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ISLAMABAD: The Independent Evaluation Department (IED) of the Asian Development Bank (ADB) has rated “Pakistan: National Motorway M–4 Gojra–Shorkot Section Project and National Motorway M–4 Gojra–Shorkot– Khanewal Section Project – additional financing” worth $590 million, relevant, effective, and successful.

The IED in its validation report stated that the ADB approved a loan of $178 million from its ordinary capital resources (OCR) and the administration of a grant of $92 million from the government of the United Kingdom (acting through its Foreign, Commonwealth, and Development Office, [FCDO]) in September 2015 for the National Motorway M-4 Gojra–Shorkot Section Project.

The project was expected to facilitate north–south connectivity, improve the quality and efficiency of road transport services, and promote inclusive economic growth in Pakistan by constructing a four-lane, access-controlled motorway connecting Gojra and Shorkot (section II of M-4) and improving the institutional capacity of the National Highways Authority (NHA).

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In June 2016, the ADB approved an additional financing loan of $100 million from its OCR, the administration of an Asian Infrastructure Investment Bank (AIIB) loan of $100 million, and the administration of a $34 million grant from FCDO for the National Motorway M-4 Gojra–Shorkot–Khanewal Section Project.

The purpose of the additional financing was to scale up the scope of the original project by constructing a 64 kms four-lane, access-controlled motorway connecting Shorkot and Khanewal (section III of M-4) as the last remaining section of the national motorway M-4.

Its target outputs, including the originally planned and additional through major revision, had three components: (i) 126 km of four-lane, access-controlled motorway connecting Gojra, Shorkot, and Khanewal constructed and operational; (ii) strengthened safeguard and contract administration capacity of NHA; and (iii) 11 kms section of the E35 expressway connecting Hasan Abdal and Havelian constructed.

The project completion report (PCR) rated the project relevant and highly effective. At completion, the project achieved its intended outcome of a safe and efficient regional network established for the movement of goods and people.

Three of the four outcome targets were achieved at completion, but the last outcome indicator was not monitored. The average daily vehicle kilometers reached 2,500,000 in the first full year of operation for M–4 Faisalabad–Multan, substantially exceeding the target of 1,000,000. The average travel time from Islamabad to Multan was reduced to 6 hours (the target was 6.5 hours).

The fatality rate over the period from March 2019 to July 2022 was 6.4 per billion vehicle–km, well below the national highway’s average of 14.4 in 2015.

The PCR indicated that the average travel speed reached 120 kms/h for light vehicles and 100 kms/h for heavy or passenger and freight vehicles, exceeding the target of 80 kms/h. This validation notes that monitoring data was not available to substantiate the PCR’s narrative on E35 expressway.

The PCR rated the project efficient, based on the reevaluated economic internal rate of return (EIRR). The reevaluation was largely consistent with the approach taken at appraisal in 2007 for the NTCHIP MFF comprising section I (Faisalabad–Gojra), section II (Gojra–Shorkot), and section III (Shorkot–Khanewal), and also the first reevaluation of the three sections in 2021 following the opening of M-4 in its entirety.

The economic capital investment was updated based on the actual financial costs for the civil works, reflecting the actual project activities and implementation timeline. The recalculated EIRR was 15.6 per cent, exceeding the benchmark of 12 per cent and suggesting economic viability.

The PCR’s recalculated EIRR of 15.4 per cent was lower than the EIRR of 18.7 per cent of the 2021 reevaluation due primarily to the decrease in values of time in USD terms due to the continued depreciation of the Pakistan rupee and the drop in traffic in 2022 (and the associated impact on traffic forecast for succeeding years).

Sensitivity analysis under adverse scenarios suggested that the project would highly likely remain economically viable. On the whole, as the reevaluated EIRR of M-4 exceeded the benchmark, this validation assesses the project (sections II and III of M-4) efficient.

According to the PCR, over 63 per cent of the NHA’s network has a service life of over four years and over 67 per cent has an International Roughness Index of 2–3 m/km. For motorways, the NHA is increasingly passing the maintenance needs to toll concessionaires not only for physical sustainability but also financial sustainability.

Despite the above factors, this validation notes that there is a lack of proper financial analysis for sustainability. First, the PCR did not expound the specific funding arrangements for maintaining the project motorway as to whether 70%–75% of the project roads’ maintenance would come from toll revenues and how the balance would be financed.

Second, more fundamentally, the PCR did not explain the absence of a financial cost-benefit evaluation for the motorway, which generates toll revenues.

A financial internal rate of return (FIRR) should have been calculated for the project to assess quantitatively its financial viability.

Without the FIRR, there is inadequate evidence to substantiate the conclusion that the risk of project motorway’s being subject to inadequate maintenance and operated under substandard condition would be low. On the whole, this validation assesses the project less than likely sustainable.

Copyright Business Recorder, 2024

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La Jan 04, 2024 12:44pm
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