The government has reviewed a Frontier Works Organisation (FWO) proposal to construct the Multan-Rohri section of Pakistan’s Mainline-I (ML-I) railway project at an estimated cost of Rs470 billion.
The project would be developed under a build-lease-transfer model, with FWO proposing to arrange most of the financing through local commercial banks.
FWO Proposes Local Bank Financing
Under the proposed financing structure, FWO would seek to borrow up to 80% of the project cost from local commercial banks.
The remaining financing would require federal support of between 20% and 40% in the form of viability gap funding, depending on the final structure approved by the government.
Based on the current estimated project cost, the federal grant requirement could range from approximately Rs91 billion to Rs182 billion.
How The Build-Lease-Transfer Model Would Work
Planning Minister Ahsan Iqbal said the project would not be financed through the Public Sector Development Programme (PSDP).
Officials are instead examining alternative grant mechanisms, including the National Economic Initiative, which could potentially involve contributions from provincial governments.
Under FWO’s proposal, construction of the Multan-Rohri rail link would be completed within three years.
Once completed, Pakistan Railways would lease the track for 25 years. At the end of the lease period, ownership of the railway infrastructure would transfer fully to Pakistan Railways.
Debt Repayment Remains Unresolved
While the build-lease-transfer structure has received acceptance in principle, key questions surrounding financing remain unresolved.
Officials have yet to determine who would ultimately be responsible for repaying the bank loans raised for the project. The government must also decide the size and terms of any sovereign guarantees required to support the financing.
Pakistan Railways has been reluctant to assume the entire repayment burden. The Finance Ministry has therefore asked the railway operator to assess how much it could repay from its own resources once the new track becomes operational.
Lessons From Earlier ML-I Financing Talks
Questions over debt repayment and government guarantees are not new to the ML-I project.
Similar concerns emerged during earlier discussions with Chinese lenders. China subsequently declined to finance the complete Mainline-I project after its estimated cost increased to around $10 billion.
The latest FWO proposal represents a different financing route, relying primarily on domestic banks and a local contractor rather than external sovereign lending.
ADB Loan Under Discussion For Karachi-Rohri Section
Pakistan is already negotiating a $1.2 billion loan from the Asian Development Bank for the Karachi-Rohri section of ML-I.
That section has an estimated cost of approximately $2.5 billion.
For the Multan-Rohri portion, the government is now examining whether a locally financed contractor-and-bank model can provide an alternative way to move the project forward.
Government Reviews Future Rail Demand
Last month, Prime Minister Shehbaz Sharif directed officials to conduct a comprehensive assessment of Pakistan Railways’ rolling-stock requirements as well as the future passenger and freight potential of the ML-I line.
The assessment is expected to help determine the infrastructure and operational requirements associated with the railway upgrade.
Financing Structure Still Needs Final Approval
A senior official of the Special Investment Facilitation Council said the build-lease-transfer approach had been accepted for the proposed Multan-Rohri project.
However, the financing structure has not yet been finalised.
The government will need to settle questions surrounding bank debt repayment, federal support, sovereign guarantees and Pakistan Railways’ ability to generate sufficient resources before the Rs470 billion project can move into implementation.