ISLAMABAD: Pakistan Railways (PR) is requesting a 130% rise in the purchase cost of about 1,050 bogies to Rs71 billion, primarily due to currency depreciation and changes in specifications, despite significant opposition from the finance and planning ministries.
A few days ago, the Central Development Working Party (CDWP) heard the Pakistan Railway’s proposal to raise the procurement cost for 820 freight wagons and 230 passenger coaches from Rs31 billion in 2017 to Rs70.97 billion. However, the proposal was abruptly postponed.
Following the CDWP’s technical clearance of the proposal, the National Economic Council’s Executive Committee (Ecnec) may take official approval into consideration.
As of June 30, two different Chinese contractors had already purchased about 292 of the 820 freight wagons and 78 of the 230 passenger coaches; the remaining bogies will be delivered by June 30, 2026.
Railway’s “unrealistic time frames” are to responsible for the cost’s increase to Rs71 billion.
For a number of reasons, including the project reassessment under the upgrade of ML-1 (Karachi to Peshawar line) under the China-Pakistan Economic Corridor (CPEC), the PR ascribed the cost escalation to the exchange rate rising from Rs104 in 2017 to Rs285 to a US dollar and the repeated cancellation of bidding results.
The currency rate has been contested by the Ministry of Finance, which has insisted that cost estimates be calculated using Rs278 per dollar.
On March 30, 2022, M/S Baotou Beifing Chuangye, China, was ultimately awarded the contract for 820 freight wagons for $41.64 million, while on October 29, 2021, CRRC Tangshan Co., China, was awarded the contract for 230 passenger bogies for $148.89 million.
A 15 percent increase in the import trade price of the freight on board component, taxes, freight charges, and other local expenses over the course of five years has also been cited by the PR as the reason for some cost increases.
The project’s 820 freight wagon component was started in order to get coal from the port to the power facilities, specifically the then-under-development Sahiwal coal power facility. The subject project’s timeline was planned so that the power plants would align with the railway project once it was finished.
Since the railway project was still unfinished, the planning ministry voiced concerns that it should be reexamined “otherwise it will become a huge liability.” The power plant had been operational for years.
The Planning Commission further noted that Pakistan Railways rarely calculated project prices and timelines that were reasonable. It was found that the procurement procedure took nearly three years, and that placing an order with the manufacturing company took an additional year after the bidding process was concluded.
PR also has financial difficulties during this time since it requires 15% advance funding to proceed following bidding approval. According to the quarterly funding release method, this money becomes accessible after two quarters. The Planning Commission stated that all of these reasons contributed to the project’s delay in completion and bemoaned the fact that Pakistan Railways might have raised income but that no significant attempts had been made to finance its manufacturing and procurement projects to date.
The commission has demanded that PR make significant efforts to reduce its losses and make good use of its workforce in order to boost its revenue earnings. These funding ought to be used for such programs. For FY25, the government has only allocated Rs6.16 billion for the Public Sector Development Program.
Due to Pakistan Railways’ subpar performance, which resulted in a Rs55 billion loss in FY23, the finance ministry has also expressed concern that only 20% of all passenger traffic and 4% of all freight transportation from Karachi to the upcountry was conducted via the railway system, with the remaining 80% of passenger traffic and 96% of freight transportation occurring via roads.
In order to recoup the new investments, the ministry required the PR to create a business strategy to grow its national passenger and freight traffic share.
According to the PR, the main cause of its performance was the difficulty it was having with aging freight rolling stock, which had a detrimental effect on the effectiveness of its freight train services. As a result, it was acquiring powerful locomotives and high-capacity wagons to enhance service delivery.
