China to invest $8.5 billion to upgrade Pakistan's rail network

China will aslo build a key gas pipeline with Iran to meet the country's energy needs

China will invest about $8.5 billion to upgrade Pakistan's rail network and to build a key gas pipeline with Iran to meet the country's energy needs, a media report said on Thursday.

The Central Development Working Party (CDWP), a Pakistan body to authorise major projects, on Tuesday approved $10 billon worth two projects. China will provide loans equivalent to 85% ($8.5 billion) of the cost of each project.

The cost of upgrading of Pakistan Railways existing Mainline (ML-I) and establishment of a dry port near Havelian is $8.2 billion, which the Chinese government will finance with a $7 billion concessionary loan, The Express Tribune reported.

This project is part of $46 billion China-Pakistan Economic Corridor (CPEC) package and is covered under the CPEC Framework Agreement, signed during the April 2015 visit of Chinese president to Pakistan.

The estimated cost of Gwadar-Nawabshah LNG Terminal & Pipeline project, also cleared in principle, is $2 billion including $1.4 billion Chinese loan. This project is strategically important for Pakistan as it will eventually link the country's gas network with Iranian system.

"The exact costs of both the projects will be firmed up after finalising financing arrangements," CDWP Chairman and Minister for Planning, Ahsan Iqbal, said.

"After finalisation of the financing arrangements, both the projects will be taken to the Executive Committee of National Economic Council (Ecnec) with firmed up cost for final approval," he said.

At present, Pakistan Railways is picking up less than 4% of the traffic volume of the country, which the government intends to increase to at least 20% by 2025.

The project is planned to be completed in two phases in five years by 2021 on engineering, procurement and construction (EPC) mode. Phase-I will be completed by December 2017 and Phase-II by the year 2021.

The CDWP also cleared Gwadar-Nawabshah LNG Terminal and Pipeline Project at an estimated cost of roughly $2 billion or Rs 206.6 billion.

The Chinese Exim bank will provide 85% of the financing under government-to-government mode. The EPC contract will be given to a Chinese company. The pipeline project will be included in the CPEC framework.

The key objective of this project is to overcome gas shortages by importing LNG and its transportation through Gwadar-Nawabshah pipeline.

In phase-I, the pipeline will follow the coastal pipeline corridor, which was formally established for the Iran-Pakistan gas pipeline. In phase-II, a 90-kilometer patch will be constructed from Gwadar to Pakistan-Iran border to tie the national network with Iranian system.