The government has cancelled a $644 million contract with Bayindir of Turkey to build a six-lane motorway from Islamabad to Peshawar. Bayindir says it will seek compensation.

The company was informed on 21 December by the National Highway Authority of the cancellation of the contract, signed on 18 March (MEED 26:3:93). It will start negotiating compensation as soon as it has received a formal notification, it says. 'There is no doubt that we will get the money. There was a pretty tight agreement on that front. (Turkey's) Eximbank has secured a loan through Merrill Lynch and I expect they will be looking for compensation, too,' says an unnamed senior director quoted by Reuters. Turkey's Eximbank had signed a $240 million credit agreement with the government in September and has already received the first instalment of $116 million. 'We had not begun to build; no equipment and few staff had been sent to Pakistan,' the official says.

The cancellation is the result of the new government's policy to reduce the budget deficit, observers say. Former prime minister Nawaz Sharif, under whose government the contract was signed, has been widely criticised for lavish spending on large-scale infrastructure projects.