Ministers in Pakistan are blocking letters of credit (L/Cs) due to be opened in favour of a Chinese supplier of 75 railway locomotives ordered in 2005.

The ministers are unhappy with the terms of the deal with locomotive manufacturer, Dongfang Electric Corporation.

Down payment

Official documents showed that the deal was approved by the Executive Committee of the National Economic Council in December 2005, while a contract agreement of US$105.1 million was signed between the Pakistani government and Dongfang in December 2008.

A down payment of US$15.8 million comprising 15 per cent of the contract amount was released to the firm in June 2009, a buyer's loan agreement was signed with Export-Import Bank of China in December 2009 and US$10.8 million was transferred to China Exim Bank and Sinosure in March 2010.

Cabinet committee

However, L/Cs to progress the order have not yet been opened for several reasons.

Earlier this year, the federal cabinet constituted a committee to examine the case and submit its recommendations to the cabinet. The committee has yet to report.

Investigations

Meanwhile, the way the deal was struck has also been subject to an investigation by the Federal Investigation Agency (FIA), which was only supposed to assist the committee investigate the procurement of the Chinese locomotives.

The FIA however says it found "gross violations" in the way the deal was struck while the making of the multi-million US dollar down payments contravened Pakistan's public procurement regulations.

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