ADB Steps in to Support Pakistan Rail Upgrade: Implications for Investors Amidst China’s Financing Delays
ISLAMABAD: The Asian Development Bank (ADB) is set to finance upgrades to a segment of Pakistan’s aging railway system, stepping in after delays in securing funds from China jeopardized a key mining initiative, according to two informed sources.
This upgrade of 1,800 kilometers of railways is a crucial component of a $60 billion Chinese investment plan launched in 2015 under Beijing’s Belt and Road Initiative. However, a decade of negotiations has yet to yield a financing agreement for these upgrades, which represent the largest project within the Chinese program. Meanwhile, Pakistan is grappling with repayment challenges related to existing Chinese loans for other ventures.
The ADB is currently in advanced negotiations to lead the financing for a $2 billion upgrade of a 500-kilometer railway segment from Karachi to Rohri. This stretch was initially intended to be part of the Chinese project, according to sources familiar with the discussions.
The urgency of this upgrade is underscored by the need to facilitate the transportation of copper ore from the Reko Diq mine, which is being developed by Canada’s Barrick Mining Corp. "We are facing a potential crisis. How will we transport output from Reko Diq? The outdated rail line will be under even greater strain," stated a high-ranking government official.
There has been no immediate response from Pakistan’s Ministry of Railways or China’s Foreign Ministry.
While the ADB did not confirm the financing package, it remarked that ongoing discussions regarding railway sector development take place regularly between Pakistan’s government and the regional lender. "Any potential ADB assistance would undergo comprehensive due diligence and adherence to ADB’s policies before any commitment is finalized," the bank stated.
An announcement about the deal is anticipated later this month, with the ADB leading a consortium to finance the project and bringing in an international engineering contractor via a competitive bidding process. The ADB also recently allocated $410 million in funding for the Reko Diq mine itself, and its president is expected to visit Islamabad next week.
The sources noted that the agreement is diplomatically sensitive but has been coordinated with China. "We would never take actions that could jeopardize that relationship," the senior Pakistani official emphasized.
Following the launch of the investment program, known locally as the China-Pakistan Economic Corridor, China initiated numerous infrastructure projects. However, progress has recently stalled, with the inauguration of the last significant project—the Gwadar East Bay Expressway—occurred in 2022. Islamabad has fallen behind on payments for electricity generated by Chinese-built power plants and has been seeking to reschedule debt payments related to these facilities after a government report assessing their costs.
Special Analysis by Omanet | Navigate Oman’s Market
The shift in financing for Pakistan’s railway upgrades from Chinese to Asian Development Bank (ADB) support illustrates a critical opportunity for regional investors observing infrastructure dynamics in South Asia. This change might signal increased competition among financial backers, as smart investors should consider how such funding shifts could influence regional supply chains and affect transportation logistics for sectors reliant on mining outputs. Strategically, businesses in Oman must evaluate the potential impact on local commodity markets, assessing both the risks and rewards associated with evolving international partnerships as regional infrastructures modernize.
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