• Tuesday, November 20, 2018

CPEC rail project: Govt moves to prevent financial risks

Discussion in 'Pakistan Economy' started by Kabira, Sep 14, 2018.

  1. Kabira

    Kabira ELITE MEMBER

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    ISLAMABAD:

    In a major development, Pakistan has announced exploring the possibility of shifting financial risks of a $9 billion railway project under the China-Pakistan Economic Corridor (CPEC) to contractors.

    In addition, it also put at least one energy project of 1,320 megawatts on the back burner.

    The expansion and reconstruction of Karachi-Lahore-Peshawar railway track, known as the Main Line 1 project (ML1), is an early harvest and a strategic project of the CPEC framework.

    The change in the modus operandi of constructing the $9 billion project would require amendments to the framework agreement that China and Pakistan had signed in May last year.

    Foreign investors seek review of CPEC, free trade deals

    The Pakistan Tehreek-e-Insaf (PTI) government has taken the corrective measures amid criticism that the last Pakistan Muslim League-Nawaz (PML-N) government did not fully protect Pakistan’s economic interests while signing the $46 billion deals under the Belt and Road Initiative of the Chinese president.

    “The government is exploring the possibility of completing the $9 billion ML1 project of Pakistan Railways on build-operate-transfer (BOT) basis,” said Minister for Planning and Development Khusro Bakhtiar on Thursday.

    He was speaking to the media after chairing the 56th monthly progress review meeting of CPEC. The minister also said Pakistan and China have also agreed to set up a new working group on socioeconomic development to deepen cooperation in education, health, agriculture and housing.

    He announced conducting a joint study to determine the flow of cargo traffic on the CPEC routes, as the last PML-N government invested $6 billion on two road projects without having scientific projections of the traffic that will flow from China.

    “The ML1 project had been conceived to build on the Engineering-Procurement-Construction (EPC) model that shifts the entire financing risks to the federal government,” said Bakhtiar.

    “To avoid risks, the government has started exploring the possibility of constructing the project on BOT model,” he added.

    In the EPC model, a contractor gets guaranteed price and is responsible from ‘concept to commissioning’ of the project.

    Due to its $9 billion cost, there was also a dispute between railways and the Ministry of Finance over the ownership of loan and its servicing.

    Sources in the Planning Ministry said the government may have to undertake a new feasibility study before constructing the project on BOT.

    However, the minister said it will be in the best interests of Pakistan to complete the ML1 project on the BOT model. Under the original CPEC plan, China had promised to give $2.2 billion out of the then estimated cost of $8.2 billion of the project.

    The Asian Development Bank (ADB) was required to give $6 billion loan but China opposed the plan and ousted the ADB. Under the May 2017 framework agreement, the project will solely be funded by China.

    According to the Framework Agreement of the ML1, China will provide 85% of the project cost as concessionary loan. The project has been declared ‘strategically important’ by both the countries.

    “The PML-N government did not give importance to the ML1 project the way it gave preference to $2 billion Orange Line Project and two road projects worth $6 billion,” said Bakhtiar.

    He said the projected cost of the ML1 was $9 billion that has greater economic benefits than the metro and road projects.

    The ML1 project has a total length of 1,872 kilometres. The last PML-N government decided to split the project into two due to its high cost and work that requires refurbishment and expansion of the main rail line.

    The planning minister also said CPEC will be opened for investment to third countries and two focal persons have been nominated to promote the corridor.

    He said Pakistan requires a mammoth $200 billion for infrastructure development that can only be generated with the help of other countries.

    He brushed aside criticism on growing indebtedness due to CPEC, saying the share of the CPEC loans was only $6 billion or 6.3% of the total outstanding external debt of $95 billion as of June end.

    K-P lawmakers fret fate of CPEC

    Energy projects

    The federal government also decided to protect all ongoing and planned energy projects under CPEC except the ones that have not achieved financial close and were planned to run on imported fuel, said the planning minister.

    The Rahim Yar Khan power plant of 1,320 MW is the only major scheme that has not achieved the financial close. The other project that is planned to be set up on imported coal but has not achieved financial close is 300MW Gwadar power plant. But the project is critical for the supply of power to port city.

    “Gwadar that has been ignored in the past will be taken forward as a standalone development project to maximise gains from the potential hub of transshipment,” the planning minister said.

    He said the revolving fund of the CPEC energy projects was a main issue.

    A Rs22 billion power sector revolving fund was created as a special arrangement to make preferred payments to power producers and investors under CPEC.

    The minister; however, assured that Pakistan will honour its all contractual obligations.

    He criticised the last PML-N government for its lack of integrated energy planning, which compromised the country’s bargaining position while finalising the deals.

    The minister also said tariffs of some of the energy projects were also very high, citing the example of the Quaid-e-Azam solar power plant project that is given 14 cents per unit tariff as against world average of 5 cents.

    “In the future, the focus will be on hydro projects. The last government only focused on energy generation projects at the expense of power distribution and transmission schemes,” he added.
    https://tribune.com.pk/story/1802819/1-cpec-rail-project-govt-moves-prevent-financial-risks/
     
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  2. Kabira

    Kabira ELITE MEMBER

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    BOT isn't bad option, NHA is building many motorways same way.
     
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  3. khansaheeb

    khansaheeb SENIOR MEMBER

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    If they are not careful the dogs will start fighting over the bones even before they have them. Infighting must be authoritatively stamped out and the wheels of action effectively oiled for results. It should be absolutely clear to everyone that these are state projects for the people of Pakistan and that any profits from state investment must go to the people. The state must guarantee and cover all risky investments. We cannot allow the private sector to mess up high capital and important projects. All private sector contracted projects by the state must have civilian gov and military oversight to ensure there is no corruption and these projects are completed on time and on budget.

    It is unfair to criticise the PML for the CPEC contracts of $46B which they did so well to have these agreed and signed. It was in their term that these agreements materialised and the portfolio of projects started. Its always easy to criticise in hindsight and miss the complexity of the strategies, plans, budget limitations and risks at the time. Whatever the PML did they did what they thought was in the best interests of Pakistan at that time. The business case and justification has to be continuously assessed for each project and the projects adjusted or realigned to the current conditions. Again blaming the PML for the lack of traffic flow assessment over CPEC routes is unfair as the project requirements have been enhanced on multiple occasions and the scope has changed.

    For Gwadar to succeed it must have suitable decentralised and clean cheap power generation and water supply. We must set up solar farms, wind turbine farms, coal power plant and perhaps a nuclear power plant in the area all connected to the national grid. We can also tap into energy supplied from across Iran and perhaps connect Gwadar to the Iranian national grid.

    We must give the train link between China and Pakistan and between Iran and Pakistan the highest priorities and highest budget.These are high value and high return projects and have great importance to economy and defense.
     
  4. ziaulislam

    ziaulislam SENIOR MEMBER

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    In my opion if indeed asian bank was giving 6 billion it would have been far far better option
    Because the cost difference between china estimates and Pakistan are there too

    China is like an expensive loan but why china than...because its either nothing or china

    So whole benefir of AB vs china is TIME

    Alot of time has been wasted on disagreement ..this was suppose to start early 2016 but so far no work has been done

    Yearly benefirs to economy is in billions of dollars

    I think govt should just build it on PMLN model rather than wasting time

    Afterall its benefirs are way higher than the rdicolsusly expensive orange line

    But it should be built on standard guage not board guage
     
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  5. Verve

    Verve SENIOR MEMBER

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    PMLN opted for loan routes to loot. Sign contracts with dubious/blacklisted Chinese firms and make 'commissions'.
     
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  6. Fawadqasim1

    Fawadqasim1 FULL MEMBER

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    bro you were in a mood for writing a newspaper article btw its quite impressive .

    This was the move I was waiting for

    Burning imported fuel for electricity generation
    is like burning dollars and decapitating your export industry.
     
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  7. khansaheeb

    khansaheeb SENIOR MEMBER

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    The capacity of the CPEC route shouldn't be difficult to approximate. Lets take the Karakorum highway as an example. It's length is approximately 1300Km. If we take the average length of a truck to be 40 feet approx 12m and lets say the truck behind keeps a similar length distance behind of the truck ahead then the maximum theoretical number of trucks on the highway can be 54166. If the road is bi-directional then the theoretical number of trucks can be doubled to 108,333. There are some points in which only traffic can only flow in a single road which will reduce the traffic. Now lets assume that the only half the capacity of trucks use the highway. This would work out to approx 54166 trucks.

    I don't have sufficient info to be able to calculate the flow rate of the traffica sI don't know the speed the traffic can flow.
     
  8. Chakar The Great

    Chakar The Great FULL MEMBER

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    The important thing is Pakistan should come up with concrete plans and dont waste time. They should get things done.
     
  9. khansaheeb

    khansaheeb SENIOR MEMBER

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    The problem is obvious. The slowest part of the KK highway will set the traffic speed for the entire highway so it is a bottleneck. The only way we can eliminate this bottle neck is by improving the traffic flow by increasing the number of lanes or by adding a parallel train line across the KK, which makes economic sense.

    Based on this flow rate of trucks across the KK highway we are talking about $197 billion of goods crossing the highway in a year, if each truck carries $10000 of goods. :)
     
    Last edited: Sep 18, 2018
  10. AMMT

    AMMT FULL MEMBER

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    We should look into hyperloop option. Anyhow we have to upgrade rail lines.

     
  11. Darth Vader

    Darth Vader SENIOR MEMBER

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    LoL when you cant afford Mehran why look for lambo
     
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  12. AMMT

    AMMT FULL MEMBER

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    Dream big, Think big, Achieve big
     
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  13. Darth Vader

    Darth Vader SENIOR MEMBER

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    For that you need hard honest work