Pakistan Pursues Saudis in Bid to Avoid More China Debt

By Saeed Shah in Islamabad, Pakistan, and Benoit Faucon in London (Wall Street Journal)

Sept. 30, 2018 2:05 p.m. ET

Islamabad wants to avoid falling further into debt to Beijing, and will host Saudi officials for talks starting Monday

A proposed refinery at the Pakistani port of Gwadar would bolster its facilities as a competitor to a nearby Iranian port.

ISLAMABAD—Saudi officials are due in Pakistan for talks starting Monday over a proposed multibillion-dollar oil refinery and other investments, Pakistani officials said, as Islamabad seeks new sources of outside cash to avoid falling further into Chinese debt.

Saudi Arabian Oil Co., the state-run oil giant known as Aramco, is negotiating investing in the refinery, a person close to the Saudi side of the talks said. The refinery at the Pakistani port of Gwadar, near the strategic oil chokepoint of the Strait of Hormuz, would produce 200,000 barrels a day, that person said. Aramco spokespeople didn’t respond to requests for comment.

The Saudis will in addition hold talks over investing in other projects, Pakistani officials said, including the giant Reko Diq copper mine, also in the western province of Baluchistan.

Any deal would deepen Pakistan’s relationship with Riyadh, and place a Saudi outpost close to its chief regional rival, Iran. The refinery would also bolster Gwadar’s facilities as a competitor to the nearby Iranian port of Chabahar. Gwadar lies just 70 miles from the Iranian border.

The Saudi refinery would undercut any Iranian attempts to circumvent U.S. sanctions to sell oil to Pakistan. Tehran, which is facing returning U.S. sanctions in November, has often focused on sales to neighbors when it came under international restrictions.

Pakistan is the flagship for Beijing’s global “Belt and Road” infrastructure building program, known here as the China Pakistan Economic Corridor, which has some $62 billion of projects. Gwadar, handed over to the Chinese to run, is meant to be the centerpiece, but development there has been slow, to the frustration of Beijing.

Pakistan previously had looked to China for the refinery, with talks taking place on the issue within the past month, according to Pakistan’s energy ministry. However, that would involve taking on more debt to China. Saudi Arabia is expected to invest the money for the refinery. Washington has warned of a “debt trap” from Chinese infrastructure lending to countries that can’t afford to pay it back, a charge rejected by China.

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The Saudi investment would be a boost to CPEC, which has stalled amid debt fears and a reassessment by the new Pakistani government of Imran Khan, elected in July. Under Mr. Khan, Pakistan has invited other countries to take part in the program, and the visiting Chinese foreign minister, Wang Yi, said recently that Beijing was open to that.

One Pakistani government minister said Saudi Arabia would become “the third country in CPEC.” Riyadh is a close ally of the U.S., which Beijing accuses of seeking to undermine its global infrastructure initiative.

Pakistan, battling a balance of payments crisis, is also seeking in the immediate term to get Saudi Arabia to provide oil at a reduced price or with deferred payment, according to Pakistani officials.

The Saudi trip is preparatory work for the visit of Crown Prince Mohammed bin Salman, due in Pakistan within weeks, Pakistani officials said.

The first senior foreign visitor after the formation of Mr. Khan’s government was Iranian Foreign Minister Javad Zarif, who came at the end of August. That would have set off alarm bells in Riyadh, said Rifaat Hussain, a professor at Islamabad’s National University of Sciences and Technology.

Mr. Khan was subsequently invited to Saudi Arabia, where he met King Salman and the crown prince recently. Riyadh said at the time that ways to enhance bilateral cooperation were discussed.

Pakistan provides several thousand soldiers to Saudi Arabia for deployment and training missions within the kingdom, but has declined to join the war in Yemen, where a Saudi-led coalition is battling Houthi rebels. Mr. Hussain said that Pakistan is seeking to balance its relationships with Iran with Saudi Arabia.

“Pakistan is looking to Saudi Arabia as a way of attracting more foreign investment in CPEC,” said Mr. Hussain. “Pakistan’s hope is to bring both Saudi Arabia and Iran in.”

In the past, Tehran accused Saudi Arabia of using Pakistan’s Baluchistan province to support jihadist groups that attack inside Iran, a charge denied by Riyadh.

The Saudi visitors this week are expected to include Minister for Energy, Industry and Mineral Resources Khalid Al-Falih, who is also chairman of Aramco. He is due to meet with Pakistani Petroleum Minister Ghulam Sarwar Khan, Pakistani officials said.

Oil products from any refinery at Gwadar could be exported, sold inside Pakistan or trucked to China on the new roads being built through Pakistan to the northwestern Chinese region of Xinjiang, experts said.

The Saudi side is expected to visit Gwadar and the Reko Diq copper mine, said Pakistani officials. Reko Diq was being developed by a joint venture between Chilean copper miner Antofagasta PLC and Toronto-based Barrick Gold Corp, but it has been frozen for years after the Pakistani authorities refused to grant it a mining license in 2011. The joint venture has since been seeking billions of dollars in damages.

Write to Saeed Shah at saeed.shah@wsj.com and Benoit Faucon at benoit.faucon@wsj.com

Appeared in the October 1, 2018, print edition as 'Pakistan Pursues Saudi Investment.'