ISLAMABAD: As the government announced the closure of a nearly five-decade-old subsidiary of the Pakistan Railways in the name of right-sizing, questions have arisen over the timing of the decision.

Documents seen by Dawn suggest that the decision to wind-up Railway Construction Pakistan Ltd (Railcop) comes after a financial scandal involving the use of fake bank guarantees was unearthed in the department.

Earlier this month, the Ministry of Railways decided to close Railcop as well as two other entities — the Pakistan Railways Advisory & Consultancy Services (Pracs) and Pakistan Railway Freight Transportation Company (PRFTC).

According to office orders issued by the Railcop chief executive on April 24, the process to lay-off regular and contractual employees of the entity has begun.

However, the beleaguered department faces allegations of a financial scam involving the use of fake bank guarantees, centered around the Indus Valley Industrial Junction (IVIJ), a company linked with a newly notified Special Economic Zone (SEZ) but reportedly lacking any real development on ground despite owning 700 acres of government-assigned land.

Hanif Abbasi insists ‘right-sizing’ decision has nothing to do with allegations, AGP asked to conduct financial audit

According to the documents seen by Dawn, Railcop is accused of using fake bank guarantees to win public contracts and then siphoning off commissions worth over Rs135 million, under the guise of legitimate bid securities, mobilisation advances, and performance bonds.

Documents from Railcop’s internal audit confirm that forged guarantees bearing names and logos of reputed private banks were submitted, but these were neither verified by the commercial department nor the finance and taxation wings.

The scheme came under scrutiny after being flagged by the chief engineer and the chief internal auditor of Railcop.

The alleged fraud took advantage of PPRA Rule 42(f), which allows direct contracting with SOEs without open advertisement.

Railcop is understood to have exploited this provision to undercut competitors in bids by quoting “abnormally low prices” — made possible by avoiding real financial commitments allegedly through the fake guarantees.

In the fiscal year 2023–24 alone, fake guarantees totaling Rs1.167 billion were presented, with Rs135.97 million allegedly “disbursed as commissions” to IVIJ.

However, when approached for comment, Minister for Railways Hanif Abbasi maintained that all three subsidiaries of Pakistan Railways were being closed in accordance with the government policy of “right-sizing”.

When asked about the allegations of financial irregularities, the minister said that these had nothing to do with the right-sizing decision. However, he said that the auditor general of Pakistan (AGP)

had already been asked to conduct a special audit of the financial records of these companies.

Published in Dawn, April 28th, 2025