What is the cost of financing of CPEC projects anyway?

$25b is being circulated as CPEC investment -- it is technically not 'equity', but a lot of 'debt'. But what is its cost?

Equity. Most CPEC projects have 'guaranteed' return in USD terms of 15-20% depending on project

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This means that for every $1 that Chinese put in as equity, they recover that amount in 5 years tops. And this is in USD terms, implying that if PKR depreciates, consumers also pay that differential. So if PKR depreciates by 7% every year, we pay a minimum of 22% in ROE.

Lets come to debt now. The debt is provided by Chinese Banks, and priced at LIBOR+2% or more, at largely market terms. Since Pakistan is a risky jurisdiction, Banks want 'credit risk' to be covered, which means, in case Pakistan defaults, they want their money back.

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That coverage is provided by an entity called Sinosure, which charges a 'risk premium' of 7% of ALL debt + mark-up payments. So if you're borrowing $10, then it will be 7% of $10+any mark-up payments throughout project life. This adds to overall cost

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Also, most projects have a Debt-Equity ratio of 70-30, which means that if project cost is $100, roughly $70 would be provided by debt, and $30 would be equity. Weighting these two, we get a blended cost of roughly 11% (in USD) spread over 10 years.

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So yea, the cost of CPEC dollars is 11% per annum (in USD terms) spread over ten years. As PKR depreciates, cost in PKR also increases correspondingly. There are no free lunches & this is an expensive meal of peking duck.
Detailed calculations here:

https://en.dailypakistan.com.pk/26-Sep-2018/cpec-what-is-the-cost-of-financing-anyway

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