Pakistan awards $2 billion KKH contract to China

Pakistan on Thursday relaxed bidding rules to directly award a $2 billion contract to China for the construction of a strategically important road and also approved Rs78 billion in incentive package for its banks and exchange companies to boost foreign remittances.

Finance Minister Muhammad Aurangzeb-led Economic Coordination Committee (ECC) of the cabinet approved to invoke a special rule to exempt the requirement for the international competitive bidding to award a contract to Chinese firms for the construction of a section of the Karakoram Highway.

The Thakot-Raikot section of the highway is critical to keep China-Pakistan connected through the land route.

The ECC considered a summary of the Ministry of Communications regarding the Execution of Framework Agreement between China and Pakistan on Realignment of KKH (Thakot-Raikot) under CPEC, according to a statement by the Ministry of Finance.

After detailed discussions and deliberations, and in order to comply with the codal requirements, the ECC allowed the Ministry of Communications and National Highway Authority to proceed with provisions of the Framework Agreement in accordance with provisions of rule-5 of Public Procurement Rules, 2004 for procurement of construction of realignment of KKH (Thakot-Raikot Section 241 KM) project under CPEC (Phase-II), it added.

Pakistan had signed the framework agreement for the construction of Thakot-Raikot section of Karakoram Highway in June this year during the visit of Prime Minister Shehbaz Sharif to Beijing. China will give a $2 billion loan for the project.

The existing road portion will be submerged due to the construction of the Diamer-Basha, Dasu, Azad Pattan and Thakot dams along the road. Pakistan's highest project approval authority has already given clearance to the 13.1 billion Chinese Yuan or $2 billion worth project.

According to the framework agreement, the Chinese companies will be responsible for the engineering design, procurement and construction (EPC) and supervision work. The identification of the Chinese companies for the project will culminate in selection of one company or a consortium after due negotiations on all technical and financial considerations with the Pakistani institutions responsible for the project, according to the agreement.

China will provide a list of the recommended Chinese companies and Pakistan will select one of those for the construction work. Pakistan will use Chinese equipment for the construction of the project.

The Public Procurement Regulatory Authority law binds the government to give contracts through competitive bidding. However, the PPRA rule 5 states that whenever these rules are in conflict with an obligation or commitment of the federal government arising out of an international treaty or an agreement with a state, or any international financial institution the provisions of such international treaty or agreement shall prevail to the extent of such conflict.

The ECC also approved to relax competitive process conditions for hiring of foreign consultants for the construction of Chakdara-Timergara road connecting Peshawar with Chitral. The Export-Import Bank of South Korea has given a $49 million loan for the project but on the condition that the consultants will be hired as per its desire.

The Chairman ECC Senator Muhammad Aurangzeb directed that in future no foreign loans should be taken for those road projects, which cannot generate enough revenues to pay off these liabilities.

Pakistan's external financing position remains thin and the government took a couple of incentives to ease pressure on the foreign exchange reserves.

The government on Thursday banned the payment of pensions to retired pensioners residing abroad in foreign currency. The condition will be applicable on those who were recruited after January 1959.

The ECC also approved a Rs78 billion incentive package for the commercial bank and foreign exchange companies to attract foreign remittances.

The ECC approved revisions in incentives for the Reimbursement of Telegraphic Transfer (TT) Charges scheme and Incentive Scheme for Exchange Companies. It approved a Rs68 billion package to the commercial banks and another Rs10 billion for the exchange companies. The total benefit that the ECC approved to give these incentives amounted to Rs78 billion.

The remittances grew 10.7% last fiscal year to $30.3 billion, which the Finance Ministry attributed to its Remittances Initiative Scheme.

The telegraphic transfer incentive was increased from Saudi Arabian Riyal (SAR) from 20 to SAR 30 in the last fiscal year. The ECC approved the flat reimbursement rate of SAR to be divided into fixed and variable components. The variable incentive is linked with the incremental rise in the home remittances.

The fixed incentive will be SAR 20 for all eligible transactions of $100 or more. For showing up to 10% increase in remittance the bank will get the benefit of additional SAR 8. For showing more than 10% growth, the bank will get the incentive of another SAR 7, taking his total additional benefit of SAR 15 or 50%.

The total benefit per $100 transaction to a bank would be in the range of SAR 28 to SAR 35.

The ECC approved to also increase the benefits of the exchange companies and divided the benefits into fixed and variable charges. On submission of 100% foreign exchange, the exchange companies are currently receiving Rs1 additional against each dollar mobilized.

The ECC approved increasing the fixed benefit of a company for per $100 surrender from Rs1 to Rs2. Likewise, the exchange company will get Rs3 per $100 for showing 5% increase or $25 million whichever is lower. For showing over 5% increase the dealer will get Rs4 per every $100.