Pakistan earlier yesterday cleared, in principle, two strategically important $10 billion projects (a) for upgrading a key mainline of Pakistan Railways to smoothen the China-Pakistan Economic Corridor (CPEC) traffic, and (b) construction of a gas pipeline.
The Central Development Working Party (CDWP) gave the necessary nod to both the projects ahead of loans negotiations with Chinese authorities. China will provide loans for both the projects equivalent to 85% ($8.5 billion) of the cost of each project.
According to the project documents, the cost of upgrading of Pakistan Railways existing Mainline (ML-I) and establishment of a dry port near Havelian is $8.2 billion, which the Chinese government will finance with a $7 billion concessionary loan.
This project is part of $46 billion CPEC package and is covered under the CPEC Framework Agreement, signed during the April 2015 visit of Chinese president to Pakistan.
The estimated cost of Gwadar-Nawabshah LNG Terminal & Pipeline project, also cleared in principle, is $2 billion including $1.4 billion Chinese loan. This project is strategically important for Pakistan as it will eventually link the country’s gas network with Iranian system.
“The exact costs of both the projects will be firmed up after finalising financing arrangements,” said CDWP Chairman and Minister for Planning Ahsan Iqbal.
He said in order to finalise the financing arrangements, the approvals of the PC-Is of both the projects were necessary. “After finalisation of the financing arrangements, both the projects will be taken to the Executive Committee of National Economic Council (Ecnec) with firmed up cost for final approval,” he said.
ML-I project
The ML-I project has been planned under the CPEC Framework. The $8.2 billion worth PC-I has been prepared on the basis of joint feasibility study carried out by a consortium of firms, namely, M/s Creec of China and M/s Nespak and M/s Pracs of Pakistan.
As per understanding given by M/s Creec, 15% of the total cost of the project will be borne by Pakistan and 85% will be financed from relevant Chinese financial institutions under CPEC framework.
At present, Pakistan Railways is picking up less than 4% of the traffic volume of the country, which the government intends to increase to at least 20% by 2025.
The project envisages upgrading of the railways existing mainline from Karachi to Peshawar having total length of 1,872 km including 91 km Lodhran-Khanewal section and 55 km Taxila-Havelian section.
The major scope of work will involve 1,598 km upgrading of existing double and single track and overhauling of 930 km existing double line. The construction of 676 km new track from Lalamusa to Peshawar including Karachi-Kotri/Hyderabad with UIC-60 rail, construction of tunnels, bridges and culverts along with allied structures and facilities for 25 ton axle load capacity as opposed to existing 22.86 ton permissible axle load are also part of the project.
The project is planned to be completed in two phases in five years by 2021 on engineering, procurement and construction (EPC) mode. Phase-I will be completed by December 2017 and Phase-II by the year 2021.
LNG pipeline
The CDWP also cleared Gwadar-Nawabshah LNG Terminal and Pipeline Project at an estimated cost of roughly $2 billion or Rs206.6 billion. The cost includes $1.4 billion Chinese loan.
The Chinese Exim bank will provide 85% of the financing under government-to-government mode. The EPC contract will be given to a Chinese company. The pipeline project will be included in the CPEC framework, according to the documents.
The key objective of this project is to overcome gas shortages by importing LNG and its transportation through Gwadar-Nawabshah pipeline.
The issue as to whether the implementing agency or the federal government would sign the financing deal with Chinese counterparts remains unaddressed. Another outstanding issue is whether the Exim bank will extend loan at 6% interest rate or 4% rate for this project.
In phase-I, the pipeline will follow the coastal pipeline corridor, which was formally established for the Iran-Pakistan gas pipeline. In phase-II, a 90-kilometer patch will be constructed from Gwadar to Pakistan-Iran border to tie the national network with Iranian system.
The project will be completed in EPC turnkey mode in two years. The financial analysis of the project reveals that the project will be viable, if it operates at its full designed capacity of 1500 mmcfd gas.
