October 1, 2018 / 1:59 PM / 2 months ago

Pakistan cuts Chinese 'Silk Road' rail project by $2 billion due to debt concerns

Lahore, Pakistan (Reuters) - Islamabad has cut the size of the biggest Chinese “Silk Road” project in Pakistan by $2 billion, Railways Minister Sheikh Rasheed said on Monday, citing government concerns about the country’s debt levels.

FILE PHOTO: A cargo train loaded with coal dust, moves past the port area near City Station in Karachi, Pakistan September 24, 2018. REUTERS/Akhtar Soomro/File Photo

The megaproject to revamp the colonial-era line stretching 1,872 km (1,163 miles) from Karachi to the northwestern city of Peshawar was initially priced at $8.2 billion, but wrangling over costs has led to delays.

The changes are part of Islamabad’s efforts to rethink key Belt and Road Initiative (BRI) projects in Pakistan, where Beijing has pledged about $60 billion in financing but the new government of populist Prime Minister Imran Khan appears to be more cautious about the Chinese investment.

“Pakistan is a poor country that cannot afford huge burden of the loans,” Rasheed told a news conference in the city of Lahore.

“Therefore, we have reduced the loan from China under CPEC for rail projects from $8.2 billion to $6.2 billion,” he added, referring to the China-Pakistan Economic Corridor (CPEC).

Rasheed said the government remains committed to the Karachi-Peshawar Main Line-1 (ML-1) project but added that he wishes to further reduce the cost to $4.2 billion from $6.2 billion.

Islamabad has balked at the financing terms and has pushed for deeply concessional loans for ML-1. It also invited third countries to join or for the Chinese to be investors in the project through the build-operate-transfer (BOT) model that would rely less on debt.

The United States has criticized BRI projects, warning that the loans could turn into debt traps for poor countries unable to pay them money back. Beijing denies the claims, saying the loans are a win-win situation for both countries.

“CPEC is like the back bone for Pakistan, but our eyes and ears are open,” Rasheed said.

The ML-1 is the spine of the country’s dilapidated rail network, as well as the biggest source of revenue. Pakistan’s rail system has struggled to break even for decades as passenger numbers plunge, train lines close and the vital freight business nosedives.

Additional reporting by Syed Raza Hassan in Karachi; Writing by Drazen Jorgic, Editing by William Maclean

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