China Urged to Deal With $8.2 Billion ML-1 Project on Defense Loan Terms

Pakistan wants China to take the $8.2 billion Pakistan Railways’ (PR) Main Line project (ML-1), which is declared a strategic project under the China-Pakistan Economic Corridor (CPEC), on the same loan terms as defense and other military-related projects.

This was revealed by Secretary Railways Sikandar Sultan Raja while briefing the Senate Standing Committee on Railways, with Muhammad Asad Ali Khan Junejo in the chair.

The secretary also revealed that the Sindh government is willing to take the $2.6 billion Karachi Circular Railway (KCR) project with Japan International Cooperation Agency (JICA) again, which is offering a loan at favorable terms compared to China.

PR’s director general (DG) (Planning) informed the committee that the project will consist of ML-1 upgrade and establishment of a dry port as short term goals, establishing new rail link from Gwadar to Mastung and Besima to Jacobabad for mid-term goals and establishing new rail link from Havelian to Khunjrab (China border) as the long term goal – with an estimated cost of $8.2 billion in three packages over five years.

He said the first package would cost $2.248 billion while the cost of the second and third packages would be cleared after completion of preliminary design. The PC-1 or Package-1 is based on cost estimates validated by third-party review consultants.

The committee expressed serious concern over the $8.2 billion costs due to the rupee depreciating against the dollar, saying the country would pay a much higher price. The committee was informed that out of the $8.2 billion, a major chunk would be spent on imports where PR would pay around 33 percent duty/taxes on imports.

Senator Mirza Mohammad asked whether railways minister ever raised this issue at a higher level and the response from secretary was ‘no’. Afridi recommended for duty/taxes exemption of railways imports. However, the committee deferred the point until the next meeting for further discussion.

The upgrade project of ML-1 has been declared a strategic commercial project as it presents a perfect business plan covering 75 percent of the traffic/population and 65 percent of industrial areas. With the upgrade of ML-1, train speed will increase from the current 65-105 km to 120-160 km, line capacity from 34 to 171 trains each way per day, freight volumes from 6 to 35 millions tons per annum by 2025, and railway share of freight transport volume would increase from less than 4 percent to 20 percent.

Railways Divisional Superintendent (DS) Karachi, Mazhar Ali Shah informed the committee that right of way has been cleared for the Karachi Circular Railway from encroachment and only 5 km is left which would be cleared after the project is initiated. However, he said that Sindh government is fully cooperating with PR, which will expedite the project’s pace.

Secretary railways informed the committee that he was not sure whether the project would be initiated under CPEC or not, as from the meetings with the Sindh government he felt that they are keen to initiate the KCR project with Japan. He said that Sindh government thinks that Japan is offering loans on favorable terms compared to China.

Member finance of railways informed the committee that there is a gap of Rs. 20 million per day in the PR’s revenue and expenditure as per the data of the current fiscal year. He said the department is generating around Rs. 139 million per day revenue compared to an Rs. 159 million per day of expenditure.

Afridi expressed serious reservations over the revenue and expenditure gap, saying that it means that Pakistan Railways is facing around Rs. 6 billion deficit per month. However, Railways officials said there are some months every year when the gap between revenue and expenditure is widened but in latter months it would improve. He said that PR is projected to generate Rs. 58 billion revenue in the current fiscal year compared to Rs. 53 billion last year.

The committee also recommended plying a freight train from Karachi to Torkham for transit trade, saying it would reduce the transportation cost while railways would earn more. The Railways Ministry said that currently, it has neither space nor the capacity to run any additional passengers or cargo train, however, it would work on the proposal in the future.

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