that worked for market balance was the reason for a fall in inventories. Since May 2017, global oil stocks have been on the decline and now global crude oil stocks are below the five-year average. Product stocks are also below that level, with strong demand and healthy refining margins.
Inventories have kept falling despite American producers pumping at all-time highs last month. It is only the massive flood of oil from the US which has kept crude oil prices at low levels from early 2015 to the end of 2017 — along with a resulting lack of upstream investment in the oil industry. Therefore, the IEA predicts that in 2022 spare production capacity will fall to a 14-year low.
Global oil markets are rebalancing. Oil prices started their upward momentum from the end of October 2017. They went above the psychological barrier $60 a barrel after 10 consecutive months of tireless efforts by OPEC and non-OPEC nations that started on January 2017. The market rebalancing will continue through the end of 2018, and beyond.
Such upward momentum in oil prices isn’t artificial movement because it came after many months without steep price fluctuations. In 2016, the Brent price average was $43. The 2017 Brent price average was $54, and prices just surpassed $60 in October 2017. The Brent average surpassed $70 in late March 2018 and has been hovering between $72 and $78 since. There is no evidence of a steep fluctuation or an artificial movement.
The claims of an artificial price movement have come just at the time when OPEC and the world are reaping the positive outcomes of 24 nations collaborating in output cuts that managed to successfully rebalance the oil market in a situation where global oil inventories were running at record highs. Also, these false claims came when the oil industry needs capital inflows to reactivate upstream investments for major international oil companies. Such investments are essential for the price stability that benefits oil producers and consumers globally. Low oil prices result in low investment in discovery and production of petroleum resources, which damages various industry sectors and energy needs. That leads to a vicious cycle of up-and-down price fluctuations.