PESHAWAR – Saudi Arabia’s recent decision to back away from a promised US$10 billion investment in a Pakistan refinery and petrochemical project has hit relations at a time when Islamabad is in dire need of new foreign investment and finance.
Saudi Crown Prince Mohammed bin Salman, or MBS, had shown interest in setting up a Saudi Aramco refinery in the Pakistan port of Gwadar during a visit to Pakistan in 2019. It came at a time the crown prince also announced $100 billion in new investments in neighboring India’s petrochemical, mining and infrastructure sectors.
In late 2020, Riyadh confirmed its investment plans in India were on track while the Gwadar project was stuck in the doldrums throughout 2021. Late last year, Pakistani authorities were finally informed the $10 billion project would not be executed due to the global economic slowdown and its poor commercial potential.
The Aramco investment had earlier been touted as a potential big boost to China’s Belt and Road Initiative (BRI) investments in Pakistan under the $60 billion China-Pakistan Economic Corridor (CPEC), which has been plagued by delays, disputes and security concerns.
Mushahid Hussain Sayed, a Pakistan Muslim League-Nawaz senator and chairperson of the Senate Defense Committee, told Asia Times that Saudi Arabia’s $10 billion pledge to the refinery project was actually more of an announcement than a financial commitment.
Riyadh’s backtracking on the deal comes amid a downturn in bilateral ties that started in 2019 when Islamabad supported a Muslim summit held by Malaysia and endorsed by Turkey.
Saudi Arabia, home to some of Islam’s holiest shrines, saw the event as a threat to its hold on the so-called Muslim world and penalized Pakistan through calls for early repayment of a $3 billion credit facility even though Islamabad withdrew from the Malaysian summit.
In 2020, bilateral ties deteriorated further when Pakistan Foreign Minister Shah Mahmood Qureshi criticized Saudi Arabia during a TV interview after Riyadh declined to call an Organization of Islamic Cooperation (OIC) meeting to deliberate the Kashmir issue on the first anniversary of the revocation of Article 370 by India.
At the same time, amid a deteriorating economic situation with pressure mounting on the currency amid a bulging trade deficit and widening balance of payment crisis, Pakistan approached Saudi Arabia in October last year for a $4.2 billion bailout arrangement, which included a $3 billion cash deposit and $1.2 billion for oil on deferred payment.
Unlike the previous lenient terms, Riyadh put tougher conditions on the new facility.
The $3 billion cash facility carried an interest rate of 4%, higher than the previous similar facility Pakistan obtained in 2018 at a 3.2%. That means Pakistan will pay $120 million in interest on the loan.
The new Saudi package also had no rollover facility, unlike the previous arrangement. Another part of the agreement stipulates that Saudi Arabia can demand a refund of the loan from Pakistan at any time on 72 hours’ notice, with or without giving a reason. Saudi Arabia could also demand an immediate return of the money in the case of a sovereign default.
A delay in timely interest payment and failure by Pakistan to comply with any provision of the cash deposit agreement would be tantamount to a default under the deal. Non-payment of public external debt of more than $100 million by Pakistan and an end to IMF membership would also constitute a default according to the agreement.
The agreement terms further revealed that in case of any dispute on the terms of the agreement, Saudi law would be applicable for arbitration.
Pervez Hoodbhoy, a Pakistani rights activist, columnist, academic and a distinguished professor at the Forman Christian College and the Quaid-e-Azam University, told Asia Times that Saudi Arabia was undergoing religious, social and political changes that have altogether altered its previous global and regional role.
“Pakistan wants back the old Saudi Arabia together with its old ideology and unlimited coffers. Nevertheless, times have moved on and the Kingdom is no longer interested in sponsoring jihad or funding madrassas and mosques,” he said.
“Unfortunately for Pakistan, the royal rulers of Saudi Arabia have realized that the way forward for them is by modernizing not just through technology acquisition, but also by slowly releasing the controls that have kept the Arabs backward for centuries. They do not see Pakistan as an ally in their efforts,” he added.
The latest embarrassment comes from the Pakistan foreign office after the foreign minister showed a gesture of disrespect and violated diplomatic etiquette during his meeting with the Saudi Arabian Ambassador to Pakistan Nawaf bin Said Al-Malki.
A photo of Foreign Minister Shah Mahmood Qureshi, which went viral on social media, showed him sitting with the Saudi diplomat with his shoe facing the guest’s face. The Saudi Ambassador to Pakistan had called on Qureshi in Islamabad last week.
Many Saudi and Pakistani netizens found Qureshi sitting with one leg crossed and the other pointing in the direction of Al-Malki as offensive and derogatory.