ML-I project sent for ECNEC’s nod

CDWP clears project, though ministry says it is in conflict with IMF programme


Shahbaz Rana May 23, 2024
The Ministry of Railways defended the ML-I project, saying that without its completion, Pakistan Railways would shut down soon. Photo: file

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ISLAMABAD:

The government on Wednesday gave initial clearance to what it earlier called an “unviable” $6.7 billion worth of Mainline-I (ML-I) railway project of the China-Pakistan Economic Corridor (CPEC), though the Ministry of Finance pointed out that the scheme was in conflict with goals of the next International Monetary Fund (IMF) loan programme.

The Central Development Working Party (CDWP), which is mandated to clear mega development projects – referred the ML-I project to the Executive Committee of the National Economic Council (Ecnec) for approval.

The unaddressed questions, being raised during Wednesday’s meeting pertaining to revenues from the project to service the Chinese debt of $5.8 billion, efficacy of the business plan and commercial viability of the project, would also be placed before Ecnec, according to discussions that took place in the CDWP meeting.

Sources told The Express Tribune that the Ministry of Finance and the Ministry of Economic Affairs informed the CDWP that the $6.7 billion project, particularly the $5.8 billion loan and its servicing, would not bode well for the IMF programme.

An IMF mission has been in the town for the past two weeks to gauge the political strength and the viability of next budget before it agrees on a new package. The IMF monitors CPEC projects through implicit conditions, like the annual limit on sovereign guarantees, check on subsidies and overall primary budget surplus target.

A finance ministry’s representative urged the CDWP to reconsider whether the project should be implemented despite being declared as strategically important by both China and Pakistan. It was noted that conditions of the new IMF programme would be very tough, which left little room for taking a big foreign loan for the project, said the sources.

The Ministry of Finance’s representative did not reply to the question sent by The Express Tribune.

It was the second time in the past two weeks that the CDWP reviewed the ML-I project. It earlier deferred its decision on the ground that the project had become unviable after the change in its cost, design and scope and there was a need to assess whether to implement it or not.

It was agreed during the last CDWP meeting that the project being strategic in nature would be reconsidered in the presence of secretaries of the Finance Division and Economic Affairs Division (EAD) and other relevant departments.

After the Planning Commission termed the project unviable, the CDWP had instructed that the Ministry of Railways would explain the impact of reduction in its scope on the business plan and assumptions, proposed terms and conditions should be firmed up by the Finance Division and EAD.

The finance ministry on Wednesday emphasised that ground realities had changed since 2016 when Pakistan and China agreed on the project loan, said the sources.

There were also questions whether Rs250 billion could be allocated in the budget every year to complete the $6.7 billion, or Rs1.93 trillion, project over the next eight years.

Owing to the weak financial health of Pakistan, Beijing had asked for reducing the project cost by one-third to $6.7 billion. However, the reduction made the project unviable, according to officials of the Planning Commission.

The commission had termed the project unviable and “compromised” due to a reduction in speed limit from 160 km per hour to 120 km per hour, reduction in line capacity, the exclusion of rolling stock, compromise on axle load and deletion of fencing plan.

However, the Ministry of Railways defended the project, saying that without its completion, Pakistan Railways would shut down soon. The ministry stated in the meeting that the reduction in its scope and design would have a very negligible impact on revenues, said the sources.

The original ML-I track was 1,872km long but the Ministry of Railways has now proposed to rehabilitate a 1,726km-long track.

The finance ministry urged the CDWP to look for alternative options to finance the project, including public-private partnership. But that option was ruled out with the contention that it was a strategically important scheme and would be completed bilaterally.

Sources said that the economic affairs ministry also backed the viewpoint of the Ministry of Finance and argued that there would be problems in debt repayment and it would also be difficult to convince the IMF.

Daanish Schools

The CDWP cleared the establishment of six Daanish Schools – the education sector initiative of Prime Minister Shehbaz Sharif – for Ecnec’s approval at a cost of Rs15 billion.

It gave the go-ahead for the immediate design and project preparation for six Daanish Schools, three each in Gilgit-Baltistan and Azad Jammu and Kashmir. Some CDWP members objected to funding the PM’s initiative due to fiscal constraints.

However, the education secretary argued that under the constitution the responsibility of social sectors in special regions rested with the federal government. He was of the view that it was better to spend a few billion rupees on education rather than allocating hundreds of billions for eradicating extremism.

Published in The Express Tribune, May 23rd, 2024.

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