By: Muhammad Rafiq
High-level international conference on regional connectivity in Tashkent exhibits the zeal and zest for global trade and commerce with Central Asia. According to Daily Times of Pakistan, the neighboring country, Afghanistan and Uzbekistan have already signed a US$ 4.8 billion railway project that is likely to bolster trade relations between Pakistan and South Asia.
The proposed rail link with track length of 573-km, would connect Uzbekistan’s capital Tashkent through Afghanistan’s capital Kabul and Peshawar in Pakistan. The project is being viewed in Uzbekistan as the “event of the century”, since it is aimed at improved regional trade and connectivity by offering landlocked Central Asia, a direct access to Pakistan’s Arabian Sea ports, according to Daily Times, adding this connectivity corridor is also known as Trans-Afghan railway line ‘Mazar-e-Sharif-Kabul-Peshawar project.
The trilateral project would include both high-speed passenger and cargo trains. The railway links going to be financed by the World Bank with a loan of US$ 4.8 billion. Ever since independence of Central Asian Republics (CARs) in 90s from the erstwhile USSR, Pakistan has been mindful of the significance of intimate relations with the CARs for regional connectivity, trade and commerce.
Therefore, a number of initiatives in the form of US$ 1.16 billion CASA-1000 Project for export of surplus hydro electricity from Kyrgyzstan & Tajikistan to Afghanistan and Pakistan; US$ 10 billion TAPI natural gas 1814-km pipeline project for gas energy from Turkmenistan to Afghanistan, Pakistan and India; Quadrilateral Traffic and Transit Agreement (QTTA) among Pakistan, China, Kyrgyzstan and Kazakhstan providing an effective connectivity network between Central Asia and Gowadar port; and Pakistan Stream Gas Pipeline (PSGP) a flagship project of Pak-Russia strategic partnership involving construction of 1122 KM high pressure gas transmission pipeline from Port Qasim, Karachi to Kasur in Punjab province, have been undertaken by Pakistan.
Pakistan-Afghanistan-Uzbekistan Railway project is also a natural sequence of the regional connectivity cherished by Pakistan and Uzbekistan. Once the project is fully functional, the following impact on regional connectivity can be anticipated:
This new railway link would connect Central and South Asia by the shortest route and would open seaports of Pakistan to the Central Asian and Eurasian railway systems to enhance trade flows and strengthen the regional economy. The project would be instrumental in creating tens of thousands of new jobs in Afghanistan contributing to peace and stability.
The implementation of Mazar-e-Sharif-Kabul-Peshawar railway line would substantially bring down time and cost of transporting goods. As per an estimate, the delivery time of goods from the Russian border (Ozinki) to Karachi would be reduced to 16-18 days and from Termez to Karachi to 8-10 days only.
Railway cargo volume is also expected to reach 20 million tons per year. A cut in transportation cost is estimated to be from 30-35%.
“Opportunity favors the prepared mind.” Under its infrastructural upgrades, Uzbekistan had already built a railway link of 60 km from its Termez city to Afghan city Mazar-e-Sharif. Uzbekistan’s primary motive was to search for the corridors leading to sea ports. This dream is coming true.
Economists have assessed that the transportation cost of a container from Tashkent to Karachi from this newly proposed railway link could be around US$ 1400-1600 that is half the price of transporting it from Tashkent to Bandar Abbas i.e. US$ 2600-3000.
Besides having the shortest access to warm waters, the Kabul Corridor, together with the China-Kyrgyzstan-Uzbekistan transport corridor would link together four economically strong Eurasian regions – Europe, China, Russia and South Asia- via Central Asia.
This rail project would result in fast track trade and economic cooperation, early finalization of preferential transit and trade agreements, increased security and mutual collaboration in the fields of education, culture and tourism.
In addition to the “regional integration”, current summit in Tashkent would also brainstorm “financing connectivity” on terms that harmonize the development objectives of these sovereign nations with those of the external stakeholders without losing their sovereignty. Cure lies in forgetting Euro and US dollar and going local by cultivating local bond markets. This would decrease reliance on foreign currency financing. Uzbekistan, Afghanistan and Pakistan, the members of Trans-Afghan Railroad project would most likely be negatively affected by devaluation if they avail funding in US dollars. Instead, financing could be arranged, at least in part, by structuring long term inflation-indexed bonds (15-20 years maturities) denominated in three separate currencies Som, Afghani and Rupee. This experimental issuance of inflation-indexed bonds in local currencies would ensure the retention of purchasing power of the investors. Such instruments would serve to develop the domestic bond market without sacrificing sovereignty and to provide opportunities for local institutional investors.
Another challenge to be coped in Uzbekistan-Afghanistan-Pakistan Railway project could be the variable gauges of the railway and its connection with Uzbekistan. Pakistan uses 1676mm gauge and Afghanistan opts gauge of 1435mm. While Uzbekistan uses exclusively the Russian, 1520mm gauge.
Connectivity in Central Asia has been obstructed by the non-conformity of 1520mm gauge with those of neighboring rail tracks, for decades. Khorgos dry port (a cross-border free trade zone), a flagship BRI initiative in Kazakhstan, offers a way to bridge the gauge gap where cranes are used to move cargo between tracks. Under the mechanism, Chinese companies get considerable subsidies for shipping freight through Khorgos by shipping empty containers along the route. Such arrangement would be required under Uzbekistan-Afghanistan-Pakistan Railway project for reloading of cargo onto different trains at border points because it is linked with transit time efficiency.
Though, financing of the captioned train link is being attracted from the World Bank, but Khorgos-like gauge transition facility can be established through China. It has been observed that for last 2-3 years, China is already diversifying its BRI investments in Central Asia by shying away from major infrastructure projects.
The proposed railway project may be confronted with immense infrastructural and logistical difficulties, but the commitment of Pakistan and Uzbekistan can pave the way. This time around, stability and peace in Afghanistan also is likely to contribute to economic growth and regional cooperation.
On July 15, Pakistan and Uzbekistan are going to ink out Transit Trade Agreement (TTA) in Tashkent featuring trans-shipment facilities in Gowadar and Tashkent. Under TTA, passage of goods, vehicles, drivers in Uzbekistan and its border points with other Central Asian Republics would be allowed through rail and road. Vice Versa, Pakistan would grant similar facilities except for India. Uzbeks would have access to Pakistan’s sea ports. TTA will be governed by the Convention of Customs and Convention on the International Transport of Goods under cover of TIR (Transports Internationaux Routers).
In April this year, first ever shipment on a truck from Uzbekistan under TIR, reached Pakistan in 48 hours. Pakistan is all set to sign TTA to explore over US$ 90 billion export potential in Central Asia. In nutshell, the Uzbekistan-Afghanistan-Pakistan Railway project has the potential to stimulate the economic growth of the three countries and the region.
The writer is a senior banker based in Kazakhstan, with keen interest in Central Asian studies.