ADB Rates Pakistan’s Railway Development Program ‘Ineffective’

The Independent Evaluation Department (IED) of the Asian Development Bank (ADB) has rated technical assistance for ‘Pakistan: Central Asia Regional Economic Cooperation Railway Connectivity Investment Program”, less than relevant and ineffective.

According to the report, the termination of the contract under TA led to all tasks being canceled in relation to the original intent. Nonetheless, the dialogue with the Pakistan Railways continued, and short-term consultants were appointed in line with the original TA’s intent.

The report stated that the TA was aligned with Pakistan’s Vision 2025 strategy, which aimed to modernize transport infrastructure in Pakistan.

The objective of the TA, as described in the report, was also aligned with:

  1. ADB’s country partnership strategy (2015–2019), which aimed to accelerate economic development through improving connectivity, productivity, and access to markets and public services, among others
  2. ADB’s Strategy 2030, which prioritizes investments in infrastructure to ensure sustainable economic progress, connecting the poor to markets, and increasing the poor’s access to basic productive assets;
  3. ADB’s Sustainable Transport Initiative, which supports the development of accessible, safe, environment-friendly, and affordable transport systems in developing Asia and the Pacific

The development constraint that the TA intended to address was clearly stated and the choice of the TA type was appropriate, given the intention to proceed with a multi-tranche financing facility (MFF). However, the government’s decision to finance the Lahore-Peshawar section under the CPEC framework significantly decreased the TA’s relevance.

As per the details mentioned in the report, following such a decision, the contract under the TA was subsequently terminated. As per the documentation for the three TA extensions (dated 11 August 2017, 31 August 2018, and 15 September 2020), ADB continued to discuss with the government other projects for possible engagement on several occasions. This led to the identification of associated tasks to address the immediate interests of the MOR.

However, these additional tasks and the dialogue did not result in any alternative project options at TA completion. While the TA was relevant at conceptualization, its relevance decreased during implementation. As a result, this validation assesses the TA as less than relevant.

The project preparatory technical assistance (PPTA) aimed to help prepare a proposed MFF that would assist the Pakistani government in improving the efficiency and competitiveness of the country’s railway transport system. The TA was designed to support the conduct of due diligence, covering the preparation of technical, economic, financial, social, and environmental viability analyses for the development of tranche projects under the proposed MFF.

Moving passengers and freight over long distances over the last 150 years, railways played an important role in the social, political, and economic life in Pakistan. For most of that time and in many places in the country, railways had been the only available mode of passenger and freight transportation. However, the market share of the railway sector has declined in the past 20–30 years.

In 2016, it accounted for only four percent of freight traffic and 6 percent of passenger traffic, with major shares taken by road. Because of this, the Pakistan Railways was not able to generate sufficient financial resources to make necessary investments in assets and replacement and capacity expansion. Government investments favored the road sector, leaving the railway sector on the verge of collapse with poor infrastructure, a large maintenance backlog, and outdated and non-functioning locomotives and rolling stock.

In 2011, the sector’s performance improved; however, the sector still needed large-scale upgrades in infrastructure to provide more competitive transport services, which would then rebalance the share of rail and road and thereby unburden the overloaded road sector. Given the above, the government of Pakistan requested the ADB for assistance in improving and upgrading its railway infrastructure as part of implementing Pakistan’s Vision 2025, which highlighted the potential of the Pakistan Railways to contribute to an efficient and integrated transportation sector. Specifically, an MFF was expected to support the improvement of the ML-1 (mainline-1) section2 from Lahore to Peshawar through Rawalpindi.

The MFF was proposed as a suitable financing instrument given the requirements of the longer-term investment and the broad scope of the upgrade. The rationale for the TA was to assist in the preparation of an MFF investment package, which included the design of tranche projects and the preparation of the required due diligence documents.

In October 2018, one resource person was engaged and provided technical input on the Pakistan Railways rolling stock. In March 2020, the government requested ADB to support activities related to (i) human resources reform planning, (ii) identification of potential private sector transactions, and (iii) determination of policy actions to improve Pakistan Railways’ financial situation.

However, by the time a formal endorsement of this request by the government was obtained on 30 September 2020, the MOR had already achieved progress on the above items, notably on human resources reform planning; and the National Economic Council had formally approved the ML-1 project for financing through CPEC on 5 August 2020.

In October 2020, the government approved a new railway restructuring revival plan at a cost of about $6.8 billion, but no scope for ADB’s participation was identified. The TA did not proceed as planned, and consequently did not achieve its planned activities in relation to the outputs, leading to the non-delivery of the target outcome.

The TA financing amount was $1,000,000, of which only $65,663 was disbursed, resulting in a utilization rate of 6.6 percent. The low disbursement of funds was linked to the government’s decision in 2017 (five months into TA implementation) to finance the Lahore–Peshawar section under the CPEC framework as part of a large-scale project with the aim to upgrade the entire ML-1.

The TA implementation period was extended three times (for a cumulative extension period of 3 years and 5 months) to facilitate a dialogue with the government on alternative projects for the Pakistan Railways; hire consultants to support the conceptualization of an alternative project, and allow the completion of the work of two resource persons who were recruited to support the implementation of the Pakistan Railways Strategic Plan (PRSP) and assess policy reforms to improve the Pakistan Railways’ productivity and financial sustainability. However, despite the extensions, an agreement for TA restructuring could not be reached.

Eventually, the TA account was closed on 4 March 2021, and the remaining TA amount ($934,337 or 93.4% of the total) was canceled. Given the aforementioned, this validation assesses the TA as less than efficient.

Tags
Asian Development Bank Asian Development Bank (ADB) Central Asia Central Development Working Party IED Independent Evaluation Department (IED) pakistan
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