• Raises concerns over financial viability of KKH, Chakdara-Timergara projects
• Bars foreign-funded schemes that lack revenue generation
• Approves incentives for banks, exchange firms to boost remittances

ISLAMABAD: The Economic Coordination Committee (ECC) of the cabinet on Thursday approved exemptions from procurement rules for the execution of a framework agreement with China for the realignment of the $2billion Karakoram High­way (KKH) and the Chakdara-Timergara High­­way with South Korea, due to their tied credit. The committee, however, decided to bar foreign-funded projects that lack self-sufficient revenue generation for debt servicing.

The ECC meeting, chaired by Finance Minister Muhammad Aurangzeb, also approved an attractive incentives package for banks and foreign exchange companies to enhance home remittances through official channels.

Sources said the meeting expressed concern over the financial viability of both projects — the KKH under CPEC and the Chakdara-Timergara Highway — which will be financed by foreign loans, but are unlikely to generate sufficient revenue for debt servicing, despite their strategic importance.

For both projects, the ECC allowed the National Highway Authority to invoke Rule 5 of the Procurement Rules 2004 to bypass international competitive bidding.

Under Rule 5, whenever procurement rules come in conflict with an obligation or commitment because of any international treaty or any agreement with a state or financial institutions, etc., the provisions of such international treaty or agreement shall prevail to the extent of conflict. Practically, no contractor from any other country would be able to compete.

The committee also raised concerns regarding foreign-funded projects, particularly in roads and transport, which are often included in government portfolios but only generate revenue in local currency, while debt servicing requires foreign exchange.

Therefore, the ECC decided that no project should be contracted with foreign exchange unless it generates sufficient foreign currency for debt repayment.

An official said that hardly any projects of transport and communication sector may meet that qualification, hence a cap on mega projects on borrowed money. Even the two projects were cleared by the ECC because they had long been committed with friendly countries.

An official statement said that the “ECC allowed the Ministry of Communications and the National Highway Authority to proceed with provisions of the Framework Agreement in accordance with provisions of Rule 5 of Public Procurement Rules, 2004, for the procurement of construction of realignment of KKH (Thakot Raikot Section, 241km) project under CPEC (Phase-II)”.

Regarding Chakdara-Timergara, 39km Road Project (N-45), the ECC also concluded “that Rule 5 of Public Procurement Rules, 2004, can be invoked after the authorisation of the ECC and consultations with relevant stakeholders”. Therefore, it allowed the NHA to “proceed in accordance with Public Procurement Rule 5 in procurement of consultancy services required” for the project.

Incentives for remittances

The ECC also approved improved and attractive incentives for home remittance inflows through formal channels. The meeting noted that remittance inflows witnessed a consistent growth during FY24, registering a cumulative growth of around 10.7pc year-on-year to $30.3bn against $27.3bn in FY23.

At present, an incentive rate of 30 Saudi riyals is paid to banks for remittances above $100, which is shared by the Pakistani bank and the overseas remitting financial institution.

From now on, this flat reimbursement rate per eligible transaction has been bifurcated into fixed and variable components. The variable rate is now linked to the incremental rise in home remittances.

For the fixed component, a reimbursement of 20 riyals will be made for all eligible transactions of $100 and above. For the variable component, an additional reimbursement of 8 riyals per incremental eligible transaction will be made for up to 10pc or $100 million growth in remittances over previous year (whichever is lower).

An additional reimbursement of 7 riyals per incremental eligible transaction will be made for growth exceeding 10pc or $100m. Thus, higher-performing banks in relation to remittances inflows would progressively receive larger rewards, i.e. up to 28 or 35 riyals per eligible transaction, as the case may be, on its incremental volumes over the previous year.

This performance would be evaluated by the State Bank of Pakistan monthly and payments would be reimbursed accordingly. Any required adjustment in payments, on a consolidated basis, would be made in the last quarter of a fiscal year.

Additionally, foreign exchange companies currently receive Rs1 per US dollar for surrendering 100pc of foreign exchange in the interbank market. This rate has been increased under the revised scheme, with the base rate now set at Rs2 per US dollar surrendered.

A variable component of Rs3 per US dollar will be paid for incremental remittances up to 5pc or $25m, whichever is lower, and Rs4 per US dollar for growth exceeding 5pc or over $25m.The SBP stated that these revisions would motivate exchange companies to mobilise higher home remittances and offset a portion of their operating costs, which have inc­reased due to rupee depreciation in recent years.

Published in Dawn, August 30th, 2024