The government on Wednesday approved the Karachi Circular Railway (KCR) project that would be completed with an investment of Rs201.5 billion, including an expenditure of Rs105 billion by a private party.
The 43-kilometre-long rail service was part of the two schemes that the Executive Committee of National Economic Council (Ecnec) approved. The total cost of the two schemes is Rs232 billion, according to a statement issued by the Ministry of Finance. Finance Minister Shaukat Tarin chaired the Ecnec meeting.
The per-kilometre KCR project cost comes to Rs4.7 billion, which is far lower than Rs6.1 billion for the Orange Line Metro project – an almost similar scheme approved in 2015 for Lahore.
The project envisages the construction of a 43.2km dual-track urban mass transit system over a period of three years.
Karachi Circular Railway Management Company (KCRMC) will be responsible for the oversight related to the execution, operation and maintenance of the project.
A committee was also formed under the chairmanship of finance minister to review the transaction structure related to the contribution of federal government subsidy.
The project will be implemented under the public-private partnership mode for which the transaction structure has been approved by the Public-Private Partnership Authority (PPPA) board.
According to the financing model, around Rs90.6 billion will be given in subsidies by the government to complete the project in partnership with the private sector.
The government of Sindh will provide Rs6 billion while the concessionaire will invest Rs105 billion in the project. Out of the Rs90.6 billion, the government will provide Rs70 billion for civil works and Rs19.7 billion for overhead expenditures.
However, the transaction adviser hired to prepare the financing model had recommended the provision of Rs513 billion in subsidies over a period of 30 years.
The government subsidies are exclusive of the cost on account of minimum guaranteed revenue of 85% of the projected passenger flow. The government has largely transferred the demand risk to the private party. However, it will provide minimum revenue guarantee for first five operational years of the project at 85% of the projected passengers.
But the concessionaire will share 50% gain in the fare-box revenue with the government, if the actual ridership exceeds 115% of the estimated ridership.
KCR was part of the Rs739 billion Karachi Transformation Plan that the federal government had promised to deliver in three years.
The PPPA board had been informed in January this year that the KCR project was not financially viable and required substantial subsidies to make it viable and bankable for the private sector.
According to the consultants and the PPPA, the project presented very high risks such as fiscal, default, interface and demand risks and needs a thorough analysis by the Risk Management Unit (RMU), Finance Division.
The estimated cost of a passenger ticket is minimum Rs35 and maximum Rs90 with annual increase of 6% in fares. The project is expected to serve daily ridership of 457,000 passengers, which is expected to soar to 1 million by the end of 33-year concession period.
Ecnec also approved an increase in the salaries of project employees by 75%. The project employees’ salaries have been revised after a gap of five years. The increase will be applicable from the date of notification by the Ministry of Finance.
Ecnec allowed appropriate allocation in the budget of development projects for showcasing their effectiveness through media campaigns to create awareness of the federal government’s policies.
Ecnec approved the Rural Economic Transformation Project (RETP-KP). The project is aimed at improving the income of rural households through multi-sector interventions in agribusiness development and employment promotion.
It will be implemented in 35 districts of Khyber-Pakhtunkhwa and contribute to poverty reduction and food and nutrition security of rural communities.
The total cost of the project is Rs30.3 billion including a foreign loan of Rs17.6 billion. The provincial government’s share will be Rs4.7 billion and the beneficiaries’ share is estimated at Rs8 billion with project gestation period of seven years, according to the finance ministry.
The Ministry of Planning submitted a summary on recommendations after holding meetings with the representatives of Sindh and Punjab on the Greater Thal Canal Project.
The project was approved, in principle, by Ecnec in December last year at a cost of Rs38.4 billion but Sindh had serious reservations.
Published in The Express Tribune, March 17th, 2022.
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