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ML-1 May Take Eight Years To Reach Commercial Operations After Contracting

Pakistan and China have agreed to undertake a bidding procedure for Mainline-1 (ML-1), a $10 billion project that includes a 1,872 km railway track from Karachi to Peshawar as well as accompanying infrastructure, the following month in order to completely fund the $8.4 billion foreign currency component (December).

The Chinese government would select and recommend the best Chinese companies for the bidding. Chinese President Xi Jinping and Pakistani Prime Minister Shehbaz Sharif agreed earlier this month to immediately assemble their respective teams of technical and financial experts to hasten work on the lengthy project.

The Executive Committee approved the National Economic Council’s (Ecnec) $9.85 billion project only hours before Prime Minister Sharif’s travel to Beijing, subject to cost suggestions, technical specifics from the outside consultant, and, preferably, an equity participation funding mechanism.

The project was initially included in the $46 billion China-Pakistan Economic Corridor (CPEC), but it struggled to get off the ground for more than eight years, despite the fact that the rest of its sister energy sector portfolio was already functioning at the time. Beijing owes Pakistan roughly $23 billion, making it the country’s largest lender at the time of the latest initiative.

The project aims to increase freight train speeds from 37 to 120 kilometers per hour and passenger train speeds from 65 to 160 kilometers per hour

Based on the bidding results, the finance teams of the two countries would next approve the particular term sheets of the Chinese loan and financing plan, which would span eight years of project implementation. This will be done so that the loan portfolio as a whole is not recorded on Islamabad’s records but is gradually reduced in line with project requirements.

During these conversations, the two sides agreed that the whole Chinese loan would be provided in RMB, as Beijing had stipulated, since the bulk of the foreign currency would be utilized to acquire equipment and supplies from China.

Pakistan has demanded on a Chinese loan divided 50/50 in US dollars and RMB. Given the significance of the project and the fact that recent severe floods damaged most of the railway infrastructure, raising the prospect of a major tragedy, it was compelled to give in. The Chinese financing is expected to comprise loans from the Chinese Central Government as well as loans backed by sovereign guarantees.

Aur Sunao - ML-1 May Take Eight Years To Reach Commercial Operations After Contracting
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The two sides want to reach an agreement that will result in the signing of a commercial contract and financial closure by the Chinese contractors, with a groundbreaking date no later than the end of March 2023. After the contract is signed, the project will take around eight years and six months to achieve commercial operations, or by September 30, 2031.

To cover these anniversaries, the two sides have extended the five-year framework (second) agreement, which was signed on May 5, 2017, but was set to expire six months ago. The two governments officially agreed on April 20, 2015, to launch a feasibility study for the modernisation and enhancement of the ML-1.

The project was anticipated to cost $9.2 billion in February 2020, with Pakistan and China sharing 10:90 of the money. This was decreased to $6.8 billion in August 2020 via cost-cutting measures, but the Chinese side remained unconvinced and uninterested.

The project’s costs have been raised again more to $9.85 billion, with Chinese sources covering $8.4 billion (or 85%). The remaining $1.48 billion, or 15%, will be paid for using municipal funds. The total cost of the project, including Pakistan’s Rs296 billion contribution and China’s Rs1.675 trillion contribution, is Rs1.97 trillion at a conversion rate of Rs200 to the dollar.

The ML-1, which extends from Karachi to Kotri/Hyderabad, Rohri, Multan, Lahore, Rawalpindi, and Peshawar before terminating, is considered the nation’s logistical backbone but is presently in terrible condition. There is sluggish freight and passenger traffic, at speeds of 37 and 65 kilometers per hour, respectively. The 1,872 km railway is divided into two sections: 55 km from Taxila to Havelian and 91 km from Lodhran to Khanewal.

The project also includes renovating the present ML-1, constructing a dry port close to the Havelian Railway station, updating the Railway Academy in Lahore, and enhancing facilities and stations in Khyber Pakhtunkhwa’s Nowshera and Peshawar, as well as Karachi, Hyderabad, and Rohri in Sindh.

The project aims to raise axle loads from 22 to 25 tonnes and passenger train speeds to 160 km/h, as well as to increase the number of freight trains from 34 to 171 each day.

According to a recent Executive Committee of the National Economic Council (ECNEC) decision, the ministry of railways would create a project implementation unit for monitoring and timely execution. The railways minister would also form a steering committee to oversee progress, with involvement from all interested parties.

The Ministry of Railways will need to update its Railway Business Plan and Railway Strategic Plan, as well as set a timeframe for the ultimate conversion of existing systems to electric traction systems.

Despite its crucial importance for the country’s passenger and freight transit, the project would remain an island, unable to meet Pakistan’s demands on its own.

According to the planning commission, Pakistan’s railway business “lacks the governance structure, institutional framework, management process, or regulatory framework to compete effectively in an increasingly tough 21st-century transportation market.”

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