Pakistan’s railway upgradation project under CPEC subject to IMF approval

One of Pakistan’s key railway modernization projects planned to be built under the China-Pakistan Economic Corridor (CPEC) is in trouble due to IMF conditions on sovereign guarantees, according to a media report on Saturday.

The Main Line-1 (ML-1), designed to upgrade over 1,726 kilometers of colonial-era railway line stretching from Karachi to Peshawar, remains subject to IMF approval and the finance ministry’s ability to provide sovereign loan guarantees of 6.67 billion US dollars from China, although the project’s budget was reduced by 32 percent, reported in “Dawn”.

CPEC is a collection of infrastructure and other projects under construction in Pakistan since 2013.

On June 30, Pakistan had secured a final bailout of US$3 billion from the International Monetary Fund (IMF), which later disbursed an initial advance installment of about US$1.2 billion.

The debt-ridden country had given the IMF guarantees of US$8 billion in external payments.

A senior official during a media briefing said that the framework agreement for ML-1 was signed in May 2017 at an estimated cost of USD 9.8 billion, for which PC-1 (the initial plan of the Planning Commission) was approved in August 2020 by the Executive Committee of the National Economic Council (Ecnec).

However, the project went through ups and downs amid changing priorities and governments in Islamabad. The cost of the project has now been revised to US$6.67 billion by both parties, apparently at the cost of reduced scope and quality of the project.

Pakistan and China are expected to make a formal announcement and sign an addendum to the framework agreement during caretaker Prime Minister Anwarul Haq Kakkar’s upcoming visit to Beijing to represent Pakistan at the Belt and Road Initiative (BRI) conference. .

In response to a question, the official said that even the revised size of China’s loan remained an issue and would need the IMF’s agreement depending on the position to be clarified by the finance ministry on the space to issue sovereign loan guarantees.

Earlier in July, China transferred a US$2.4 billion loan on top of previous loans of more than US$5 billion to its all-weather ally Pakistan over two years to help the cash-strapped country shore up its foreign exchange reserves.

Under the law dictated by the creditors, the government is bound not to issue federal government guarantees above 2 percent of GDP in a year; the ML-1 loan, even after the cost adjustment, is roughly around that limit.

However, the official explained that the Ministry of Railways will have to come up with a viable and sustainable business plan and a revised PC-1 for Ecnec’s approval. He hoped the first phase of the project could begin next year if funding is made in the 2024-25 budget and the international bidding process is completed on time.

The main change in the project is the reduction of the operating speed of the trains from 160 km/h to between 120 km/h and 140 km/h.

To reduce costs, several bridges, underpasses and overpasses will be removed from the project where existing structures could support traffic, while underpasses and overpasses will be limited to cities.

The revised project will also be implemented in three phases and packages, starting with Package 1 worth US$2.7 billion to be completed in five years; Package 2 worth USD 2.6 billion over seven years; and Package 3, worth US$1.4 billion, to be completed in four years, according to the report.

ML-1 is billed as a mega project related to CPEC, but so far it has been beset by technical and bureaucratic hurdles and Pakistan’s economic mess.