China has also proposed a combination of commercial and concessional loans to finance the railway project, contrary to Islamabad’s wishes for “cheaper loans.”
The issue of additional guarantees was raised during the third joint meeting of the ML-1 Financing Committee held ten days ago (December 13), The Express Tribune reported, citing official documents.
A senior Pakistani official involved in the negotiations said China raised the issue of the additional guarantees during the meeting, but did not include it in the draft of the minutes shared with Pakistan.
The draft minutes have not yet been signed by both countries.
The ML-1 project includes the dualization and improvement of the 1,872 km railway from Peshawar to Karachi and is an important milestone for the second phase of the China-Pakistan Economic Corridor (CPEC).
The official said China raised the issue of additional guarantees to gain clarity on Pakistan’s financial situation after it requested debt relief from the G-20 countries, which is only intended for the world’s poorest nations.
The third round of financial negotiations provided further clarity on China’s position on $ 6 billion loans for the strategically important ML-1 project of Pakistan’s railways worth $ 6.8 billion, ministry sources said. of Economic Affairs.
As part of the debt relief of the G-20 countries, Pakistan cannot obtain expensive commercial loans except those allowed under the International Monetary Fund and the World Bank.
The Chinese authorities have proposed that “taking into account the financial situation in Pakistan and also the conditions set by the G20 regulations for debt suspension, the Pakistani government may provide an additional guarantee mechanism for the loan that does not be the sovereign loan for the NM -1 project, “according to officials familiar with the negotiations.
It was surprising to us when China raised the issue of additional guarantees during the meeting, said another senior Pakistani official who participated in the meeting.
In August this year, the Executive Committee of the National Economic Council (ECNEC) approved the ML-1 project of strategic importance worth USD 6.8 billion.
The ECNEC meeting had continued for just 20 minutes, leaving many critical questions about financing and technical details unresolved.
Both parties have reached broad consensus on the technical parameters, including the bidding documents, based on the deliberations that took place in the third joint bilateral finance committee and the seventh technical committee of the ML-1 project.
But an early start to construction work on what the official described as a “strategically important project” is unlikely after China linked the civil works to the previous completion of the financing mechanism for CPEC’s largest project.
Contrary to Pakistan’s expectations of obtaining the $ 6 billion loan at an interest rate of 1 percent, China has proposed a combination of commercial and concessional loans, the sources said.
China said the loans will be a combination of commercial and concessional loans, according to the sources.
The Ministry of Economic Affairs had proposed a rate of 1 percent, while the Ministry of Railways was inclined to take the combination of the commercial and concessional rate, subject to the condition that the average rate can remain below 2.38 per cent. a hundred, the sources said.
However, Pakistan expected that, due to the strategic nature of the project, China would accept its request for an interest rate of 1% and a 10-year grace period for repayment of the loan.
China has offered to finance 85 percent of the project’s cost with a payback period of 15 to 20 years in semi-annual installments. Sources said the Chinese had offered a five-year grace period.
Pakistan has requested up to 90 per cent of the funding and is willing to accept a repayment period of 20 years, on the condition that the grace period is 10 years.
“The Chinese side proposed that negotiations for financing should be only up to the point of package 1 consisting of USD 2,434 million and the negotiation of the remaining two packages will take place during the implementation phase of package I,” according to the official documents.
Pakistani authorities lobbied for the full cost of the ML-1 project to be negotiated. China has also offered financing in renminbi (RMB).
Under the ML-1 framework agreement, the project will be carried out in engineering, procurement and construction mode by Chinese contractors. Under CPEC, ML-1 is the only strategic project to be completed as part of the initial $ 46 billion agreement.
Sources said Pakistan’s wish to start work on package 1 from January 2021 would remain unfulfilled due to the delay in finalizing financial details.
Pakistan had planned to complete Package I from January 2021 to December 2024 and will cover the construction of a 527 km runway between Peshawar, Rawalpindi and Lahore, according to the newspaper.
CPEC is part of China’s One Belt, One Road initiative, a global infrastructure development strategy to invest in nearly 70 countries and international organizations. India has expressed concern about the projects as part of the CPEC traverses Pakistani-occupied Kashmir, violating Indian sovereignty.
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