Circular Railway Project Hits a Snag

KARACHI (January 24 2010): The long-awaited Karachi Circular Railway (KCR) project has hit a snag because of the issue of what sources said "re-lending" of around $1.58 billion by the Japanese government. The transfer of the amount to Karachi Urban Transport Corporation (KUTC) through the federal government would face a 17 percent cut, making the project unviable, sources said.They said this procedure of releasing funds would face the drastic cut of 5 percent "risk rate" and almost 12 percent "interest rate", making total deduction of 17 percent.

Interestingly, they said, the corporation had not addressed this issue since the project was going through different studies during the last few years."If the issue of deduction, under different heads, is not resolved timely, the project would face another delay which could ultimately increase its cost," sources said, adding that the government of Japan, which would invest $1.58 billion on revival of KCR to mitigate traffic problems in this metropolis, would issue the funds to government of Pakistan directly.To address the re-lending issue, sources said, a meeting was held on December 18 in Economic Affairs Division (EAD), Islamabad, but it was yet to be resolved by the concerned authorities.

However, they said, it was decided in the meeting that the foreign funds, to be received by the federal government, could be used through Pakistan Railways (PR).The Ministry of Railway would later release the fund to KUTC, which is the vehicle for the implementation of the project having on its Board-Directors the senior officials of PR, Government of Sindh and City District Government Karachi (CDGK).An urgent meeting in this regard was needed to solve the issue without any further delay, as the project's cost has already been increased from $872.316 million to $1.58 billion due to the persistent delay, they added. However, Ejaz Khilji, Managing Director, KUTC, said the corporation was seriously considering the re-lending issues and it would be resolved within the next few days.As KUTC has already handled many issues regarding the important project, the transfer of funds was not a big problem, he added.

It is to mention here that the KCR project was to be funded by government of Japan through the Japan Bank of International Co-operation (JBIC). Tokyo has commissioned 100 percent funding for the project under "STEP Loan" at 0.2 percent markup rate for a 40-year payback time, including a 10-year grace period.The project, with the completion of different studies like Environmental Impact Assessment Study (EIAS) and resettlement action plan etc under the aegis of Japan External Trade Organisation), has already been approved by Executive Committee of National Economic Council (Ecnec).