Islamabad | One of Pakistan's key railway modernisation projects planned to be built under the China-Pakistan Economic Corridor (CPEC) is in trouble due to the IMF's conditions regarding sovereign guarantees, according to a media report on Saturday.
The Main Line-1 (ML-1) aimed to modernise over 1,726 kilometres of colonial-era rail line stretching from Karachi to Peshawar remains subject to IMF approval and the finance ministry's ability to provide sovereign guarantees for a USD 6.67 billion loan from China, even though the project's budget has been cut by 32 per cent, reported the Dawn newspaper.
The CPEC is a collection of infrastructure and other projects under construction throughout Pakistan since 2013.
Pakistan had secured a last-gasp USD 3 billion bailout from the International Monetary Fund (IMF) on June 30, which later disbursed an initial upfront instalment of about USD 1.2 billion.
The debt-trapped nation had given the IMF assurances of USD 8 billion for external payments.
A senior official during a media briefing said the framework agreement for ML-1 had been signed in May 2017 at the estimated cost of USD 9.8 billion, for which PC-1 (Planning Commission's initial plan) was approved in August 2020 by the Executive Committee of the National Economic Council (Ecnec).
However, the project passed through ups and downs amid changing priorities and governments in Islamabad. The project cost has now been revised to USD 6.67 billion by the two sides, obviously 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 the upcoming visit of caretaker Prime Minister Anwaarul Haq Kakar to Beijing to represent Pakistan at the Belt and Road Initiative (BRI) conference.
Responding to a question, the official said that even the revised size of the Chinese loan remained an issue and would need the IMF's consent depending on the position, to be clarified by the finance ministry, about the space for issuing sovereign guarantees for the loan.
Earlier in July, China rolled over a USD 2.4 billion loan, in addition to the previously given loans of over USD 5 billion to its all-weather ally Pakistan for two years to help the cash-strapped country shore up its foreign exchange reserves.
Under the law dictated by the lenders, the government is bound not to issue federal government guarantees beyond 2 per cent of GDP in a year; the ML-1 loan, even after the cost adjustment, is roughly around this limit.
The official, however, explained that the Ministry of Railways would have to come up with a “viable and sustainable” business plan and revised PC-1 for Ecnec approval. He hoped that the first phase of the project might begin next year if financial allocations were made in the 2024-25 budget and the process of international bidding was completed in time.
The major change to the project is the reduction in trains' operational speed from 160 kilometres per hour to between 120 km/h and 140 km/h.
To cut costs, several bridges, underpasses and flyovers would be removed from the project design where existing structures could sustain traffic, while underpasses and flyovers would be restricted to cities and towns.
The revised project would also be implemented in three phases and packages, starting with Package 1 worth USD 2.7 billion to be completed in five years; Package 2 worth USD 2.6 billion in seven years; and Package 3 worth USD 1.4 billion to be completed in four years, according to the report.
The ML-1 is considered as a mega CPEC-linked project but so far it has been caught up in technical and bureaucratic hurdles and Pakistan's economic mess.