China plans to finance $8 bn for Pakistan Railways’ Mainline

ISLAMABAD: China has shown its interest to fully finance over $8 billion for upgrading Pakistan Railways’ Mainline (ML-1) by enhancing amount of China Pakistan Economic Corridor (CPEC) up to $54 billion from earlier committed amount of $51.5 billion.

Beijing had already jacked up CPEC funding from $46 billion to $51.5 billion after indicating $5.5 billion for upgrading Pakistan Railways (PR) and now they are considering increasing it up to around $54 billion. “China wants to complete rail project on priority basis without involvement of any other multilateral or bilateral donors in order to accomplish the task in next three to four years period,” said the official sources.

With involvement of other multilateral donors, it was feared that different procedural rules for procurement and other requirements might cause delay in the completion of the project. Now the Asian Development Bank (ADB) may withdraw its proposed credit line of $1 to $2.5 billion for ML-1 but formal decision will be taken in this regard in the coming weeks when top officials of the Manila-based international lender will be visiting Islamabad.

“Chinese banks are interested to fully finance upgrading rail network in Pakistan and its financing arrangement will be finalised during the upcoming visit of Prime Minister Nawaz Sharif to China on the eve of international conference on initiative of One Belt One Road (OBOR) in coming May this year,” official sources confirmed while talking to The News here on Saturday.

Minister for Planning Ahsan Iqbal had confirmed few days ago that Chinese were interested to complete the rail network project on priority basis and some of their banks wanted to provide whole required amount without involvement of any other financial institution. “The final decision on this subject is expected soon,” he added.

Earlier, under the proposed plan, the ADB’s initiative known as Central Asia Regional Economic Cooperation (CAREC) wanted diverting its focus on improving rail linkages among the regional states so they had identified rail upgradation project ML-1 along with China connecting with Central Asia through Afghanistan.

The ADB’s multi-tranche financing facility (MFF) was aiming at improving the railway sector in Pakistan by making the railway transport system more efficient and competitive. The outcome will be improved railway corridor of Lahore-Peshawar and improved PR's institutional efficiency. The outputs will be (i) approximately 411km of upgraded and dualised railway track for the Lahore-Peshawar section of ML-1 together with new signalling and telecommunications system (including power supply for these systems) and upgraded passenger facilities at Lahore, Rawalpindi and Peshawar stations; (ii) 52km newly constructed double-track rail line linking Kaluwal and Pindora; and (iii) PR's modernised and IT-based accounting system and PR's accounting data and information transformed and migrated into the new accounting system.

For the past 150 years, railways have played an important role in the social, political and economic life in Pakistan. For most of that time, railways were the leading mode of transport, in many places the only available mode. In a relatively large country, railways have offered unique advantages for transporting freight and passengers over long distances. 

In the past 20-30 years, however, increasing competition from road transport has reduced railway's market share. As of 2016, railway accounts for 4 percent of freight traffic and 6 percent of passenger traffic with major shares taken by road. As a result, the financial performance of PR has deteriorated and has not generated enough resources to finance necessary investments in asset replacement and capacity expansion.

In Pakistan, government's public investments have been heavily skewed favourably to the road sector. Neglected from public investments and overburdened with social responsibilities, the performance of the railway sector had continuously deteriorated until 2011 and the sector was on the verge of a collapse, faced with poor rail infrastructure with huge backlog of maintenance, outdated and non-functioning locomotives and rolling stocks. Since 2011, however, PR's operational performance has markedly improved and helped avoid a total failure of the sector mainly owing to improved availability of functioning locomotives and PR's well-thought-out marketing strategies like strategic tariff setting, adroit market segmentation and focusing on profitable target markets and long-term engagement with clients.