Govt mulls options for $6.7bn sovereign cover for ML-1 project

ISLAMABAD: Amid continuous engagement between Pakistan and the IMF for a fresh bailout package, the government is mulling over options for managing sovereign guarantees of $6.7 billion for granting a green light to the construction of Mainline-1 (ML-1) project under CPEC.

The Joint Cooperation Committee (JCC), under the aegis of CPEC, is scheduled to meet virtually on May 24. The delegates of both sides will meet on May 23. After that, the JCC would consider granting a formal approval to certain projects.

It has been planned to grant assent to the ML-1 project within the ongoing week. Earlier in the CDWP meeting held on May 8, it got deferred.

Prime Minister Shehbaz Sharif is expected to pay a visit to China next month in a bid to pacify Beijing over the pace of CPEC and for showing Islamabad’s commitment to initiate the second phase of CPEC. Efforts would be made to strike a financing agreement for ML-1 and give a roadmap for clearing around Rs600 billion outstanding amounts of Chinese IPPs.

Islamabad will have to keep sovereign guarantees within the agreed limit of IMF under the upcoming loan conditions of the Extended Fund Facility (EFF).

The Ministry of Finance has conveyed its stance to relevant forums. It stated whether the project could be taken up as a central loan and the Finance Division is in a position to give the sovereign guarantee for the proposed cost of $6.67 billion project.

There is another attached project of provision of security for ML-1 for which Rs36 billion is proposed. The upgradation of ML-1 project is to be executed under a framework agreement and has to be backed up by sovereign guarantee.

Initially, the Phase-1 of the project would be executed which requires a sovereign cover of $3.3 billion. Further action on this would be taken in line with the advice of Finance Division.

The Actual Terms of the Loan are yet to be decided. These terms will be finalised after negotiations by the financing committee formed by Pakistan and the Chinese side.

It is the commitment of the Chinese side they will consider providing financing support, including loans with favourable terms, for this strategic project. The financing scheme shall be negotiated and agreed upon by the relevant departments of both sides.

The upgraded ML-1 is designed for 160km/hr, while its operational speed is set at 120km/h. The existing line capacity of ML-1 will be enhanced from 34 to 120 trains per day, addressing future population growth with a forward-looking approach. Upgraded ML-1 will seamlessly combine speed, reliability and capacity in rail transportation.

The passenger handling capacity of ML-1, at its optimum, will be boosted from the existing 29 million to 170 million, and freight capacity from 8 to 43 million tons. Realistically speaking, the envisaged upgradation of ML-1 will meet passenger and freight requirements for about 25 to 30 years. There are certain observations of relevant ministries. The PC-I of ML-1 does not include the scope and cost of the rolling stock and security infrastructure of ML-1. For the purpose of security, another PC-I of around Rs36 billion is under process. The total cost of investment is much more if all the interventions are combined with the repayment of loan. Initiating the ML-1 project with the present governance structure and the financial state of the organisation seems not practical. Governance reform, especially the financial health of the organisation, need to be improved/adjusted.

Any changes in the laws, procedures that are mandatory to be carried out should be initiated by the Ministry of Railways. The ministry argued in writing as per the envisaged governance structure, the ML-1, after upgradation, will be handed over to a newly-formed independent entity—ML-1 Authority. The accounts the Authority will be ring-fenced from Pakistan Railways (PR).

The RFP has been floated for hiring consultants for the purpose. The consultants would also assist the upcoming ML-1 Authority in the implementation of governance structure. When contacted, Planning Ministry’s spokesperson said the ML-1 would be on the top of agenda of the next JCC meeting scheduled on May 24 this month.