ML-I project under CPEC: WB says project not likely to be successful without railway sector's reformation

The World Bank (WB) has said that the ML-I project under the China-Pakistan Economic Corridor (CPEC) worth $9.172 billion will not be successful without reforming the railway sector in Pakistan.

The implementation of the Pakistan Railways Strategic Plan (PRSP) is a pre-requisite to the success of this Project as well as the improvement of the quality and financial sustainability of the railway sector in general in Pakistan, WB stated in third party review of the project.

According to official documents, in its conclusion and recommendations, WB noted that the project has been designed to meet Pakistani conditions and reflect good current practices including its safety designs. However significant new human capacity and skills in operating and maintaining the upgraded system will be required.

About cost of the project, WB pointed out that the cost estimates are adequate. However, the contingency allowance (4 per cent) seems very low at this stage of project development and accordingly the estimated cost should be regarded as a minimum.

On economic aspect, the bank said that there is no demand elasticity with fare increase and no detail available for the economic evaluation done so it is impossible to give an opinion.

About the financial side, WB said that project generates significant savings in rolling stock capital. However, the financial rate of return to PR is generally negative, and only improves if there are real fare and freight increases such as were assumed in the Business Plan. If these are assumed, however, demand will decrease, and the economic case will reduce.

On debt service of loan for the project, WB said that in 2030 in the low demand case, the debt service is 80 per cent of projected revenue. The high demand case has a better result, but the project savings only cover 20 percent of the 2025 debt service.

The assumed Business Plan fare structure increases the project savings to 50 percent of the 2035 debt service, but the proposed fare structure should be very carefully planned to be successful.

If the Lahore-Peshawar section is deferred, the debt service reduces by 24 percent and with the assumed new tariff structure, the improved surplus would cover the debt service by about 2040, WB recommended.

Reviewing the implementation plan, WB said the basis of the proposed construction phasing on a section-of-line basis, whether because of the funding arrangements, resource availability, sections conditions or construction disruption to the existing lines, is unclear from the documentation.

An alternative approach could have been to perform all the bridgeworks first while resources were available and economically deployed, followed by all sub-grade and all track works, then signaling, with some practical overlap capacity, it pointed out.

WB noted that another option could consider rapid upgrading using a light-handed approach on line sections that are in good condition. Electrification would probably be an attractive follow-up project, at least for the southern portion of the corridor.