With ADB not financing Malir Expressway, it’s mystery how project will be financed

Although Sindh Chief Minister Murad Ali Shah recently issued directives to get one of the tracks of the Malir Expressway functional by December, The News has learnt that the provincial government informed the Asian Development Bank (ADB), which had pledged to bear 15 per cent cost of the project, in March 2023 that it had taken the Malir Expressway project off its priority list for funding through the ADB resources.

The CM’s recent directives suggest that the Malir Expressway project is still being pursued by his government. However, with the ADB not financing it, the Sindh government is yet to explain how it would manage funds for it.

The information that the Sindh government informed the ADB that it had removed the Malir Expressway from the list of the projects to be funded with the help of the donor agency emerged on Friday when the ADB’s Office of the Special Project Facilitator (OSPF) released a final report on indigenous Malir farmers’s complaint to the ADB against the expressway project.

The complaint was lodged on September 22, 2022, with the help of Advocate Abira Ashfaq. The complainant farmers had cited various concerns over the project, including massive displacement of people as well as environmental degradation as a result of the construction of the expressway.

The OSPF is a special office within the ADB headquarters that investigates complaints that are filed through the ADB's accountability mechanism.

The letter

According to a letter addressed to Abira by the OSPF, a project team of the donor agency reviewed the project in the province.

The letter reads that during the review process, the ADB expressed commitment to support the renewed priorities of the Sindh government, “which is also aligned with ADB’s long-term climate agenda for the region.”

On 27 April, 2023, the letter reads, the ADB project team informed the OSPF that the Malir Expressway subproject would no longer be an ADB-assisted project.

The letter towards the end in its point No. 14 explains that the Central and West Asia Department (CWRD) and ADB Pakistan Resident Mission, which are responsible for administration of the ADB-funded projects in the beneficiary country, “fielded a Country Portfolio Review Mission to Sindh Province.”

These portfolio missions are annual activities by ADB to closely engage with the government to assess the portfolio of the ADB’s engagement, and mutually agree upon modifications or changes requested from the government on various projects under implementation.

After the mission, the ADB stated in the letter, there were extensive discussions related to the project selections under the Public Private Partnership (PPP) programme. These projects are related to the ADB’s priorities as the donor agency has “renewed focus on projects that are most aligned with ADB’s implementation of a long-term climate change operational framework.”

In order to ensure that the ADB projects under the PPP mode had adequate resources to fund the climate resilient initiatives of the government, the letter said the Sindh government had conveyed to the ADB that it had taken the Malir Expressway project off its priority lists for funding through the ADB resources.

“Based on the Sindh government’s request for revision of the project pipeline under the ADB-assisted PPP program, the ADB project team advised OSPF on 27 April 2023 that the Malir Expressway subproject would no longer be an ADB-assisted project,” says the point No 16 of the letter.

A member of Abira’s team told The News that the ADB had rebranded itself as Asia and Pacific's Climate Bank, which means that the donor agency now has a climate-only agenda and vision.

“Keeping this in view, it was perhaps necessary to discuss all the projects in the pipeline with the Sindh government with a long term climate perspective,” the member said, adding that the Sindh government had too affirmed its own climate resilience agenda, and told the ADB that the Malir Expressway was no longer a priority project for them.

Irrespective of what the OSPF report says, Abira’s team believes that it was on the basis of their complaint that highlighted the blatant violations of ADB's own environmental and social safeguards which both the ADB Pakistan Resident Team and the OSPF found merit in, that led to the defunding of the Malir Expressway project by the ADB.

Financial division

The Malir Expressway project, as per its Environmental Impact Assessment report, is a 39-kilometre-long corridor connecting Defence Housing Authority (DHA) with the Karachi-Hyderabad Motorway. The project starts right from Jam Sadiq Bridge on Korangi Road and runs along the right bank of the Malir River ending near DHA City outside Karachi.

The project was initiated under the PPP mode, which means the provincial government had to seek private capital to build the six-lane road infrastructure. The project’s construction cost was estimated at Rs27.583 billion, according to the construction bid document and a press statement issued by the Sindh chief minister at the financial close that was achieved in June 2022.

Of the Rs27.583 billion, the Sindh government pledged to share Rs4.137 billion, which was 15 per cent of the total cost. The private partner or concessionaire's share was Rs5.517 billion or 20 per cent, and the commercial loan to be borrowed from a group of banks was Rs17.929 billion, which was 65 per cent of the cost.

The private partner referred to as concessionaire or sponsor is the consortium of three construction firms which has been registered as a company, Malir Expressway Pvt Ltd, whose office is on Karsaz Road. The concessionaire agreement was reportedly signed in April 2020. The commercial loans from a group of banks was sought to finance the remaining funding requirement since the Sindh government and private partner's resources were not sufficient for such a cost-intensive project.

As the provincial government could not easily manage the amount it had pledged for the project, it asked the ADB to finance it, which is referred to as the Viability Gap Fund (VGF) in the public-private partnership terminology. The VGFs are always used for the public financing part of such partnerships.

Basically, the ADB considered paying Rs4.137 billion under its umbrella project supporting public-private partnership investments in Sindh, of which one sub-project was the Malir Expressway. The provincial government was never in the position to fund even the Rs4.137 billion requirement through its annual development plan even prior to the Covid-19 economic slowdown and the floods of 2022.

Meanwhile, the newly elected mayor of Karachi, Murtaza Wahab, tried to dispel the impression that the Malir Expressway was no longer financially viable by stating that it was not to be financed by the ADB in the first place.

To Wahab’s claim, Abira responded that if the project was not supposed to be financed by the ADB, why the project’s EIA report was present on its website and their case against the project was admitted by the donor agency.