Pakistan has agreed to borrow $6 billion from China for the ML-1 project in Chinese and US currencies. At the same time, Pakistan is ready to back off from its initial position on interest rates on loans.
It should be noted that the ML-1 project is the largest part of the China-Pakistan Economic Corridor (CPEC) under which the Karachi-Peshawar railway track will be upgraded. According to top officials, Pakistan had requested China to lend the equivalent of $6 billion in US currency, but China was willing to lend in its own currency, the renminbi (RMB). However, the parties have now agreed to transact loans in both Chinese and US currencies. However, neither side indicated how much of the debt would depend on the dollar and RMB.
Negotiations for a loan for the ML-1 project have been going on for more than a year, but the final outcome of the negotiations has not been reached yet. Talking to media, Asad Umar, Federal Minister for Planning and Chairman, CPEC Committee, said that the Foreign Office has been informed about the financing priorities of ML-1 and a request has been made to take up the matter with the Chinese authorities. Asad Umar said that ML-1 project is the first priority of the government in the next meeting of CPEC Joint Cooperation Committee.
However, he said that the date of the meeting has not been fixed yet. It should be noted that ECNEC had approved the strategically important ML-1 project in August 2020 at a total cost of $6.8 billion. Pakistan had requested China to provide $2.44 billion under Package One for the project. Pakistan had proposed to borrow $6 billion from China at an interest rate of 1%, which was not accepted by China.
Sources said that Pakistan has informed China that it is ready to accept more favourable terms of financing as compared to previous CPEC projects. The government has also agreed to borrow 85% of the total cost of the Chinese project. However, the two countries could not agree on a repayment period. China wants to repay the loan in 15 to 20 years, which could be extended for another five years. Pakistan wants the loan repayment period to be 25 years with an additional 10 years grace period. Railway Secretary Habib-ur-Rehman Gilani told that China was formally ready to finance the project.
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