ML-I project cost likely to be cut

Pakistan, China may reduce cost by $3.2b to make it commercially viable project

ISLAMABAD:

Beijing and Islamabad are in discussions for a cut in the cost of the strategic Mainline-I project of the China-Pakistan Economic Corridor (CPEC) by $3.2 billion to $6.7 billion through a reduction in scope and design aimed at making it a commercially viable scheme.

The discussions took place in Beijing last month during meetings of the Joint Working Group (JWG) on transport, highly placed sources told The Express Tribune. JWGs are the second tier of decision-making forums in the three-tier CPEC institutional arrangement.

Sources said that compared to the approved cost of $9.9 billion for the largest and strategically important CPEC project, there was a proposal to slash the cost to $6.7 billion.

However, the final cost would be subject to the revised design on which Chinese experts are currently working. “We hope to receive the revised project design by the end of this month,” said an official working in the Ministry of Railways.

The financing plan for the ML-I project will be discussed by both sides after an agreement on the revised design. The in-principle understanding is that China will provide 85% of the project cost in the shape of loan while Pakistan will arrange the remaining amount.

Read ‘Work on ML-1 railway line project to start this year’

Two years ago, China termed financing for the ML-I project riskier due to Pakistan’s unsustainable external debt situation. The debt situation has further deteriorated.

The International Monetary Fund (IMF) has also placed an upper ceiling on the sovereign guarantees that Pakistan can issue to its state-owned enterprises. The country has already exhausted the limit of Rs4 trillion and there is no space left for giving any major guarantees.

The railways secretary did not respond to a request for comments.

Sources said that the cost was proposed to be rationalised by reducing the scope and changing the design of the scheme. The under-consideration revised plan includes reducing the rail speed to 120 kilometre per hour from an earlier approved 160 km, according to the sources.

This would help save significant cost and as a result the first phase of Karachi-Lahore track could be constructed with $2.7 billion, they added.

However, it was not clear whether any agreement was reached during the JWG meeting. The cost of second phase is estimated at $2.6 billion and that of third phase could be around $1.4 billion.

The rail track portions that had been recently revamped would not get any new major investment. Many bridges, flyovers and underpasses could be dropped from the final project design to save cost, according to the sources.

The Chinese embassy did not comment on this article.

Read more Pakistan fails to realise CPEC potential

The project is facing a delay of at least five years due to disagreement over its scope, cost and financing plan. According to PC-I of the project approved in November 2022, a 1,733km-long route will be rehabilitated, 482 underpasses, 53 flyovers, 130 biker bridges and 130 stations will be constructed along the route. This will now undergo a major restructuring.

During the 11th Joint Cooperation Committee (JCC) meeting held in October last year, both countries agreed to build upon the leadership’s consensus and advance the implementation of ML-I.

In the meeting, China did not accept Pakistan’s position to start bidding for construction of the nearly $10 billion project for the rehabilitation of Pakistan Railways due to differences over cost, according to official documents.

The “Chinese side expressed the view that the bidding process should be after fixing cost estimation and basic principles of financing plan,” according to the documents.

Pakistani side proposed that the bidding process should commence immediately and be completed by the end of the year. This should follow the signing of a commercial contract and financial close of the project, according to Pakistani authorities.

In 2017, Pakistan and China signed a five-year framework agreement for construction of the ML-I project. The framework has now been further extended for another five years.

Pakistan had hoped to sign the Milestone Agreement in November 2022 and groundbreaking of the project in March 2023 but no progress could be made.

Regarding the terms of financing, the two sides have held multiple meetings wherein Pakistani side has accepted the financing proposal from the Chinese side.

In October last year, Pakistan approved a 45% increase in the cost of ML-I to nearly $10 billion. Initially, Ecnec approved the project in August 2020 at a cost of $6.8 billion, including a $6 billion Chinese loan. But the project could not reach the groundbreaking stage.

On expectations of being the only strategically important project under the framework agreement, Pakistan in April 2021 proposed to get the Chinese loan at 1% interest. But Beijing did not accept the request.

Due to negligence of the PTI government, the ML-I remained in cold storage and as a result its cost increased multiple times in rupee terms. During the JCC meeting, the Pakistani side expressed the view that the project would be undertaken on the government-to-government model.

Pakistan requested China to sign the framework agreement on the analogy of Lahore Orange Line Metro Train Project for the Karachi rail section.

The Chinese side expressed the willingness to actively and steadily promote relevant work with the Pakistani side under the CPEC framework in accordance with the principle of “implementing the project with the conditions being fully met”.

Published in The Express Tribune, October 14^th, 2023.

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