BRIEF ON TRACK ACCESS AGREEMENT OF PR WITH PRIVATE SECTOR

I GENERIC CONCEPT Utilization of fixed infrastructure (track/bridges/tunnels + buildings/workshops etc.) of public sector railways by private sector through operation of trains with its fully owned and maintained rolling stock + own personnel against payment of Track Access Charge (TAC) on the basis of per ton per kilometer of usage. The concept was first initiated in Europe/USA essentially to improve economic viability of public sector railways and is fast catching up in more and more public sector railways around the world. This is primarily because non-optimal utilization of assets does not cover fixed costs of infrastructure + variable costs of maintenance and operation and which cannot be offset by government grants any longer. Not surprisingly, the current state of PR also necessitates a similar response to overcome financial constraints, and hence the present Track Access policy. II HISTORICAL PERSPECTIVE 1995 1997 2003 2006 2010 2011 First idea originated PR invited applications for PSO oil transportation PR conducts test runs of 2 container trains with private sector PRACS runs 2 container trains with private sector Cabinet endorsed TAC and PR re-tendered PR published EOI in national and international press RFP issued to 11 pre-qualified parties Pre-bid meeting with pre-qualified parties Last date of bids (23rd). Bids received only from 3 parties Bids opened. All 3 parties declared successful: Nov. NLC - containers + oil RHP - general cargo + phosphate PMS - container + coal

2012 March April July -

Sept. -

Letter of Support issued to successful bidders

1

Dec. 2013 May

Short agreement signed with successful bidders Final Concession Agreement signed with PMS and RHP, not with NLC

THE ABOVE PROCESS WAS CONDUCTED THROUGH IPDF AN INDEPENDENT BODY UNDER MINISTRY OF FINANCE IN ORDER TO ENSURE PROCEDURAL ACCURACY, TRANSPARENCY, AND TO PRECLUDE ANY INTEREST OR PREJUDICE OF PR III OVERVIEW OF CONTAINER TRANSPORT MARKET Estimated annual container market North bound import containers South bound export containers Total container movement (up and down) Private operator transport capacity PRIVATE OPERATOR MARKET SHARE IV OVERVIEW OF COAL TRANSPORT MARKET Estimated annual coal market Estimated annual demand for power plants Total estimated coal market Private operator transport capacity PRIVATE OPERATOR MARKET SHARE V COMMODITIES AND ROUTES Private Operator Pakistan Intermodal Limited (PIL) has signed Concession Agreement for the following: COMMODITY Container Coal Coal ROUTE Karachi-Lahore-Karachi Karachi-Lalamusa-Karachi Karachi-Daudkhel-Karachi 4.500 (Million MT) 7.000 (-do) 11.500 (-do-) 1.496 (-do-) 13.008% 2.271 (Million) 0.954 (-do-) 0.681 (-do-) 1.635 (-do-) 0.056 (-do-) 3.433%

VI MAIN FEATURES OF CONCESSION AGREEMENT - Duration of 20 years from the date of operation (within 2 years of the signing of the Agreement May 2015) - Exclusivity of 7 years after the date of operation against competition from other private sector parties but PR will have all rights to run its own trains on any route at any time, including that of the private operator - Private Operator to bring its own rolling stock, maintain as per standards of PR, and at the end of the Agreement, to have an option to sell the equipment to PR (which will be in prime running condition and will be able to be put into operation instantly) - PR to allow PIL to use all facilities of PR and facilitate train operation in accordance with agreed and pre-fixed time table - Track Access will be charged on per ton per kilometer basis on usage by the Operator and will be revised annually based on the non-food CPI, as announced by GOP VII ADVANTAGES OF TRACK ACCESS POLICY FOR PR - Majority of locos of PR are Non Operational, thus leaving NO space for freight trains in current situation - Freight Trains share has been on the decline for the last 4 decades (78,230 freight trains in 1975-80 (213 trains per day) have now come down to 1782 trains in 2011-12 (5 trains per day)
(source : PR Year Book)

- Track of PR is heavily underutilized. The line capacity on the double line between Karachi Chichawatni is more than 60 trains a day. PR is currently operating 17 passenger carrying uptrains ex-Karachi to up country destinations. (Source: PR/IPDF Meeting for Investors) -Freight trains of private operator can utilize the track after 22:00hrs at regular intervals of half an hour up to 06:00 hours. More than 12 such trains can be accommodated and this is an empty slot currently. - PR can earn Rs 7 billion per annum through private operators in TAC (net income without any expense) in the first operational year. This is 366% higher than what PR earned last year - 2012 (Rs 1.5 b) - In TAC project, PR has full rights to run any kind of commodity train on any path, including at the private operators path.

- PR has the opportunity to charge for extra services from the private operators, such as shunting and marshalling facility charges, maintenance facilities, loading and unloading charges etc. This itself creates another opportunity for PR to earn extra money from the private operator. - Track Access charge will keep on escalating (in line with annual CPI non food index of state bank), year over year, to benefit and cover PR from any inflationary hits. - Railways itself is a specialized industry and therefore cannot be any substitute of that skill. This project will ultimately and indirectly provide relief to those ex-staff members of Railways who wish to enrich the private freight operators through their Railway experience. - Private operator will only be able to cater to only a fraction of its huge market; hence PR will always have plenty of market open for more and more trains. - This is an investment FREE PROJECT for PR in which PR will not invest anything but will still earn more freight revenue than it earned through investment. At its height, PR was utilizing nearly 100 locomotives for freight business, which could today cost around Rs. 30 billion.