China quickens work on Pakistan utility in area claimed by India

ISLAMABAD (Bloomberg) - China is racing to finish one of the biggest hydro-power projects in Pakistan ahead of schedule, yet its location in the long-contested region of Kashmir will draw ire from India.

Construction on the 720 megawatt Karot power station being built on Jhelum river began in December 2016 and looks set to finish nine months ahead of its December 2021 completion date, a first for a Pakistan hydro-project said Qin Guobin, chief executive officer of the state-owned China Three Gorges Corp. South Asia Investment Ltd. The company has put in place an aggressive strategy to cut the project's financing costs.

"For us, Pakistan is a strategic market," Qin said at the site.

"If we managed to complete it earlier we can save financing costs and make it more competitive."

Pakistan's energy demand is expected to grow by 6 per cent to 35,000 megawatts by 2024 as its population of more than 200 million people grows along with the economy. For more than a decade, it's been struggling to overcome daily power shortages that have left industry and residents in the dark.

China has stepped in to meet some of those shortages, financing projects worth more than US$50 billion (S$67 billion) in an economic corridor that runs through Pakistan. The route is part of Chinese President Xi Jinping's 'Belt-And-Road' plan to connect Asia with Europe and Africa with a web of ports, railways and highways links for trade.

Three Gorges' focus in Pakistan is clean energy and it has a US$6 billion portfolio in three hydro and three solar power plants. The Karot hydro-power project is in the Pakistan-administrated part of Kashmir, which India and Pakistan both claim and have fought two wars over since independence in 1947.

India's foreign ministry said its views on "Pakistan's illegal occupation" of Kashmir is "a matter of record."

"We have objected, they have proceeded nevertheless," said G. Parthasarathy, a former Indian high commissioner to Pakistan.

"This has been going on since the 1960s and 1970s, when they built the Karakoram highway" that links Pakistan with China through the disputed territory, he said.

China has a neutral stance on the Kashmir dispute, said Zhao Gancheng, director of the Center for South Asia Studies at the Shanghai Institute for International Studies. "The Belt and Road initiative cannot be delayed or sidetracked by the territorial disputes."

Relations between China and India hit a recent low during a dispute between a three-way junction between Bhutan, China's Tibet and India's Sikkim, which was resolved with both sides standing down in August.

More broadly, New Delhi is wary of Chinese investments in neighbouring countries such as Pakistan and Sri Lanka, while Beijing is irked by India's lack of support for its infrastructure and trade initiative.

India's concern doesn't bother Qin.

"It's a political issue and not the concern of a private investor," he said.

Pakistan considers the hydro power site a national security priority. It's dotted with army pickets and plain-cloth security officials. None of the Chinese staff can leave the camp office without registering his or her name at the main gate. Out of the total 2,070 workers, 750 are Chinese.

The concern is being taken seriously by both sides. Pakistan has created a special force of 15,000 troops to defend the Chinese projects and that number may be double, according to people with direct knowledge of the plans, who asked not to be identified as they aren't authorised to speak to the media. Yet risks remain after two Chinese nationals were killed in southwestern Balochistan in June. Islamic State claimed their murders.

The stakes are high for Pakistan, with the planned power generation projects potentially adding US$13 billion to its economy in the next seven years,according to an International Monetary Fund report published in July.

Pakistan's hydro-power generation potential is an estimated 40,000 megawatts, but the existing installed capacity was only 7,116 megawatts in the 2015-16 fiscal year, according to the National Electric Power Regulatory Authority's latest report.

Three Gorge's now eyeing the contract for the construction of a 4,500 megawatt Diamir-Bhasha power project in northern Gilgit-Baltistan and northwestern Chillas district.

"Pakistan total installed capacity is equal to one big city of China like Shanghai," Qin said. "That's not enough."

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