International

ML-1: China asks Pakistan for additional guarantees for $6 billion loan

China pakistan loan

Before sanctioning the $6 billion loan for the Main Line-1 (ML-1) project China is seeking additional guarantees from Pakistan due to Pakistan’s deteriorating financial status. China has also suggested a combination of industrial and concessional loans against Islamabad’s desire to obtain the cheapest loans.

According to a report, official documents relating to the third meeting of the ML-1 Joint Financing Committee held ten days ago state that China elevated the question of further guarantees for its loan.

Interestingly, according to a senior Pakistani official present during the negotiations, even though the question of additional guarantees was posed during the meeting, the minutes shared with Pakistan were not included in the draft of the meeting.

Although both countries have yet to sign the final draft minutes, the official clarified that the reason China requested additional assurances was to gain more clarification after Pakistan had taken advantage of the debt relief initiative of the G-20 countries. After all, this program is meant to be used only by the poorest nations in the world.

The ML-1 project involves the dualization and upgrade of the 1,872 km railway line from Peshawar to Karachi and is a significant milestone for the China-Pakistan Economic Corridor second phase (CPEC).

A strategically significant ML-1 project worth $6.8 billion was approved in August of this year by the Executive Committee of the National Economic Council (ECNEC).

According to reports, China has maintained that a combination of commercial and concessional loans would be the $6 billion loan it provides Pakistan for the purpose of financing the ML-1 project.

In addition, China has offered to fund 85 percent of the project expense in biannual tranches with payback periods of 15 to 20 years. Sources claim that while China offered a five-year grace period, Pakistan responded by asking for up to 90% of the funding and a 10-year grace period.

Under the ML-1 framework agreement, the project will be conducted by Chinese contractors in the engineering, procurement and construction modes. Under the CPEC arrangement, as part of the initial $46 billion contract, ML-1 is the only strategic project being finalized.

To Top