One of Pakistan’s significant railway modernisation projects, the Main Line-1 (ML-1), planned under the China-Pakistan Economic Corridor (CPEC), is facing challenges due to the International Monetary Fund’s (IMF) conditions regarding sovereign guarantees.
The ML-1 project aims to modernise over 1,726 kilometers of colonial-era rail line from Karachi to Peshawar. However, the project is contingent on IMF approval and the finance ministry’s ability to provide sovereign guarantees for a USD 6.67 billion loan from China. The project’s budget has been reduced by 32 percent from its initial cost.
For those unaware, the China-Pakistan Economic Corridor (CPEC) is a collection of infrastructure and other projects initiated in Pakistan since 2013.
IMF Bailout and Assurances
Pakistan secured a USD 3 billion bailout from the IMF on June 30, with an initial upfront installment of approximately USD 1.2 billion. The nation had given the IMF assurances of USD 8 billion for external payments.
Project History and Cost Revisions
The framework agreement for ML-1 was signed in May 2017, with an estimated cost of USD 9.8 billion. However, the project experienced fluctuations due to changing priorities and governments in Islamabad. The cost has now been revised to USD 6.67 billion, affecting the project’s scope and quality.
Upcoming Announcements
During the impending visit of interim Prime Minister Anwaarul Haq Kakar to Beijing for the Belt and Road Initiative (BRI) conference, it is anticipated that Pakistan and China will officially declare and append an addendum to the existing framework agreement.
Challenges in Revised Chinese Loan Size
The revised size of the Chinese loan remains an issue, requiring IMF consent and clarification from the finance ministry regarding the space for issuing sovereign guarantees for the loan.
In July, China had extended a USD 2.4 billion loan and additional loans of over USD 5 billion to Pakistan to bolster its foreign exchange reserves.
Government Guarantees and Project Phases
The government is limited by law to issue federal government guarantees beyond 2 percent of GDP in a year. The ML-1 loan, even after cost adjustments, is roughly around this limit. The Ministry of Railways needs to develop a viable business plan and a revised PC-1 for Ecnec approval. The first project phase may commence next year if financial allocations are made in the 2024-25 budget and the international bidding process proceeds as planned.
Project Changes and Phases
Major changes to the project include a reduction in the operational speed of trains and cost-cutting measures such as removing certain bridges, underpasses, and flyovers from the project design. These structures will only be included in cities and towns. The revised project will be implemented in three phases and packages: Package 1 (USD 2.7 billion), Package 2 (USD 2.6 billion), and Package 3 (USD 1.4 billion), each with specific completion timelines.
Challenges and Progress
The ML-1 is a significant CPEC-linked project, but it has faced technical and bureaucratic hurdles, as well as challenges arising from Pakistan’s economic situation.
(With PTI Inputs)