HYDERABAD: The fate of 306km Sukkur-Hyderabad M6 motorway project, the last missing link of the Motorway, is in the doldrums again as one of the two firms in consortium is reportedly pulling out of investment for the project due to present economic conditions of the country.

The National Highway Authority (NHA) has issued a preliminary default notice to the two companies, an Italian and a Pakistani firm which hold 49pc and 51pc shares in the project, respectively, under relevant clause of public private partnership (PPP) agreement for the construction of Rs312 billion motorway project.

Sources in the NHA said: “NHA has issued the notice after going through an indicative term sheet report of the Bank of Punjab,” said the source while referring to the bank’s response to the company for advancement of loan to be invested in this project. “The [bank’s] response is not ‘firm’ but contained just assurances which we find weak,” said the source.

The Oct 16 NHA notice, a copy of which is available with the Dawn, was entitled ‘NHA preliminary notice/default notice under section 21.2.2 (a) of PPP agreement signed on Dec 2, 2022 for the construction of the Hyderabad-Sukkur Motorway on build operate transfer basis’.

Signed by NHA’s representative, the notice reproduced the content of the indicative term sheet dated Sept 27, 2023, issued by the Bank of Punjab for review and evaluation of principal terms of financing finalised and committed by financiers against parameters as contained in Financial Model.

The notice that contains eight observations in all said: “Therefore, indicative term sheet has cast serious doubts on the concessionaire’s (company) ability to firm up debt and equity commitments of the project cost. The NHA’s stance on term sheet (s) was duly communicated to the concessionaire vide NHA’s letters dated Oct 2 and 9, 2023”.

It said that NHA had not received the executed financing agreements which could provide evidence that the concessionaire had immediate access to funding by financiers. Such purported “financial close” premised on availing commercial finance facility is a riskier proposition, not envisaged under PPP agreement and terms of the RFP (request for proposal) that will expose NHA/GoP [government of Pakistan] to higher risk post financial close under PPP agreement”.

The point seven of the notice referred to the content of the bank’s letter. “In the meanwhile, the NHA received another letter from the Bank of Punjab dated Oct 9 in which it is stated ‘NHA and customer should reach agreement with respect to exit of CMC, the Italian company, from transaction before reviewing term sheet and financial close conditions. We would like to highlight that the exit of CMC is likely to alter the funding plan and will be an important consideration in achieving financial close,” read the letter.

“This categorical statement coming from the Bank of Punjab demonstrates that the indicative term sheet dated Sept 27, 2023, submitted by concessionaire is not in accordance with Financial Model and provision of PPP including representations and warranties to the effect that concessionaire has technical and financial capacity under the project and CMC is part and parcel of successful bidder and concessionaire,” claimed NHA.

It said: “The concessionaire vide Sept 14 letter on the said matter had ‘vaguely and indefinably’ conveyed its ‘understanding’ that the CMC may not be willing to participate in the project due to economic conditions.

“Hence, you misrepresented material information and misled NHA in a material aspect which has rendered nugatory and void the entire process of submission of term sheet for achieving financial close”.

The NHA observed that by way of completeness, the company was in further material breach of its obligations under PPP agreement including a) failure to provide financial close bond; b) not appointing independent engineer and; c) failure to submit detailed design”.

It said that despite NHA’s repeated reminders, the concessionaire had continued to postpone implementation of its contractual obligations prior to achievement of financial close. This evidence showed that the concessionaire had failed to demonstrate it would achieve financial close to undertake the 306km long project, said a source.

In view of the above facts, the NHA has issued a preliminary notice in line with relevant clause of the PPP agreement, informing the firms that “you have a cure period of 45 days from the date of receipt by the concessionaire of this notice. It is expected that the concessionaire will take necessary measures to cure breaches mentioned above in line with the PPP agreement”.

An NHA source said that the concessionaire had deposited a bond of Rs150m which would be forfeited in case it didn’t respond to NHA on expiry of 45 days of “cure period”. “Actually, the concessionaire was to achieve financial close on or by May 31 this year which was not done,” he informed.

He said that considering the attractive bid, four month’s extension was allowed to the firm, which expired on Sept 30,” he said.

Another round of talks was held with the concessionaire but now ‘department’ is not satisfied with their response. The consortium was to invest 30pc while 70pc was to come from loans for the project. “The Pakistan government plans to invest only Rs9.7bn in the M6 project,” he said.

Former prime minister Shehbaz Sharif had performed groundbreaking ceremony for the M6 project in Sukkur on Dec 13, 2022. The project was also delayed by land scams in Matiari and Naushahro Feroz districts.

Subsequently, the National Accountability Bureau filed Rs5.8bn reference on embezzlement in land acquisition funds in the two districts. A number of senior government and Sindh Bank officers were arrested, who were facing trial in Hyderabad’s accountability court.

“There are said to be reasons that hit the project. One is the country’s economic conditions and the other is that the two firms didn’t get along and that’s why we fear that the contract may terminate,” said another NHA source.

M-6 GM Ubaidullah Umrani told the Dawn that apparently the project was heading for termination of the contract as the consortium had failed to achieve the financial close even after the extension period. “We will however wait for a 45-day cure period for their response and then a fresh bidding process will be evident. In fact, there were issues within the consortium,” he said.

Published in Dawn, October 27th, 2023