Govt Shelves Hyderabad-Sukkur Motorway Due to Delays in Project Execution

The government has shelved Hyderabad-Sukkur Motorway (M-6) project, a vital part of China Pakistan Economic Corridor (CPEC), due to financial constraints and a long delay in project execution.

The project was awarded to China State Construction Engineering Corporation and was proposed to be completed with an estimated cost of Rs 175 billion in three years on build-operate-transfer (BOT) basis.

The project was awarded to the Chinese company with a certain portion of loan financing by the government of Pakistan. The National Highway Authority (NHA) Executive Board has now directed to work out a model without any element of government financing.

NHA officials claimed that there are little chances of taking the matter to arbitration with the Chinese company, as it has been delayed by over two years and because of depreciation of local currency against the dollar, the project is no more feasible for the contractor with current arrangements.

According to documents, the NHA Executive Board deliberated upon the matter at length and decided:

(a) keeping in view the monetary conditions and financial constraints of the government of Pakistan, ongoing procurement process of Hyderabad – Sukkur Motorway (M-6) on build-operate-transfer basis is annulled and NHA should consider an option of cross-subsidization, instead of giving direct financial subsidy/viability gap funding;

(b) NHA, in consultation with legal counsel, shall put up a draft annulment letter;

(c) NHA should undertake commercial feasibility under cross subsidization mode and prepare new PC-I and then initiate procurement process, afresh, under Public Private Partnership (PPP) arrangement.

In its followed meeting, the Board decided,

The NHA Executive Board approved the annulment letter for issuance with respect to construction of Hyderabad-Sukkur Motorway (M-6) on BoT basis. The Board directed to undertake commercial feasibility study under cross-subsidization mode and prepare a new PC-1 and then initiate procurement process, afresh, under PPP arrangement.

According to sources NHA missed the deadline several times in beginning construction of Hyderabad-Sukkur Motorway project, which will now escalate the overall cost of the project. It connects the eastern route with Karachi. From Sukkur, the eastern route connects with Gwadar via Khuzdar and M-8.

Former Prime Minister Nawaz Sharif had directed that construction work should start in the first quarter of 2017. However, due to the complexity of the project, NHA missed the deadline and work was expected to begin in 2018.

According to the initial arrangements, the NHA Executive Board had cleared the project structure and advised the NHA to submit a project concept note to the Central Development Working Party (CDWP) and take them on board for arranging viability gap funding by the government of Pakistan in the form of buyer’s credit loan.

To improve the viability of the project, a certain portion of the total project cost was to be arranged by the concessionaire in the form of supplier/buyers credit. This portion of the loan had to be repaid by the GoP/NHA as per agreed terms and conditions, after the construction period.

The remaining project cost had to be financed by the concessionaire, as

(a) equity requirement – the successful bidder (sponsor) will have to invest minimum thirty percent (30%) of the remaining project cost as equity, through a special purpose vehicle (SPV), which shall be incorporated specifically to undertake the project;

(b) commercial loan – the successful bidder (sponsor) will have to arrange maximum seventy percent (70%) of the remaining project cost as debt. The project was given on lease for 18 years.

An advertisement was released in the national and international print media on October 10, 2016 inviting Expression of Interest (EoI) regarding pre-qualification of firms. In response to that, 10 firms/joint ventures submitted their EoI. Six international firms pre-qualified for the Hyderabad-Sukkur Motorway project.

The NHA bid opening/evaluation committee opened technical proposals on February 14, 2017. Subsequent to finalization of the technical evaluation, financial proposals of all the three bidders were opened on March 7, 2017. After scrutiny of financial proposals of all the three qualified bidders, the following was revealed China State Engineering Corporation-1st, Shandong+FWO+Sinohydcro JV-2nd and China Communications-3rd.

NHA is undertaking construction of Peshawar-Karachi Motorway (PKM), a high-speed, controlled-access, modern motorway system. All the segments of PKM have either been completed or awarded for construction except Hyderabad-Sukkur Motorway link of PKM. The 296-km long project will be 6-lane motorway with a design speed of 120 km/h, having 70 bridges, 15 interchanges and 243 underpasses.

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