Karachi to Peshawar rail project ML1 part of JCC meeting’s agenda

Pakistan and China may finally be able to make headway in the negotiations surrounding the much-awaited construction of Mainline-1 (ML-1) rail line from Karachi to Peshawar, as the multibillion-dollar project will be part of the agenda of the upcoming Joint Coordination Committee (JCC) meeting.

The JCC, under China Pakistan Economic Corridor (CPEC), is scheduled to hold a virtual meeting on July 16, 2021 and the financing of ML-1 will be part of the agenda.

Pakistan’s approving forums, including Central Development Working Party (CDWP) and Executive Committee of National Economic Council (ECNEC), had granted approval of ML-1 at an estimated cost of $7.2 billion, however, the Chinese side had worked out its cost hovering over $9.2 to $9.5 billion, indicating that there was a gap of over $2 billion in the estimation cost of this seven to eight years project.

“The Chinese side wants the cost of the project to be revised before the financing agreement between the two sides is finalised but Pakistani negotiators are of the opinion that the bidding of the project should be accomplished first and then if need arises, the cost of the project will be adjusted upward accordingly,” The News quoted an anonymous official on Monday.

The cost of financing, according to the sources, is another bone of contention between the two sides as average high cost of the projects executed under the China Pakistan Economic Corridor (CPEC) was hovering in the range of 2.4 percent. 

The Pakistani side has argued that the ML-1 would cost multi-billion dollars ranging from $7.2 to $9.5 billion, so Islamabad should be given a highly favourable mark-up for the execution of this project. This financing cost of 2.4 per cent does not include insurance cost because if it is incorporated, then the overall cost escalates. “The Pakistani negotiators want to fix the markup rate in the range of 2 per cent, so let’s see where both sides finally evolve consensus,” said the official source.

The official shared the background of the financing agreement on the Orange Line Train constructed in Lahore and stated that there was a difference in the estimation of $500 million between the Punjab government and the Chinese side. China had estimated the cost of $2.1 billion while NESPAK had estimated the cost of Orange Line Train in the range of $1.6 billion.

This controversy lingered for one year and finally, the Chinese side found a solution that cost of civil work, which was bone of contention, should be excluded from the scope of the project, so the government had to bear its cost. This cost of civil work was accomplished by utilising $800 million instead of $500 million, so the Chinese side proved correct in cost estimation. For ML-1, it is hoped that both sides would work out a solution as bidding should be accomplished and then the cost could be revised upward/re-adjusted accordingly.

According to an official announcement by the Ministry of Planning, the Ambassador of the People's Republic of China, Nong Rong, called on Minister for Planning, Development & Special Initiatives Asad Umar in Islamabad on Monday. Matters relating to the upcoming 10th JCC, Joint Working Group (JWG) meetings and economic cooperation between the two countries came under discussion in the meeting. The Secretary Planning and Chairman CPEC Authority also participated in the meeting.