ECC okays direct awarding of $2 billion contract to China for construction of LKH section

Islamabad: Senator Muhammad Aurangzeb, the Federal Minister for Finance & Revenue, presided over an important meeting of the Economic Coordination Committee (ECC) in Islamabad.

The meeting addressed multiple critical issues concerning national infrastructure projects, particularly focusing on the Karakoram Highway (KKH) and the Chakdara-Timergara Highway.

During the session, the ECC granted crucial exemptions from the standard procurement procedures to facilitate the direct awarding of a US $2 billion contract to China for the construction of a section of the Karakoram Highway. Similarly, exemptions were extended to allow South Korea to undertake the construction of the Chakdara-Timergara Highway.

These exemptions enabled the bypassing of the usual international competitive bidding processes in favor of direct negotiations with the partnering nations.

The ECC recognized the strategic importance of both projects but expressed concerns regarding their financial viability. The committee highlighted that despite the significance of these projects, the expected revenue generation might not be sufficient to service the associated foreign debt. Nonetheless, the projects were approved due to longstanding commitments between Pakistan and its international partners, China and South Korea.

The ECC underscored the importance of ensuring that future foreign-funded projects should only be pursued if they have the potential to generate sufficient revenue in foreign currency to cover their debt servicing obligations. This principle was emphasized as a guiding criterion for the approval of similar projects in the future.

To proceed with the KKH and Chakdara-Timergara Highway projects, the ECC authorized the National Highway Authority (NHA) to invoke Rule 5 of the Procurement Rules 2004.

This specific rule permits bypassing international competitive bidding when such procedures conflict with existing international treaties or agreements. As a result, competition was effectively limited to contractors from the partner countries, ensuring adherence to the agreements in place.

The Thakot-Raikot section of the Karakoram Highway, which will be impacted by the construction of several major dams, including Diamer-Basha, Dasu, Azad Pattan, and Thakot, falls under the scope of a framework agreement signed in June during Prime Minister Shehbaz Sharif’s visit to Beijing. The project, valued at approximately 13.1 billion Chinese Yuan (around $2 billion), has already secured approval from Pakistan’s top project authorization body.

Under the framework agreement, Chinese companies will be responsible for the engineering design, procurement, construction (EPC), and supervision of the project. The selection of the Chinese contractor or consortium will be made by Pakistan after comprehensive negotiations on technical and financial terms with the relevant Pakistani institutions. The project will also utilize Chinese equipment for its construction, further solidifying the partnership between the two nations.