Govt seeks to negotiate loan terms

Pakistan has again requested China to convene a joint financing committee meeting to negotiate terms of a loan of nearly $1 billion for constructing first section of the much-delayed multibillion-dollar Mainline-I (ML-I) railway project.

The request was made last week through Pakistan's mission in Beijing – the second in the past one year.

The Pakistani embassy in Beijing requested China to convene the fifth joint financing committee meeting for the ML-I project of the China-Pakistan Economic Corridor (CPEC), an official of the Ministry of Railways told the National Assembly Standing Committee on Planning on Thursday.

Syed Abdul Kadir Gilani of the Pakistan Peoples Party (PPP) chaired the committee meeting, which was given a briefing by the Ministry of Railways on the status of ML-I project. ML-I is the only declared "strategic project of CPEC" but it is facing implementation delays for at least six years due to Pakistan's weak financial position and growing security concerns.

Pakistan wanted to execute the entire $10 billion project in one go but Beijing had concerns about its weakening external position. China advised Pakistan to construct only the Karachi-Hyderabad section of ML-I, which would cost just $1.1 billion.

Team leader of the ML-I project told the standing committee that the Karachi-Hyderabad section would cost $1.1 billion and Pakistan was seeking $950 million in Chinese loan.

However, the loan terms remain undecided despite four meetings of the joint financing committee. Nine ministerial committee and 20 technical working group meetings have also taken place but there is no progress on the strategic project.

Pakistan and China had begun financing negotiations in November 2020 for the largest CPEC project. Pakistan initially requested a loan of $6 billion for a period of 25 years with a 10-year grace period and at 1% interest rate. Pakistan also wanted to acquire debt equal to 90% of the project cost and the financing was requested both in the US currency and Chinese renminbi (RMB). China instead proposed lending in RMB, a debt ratio of 85% and repayment period of 15 to 20 years.

The standing committee was told that the interest rate on Chinese loan might be 2.3%, which was higher than Pakistan's request for 1%, but there was no agreement so far.

Security remains the biggest concern of Beijing as Islamabad has failed to provide foolproof security. This week, two Chinese nationals were injured after their security guard opened fire.

Prime Minister Shehbaz Sharif again went to the Chinese embassy on Tuesday to assure Beijing that there would be foolproof security for the Chinese nationals.

Speaking at a seminar titled "China at 75", Ambassador Jiang Zaidong said on October 30 that security was the biggest constraint to CPEC and "without a safe and sound environment, nothing can be achieved".

"Pakistan should severely punish the perpetrators and crack down on all anti-China terrorist groups," the ambassador stressed. During Chinese Prime Minister Li Qiang's recent visit to Pakistan, it was agreed between the Chinese premier and PM Shehbaz to "build the Karachi-Hyderabad section of ML-I project on a pilot basis".

Railway officials hoped that the proposed meeting of the joint financing committee may take place next week but it was not yet confirmed.

Owing to the external debt-related concerns, Pakistan and China last year agreed to revise downward the cost of ML-I project to $6.67 billion, a reduction of $3.2 billion, or one-third, through a reduced scope and design aimed at making it commercially viable.

Beijing wants to first finalise the financing agreement and then start the bidding process. But Pakistani officials have in the past opposed the finalisation of financing terms before completing other requirements.

The Economic Affairs Division has proposed to the government to first arrange bidding for the award of contract to a Chinese firm, then sign a commercial deal and then finalise the financing agreement.

It seems that the government may again not meet the internal deadlines for the completion of ML-I pilot project. It had set October 30 deadline for the advertisement of bids and November 25 for technical and financial evaluations.

Pakistani authorities are keen to award the engineering, procurement and construction contract by December 26 this year and sign the loan agreement before the end of January next year. These deadlines seem highly ambitious given China's frustration due to the lack of security.

Pakistan desires to perform the ground-breaking of the project on February 10, 2025.