The Orange Line Metro Train (OLMT) is a transportation system that has been recently inaugurated in Lahore (October 25), the second largest city in Pakistan. Being the world’s 42nd most populous city makes this transportation project an undebatable choice for the city’s jam-packed roads. Access to cheap and effective public transport offers the city’s residents a great benefit in daily commute. On the environmental front this project promises a considerable reduction in air pollution.
However, a deeper analysis of the costs related to this project under the Comprehensive Economic Partnership Agreement between China and Pakistan reveal contrary facts. At the time of commencement of the project in October 2015, the 27-kilometre metro train was expected to cost 251.06 billion Rupees($1.6 billion), out of which 47.07 billion Rupees($300 million) was to be paid by the Federal Government of Pakistan and the rest was to be financed through soft loan by the Exim Bank of China.
The funding was delivered in two phases while the project reached its testing phase in October 2018 and was finally made operational on October 25, 2020 at a total cost of $1.6bn.
Additionally, the project cost several human lives and yet more who were left traumatised while working in the bleak conditions throughout the tenure of the project.
The OLMT track starts from Ali Town, passing through Thokar Niaz Baig, Bund Road, Chauburji, Anarkali, Lakshmi Chowk, Railway Station, University of Engineering and Technology, Shalimar Gardens, Islam Park and terminates at Dera Gujran.
This week, Surkhiyan talks to leading economists and financial analysts to check whether this project is actually a public facility or a white elephant. On October 25 2020 despite the inauguration being amidst the Corona crisis masses of residents travelled on the train wearing masks and praising the newly built infrastructure. One of the main beneficiaries of the project is deemed to be females since they will now have access to better commute facilities.
Dr Aima Mehdi, who is a PhD in Economics from the University of Birmingham and her research is focused on financial markets and economic policy uncertainty tells Surkhiyan that on the financial front this project poses a very bleak picture. Although the train is estimated to carry 250,000 people every day who will pay Rs40 fare per journey the project is still heavily subsidised by the government.
This project is jointly run by China Railway and Norinco International, one of China’s largest engineering contractors, Guangzhou Metro Group and Daewoo Pakistan, making two Chinese firms its direct beneficiaries. What’s more concerning at this point is the fact that Orange Train project is subsidised and will cost the taxpayers $31.3 million per annum. Public transport worldwide is subsidised but the funds used to pay for such subsidies are generated by business enterprises, however in the present case the subsidy is being directly passed on to taxpayers.
She adds that Is it fair to add yet another tax to the people of the second poorest nation in South East Asia? The construction of Orange Line thus far has been funded by de-channelising the transportation allowance of South Punjab, a region that has been plagued by poverty since 1947. The project is a white elephant as its costs weigh more than its benefits both monetarily and socially.
On another front, assessments have been made and conveyed that using the same amount of money a brand new secure train track could have linked the country from Peshawar to Karachi, enabling millions of people to travel with ease.
“The beneficiaries of the Orange Train are not difficult to identify. Chinese government will benefit with billions of dollars of annual revenue while the citizens of our country will be burdened with yet another unchosen cost,” she maintains.
Pakistan’s total external debt now equals 45% of its total GDP. This means the subsidy cost of the Orange line project completely misaligns with the financial constraints of the taxpayers.
Surkhiyan asks, is there a way to save the sinking ship? Dr Aima says it is for the present government to renegotiate the clauses of the soft loan to ensure that the taxpayers are relieved of the subsidy for at least two to three years since the current economic condition has been stifled by the ongoing global pandemic.
“Further owing to the news that the government will be issuing bonds in December it is advised that the proceeds should be used to service the Orange Line debt partially if not totally. However taming the white elephant may not be an easy task,” Dr Aima suggests.
Cost of running OLMT
Kamil Khan Mumtaz, one of the leading architects of the country says that the cost of running the Orange Line Metro Train will be Rs60 million per day. This is equal to the cost of purchasing 30 buses per day.
China approved a Rs162 billion ($1.55 billion) loan for the project, and the first installment of Rs33 billion was released in May 2016. The Rs162 billion loan(@Rs104.75/$1) came from Exim Bank, China. Due to the rupee devaluation, the loan amount has increased substantially, he said.
Federal Minister Chaudhry Fawad Hussain has reportedly said that the cost of OLMT has escalated to $3 billion, and that the government would require an annual subsidy of Rs15-18 billion. The government would pay a Rs151 subsidy per person for every trip. It would also pay Rs5.5 billion to China as mark-up for the first year.
A Public Facility or a White Elephant?
Syed Ali Imran, a financial specialist and banker says the $1.6 billion Lahore Orange Metro Train in my opinion is no doubt a public facility but it is based on a loan under the China Pakistan Economic Corridor project and will cost around a subsidy of Rs.5 billion making it a white elephant for a country already burdened with huge foreign debt.
Where on one side it will affect public transport resulting in decrease of traffic and ultimately carbon emission to reduce, on the other side it will hurt national exchequer with interest cost and subsidy liability when Pakistan is under the International Monetary Fund extended program. Timing of inauguration of such congested Air Conditioned transport is very clumsy when Pakistan is witnessing the 2nd wave of COVID19.
“After opposition alliance pressure on the government of Pakistan and chairman CPEC authority, this near to completion project perhaps has been launched for development of counter narrative,” he opines.
As a financial expert I would like to say that this is going to be a white elephant where it is a non-revenue loss (subsidy) based development project where Loan based Capital Asset will be depreciated earlier to its useful life owing to end user behavior towards use of government owned facilities roughly, Imran says.
Dr Ikramul Haq, country’s leading tax consultant and an economic expert shares with Surkhiyan that this project under CPEC lacks the rationale in terms of providing a comprehensive solution to public transport facilities for any metropolitan city—it is limited to just a part of the city—or economically viable.
Dr Haq adds that such projects are always judged from the standpoint of needs of commuters and integrated modern city models to avoid pollution and more cars on roads. Orange Line Metro is costly as well as built by taking huge foreign loans.
It should have been on Build-Operate-Transfer (BOT) basis as done in many countries. It is expensive for the poor and of no interest for the rich. The rich have cars—in many cases more than one—so they will not opt it.
“For the poor, Rs40 for a short journey is not affordable so they will prefer cheaper choices like local makeshift ‘chinkies’,” Dr Haq notes.
In the long term the running cost for the government will increase as revenues cannot cover its viability.
For Dr Haq, subsidies to fund such projects are not a solution. The transport tax and heavy parking fee for cars and congestion tax to use cars in areas covered by metro trains may be some options to mitigate the cost of an expensive adventure which was ill-conceived from its inception.
In this cost, the local experts could have provided much better alternates. We need decent and affordable public transport services for all our big cities, but not by borrowing funds. These should be by open international tenders on BOT basis.
However, Dr Farida Faisal, an economist based in Islamabad thinks otherwise. She says that the orange line metro train will provide most modern transportation facilities to common people and reduce their travel time. Investment in the local construction and transportation sector from this project will positively impact economic growth.
The image of Lahore as a modern metropolis has been projected. Yet its staggering construction and operational cost raises serious questions about public policy regarding project appraisals in Pakistan.
For example, why was Karachi, the largest city of Pakistan, not chosen for this ” CPEC Marvel”? Why was there no thinking on how to link this train with commercial centres in the city? Had this project been less opulent and more functional, it would have better served the needs of the average citizen, Dr Farida asks.
Nevertheless, once the project was initiated, its completion was the only viable option. With a good marketing strategy, its burden on exchequer can still be reduced, she opines.
When Surkhiyan speaks to Dr Farrukh Saleem, a political scientist, economist and financial analyst who regularly writes columns for The News, he shared figures from his column on Metro Train from 2016, he says the government of Punjab is spending Rs162 billion for the transportation of 250,000 residents of Lahore. Rs162 billion for 250,000 passengers amounts to Rs650,000 per passenger. For the record, Mehran VX sells for Rs630,000 and, in effect, the government of Punjab could have bought a Mehran VX for each and every passenger.
He adds that Punjab’s population stands at 101 million and the government of Punjab spends a total of Rs59 billion on education and Rs54 billion on health services.
“Every resident of Punjab will now be taking on an additional Chinese debt of Rs1,600. For the record, the government of Punjab spends Rs600 on a per capita basis on education and Rs500 on a per capita basis on health,” Dr Saleem wrote in 2016.
He mentions that every three out of four residents of Punjab do not have access to clean drinking water. Amazingly, Budget 2015-16 allocated a mere Rs12 billion for the water supply of 101 million residents of Punjab.
He adds that the estimated breakeven is Rs175 per ticket. At Rs20 a ticket, the Orange Line will lose Rs40 million a day or Rs14 billion a year (operation and maintenance is estimated at around Rs4 billion a year).
Mentioning about the debt payment to the Chinese Dr Saleem, wrote in 2016 that the debt payment of interest and principal is estimated at around Rs30 million a day or Rs10 billion a year (assuming that the Chinese loan is concessional in nature).
He opines that on a per kilometre basis it converts to Rs6 billion a kilometre – the most expensive of its kind on the face of the planet (the cost of the Lahore Metro Bus was Rs1 billion a kilometre).
Dr Saleem gave an example of Shaukat Khanum Memorial Cancer Hospital and Research Centre – comprising outpatient clinics, chemotherapy facility and an inpatient unit – is going to cost Rs4 billion. With Rs162 billion, the government of Punjab could have built 41 such hospitals across Punjab (which has 36 districts).
He further states that for the record, 47 percent of school-age children in Punjab are out-of-school. According to The Citizens Foundation, the cost of building a primary school is Rs17 million. With Rs162 billion, the government of Punjab can build 10,000 good quality primary schools; nearly 300 new schools in each and every one of Punjab’s 36 districts.
“For the record, there are 2.9 million school-age children in Punjab who are out-of-school. According to The Citizens Foundation, the yearly cost of educating a child is Rs15,000. The yearly cost of educating all of the 2.9 million will be Rs44 billion,” he mentions.
Someone intelligent once said, “Things which matter most must never be at the mercy of things which matter least,”he wrote.
‘Lahore’s Heritage Destroyed’
In February 2016, this scribe wrote a piece regarding how Lahore’s heritage is under knife edge because of this Orange Line Metro Train.
Back then, a number of experts have raised concerns about the project that it would be a huge blow to the heritage and environment of the city while thousands of people are likely to be displaced because of the project.
They stated that it is amazing that Lahore, the city with a thousand monuments dating back to half a millennium could be knocked off its ‘historical’ perch by a mere urban train project. It is, however, true that a number of historical sites could be on the verge of destruction because of the ongoing 27.1 km Orange Line Metro Train (OLMT) Project.
The heritage experts in 2016 shared with Pakistan Today that at least 26 historical and protected monuments, including Shalamar Gardens, General Post Office, Supreme Court-Lahore Registry, Lahore High Court, Mauj Darya Shrine and Chauburji will be affected by the project.
Petition against construction of OLMT
Considering the threat of OLMT to the heritage, civil society organisations filed a writ petition on December 16, 2015 challenging the construction of the project so close to a number of historical sites. The court issued notices to the Punjab government, Planning and Development Commission, Departments of Environment and Archeology and Nespak back then as reported by this scribe.
A Divisional Bench of the Lahore High Court comprising Justice Abid Aziz Sheikh and Justice Shahid Jamil granted a stay order against the construction of Orange Line Metro Train Project, and clearly stated that no construction can be done within a 200-feet radius of any historical place, effectively stopping construction at eleven points.
Following which on December 8, 2017, The Supreme Court SC had given a green light to the project when it finally set aside by a majority of four to one judges the August 19, 2016 Lahore High Court stay order against the project with certain conditions, like reduction in speed of the train while passing near the monuments as recommended by the Directorate General of Archaeology from time to time.
Back then, Imrana Tiwana, Urban Development Specialist, told this scribe that urban development interventions with an eye on sustainable best practices in the world, are based on a visionary and realistic plan that focuses on the needs of the people.
“Public transport is an imperative in a mega city like Lahore. However the OLMT project overlooks the mobility needs of 98% of the population of the city while spending over $3 billion in public money,” Tiwana had said.
“It not only violates international and local laws but will irreversibly destroy the heritage, spirit and communities of Lahore,” she said
Tiwana had said that the project might end up dividing and destroying neighborhoods that form the foundation of this great city. “A train running through the city at a height of 35 feet will create serious and uncontrollable security issues and cause severe visual, noise, and particulate pollution endangering the health of millions of residents, children and senior citizens,” she said.
Lahore is now a sad example of the vanishing city syndrome, she added.
Only time could tell that her predictions and statements made in 2016 about OLMT will come out to be true or not.
UNESCO through its offices of the World Heritage Convention in Paris had also taken strict note of the blatant disregard for world heritage sites in 2016.
Speaking about the environmental impact of the OLMT project Tiwana said that the environment would be devastated and temperatures would soar
“More concrete, electric stations and exhausts will add to Lahore s woes as the most polluted city in Pakistan,” she said. “It is imperative that the development is steered towards prioritising the real needs of the people first.”
Once this is done and the city has a strong fleet of linked commuter bus networks, clean drinking water and sewerage facilities for the people who are barely able to fulfill basic human needs, then we can start talking about large urban train projects, she said.
“Surely the time for OLMT is not now. Good governance that respects and values the needs of the people should be put in place and sustainability made the core of all current and future development initiatives,” she had said in 2016 when OLMT was under construction.