Pak Rail project in doldrums as China delays finance

Financing of Islamabad’s strategic railway line project, Main Line (ML-1) is
apparently facing inordinate delays as the Exim Bank of China has reportedly
refused to pitch in. The project was included among the early harvest projects
of the China-Pakistan Economic Corridor (CPEC). It entails upgradation of
ML-1 from 1,872 km long railway track from Karachi to Peshawar and Taxila
to Havelian, including laying of new track with improved speed limit and
increased train capacity. Though the project was originally scheduled to be
completed by 2022, under the existing conditions it may not materialise
anytime soon. The delay has also proved a setback to Islamabad’s claim of
direct employment for 20,000 locals.
To pressurise Beijing, Junaid Akbar, Chairman of National Assembly
Standing Committee on Planning, Development & Special Initiatives, ahead
of Pak Prime Minister Imran Khan’s recent visit to Beijing, noted that if
financial negotiations with China did not conclude successfully, Islamabad
would turn to Russia or any other country. However, likelihood of any other
country to invest a large amount seems negligible.
Beijing sees the project as a commercial undertaking and seeks additional
guarantees including higher rate of return for its investment whereas
Islamabad is negotiating for Chinese Government Concessional Loan (GCL)
and willing to offer only lower interest rate than that charged on CPEC
projects funding.
There is also difference between Islamabad and Beijing regarding maturity
period for loans. Beijing wants to cut short the tenure of the loan to 15-20
years and financing 85 per cent share of the project while Islamabad
proposes a 25 year tenure. Meanwhile, China has shown readiness to
finance the project using RMB to internationalise the currency.
Pakistan Railways (PR) faces the unique problem of an unskilled workforce
and it cannot handle modernised rail system based on latest technology. One
of the proposals under consideration by Islamabad is to handover ML-1 to
Chinese companies to run for a period of three to five years. “The biggest
question arising before the policy makers was that who will run the
modernised railways after the completion of ML-1,” according to an official.
The IMF conditions of transference on Islamabad’s sovereign guarantee
while extending assistance under Extended Fund Facility (EFF) holds back
Islamabad to guarantee China’s investment in ML-1 as similar guarantee was
provided to Independent Power Producers (IPP) under CPEC.
On its part, PR is dependent on government subsidies. The railways’
departmental deficit during the current Pakistan Tehreek-e-Insaf (PTI)-led
government increased to PKR 46 billion in 2021 and total losses amounted to
PKR 1.19 trillion, mainly due to low traffic, both passenger and goods.
Similarly, the number of freight carriages was reduced from 16,159 to 14,327.
On viability count, PR has suffered an estimated loss of PKR 1.2 trillion
during the past 50 years. Its losses in the FY 2017 were approximately PKR
40 billion. Pak media reports indicate that 57 passenger trains had been shut
down so far and now only 85 trains were available for various routes across
the country.
Apart from insufficient revenue, PR also pays huge sums of salaries and
pensions. While the salaries of employees stood at PKR 28.21 billion, PKR
31.41 billion was spent on pensions. The number of employees decreased
from 120,000 to 67,627, whereas number of pensioners stand at more than
115,000 people.

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