Letters of credit (L/Cs) feature in the financing structure of the multi-billion dollar China-Pakistan Economic Corridor project (CPEC).

The project envisages huge investments in the transportation and power sectors over the next decade.

Financing package

After many delays, Pakistan and China have now formalised cooperation agreements under the CPEC framework and determined a clear implementation schedule.

A debt and equity package of US$45.65bn is to be rolled out by 2025.

L/C role

The package will comprise around US$34 billion of private sector investment by Chinese companies, insurers and banks. The Chinese government will provide US$11 billion of concessional loans and grants.

For its part, Pakistan is to set up a sovereign revolving fund of around US$200 million in standby L/Cs to ensure repayment obligations as well as a series of sovereign guarantees.

Mega-projects

A first phase of power projects in the CPEC producing 10,400MW calls for an investment of $15.5bn. The projects should be completed by 2017

In the transportation sector, the US$1.6bn Orange Line mass rail transit project will provide Lahore with its first ever metro line.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.