The Frontier Works Organisation (FWO) has proposed constructing the Multan-Rohri section of the Mainline-I (ML-I) railway project at a cost of Rs. 470 billion under a build and lease model, with financing to be arranged mainly through local commercial banks.
The proposal was discussed at a meeting chaired by Planning Minister Ahsan Iqbal on Wednesday. Senior officials from the ministries of Finance, Railways, Economic Affairs and Planning, along with representatives of the Special Investment Facilitation Council (SIFC) and Public Private Partnership Authority, attended the meeting.
Under the proposed model, FWO would arrange debt from local banks to finance up to 80 percent of the project cost, while the federal government would provide between 20 percent and 40 percent of the funding. The federal contribution would be treated as viability gap funding.
FWO has proposed completing the rail link within three years before handing it over to Pakistan Railways on a 25-year lease. Ownership of the track would be transferred to Pakistan Railways after the lease period ends.
However, questions remain over who would repay the debt raised by FWO and how much in sovereign guarantees would be required. Officials said Pakistan Railways was reluctant to take full responsibility for repaying the loans after taking over the track.
The Ministry of Finance has not given clear consent to provide guarantees and has instead asked Pakistan Railways to determine how much of the debt it could repay from its own resources after taking over the new track.
Ahsan Iqbal said the federal government would not provide viability gap funding from the Public Sector Development Programme. He said alternative mechanisms could be explored to provide such funding.
Officials also discussed arranging financing under the National Economic Initiative, which is intended to finance major projects of strategic national importance through grants from provinces.
A senior SIFC official said the government had decided to pursue the build and lease model and that the remaining issue was the financing structure. He confirmed that the proposed lease period would be 25 years.
The ML-I railway project, which runs from Peshawar to Karachi, was originally part of the China-Pakistan Economic Corridor. China later declined to finance the project after its estimated cost increased to $10 billion.
Pakistan is already negotiating with the Asian Development Bank for a $1.2 billion loan to develop the Karachi-Rohri section, estimated to cost $2.5 billion. For the Rohri-Multan section, the government is now exploring local financing options with FWO as the contractor. The federal government is expected to provide between Rs. 91 billion and Rs. 182 billion in grants under the proposed financing structure.
The Public Private Partnership Authority also presented an assessment of different financing options at the meeting. Ahsan Iqbal said a workable financing mechanism was needed to accelerate ML-I construction because resources under the Public Sector Development Programme were already limited for ongoing projects.
He directed the Ministry of Railways and Ministry of Finance to present alternative financing options for the project. Last month, Prime Minister Shehbaz Sharif directed the Ministry of Railways to prepare a comprehensive assessment of rolling stock requirements and the existing and future business potential of ML-I, including passenger and freight operations, traffic and revenue potential.
