Strictly Private and Confidential BRI – Economic Corridors and Key Operational Investments March 2018 Merchant Banking Innovation Strictly Private and Confidential Selected Projects pre-Belt and Road Kazakhstan – China China's 1st oil pipeline co-owned by CNPC and KazMunayGas. Agreed in 1997, 1st section completed in 2003, 2nd section completed in 2005, 3rd section in 2009. Total length of the pipeline is over 2,200 kilometers with annual production of 20 million tons/year. In 2011, the Chinese government announced that it would jointly sponsor the construction of a high-speed rail line between Astana and Almaty in Kazakhstan between China and Western Europe as part of an HSR link. Central Asia – China Gas Pipeline In 2006, China and Turkmenistan signed a framework agreement on the pipeline construction and long term gas supply. In 2007, it was announced that Turkmenistan will join China- Kaz pipeline. In 2008 construction of the Uzbek section started. In 2009 the whole pipeline was launched. In 2010, China and Kazakhstan signed an agreement to expand this into Western Kazakhstan. The 2nd line was completed in 2010, the 3rd line by 2012, the 4th by 2014. Turkey – HSR Turkish State Railways began building HSR in 2003. The 1st section of 533 km was inaugurated in 2009, linking Istanbul to Ankara. The Marmaray Project/Tunnel will connect the railway lines on the European and Asian parts of Istanbul. Arguably, the first Belt and Road project dates as far back as 1967, when China provided both a $60 million loan and labour to the Karakoram highway, the highest paved international road in the world, which links Pakistan to China. 1 Merchant Banking Innovation Strictly Private and Confidential Official OBOR – Pre launch (2013) Merchant Banking Innovation 2 Strictly Private and Confidential OBOR 2013 map – Selected Projects along Corridors since launch Budapest-Belgrade railway upgrade initially agreed in 2013 Belarus railway electrification (2013 – 2015) Two nuclear power plants in Ekibastuz Power Plant Iran (2015) (Kazakhstan) Moscow China and Russia combine to fund expansion (2014) Rotterdam Duisburg Silk Road Economic Alataw Pass Venice Belt Istanbul Samarkand Urumqi Athens Lanzhou Beijing Dushanbe Shipping Project Xi’an COSCO Shipping signed 35 Teheran year lease with Piraeus Port Fuzhou in 2010; acquired control in Quanzhou 2015 Beihai Guangzhou Hanoi Haikou 21st Century Maritime Silk Road Colombo Penang Bridge Tunnel Project Two Chinese firms plus local partners Kuala Lumpur (2013) Ethiopia-Djibouti railway Nairobi First section signed 2011. 2nd section signed 2012. Colombo Port City Project Operational 2016 Jakarta launched by China in 2014 Hanoi Expressway Project (2014) Merchant Banking Innovation 3 Strictly Private and Confidential BCIM Economic Corridor (2013) The Bangladesh–China–India–Myanmar (BCIM) is a sub-regional organisation of Asian nations aimed at greater integration of trade and investment between the four countries. The corridor covers 1.65 million square kilometers, encompassing an estimated 440 million people in China's Yunnan province, Bangladesh, Myanmar, and West Bengal in Northern India. The concept was initially discussed by all the countries during the late 1990s and was known as the ‘Kunming Initiative’. The first meeting of the Initiative was convened in 1999 in Kunming. In December 2013, the four nations drew up a long discussed plan, whereby it was agreed that the corridor will run from Kunming to Kolkata, linking Mandalay in Myanmar as well as Dhaka and Chittagong in Bangladesh. Merchant Banking Innovation 4 Strictly Private and Confidential Specific BCIM Economic Corridor Projects Bangladesh In October 2016, Bangladesh and China approved a draft MoU for two loan agreements of $706 million with China for the construction of a multilane road tunnel beneath the Karnaphuli river. It is also part of a plan to bolster Chittagong’s role as a communications hub, develop the Dhaka-Chittagong-Cox’s Bazar national highway, create a link with the Asian Highway Network thus increasing connectivity with Myanmar and India. Bangladesh has a power grid deficiency, and has turned to China increase grid capacity. The goal, announced in 2016, as part of a plan to increase the country’s total power generation capacity to 40,000 MW by 2030, from the current level of around 13,500 MW. It is estimated that 30% of the target capacity will be generated from coal-fired power plants while the remaining 70% is to come from renewable energy. Bangladesh’s state-run Ashuganj Power Station Ltd (APSCL) and China Energy have agreed to build a 1,320-MW coal-fired TPP in Patuakhali through a 50/50 joint venture. The proposed 2x660-MW generating project is to be developed at Kalapara at an estimated cost of US$2 billion, with a debt-to-equity ratio of 70%/30% (loans from CEXIM). The technology-based plant will use imported coal of around 12,000 tonnes of coal/day. From countries such as Indonesia, India and Australia. Bangladesh’s state-owned West Zone Power Distribution Co Ltd will build a transmission line from the proposed plant to Patuakhali sub- station to connect the national power grid. Payra Project: Also North-West Power Generation Co Limited last year set up a 50/50 joint venture with CMEC in 2016 for development of a 1,320-MW coal-fired TPP at Payra. CEXIM provided a US$1.6 billion loan for this project. Myanmar China’s CITIC Group is looking to lead a consortium (which includes CHEC, China Merchants Holdings, TEDA, and Yunnan Construction Engineering Group) to take a stake of up to 85% in the $7.3 billion Kyauk Pyu port , a strategically important sea port in Myanmar. In exchange for control of the port, China had signalled it was willing to abandon the controversial $3.6bn Myitsone dam project, which has been blocked for a number of years. Like Gwadar (discussed later),Kyauk Pyu is important for China because the port is the entry point for a Chinese oil and gas pipeline which gives it an alternative route for energy imports from the Middle East that avoids the Malacca Straits. The port is part of two projects, which also include an industrial park, to develop a special economic zone in Myanmar’s western Rakhine State. A second consortium led by CITIC has also proposed taking a 51% stake in the $2.3bn industrial park. The only non-Chinese SOE involved in the consortium is Thailand’s Charoen Pokphand Group. 5 Merchant Banking Innovation Strictly Private and Confidential OBOR map – BCIM Economic Corridor (2013) Budapest-Belgrade railway upgrade initially agreed in 2013 Belarus railway electrification (2013 – 2015) Two nuclear power plants in Ekibastuz Power Plant Iran (2015) (Kazakhstan) Moscow China and Russia combine to fund expansion (2014) Rotterdam Duisburg Silk Road Economic Alataw Pass Venice Belt Istanbul Samarkand Urumqi Athens Lanzhou Beijing Dushanbe Shipping Project Xi’an COSCO Shipping signed 35 Teheran Fuzhou year lease with Piraeus Port BCIM Corridor Kunming in 2010; acquired control in Quanzhou 2015 Kolkata Beihai Guangzhou Hanoi Haikou 21st Century Maritime Silk Road Colombo Penang Bridge Tunnel Project Two Chinese firms plus local partners Kuala Lumpur (2013) Ethiopia-Djibouti railway Nairobi First section signed 2011. 2nd section signed 2012. Colombo Port City Project Operational 2016 Jakarta launched by China in 2014 Hanoi Expressway Project (2014) Merchant Banking Innovation 6 Strictly Private and Confidential China-Pakistan Economic Corridor (CPEC) (2014) CPEC is an economic corridor comprising a collection of projects currently under construction at a cost of $62 billion. CPEC aims to provide sufficient power to eliminate the power shortages and to facilitate trade along an overland route that connects Kashgar and Gwadar, through the construction of a vast network of highways, railways, optical fiber and oil pipelines. The corridor is intended to rapidly expand and upgrade Pakistani infrastructure. Pakistani officials predict that the project will result in the creation of upwards of 700,000 direct jobs between 2015– 2030, and add 2 to 2.5% to Pakistan’s GDP growth. Upon implementation, the value of those projects would be equal to all foreign direct investment in Pakistan since 1970, and would be equivalent to 17% of Pakistan's 2015 GDP. Gwadar Port became operational in November 2016 when the initial outbound vessel (with Chinese goods) set sail to the Middle East and Africa: in December 2016 the first large shipment of Chinese goods arrived into Gwadar. Once fully operational, China will realise considerable cost savings ($ billions per year), shortening oil shipping from 13,000 kms to 3,000km/barrel for every barrel of oil imported from the Persian Gulf as well as providing additional revenues to Pakistan. 91% of the revenues to be generated from the Gwadar port in CPEC would go to China, while the GPA would get 9% for the next 40 years. Merchant Banking Innovation 7 Strictly Private and Confidential China-Pakistan Economic Corridor (CPEC) (2014) In Q2 2015, and as part of the China-Pakistan Economic Corridor (CPEC), China announced $46 billion in pledges to Pakistan. Original estimates thought that roughly $35 billion investments would relate to the energy sector and $11 billion in infrastructure and Gwadar. By Q4 2016, roughly $37 billion of this amount had already been allocated to specific or proposed projects. Early Harvest Project Status Only 4-5 of the 18 projects have been completed to date (less than 2,000MW). Most of the major energy grid uplift pushed back to 2018 completion or later (delaying GDP growth). Chinese Domination of Early Harvest Financing Chinese policy banks and ICBC have 90% market share of the debt for the Early Harvest projects- local ICBC operation has grown substantially; BoC planning to double presence in 2018. Despite plenty of liquidity, Pakistani banks have been virtually shutout of all of the Early Harvest projects – except for Thar II, where 5 Pakistani banks share nearly equal debt exposure with 3 Chinese banks.