$406.6 million loan accord signed with World Bank for KPEC project

The government of Pakistan and World Bank on Friday signed loan agreement worth $406.6 million for Khyber Pass Economic Corridor (KPEC) project.

Dr Syed Pervaiz Abbas, Secretary Economic Affairs Division (EAD), signed the project's loan agreement on behalf of government of Pakistan while representative of National Highway Authority (NHA) signed the project agreement of the project while Patchamuthu Illangovan, Country Director World Bank signed the agreements on behalf of World Bank. Minister for Economic Affairs Hammad Azhar witnessed the signing ceremony of financing and project agreement of KPEC.

According to Bank fact sheet, KPEC is financed with a $460.6 million IDA concessional credit from the World Bank and $22.15 million from the government. The World Bank's concessional financing has a maturity of 30 years and an interest rate of 1.25 percent after a 5-year grace period. This financing cost is lower than the government's own cost of funds. The commitment charge is currently zero. This means that any cost savings realized through competitive bidding can be repurposed or cancelled at no cost to the government. Two-thirds of the funds come from a special window that supports regional connectivity, and therefore cannot be utilized for other projects of national nature. This is in addition to the regular allocation of concessional IDA funds to Pakistan, maintained the project documents.

According to the EAD official statement, the project aims at constructing 48 km long 4-lane dual carriageway high-speed access controlled motorway from Peshawar to Torkham. This project will promote economic development and uplift areas adjoining expressway falling in Khyber Pakhtunkhwa province. The project envisages the use of PPP and private financing to develop clusters of economic activity, economic zones and expressways. The connecting transport infrastructure and economic zones will provide a strong foundation for private businesses to invest in these zones.

The global integration of South and Central Asia is intertwined with the Khyber Pass and has served as the key node in trade for hundreds of years. The expressway between Peshawar and Kabul through the Khyber Pass represents a section of Corridors 5 and 6 of the Central Asia Regional Economic Cooperation (CAREC). Corridor 5, which runs through Pakistan, has the potential to provide the shortest link between the landlocked countries of Afghanistan, Tajikistan, Uzbekistan and the Arabian Sea. Corridor 6 provides access to Europe, Middle East and Russia. The KPEC will finance Peshawar-Torkham expressway portion of Corridor-5.

The Peshawar-Torkham expressway will reduce transit time and costs for regional and international trade transiting the Khyber Pass and extend till Karachi-Lahore-Islamabad-Peshawar Trans-Pakistan Expressway System. It will form as an integral part of the planned Peshawar-Kabul-Dushanbe Motorway. The improved regional connectivity through this corridor will not only facilitate the commercial traffic and expand economic activities between Pakistan and Afghanistan but also promote private sector development along the corridor. It is expected to generate up to 100,000 new jobs in Khyber Pakhtunkhwa.

The Minister for Economic Affairs highlighted that signing of this important project indicates resolve of the World Bank to support the development agenda of the present government.

The country director WB while appreciating the reform initiatives of the current government committed to extending possible facilitation and financial support to the government in its efforts to promote economic activities in the country and put the economy back on track.

According to the project documents, the cost estimate per kilometer without contingencies is equivalent to $6.7 million. This cost is lower than the international average of $8-10 million per kilometer for expressways in similar mountainous and hilly terrains. The preliminary designs include 22 bridges/flyovers, 139 drainage/culvert structures, and two major interchange. International practice is to allocate enough financing for estimated costs and contingencies to provide confidence to bidders. This will bring reputable contractors to work in this logistically and security challenging but important area. The international average physical contingency is 10 percent and a similar contingency level is usually used to cover price escalation during construction period. For KPEC, a seven percent price contingency and a 12.5 percent physical contingency have been used.