The Asian Development Bank (ADB) has offered to fund China-Pakistan Economic Corridor (CPEC)’s $10 billion Mainline-I (ML-I) project, said the administration head of the planning ministry on Wednesday – a move that may require Beijing’s consent in order to onboard a second financier.
“ADB has offered to finance the ML-I project,” said Zafar Ali Shah, Secretary of the Ministry of Planning while talking to the journalists at his office.
To a question, Shah said “Pakistan is still pursuing the project with Beijing and is keen to start the first phase of $2.7 billion.” Sources, however, said that China has not yet signed a financing agreement due to differences over terms and Pakistan’s weak financial position.
This is the second time that the ADB has shown interest in the delayed project – also the only scheme to be declared strategically important under the CPEC framework.
Nearly eight years ago, ADB had offered to finance the said scheme but China declined their proposal.
A diplomatic source privy to these discussions said that ADB has only offered to finance the portion of the ML-I project severely damaged by the recent floods. He said that, at this stage, the financing and scope of the ADB offer has not been finalised. Of the total cost of $10 billion, Pakistan has planned to take a loan of $8.4 billion from China, although it has not been able to finalise negotiations, and Islamabad will arrange the remaining $1.5 billion.
In rupee terms, the project cost, which was a staggering Rs2 trillion at the time of its approval four months ago, has now increased to Rs2.7 trillion at today’s exchange rate.
Pakistan had decided to implement the project in phases and stagger the loan of $8.4 billion accordingly to ensure smooth construction and at the same time book loans as per its need. Due to the Pakistan Tehreek-e-Insaaf (PTI) government’s negligence, however, the ML-I project remained side-lined and as a result its cost in rupee terms increased three folds. In the past 10 months, however, the Pakistan Democratic Movement (PDM) government too has failed to break the deadlock with China.
During Prime Minister Shehbaz Sharif’s visit to China in November, Pakistan proposed the signing of a joint memorandum, indicating the timelines of project milestones but nothing was finalised. Under the project, a 1,733km-long route will be rehabilitated, 482 underpasses, 53 flyovers, 130 biker bridges and 130 stations will be constructed along the route. The ML-I starts from Karachi, passes through Kotri/Hyderabad, Rohri, Multan, Lahore, and Rawalpindi.
In August 2020, the Executive Committee of the National Economic Council (ECNEC) had approved the ML-I project at a cost of $6.8 billion, including a $6 billion Chinese loan. The project, however, could not reach ground-breaking stage due to a disagreement over loan terms and China’s objections to the cost of the scheme.
The PDM government has now approved the cost of $10 billion, a surge of over $3 billion, or 45%. The increase has been approved for all three packages of the project that are planned to be constructed from 2023 to 2031.
Pakistan faces the gigantic task of avoiding default and, at the same time, meeting its financing needs.
In a background briefing, the Ministry of Finance said last week that the government will have to slash the Public Sector Development Programme (PSDP)’s budget for the sake of the International Monetary Fund (IMF). The secretary planning, however, said that as of Wednesday there had been no cut on the Rs727 billion budget approved by the National Assembly. He added that no such decision had been communicated to the ministry.
During the first seven months of the fiscal year, Rs207 billion of the budget were spent, which were equal to 28% of the annual allocations. The secretary said that foreign project funding was picked during the first seven months as the entire annual budgeted Rs60 billion were received during this period.
He hoped that after the approval of the $3 billion flood related projects, about $1 billion should flow in the current fiscal year. The assumption, however, appears to be on the higher side.
To a question, the secretary said that the cost of the $1.5 billion Sindh Housing flood rehabilitation project has been reduced to $727 million. The provincial government had hoped that it would receive $1.5 billion in foreign assistance but only $500 million was given by the World Bank, he added.
Published in The Express Tribune, February 9th, 2023.
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