KARACHI – The Main Line 1 railway project, or ML-1, the largest of China’s Belt and Road Initiative in Pakistan, has encountered problems as Beijing is reluctant to finance the project at the rate of 1% interest demanded by Islamabad.

ML-1 is the largest initiative in the China-Pakistan Economic Corridor, or CPEC, with a price tag of $ 6.8 billion. With 2,655 km of track, it links Karachi in the south to Peshawar in northern Pakistan. Federal Minister of Railways Sheikh Rashid Ahmed said ML-1 will provide jobs for 150,000 people in Pakistan.

The country will invest 10% of the cost of the project in the form of equity and support the remaining 90% via a Chinese loan under the CPEC. Only Chinese companies are eligible to bid on the project, according to the public newspaper China Daily.

It will be executed in three phases because the International Monetary Fund, or IMF, does not allow Pakistan to borrow more than $ 2.5 billion at a time, under its extended credit facility to help overcome imbalances. structural by strengthening foreign exchange reserves.

According to Pakistan Railways, work on the first phase is expected to start from January 2021. However, after Beijing’s reluctance to agree to the loan terms, the ML-1 project is unlikely to start on schedule.

Experts believe Beijing is using delaying tactics so as not to end up agreeing to a bad deal.

“Beijing does not want to say no [to ML-1], he wants to appear engaged in Pakistan, but at the same time he is aware of the risky environment for Chinese investments, “said Jeremy Garlick, assistant professor at the Jan Masaryk Center of International Studies at the University of Economics and Business from Prague. “Instead of denying the request, China is delaying offering an investment but obstructing the final deal to delay things,” Garlick told Nikkei Asia.

Krzysztof Iwanek, director of the Asian Research Center at the University of Warsaw War Studies, believes that very often what is broadly presented as “Chinese investment” turns out to be Chinese loans. “CPEC is also being built with Chinese loans,” Iwanek told Nikkei, adding that it was no surprise that Beijing is looking for a good return on most of CPEC’s projects.

Andrew Small, senior transatlantic researcher at the German Marshall Fund in the United States, believes that China has been flexible with Pakistan on the back-end, but that it has generally been a bit tougher on initial conditions. agreements. “It’s partly because [China] want to[s] to make sure the projects are viable enough to make financial sense even under more stringent conditions, ”Small told Nikkei. “They have always been reluctant to cut interest rates on new or existing projects, but always ready to inject finance into the Pakistani economy when needed,” he said.

In this context, Pakistan secured temporary debt relief of $ 3.2 billion under the G-20 COVID-19 Debt Service Suspension Initiative. Although modest given Pakistan’s external debt, it will offer Islamabad a respite at a time when Beijing shows reluctance to fund infrastructure projects in Pakistan.

Garlick, author of “The Impact of China’s Belt and Road Initiative: From Asia to Europe,” believes G-20 debt relief may temporarily stem the tide, but can’t hide Pakistan’s need. long-term solutions to deal with its chronic shortage of foreign exchange reserves. “If conditions get really tough, Pakistan may have to back off and accept the Chinese loan at an interest rate closer to China’s stated rate,” he said.

China’s opaque loans to Pakistan also prevent Pakistan from getting new loans from Western countries. “Global lenders want more transparency about what China is doing before they are willing to take certain actions themselves – they don’t want to be able to de facto bail out Chinese credit institutions,” Small said.

No longer having the possibility of obtaining loans from Western countries, Islamabad has no other choice but to seek them from China for projects that it considers economically significant, because all the projects supported by China do not. Didn’t stop: Orange Metro Train Lahore, the first metro train service built at a cost of $ 1.6 billion under CPEC, launched a passenger service on Sunday.

But experts have doubts about the ultimate economic success of the ML-1 project, which will increase Pakistan’s foreign debt by $ 6 billion.

Small says that, like many large rail projects, ML-1 will not generate significant direct returns. Its success relies mainly on the provision of other positive externalities. For example, it will reduce the cost and delivery time for large freight to Pakistan. It can also help revive the country’s railways, which are on the verge of collapse.

Garlick shares the same point of view. “Why would a railway line produce 150,000 jobs? It would create a few, but the effects are unlikely to be as positive as the Pakistani government claims,” ​​he said.

He added that the Pakistani government’s claims regarding Chinese investments and CPEC in general were exaggerated from the start. “There is a track record of the Pakistani side claiming that CPEC will be a ‘game changer’, but so far after five years there is no sign of a game change,” he said. he declares.