ISLAMABAD: The caretaker government has dealt a big blow to the Special Investment and Facilitation Council’s (SIFC) plans to attract investments by not only terminating the contract for the much-awaited 306km Hyderabad-Sukkur (M-6) Motorway but also escalating the project’s cost by over 100 per cent.
Under the terminated contract, a joint venture of Techno, ACC, and CMC was investing over Rs300 billion in the project from its own resources and was only seeking financial assistance of Rs9.5bn in viability gap funding (VGF) from the National Highway Authority (NHA).
Interestingly, after recently abolishing the contract, the NHA has submitted revised cost estimates of the project of Rs400bn excluding the VGF to the SIFC, asking the council to attract local and foreign investors for the project.
The VGF, to be borne by the NHA under the new contract, may range from Rs300bn to Rs400bn, potentially raising the total project cost to Rs700bn.
Fresh bidding planned; NHA submits Rs400bn project estimate to SIFC
“Yes we have terminated the contract and sent its revised estimates of over Rs400bn to SIFC,” the NHA spokesman told Dawn when contacted.
The spokesman did not mention that the revised cost doesn’t include the Rs300bn to Rs400bn VGF to be provided by the NHA.
M-6 motorway is the only missing link in the motorway network between Peshawar and Karachi.
A retired official of the NHA, who did not want to be named, said by terminating the contract, the NHA has opened chances of unbearable loss of over Rs300-400bn to the national kitty in terms of cost escalation. The project’s cost will escalate to Rs700bn, of which the NHA will have to provide a VGF share of around Rs300bn, he added.
He said that the cancellation of the contract dealt a big blow to the efforts of the SIFC, as huge investment of over Rs300bn, which was coming from a local investor, has not only stopped but has also shattered the confidence of investors.
The official said in prevailing fragile economic situation in the country, it will not be an easy task for the SIFC to attract both local and foreign investment of Rs700bn for M6 project, potentially causing further delays to an already delayed project.
The NHA spokesman said the authority was making all possible arrangements for calling fresh bids. He agreed that the project cost might rise to over Rs300 to Rs400bn in the fresh bidding because the cost of construction material has gone up by twofolds.
The M6 project was awarded to M/s TECHNO, CMC, and ACC (TECMC) joint venture. The public-private partnership (PPP) agreement was signed on December 2, 2022 on build-operate-transfer (BOT) basis.
According to the NHA, the concessionaire (M/s TECMC) was unable to achieve financial close within given time period of six months from signing date. On the request of the concessionaire the financial close period was extended for a period of four months, till Sept 30, 2023. Unfortunately, the concessionaire failed to achieve financial close even in the extended period.
The spokesman said the NHA had issued a preliminary notice/default notice, which required the concessionaire to remedy its default within a 45-day period. Since the concessionaire could not remedy the default, the NHA issued a termination notice on Nov 19, 2023.
On the other hand, a source said that TECMC was ready to execute the project despite many odds at the same rates it quoted in December 2022, but it was deprived of the contract on petty technical grounds.
It has been learnt that the despite all assurances by the JV, the NHA was bent up terminating the contract and issued a default notice, making it difficult for the consortium to meet financial close.
The TECMC JV had claimed that it met all its commitments and obligations, managing the financial close by providing a term sheet showing its own equity contribution of Rs183bn and a bank loan of Rs120bn.
Under the agreement, viability gap funding was only Rs9.5bn, which was to be borne by the NHA.
The act of the NHA has invited criticism, and questions are being raised on it that why the contract, in which it was to provide only Rs9.5bn in funds, was terminated. The authority is also being accused of planning to favour some blue-eyed firms by re-awarding the HSM project.
When the NHA started arm-twisting the JV, it shattered the confidence of its foreign partner CMC, an Italian firm that hesitated to participate in the project. On this, TECMC submitted an application with the NHA expressing its desire to complete the project by any means, even if its foreign partner, the CMC, appeared to be not interested in continuing the project.
Shortly before the NHA terminated the contract, CMC sent its delegation to Pakistan to give assurance to the NHA that it wanted to execute the project.
Published in Dawn, February 26th, 2024
