Hyderabad-Sukkur Motorway: cost of M-6 project may soar to over Rs 200 billion

The estimated cost of Hyderabad-Sukkur Motorway (M-6) project, a critical component of China-Pakistan Economic Corridor (CPEC), is likely to escalate to over Rs 200 billion against the initial estimates of Rs 175 billion due to repeated delays in project execution, it is learnt.
The PML-N government had awarded the project to China State Construction Engineering Corporation at an estimated cost of Rs 175 billion with scheduled completion in three years on build-operate-transfer (BOT) basis. However, the incumbent PTI government soon after coming into power shelved Hyderabad-Sukkur Motorway (M-6) project, citing financial constraints.
National Highway Authority (NHA) has re-initiated the process and its executive board has approved the award of agreement for consultancy services for detailed design, traffic studies, commercial feasibility and bid evaluation/bid comparative analyses for Hyderabad Sukkur Motorway Project to M/s Nespak (Pvt) Ltd at the evaluated cost of Rs 61.177 million.
The NHA Executive Board met with Chairman NHA Jawwad Rafique Malik in the chair approved the award of agreement for Consultancy Services for "detailed design, traffic studies, commercial feasibility study and bid evaluation/bid comparative analysis for Hyderabad-Sukkur Motorway Project on BOT basis under PPP Arrangement" to M/s Nespak (Pvt) Ltd., in joint venture with M/s ZAK Consulting Engineers (Pvt) Ltd, in association with Sub-Consultants namely M/s KPMG Taseer Hadi & Co and M/s Axis Law Chambers-the highest ranked Consultants in the Combined (technical+financial) evaluation, at the evaluated cost of Rs 61.177 million.
According to the previous model, a certain portion of the project was to be funded through loan procured by the government of Pakistan; however, now NHA Executive Board has directed that a model be prepared without any element of government financing.
NHA officials claimed there was little likelihood of the Chinese company taking the matter to arbitration given the over two year delay in the project execution during which time the rupee depreciated significantly making the project economically unfeasible for the contractor at current arrangements. With the local currency further depreciating in recent months, the project cost would further escalate.
NHA missed the deadline several times to begin construction of Hyderabad-Sukkur Motorway project, which will raise the overall cost of the project. It connects eastern route with Karachi-from Sukkur, the eastern route connects with Gwadar via Khuzdar and M-8.
Former Prime Minister Nawaz Sharif had directed that construction work begin in the first quarter of 2017. However, due to complexity of the project, NHA missed the deadline and work was expected to begin in 2018. According to the initial arrangements, the NHA Executive Board cleared the project structure and advised NHA to submit a project concept note to the Central Development Working Party (CDWP) and take them on board for arranging viability gap funding by the government of Pakistan in the form of buyer's credit loan.
To improve the viability of the project, a certain portion of the total project cost was to be arranged by the concessionaire in the form of supplier/buyers credit. This portion of the loan would be repaid by the GoP/NHA as per agreed terms and conditions, after construction.
The remaining project cost was to be financed by the concessionaire, as (a) equity requirement - the successful bidder (sponsor) will have to invest minimum thirty per cent (30pc) of the remaining project cost as equity, through a special purpose vehicle (SPV), which will be incorporated specifically to undertake the project; and (b) commercial loan-the successful bidder (sponsor) will have to arrange maximum seventy percent (70pc) of the remaining project cost as debt. The project was given on lease for 18 years.
An advertisement was released in the national and international print media on October 10, 2016 inviting Expression of Interest (EoI) regarding pre-qualification of firms. In response to that, 10 firms/joint ventures submitted their EoI. Six international firms pre-qualified for the Hyderabad-Sukkur Motorway project.
The NHA bid opening/evaluation committee opened technical proposals on February 14, 2017. Subsequent to finalization of technical evaluation, financial proposals of all the three bidders were opened on March 7, 2017. Keeping in view the scrutiny of financial proposals of all the three qualified bidders, China State Engineering Corporation emerged first, Shandong+FWO+Sinohydcro JV second and China Communications third.
NHA is undertaking construction of Peshawar-Karachi Motorway (PKM), a high-speed, controlled-access, modern motorway system. All the segments of PKM have either been completed or awarded for construction except Hyderabad-Sukkur Motorway link of PKM. According to the previous model, the 296km project would be a 6-lane motorway with design speed of 120 km/h, having 70 bridges, 15 interchanges and 243 underpasses.