ISLAMABAD: Pakistan Railways (PR) is seeking a 130% increase in the procurement cost of approximately 1,050 bogies to Rs71 billion, despite strong objections from the ministries of finance and planning. This is primarily due to a change in specifications and currency depreciation.
The Pakistan Railway presented its case to the Central Development Working Party (CDWP) a few days ago for an increase in the procurement cost for 820 freight wagons and 230 passenger coaches from Rs31 billion in 2017 to Rs70.97 billion now, but the meeting was postponed at the last minute.
The Executive Committee of the National Economic Council (Ecnec) may contemplate formal approval of the proposal after it has been approved by the CDWP on technical grounds.
As of June 30, two distinct Chinese contractors had already procured approximately 292 freight wagons out of 820 and 78 passenger coaches out of 230. The remaining bogies will be delivered by June 30, 2026.
Railway’s “unrealistic time frames” blamed for pushing costs to Rs71 billion The PR said that the cost increase was caused by the exchange rate going up from Rs104 to Rs285 to the US dollar in 2017 and the repeated cancellation of bidding results for a variety of reasons, including the project reassessment for the upgradation of ML-1 (the Karachi to Peshawar line) under the China-Pakistan Economic Corridor (CPEC).
Cost estimates should be based on Rs278 per dollar, according to the Ministry of Finance, which has challenged the exchange rate.
M/S Baotou Beifing Chuangye, China, received the contract for 820 freight wagons on March 30, 2022, for $41.64 million, while CRRC Tangshan Co, China, received the contract for 230 passenger bogies on October 29, 2021, for $148.89 million.
The PR has also said that a 15 percent increase in the import trade price of the freight on board component, taxes, freight charges, and other local fees over the past five years is to blame for some of the cost increases.
The 820 freight wagon portion of the project was started with the intention of transporting coal from the port to the power plants, particularly the Sahiwal coal power project, which was in the process of being built at the time. The project’s timeline was designed so that, when it was finished, the power plants would work in tandem with the railway project.
The planning ministry was concerned about the fact that, while the power plant had been operating for a number of years, the railway project was still in its infancy and needed to be rethought because “otherwise it will become a huge liability.”
The Planning Commission also said that Pakistan Railways rarely came up with project costs and realistic time frames. It was found that the procurement process took almost three years, and it took another year to place the order with the manufacturing company after the bidding process was finished.
“During this time, PR also faces funding issues because, in order to proceed after receiving bid approval, it requires 15 percent advance funding. This money is available after two quarters, per the quarterly fund release mechanism. The Planning Commission stated, “All of these factors are to blame for the delay in the project’s completion.” It also bemoaned Pakistan Railways’ inability to fund its procurement and manufacturing projects despite the company’s potential for increased revenue.
The commission has demanded serious efforts to reduce PR’s losses and effectively utilize human resources to increase revenue earnings. Those funds ought to be used for such projects. For FY25, the government has only invested Rs6.16 billion in the Public Sector Development Program.
As a result of Pakistan Railways’ poor performance, which resulted in a loss of Rs55 billion in FY23, the finance ministry has also expressed concern about the fact that only 20 percent of all passenger traffic and 4 percent of freight transportation from Karachi to the upcountry took place via the railway system. The remaining 80 percent of passenger traffic and 96 percent of freight transportation took place via roads.
The PR had to come up with a business plan to increase its national share of passenger and freight traffic in order to recover the new investments from the ministry.
The PR stated that the primary reason for its performance was the difficulty it faced as a result of its aging freight rolling stock, which had a negative impact on the efficiency of its freight train services. As a result, it was purchasing powerful locomotives and high-capacity wagons to improve service delivery.
