Pakistan Awards $2 Billion Road Contract to China

Pakistan has relaxed its bidding rules to directly award a $2 billion contract to China for constructing a critical section of the Karakoram Highway, enhancing its strategic road connectivity with China. At the same time, the government approved a Rs78 billion incentive package for banks and exchange companies to boost foreign remittances.

Direct Award of Road Contract to China

The Economic Coordination Committee (ECC) of the cabinet, led by Finance Minister Muhammad Aurangzeb, approved invoking a special rule to bypass the requirement for international competitive bidding. This decision allows Chinese firms to be directly awarded the contract for constructing the Thakot-Raikot section of the Karakoram Highway, a crucial link under the China-Pakistan Economic Corridor (CPEC).

The Ministry of Communications, after extensive deliberations, received ECC approval to proceed with the project under the Framework Agreement signed between China and Pakistan in June. The agreement, finalized during Prime Minister Shehbaz Sharif’s visit to Beijing, includes a $2 billion loan from China to finance the project.

Significance of the Thakot-Raikot Section

The Thakot-Raikot section, spanning 241 km, is vital for maintaining uninterrupted land connectivity between China and Pakistan. This road portion will be submerged due to the construction of various dams, including the Diamer-Basha, Dasu, Azad Pattan, and Thakot dams. The project will involve Chinese companies in engineering, procurement, construction, and supervision tasks, utilizing Chinese equipment.

According to the Public Procurement Regulatory Authority (PPRA) law, contracts are usually awarded through competitive bidding. However, under Rule 5, the ECC justified its decision, citing conflict with an international agreement, allowing the special provisions to prevail.

Incentive Package to Boost Foreign Remittances

To ease pressure on its foreign exchange reserves, the ECC approved a Rs78 billion incentive package aimed at encouraging foreign remittances. The package includes revisions to the Reimbursement of Telegraphic Transfer (TT) Charges scheme and the Incentive Scheme for Exchange Companies.

The new package allocates Rs68 billion to commercial banks and Rs10 billion to exchange companies. Remittances rose by 10.7% to $30.3 billion last fiscal year, thanks in part to the Remittances Initiative Scheme by the Finance Ministry. The ECC also approved increasing the incentives for exchange companies, with a focus on incremental growth in home remittances.

Details of the Incentive Package

The ECC approved a flat reimbursement rate of the Saudi Arabian Riyal (SAR), which is divided into fixed and variable components. Banks will now receive a fixed incentive of SAR 20 for eligible transactions of $100 or more. Additional incentives are provided based on growth performance, with total benefits ranging from SAR 28 to SAR 35 per $100 transaction.

Similarly, benefits for exchange companies have been increased, with the fixed benefit for every $100 surrender rising from Rs1 to Rs2. Variable incentives are also included, offering further benefits based on the amount of foreign exchange mobilized and incremental growth.

Further Foreign Financing Measures

In addition to the contract award and incentives package, the ECC has taken other steps to strengthen Pakistan’s external financing position. The government has banned pension payments in foreign currency to retired pensioners residing abroad, effective for those recruited after January 1959. This measure aims to reduce foreign exchange outflows.

Moreover, the ECC approved relaxing competitive bidding conditions for hiring foreign consultants for the Chakdara-Timergara road project, funded by a $49 million loan from the Export-Import Bank of South Korea. The decision was made to comply with the conditions set by the lender.

Conclusion

These decisions reflect Pakistan’s strategic focus on bolstering economic ties with China while addressing its external financial constraints. The direct award of the Karakoram Highway contract underlines the importance of the CPEC initiative in the nation’s infrastructure development, while the new incentives aim to attract higher remittances and stabilize foreign exchange reserves.