Development finance: Funding woes threaten to derail mass transit train

Centre yet to respond to Punjab’s guarantee request for loan from Chinese Bank.

LAHORE:

The fate of the Lahore Rapid Mass Transit System (LRMTS) project hangs in the balance as the federal government has yet to agree to be a guarantor to a $1.445 billion loan the Punjab government needs to obtain from China.

A Finance Department official speaking on condition of anonymity said Chief Minister Shahbaz Sharif had broached the subject in a meeting with Prime Minister Yusuf Raza Gilani at Prime Minister’s Secretariat in the second week of August but no progress could be made.

He said earlier the Finance Department had already requested the Ministry of Finance to be a guarantor to the loan. “Provinces cannot secure foreign loans without the federal government providing a guarantee to the lender,” he said.

Meanwhile, a Transport Department official said that the Export Import (EXIM) Bank of China had yet to respond to a provincial government request, seeking processing of the loan. He said the provincial government had suggested that after the 18th Amendment to the Constitution, the provinces could secure loans on their own subject to conditions laid out by the National Economic Council (NEC).

Lahore Transport Company chairman Khwaja Ahmed Hassaan told The Express Tribune that the government had this week received a letter from EXIM Bank. However, he added, he was still unaware of the contents of the letter. Hassaan said a meeting would likely be convened in a couple of days in this regard.

An official said that under the two memorandums of understanding (MoU) signed between the provincial government and the Chinese firm, NORINCO, the latter was to ensure that processing of the loan took place without any glitches. Under the agreement, the provincial government was to bear 15 per cent of the cost of the project. The rest was to be provided by the EXIM Bank of China in the form of a loan.  The total cost of the project was estimated at $1.7 billion.

The MoUs signed in April and July stated that NORINCO would lay the 27-kilometre (km) track from Gajju Matta, on Ferozepur Road, to Shahdara. As much as 7 km of the track would be underground.

The official said NORINCO had also agreed to obtain a letter of interest by EXIM Bank for the project within a month of the signing of the second MoU.

The official said no groundbreaking ceremony was held on August 14 as planned earlier because of the uncertainty about the funding for the project.

LTC chairman Hassaan said tenders will not be invited unless the Chinese company refused to undertake the project. He said the company had the right of first refusal under the MoUs.

The LRMTS project was first proposed in 1991 after a study carried out by the Japan International Cooperation Agency (JICA). In 2008, a feasibility study report was prepared by Systra, a French company, and a ceremony held at the Chief Minister’s Secretariat.

(Read: Underpass on hold over mass transit concerns)

The Lahore Transport Company (LTC) is currently in charge of negotiations with the Chinese authorities.

Published in The Express Tribune, August 27^th, 2011.