ISLAMABAD: The multibillion-dollar Main Line-I (ML-I) project of the China-Pakistan Economic Corridor (CPEC) may soon be back on track as the federal government has finally decided to take around $9 billion loans on its books, which will address a key bottleneck in securing financing for the much-delayed scheme.
The Pakistani authorities have also decided to approve the project as one umbrella scheme instead of granting phase-wise approval, according to the government sources. The Ministry of Railways will now submit the umbrella PC-I document, having an estimated cost of around $9 billion, by October 31 for consideration of the Ministry of Planning, they added.
The status of the ML-I project was also discussed during a meeting between Prime Minister Imran Khan, Chief of Army Staff General Qamar Bajwa, Railways Minister Shaikh Rashid Ahmad and Chinese President Xi Jinping.
The project was discussed in detail during the Joint Working Group (JWG) on transport infrastructure meeting that was held on October 10 and 11 in Islamabad. Pakistan’s Communication Secretary Jawwad Rafique Malik and the Chinese Ministry of Transport Chief Planner Wang Zhiqing co-chaired the meeting. The JWG meeting was held ahead of the upcoming Joint Cooperation Committee (JCC) of the CPEC meeting that will vet these decisions.
The Ministry of Finance and Ministry of Planning and Development have taken decisions about financing modalities and project approval strategy in consultation with the Ministry of Railways after the prime minister fixed October 31 deadline to approve the project. However, an earlier similar deadline by the premier was not honoured by the Ministry of Planning.
Initially estimated to be completed at a cost of $8.2 billion, the ML-I project was part of the early harvest projects of the CPEC. Since the beginning, the project has been facing delays due to a dispute over the nature of Chinese loans.
The ML-I project has been conceived for rehabilitation and upgrade of the Karachi-Lahore-Peshawar railway track, having a total length of 1,872 kilometres. It will double the entire track from Karachi to Peshawar and the speed of passenger trains will be increased from 65-110km per hour to 160km per hour
The freight trains will operate at a speed of 120km per hour after rehabilitation. There will be a computer-based signaling and control system.
The Ministry of Finance desired sovereign loans, which would have shifted the debt servicing and repayment responsibility on the non-existent shoulders of the Ministry of Railways. The International Monetary Fund (IMF) has capped the stock of sovereign guarantees at Rs1.6 trillion besides banning the issuance of new guarantees during this fiscal year, which limited the government choices.
The railway’s ministry was in favour of a central loan that would transfer the debt payment responsibility on the shoulders of the federal government.
The government officials said that a high-level financing committee for the ML-I project has decided to take the central loan. The decision was taken after the debt sustainability analysis of the project showed that it would not have adverse implications for the country’s overall debt position. The analysis was based on the assumption that China would be formally requested to approve a minimum eight-year grace period and around 20 years repayment period for the loan, according to the officials.
Pakistan’s Financing Committee would, “promote the project financing and commencing formal loan negotiations for timely completion of ML-I project and requested constitution of a similar committee by the Chinese side to commence formal loan negotiations,” according to the minutes of the JWG on transport infrastructure meeting.
The minutes further underlined, “Pakistani side expressed that PC-I of this project, as per latest instructions of the Planning Commission, would be submitted by October 31 and would be approved expeditiously as per directives of the prime minister of Pakistan.”
The officials said that now an umbrella PC-I would be submitted to the planning ministry for approval of the Central Development Working Party and Executive Committee of National Economic Council.
The Pakistan Tehreek-e-Insaf (PTI) government had earlier decided to split the project into three phases besides reducing its scope. The ML-I is the only project of CPEC that has been declared “strategically important” by both China and Pakistan but it has already faced a delay of at least four years. The railway’s ministry had estimated the cost of package-I of the project at $2.4 billion, which will now be merged with the umbrella project.
Planning Secretary Zafar Hasan had told a parliamentary committee a couple of months back that at the time of making PSDP 2019-20, there was a thinking that the ML-I project might not be taken up in this fiscal year. He had also said that there was also a flaw in the ML-I framework agreement, which put financing issues at the end instead of taking it up upfront.
But it now seems that that the government has decided to revive the project after keeping it at backburner for over a year.
The JWG minutes further underlined that both China and Pakistan decided that the Pakistani side will complete the PC-I approval process and formulation of bidding documents at the earliest to lay the foundation for the next step towards financing negotiation. It was also decided that the project financing proposal will be reported to JCC for deliberation that will meet next month.
Once these formalities are fulfilled, the government may begin work on the mainline-I project by January or February next year, they added.
Published in The Express Tribune, October 20th, 2019.