The Executive Committee of National Economic Council (ECNEC), headed by Finance Minister Shaukat Tarin, has decided not to give sovereign guarantee of the Government of Pakistan in the Karachi Circular Railway (KCR) project, official sources told Business Recorder.

A high-level committee was also constituted under chairmanship of Minister for Finance and comprising Minister for Planning, Development & Special Initiatives, Deputy Chairman Planning Commission, Secretary, Ministry of Railways, Secretary, Ministry of Planning, Development & Special Initiatives, Secretary, Finance Division and relevant consultants/ Financial advisers on KCR project to refine, if possible, the proposed transaction structure of KCR, to achieve maximum benefit for the government. However, if no improvement can be found, then this proposal will stand approved as submitted.

Sharing the details, sources said, on March 16, 2022, Ministry of Planning, Development and special Initiatives informed ECNEC that the project envisages construction of a 43.225-Km dual track urban rail mass transit system to be built in a period of three years in PPP mode using standard gauge. The project was envisaged to change the public transport landscape of Karachi and geared to facilitate the public, overall traversing a route of 43.225 Km and passing through almost all districts of Karachi.

The project is expected to serve a daily ridership of 457,608 which was expected to soar to 1 million per day by the end of the 33-year concession period. Out of 33 years, concession period, three years are for construction and 30 years for operations.

The ECNEC was further informed that the concessionaire will build, operate and maintain the facility up to the full concession period as per the concession agreement and will hand over the facility to Pakistan Railways after completion of concession agreement. After that, Pakistan Railways would be responsible for its operations and maintenance.

The KCR would have an entirely modem commuter Rapid Mass Transit electrified system as per ICA/ CPEC studies & proposals with inter-modal connectivity of roads and parking lots, computerized ticketing, automated gates, elevators, vending machines, utility kiosks, book shops, food cafe, shopping area, etc. It would have additional boarding facilities for elderly and special persons and interface with Bus Rapid Transit (BRT) lines. A table was presented to the forum to show that complete scope of the KCR for the total 43.225 km route length and the scope, as already approved by the ECNEC on September 24, 2021 for the construction of flyovers/ underpasses on the KCR route for elimination of 22 level crossings.

The Ministry of Planning, Development and Special Initiatives further noted that the project was proposed to be implemented in PPP mode for which the transaction structure has been approved by the Board keeping into consideration the complete scope and cost of the project. As the already approved scope for construction of flyovers/ underpasses for elimination of 22 level crossings is part of the KCR alignment/ project; therefore, complete scope & cost of the project has been considered.

The Ministry of Planning, Development and Special Initiatives apprised that the project was considered by the CDWP in its meeting held on February 9, 2022 and recommended the project for consideration of ECNEC at a total cost of Rs 201.572 billion (in terms of procurement local, Rs 116. 989 billion and FEC, Rs 84. 583 billion).

The Finance Division reiterated its comments regarding the sovereign guarantee. It was stated that the concerned Ministry shall review proper utilization of the guaranteed funds and will also review the guarantee annually to ensure that there is no risk of default in repayment of loans together with interest therein. A report in this regard including non-utilization of the guaranteed financing due to any reason shall be submitted to the Finance Division annually. The legal consultant stated that there is no requirement of such guarantee due to the fact that the Government of Pakistan is the party in this case.

The Chairman ECNEC stated that the projects need to be supported but the transaction structure needs to be reconsidered to protect the interest of the Government. The ECNEC agreed with the suggestion of the Chairman.

After detailed discussion, ECNEC decided that there shall be no Sovereign Guarantee of the Government of Pakistan in the project.

A Committee was also constituted under chairmanship of Minister for Finance and comprising Minister for Planning, Development & Special Initiatives, Deputy Chairman Planning Commission, Secretary, Ministry of Railways, Secretary, Ministry of Planning, Development & Special Initiatives, Secretary, Finance Division and relevant consultants/Financial Advi-sers on KCR project to refine, if possible, the proposed Transaction Structure of KCR, to achieve maximum benefit for the Government. However, if no improvement can be found, then this proposal will stand approved as submitted.

The story was originally published in Business Recorder on March 29, 2022.