ML-1 railway project

EDITORIAL: The Executive Committee of the National Economic Council's (Ecnec's) approval of the Mainline-1 (ML-1) railway project gets the ball rolling on not just one of China Pakistan Economic Corridor's (CPEC's) most strategically important components but something that will benefit the economy as a whole. The railway department, as we all know very well, is broken down enough to be the text book example of the typical State-Owned Enterprise (SOE) brought to its knees by decades of corruption and political opportunism, and needs all the help it can get whether it is in terms of fresh tracks or new trains to help with transportation of people as well as goods. For the longest time successive governments focused on land transport, which is among the most expensive forms of conveyance, instead of upgrading the railways network through the years. In doing that we ignored the unwritten principle of the business, that for every one passenger train you need at least five to six cargo trains to remain profitable. Yet for all sorts of reasons like gaining political mileage authorities have been constantly adding to the fleet of passenger trains, much to the neglect of cargo trains. The result has been increased transport of goods through highways, which involves wear and tear of the roads and is thus a further drag on the budget. For such reasons the railways department has been suffering large losses for years, and projects like ML-1 should go a long way in relieving it of some of the stress that it currently faces.

Even within the CPEC framework the ML-1 is the only strategic project being finalised as part of the initial deal worth $46 billion. It includes dualisation and upgradation of the 1,872 km railway track from Peshawar to Karachi and counts as a major milestone for the second phase of CPEC. Apparently, the government has been very careful in fine-tuning the financing of the project, lest it upsets the debt ceiling calculus arranged with the International Monetary Fund (IMF). It turns out that Ecnec's approval opens the door to loan negotiations with Beijing, which according to news reports will finance 90 percent of the total cost. In the first phase, Pakistan will finance only $2.4 billion worth of construction work due to the "government's commitments with the IMF", according to an official document. The IMF ceiling restricts spending on the project to $2.5 billion for the duration of the programme. However, enough care has been taken for this ceiling not to affect the pace of the project, which was approved at a rationalised cost of $6.806 billion on a cost-sharing basis between the governments of Pakistan and China. It was also decided to take $6.2 billion worth of Chinese loans both on the books of the federal government and Pakistan Railways due to the weak financial situation of the department. The loan would only cover the amount required for the particular phase and any unnecessary commitment charges would be strictly avoided. The SOE is no longer in a position to pay salaries and pensions to its employees so any shot in the arm would be more than welcome.

The railways ministry will now prioritise the Karachi-Lahore segment, which makes sense given its economic and financial benefits. Disgruntled workers recently said the state of this track has become so bad that it is no longer safe for train operations. They also described the Multan-Sukkur and Sukkur-Karachi sections as "really pathetic", which explains why this route witnessed more than 100 accidents last year. Now, with more and more of the infrastructure needed for CPEC taking shape all the time, the feeling that things are moving in the right direction is constantly reinforced. Let's not forget that the whole process of erecting all the infrastructure is capital- as well as labour-intensive and creates lots of jobs for the economy, so there are lasting benefits for the government as well as the people. Just as things have improved on the Covid-19 front there are clear signs that the government has made all the right moves at the right time to give the economy as much of a push as possible. It will not be too long before some of the steps taken now begin to bear fruit.

Copyright Business Recorder, 2020