Pakistan Railways Main Line-I Project (ML-1) which is China-Pakistan Economic Corridor (CPEC) 's only strategic project has removed its first hurdle on Saturday when the government approved it at a cost of 7. 7.2 billion. And set the stage for negotiations with the International Monetary Fund. Fund (IMF)
In the fourth bid, the Central Development Working Party (CDWP) has recommended to the Executive Committee of the National Economic Council (ECNEC) for approval the Economic 7.2 billion US Main Line 1 (ML-1) project. Announced
As part of the Ministry of Planning, the CDWP is responsible for reviewing and approving development projects. The Prime Minister has authorized the CDWP to approve development schemes which will cost Rs. 500,000. 10,000 million.
Beyond this cost, the CDWP recommends ECNEC for consideration and approval of projects.
In total, the CDWP approved 13 projects worth Rs. 36.22 billion and recommended five projects worth Rs. 1.3 trillion to ECNEC for consideration.
Pakistan attaches high priority to the ML-1 project due to its strategic importance and the approval of the CDWP will also pave the way for its inauguration through the forthcoming visit of the Chinese President to Pakistan.
CPEC Authority Chairman Lieutenant General (retd) Asim Saleem Bajwa tweeted that the MLI project includes the doubling and upgrading of 1,872 km of railway track from Peshawar to Karachi. He is also the Special Assistant to the Prime Minister for Information.
Pakistan Railways had proposed the construction of the project at a cost of 9. 9.2 billion. But the Transport and Communications Wing of the Ministry of Planning did a commendable job of reducing the cost of construction by $2 billion without worrying about it.
The Transport Wing of the Ministry of Planning has excluded overheads and contingencies from the scope of the project as engineering is not entitled to receive contingency charges on procurement and projects completed on a construction basis. This helped to save a lot.
The Transport Wing also calculated the cost of the project at the current rupee-dollar level, which reduced the cost of components that Chinese contractors would buy from Pakistan, such as labor and other materials.
According to the approved construction plan, the federal government has to allocate Rs. 178.1 billion, including local shares, in next year's Public Sector Development Program (PSDP), including Rs. 78.1 billion. However, the proposed PSDP document shows an allocation of only Rs 6 billion.
If the government wants to complete the project on time, then the money allocated for the project needs to be eliminated. The Peshawar-Hyderabad track and the Karachi-Hyderabad track have been excluded and planned to be built with the help of the private sector, which has also helped reduce costs.
Following the final approval of the project by ECNEC, the CDWP has cleared all aspects of the project, except for the financing arrangements, which will be finalized between Pakistan and China.
According to the standard procedure approved for CPEC projects, negotiations for financial assistance arrangements with Chinese financial institutions will begin once the project is approved by the Government of Pakistan and a trade agreement is signed between the employer and the contractor. shall be.
For ML-I, negotiations are already underway between the Finance Committee constituted by Pakistan and its Chinese counterpart to finalize the terms of the loan.
The Economic Affairs Division will assess its impact on the national debt.
This will be a decision of Central Debt or Independent Guarantee Loan (Railway), it will also be decided by the Financing Committee. In both cases, Pakistan has to provide sovereign guarantees.
Pakistan will also have to soften with the IMF, as under the current IMF agreement, it does not have the capacity to provide an independent guarantee of Rs 1.2 trillion.
The mega railway line project is the only project that China and Pakistan have identified as strategically important.
However, the World Bank linked the success of the project to governance reforms in the railways and warned that the project's loan provision was unsustainable.
This is the fourth time the project has been submitted to the CDWP for PC1 approval. Earlier, in 2016, the entire project was considered at the CDWP.
For Phase 1, PC1 was on the agenda of the CDWP meeting in May 2018, and then the CDWP postponed its approval again on April 14 this year.
Once completed, the speed of passenger trains will increase from 65/1110 km / h to 160 km / h. The speed of freight trains will also increase from 80 km per hour to 120 km per hour.
The ML1 package will be completed between January 1, 2021, and December 2024 and will include the construction of a 527 km long track between Peshawar, Rawalpindi, and Lahore.
The Planning Ministry had observed that there seemed no possibility of freight generation by the CPEC Special Economic Zones (SEZs) in the near future as all SEZs in Pakistan are at the planning stage and also the Kashgar Economic Zone in Western China has not been developed.
The Planning Ministry had also sought clarification whether it is permissible under the set rules and procedures to conduct limited bidding between Chinese companies/consortia as stated in Article-IV of the Framework Agreement between China and Pakistan.
“The provision of the framework agreement between two government hall prevails over PPRA [Public Procurement Regulatory Authority] Rules. Therefore, in the presence of the Framework Agreement, limited bidding (among Chinese Contractors) is permissible,” said railways ministry.
According to the ML-I Framework Agreement, the project will be executed in EPC mode.
The Planning Ministry had objected that “results of the financial and economic analysis provided in the PC-I, based on Total Cash Flow were misleading”.
It had asked to provide fresh analyses under ‘with’ and without project conditions and provide all the required details of incremental economic and financial costs and benefits to carry out the analyses and rationally determine the financial and economic viability of the project.
Ministry of Railways was of the view that “the Chinese consultants have been advised to prepare the financial analysis in according to the recommendation made by the Planning Commission regarding WACC [weighted average cost of capital] which is a time-intensive exercised and may further prolong due to travel restriction because of the current pandemic”.
“The economic analyses show that, over an evaluation period of 2025-2060, the project has a small positive economic rate of return in the range 2.5 to 4.1 percent per annum, tariffs are held constant.
“If tariffs are increased as in the Business Plan, the economic rate of return reduces to-0.9 to 0.7 percent per annum. However, the financial rate of return to railways is generally negative and only improves if there are real fare and freight increases such as were assumed in the Business Plan.
'If these are assumed, however, demand will decrease, and the economic case will reduce,' said the Planning Ministry.
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