China has asked for additional guarantees before sanctioning the $6 billion loan for Main Line-1 (ML-1) project, reported Express Tribune.
China also proposed a mix of commercial and concessional loans in response to Pakistan’s demand for the cheapest lending. These developments took place during the third joint ML-1 financing committee meeting held recently.
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The ML-1 project is about the dualization and upgrading of the 1,872 km railway track from Peshawar to Karachi. It is also an important part of the second phase of the China-Pakistan Economic Corridor (CPEC).
The Executive Committee of the National Economic Council (ECNEC) had approved the ML-1 project worth $6.8 billion in August this year without outlining financing and technical details.
China seeking additional guarantees also highlights other important aspects of Pakistan’s financial conditions, especially since this demand by China came after Pakistan sought debt relief from G-20 countries.
The G-20 relief package is not only meant for the poorest nations of the world, but it also imposes the condition that the recipient countries would not secure expensive commercial loans, except those allowed under the IMF-WB framework.
Pakistan was expecting to obtain the said loan from China at a 1 percent interest rate and a grace period of 10 years for repayment. However, now the option on the table for Islamabad is a mix of commercial and concessional lending.
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China has offered to finance 85 percent of the project cost with a payback period of 15 to 20 years in biannual tranches. Chinese have offered a five-year grace period.
This came in demand to Pakistan’s request of 90 percent of financing with a willingness to accept 20 years repayment period, subject to the condition that the grace period should be ten years, the newspaper reported.