KARACHI: The Yellow Line mass transit project seems to have hit snags as its operations are now expected to begin by the end of this year or the next.
The Yellow Line BRT is part of the six Bus Rapid Transit (BRT) corridors that were proposed by Japan International Cooperation Agency (Jica) to improve the traffic situation in Karachi. The Karachi Mass Transit Cell (KMTC) had invited international tenders for its Yellow Line. The Sindh government was hopeful to kick off the project by January, 2015, and get its operation started by the end of 2016. Like last year, the Sindh government is again hopeful that the Yellow Line BRT will finally witness some work on ground by the end of this year. Chinese company China Urban Elected Company (CUEC) has been given the tender but the concession agreement, which was to be signed by July, 2015, has yet to see the light of the day.
A concession agreement is a negotiated contract between a company and a government that gives the company the right to operate a specific business within the government’s jurisdiction, subject to certain conditions.
Reason for delay
Mass Transit director-general Muhammad Athar Khan explained to The Express Tribune the reason for the delay. “The process of the contract negotiation [with the CUEC] took more than expected time,” he admitted, explaining that there was a ‘draft concession agreement’ for the Yellow Line. This is done in cases when there is only a single bid as in the case of Yellow Line. “Such problems do not arise in conventional mode of concession agreements,” he said.
Orange is the new BRT
Khan went on to explain that since the Yellow Line BRT was a megaproject, the contractual provision needed to be carefully finalised. “The interests of both the government and the bidder need to be protected,” he pointed out, adding that in case of any default, the liability should not fall on the government. According to him, this can be the worst-case scenario, for which the government will have to be prepared.
Distribution of financial burden
Khan explained that it is the CUEC that is bound to arrange the loan from the Chinese Asian Bank for the project. Further elaborating on the division of burden, he said that the Sindh government will arrange 15% funds, 16% will come from the CUEC as loan and 69% of funding will come from the loan from the Chinese Asian Bank for the project.
The financial close will happen when the CUEC arranges the loan and the process of all project-related financial transactions has been completed. Khan said that in case the financial close does not take place, the government’s efforts of such a long period might go in vain.
On next year’s agenda
The construction of the project, he said, will start after six months of inking the agreement, which will most likely be the start of the next year. The CUEC, he said, will construct and maintain the project for 10 years as part of the agreement. Meanwhile, the Sindh government will pay the loan instalment and the mark-up instalment on the loan and equity repayment, along with return on investment, will be given to the operator, that is CUEC.
Published in The Express Tribune, June 16th, 2016.
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