Islamabad:
The government on Wednesday gave initial approval to what it earlier called an “unsustainable” $6.7 billion Mainline-I (ML-I) rail project of the China-Pakistan Economic Corridor (CPEC), although the Finance Ministry pointed out that the program was in conflict with the objectives of the next loan program of the International Monetary Fund (IMF).
The Central Development Working Group (CDWP), which is mandated to clear major development projects – referred the ML-I project to the Executive Committee of the National Economic Council (Ecnec) for approval.
Unresolved questions, raised during Wednesday’s meeting about the proceeds from the project to service the $5.8 billion Chinese debt, the effectiveness of the business plan and the commercial viability of the project, will also be put before Ecnec, according to discussions held at the CDWP meeting.
Sources told The Express Tribune that the Finance Ministry and the Finance Ministry informed the CDWP that the $6.7 billion project, particularly the $5.8 billion loan and its servicing, would not augur well for the IMF program.
An IMF mission has been in the city for the past two weeks to gauge the political strength and viability of the next budget before agreeing on a new package. The IMF monitors CPEC projects through implicit conditions such as the annual limit on government guarantees, subsidy control and the overall primary budget surplus target.
A finance ministry spokesman urged the CDWP to reconsider whether the project should be implemented despite the fact that it has been described as strategically important by both China and Pakistan. It was noted that the terms of the new IMF program would be very tough, which left little scope for taking a large external loan for the project, the sources said.
The finance ministry spokesman did not respond to a query sent by The Express Tribune.
It was the second time in the last two weeks that the CDWP reviewed the ML-I project. It had previously deferred its decision on the grounds that the project had become unsustainable after its cost, design and scope had changed and that it needed to assess whether or not to implement it.
It was agreed during the last CDWP meeting that the project as a strategic nature will be reviewed in the presence of secretaries of the Economic and Financial Affairs Directorate (EAD) and other relevant departments.
After the Planning Commission termed the project unviable, the CDWP directed the Ministry of Railways to explain the impact of reducing its scope in the business plan and the assumptions, the proposed terms and conditions should be confirmed by the Finance Directorate and EAD .
The finance ministry stressed on Wednesday that the reality has changed since 2016 when Pakistan and China agreed on the project loan, the sources said.
There were also questions about whether 250 billion rupees could be budgeted each year to complete the $6.7 billion project, or 1.93 trillion rupees over the next eight years.
Due to Pakistan’s weak economic situation, Beijing had requested that the cost of the project be reduced by a third to $6.7 billion. However, the reduction made the project unsustainable, according to Planning Commission officials.
The Commission had termed the project unviable and “at risk” due to reduction in speed limit from 160 km/h to 120 km/h, reduction in line capacity, exclusion of rolling stock, compromise on axle load and deletion of fencing scheme.
However, the Ministry of Railways has defended the project, saying that without its completion, Pakistan Railways will soon close down. The ministry told the meeting that reducing its scope and design will have a very negligible impact on revenue, the sources said.
The original ML-I rail line was 1,872 km long, but the Ministry of Railways has now proposed to restore a 1,726 km long line.
The Ministry of Finance has urged the CDWP to explore alternative options to finance the project, including public-private partnership. But this option was ruled out on the grounds that it was a strategically important project and would be completed bilaterally.
Sources said the Finance Ministry also supported the Finance Ministry’s view and argued that there would be problems in repaying the debt and it would also be difficult to convince the IMF.
Daanish Schools
The CDWP approved the establishment of six Daanish schools – Prime Minister Shehbaz Sharif’s initiative in the education sector – for approval by Ecnec at a cost of Rs15 billion.
He gave the go-ahead for immediate project planning and preparation for six Daanish schools, three in Gilgit-Baltistan and Azad Jammu and Kashmir. Some CDWP members opposed funding the Prime Minister’s initiative due to budget constraints.
However, the education secretary argued that under the constitution the responsibility of social sectors in special areas rests with the federal government. He was of the view that it was better to spend a few billion rupees on education than to spend hundreds of billions on eradicating extremism.
Published in The Express Tribune, May 23rd2024.
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