Pakistan’s Economic Coordination Committee has approved a $2bn project to reconstruct a 241km stretch of the celebrated Karakoram Highway in northern Pakistan, newspaper Dawn reports.

The road runs from the small settlements of Thakot to Raikot in the far north of the country. It is part of the $60bn China–Pakistan Economic Corridor (CPEC), and Chinese loans will financing the whole of the project. China is also supplying the contractors and the construction machinery that will build it.

The contractors that will carry out the modernisation have yet to be selected. China is providing a list of candidates and Pakistan will select winners or joint venture partners.

The Chinese side will deliver the project under an engineering design, procurement and construct (EPC) package.

According to Dawn, the committee made its decision despite doubts as to whether the road would generate sufficient revenue to pay back the loan from China, particularly as it would require foreign exchange.

The Karakoram is, however, the main road route between Islamabad and the Chinese autonomous region of Xinjiang, and is of great strategic importance to both sides.

It is a two-lane road between Thakot and Raikot Bridge. One of the main projects of the CPEC is to turn it into an all-weather highway over its entire 887km length. The stretch to the south, between Havelian and Thakot, is already under way.

Another consideration propelling the project forwards is the building of four major dams on the upper Indus, including the $4.2bn Dasu and the Diamer–Bhasha, which will generate 4.8GW and store some 10.5 cubic kilometres of water. When complete, their reservoirs will submerge the existing road.

The project will cover the upgrading, improvement, and realignment of the highway.

The original road was built between 1959 and 1978, and passes through some of the toughest terrain in Asia, including the Hindu Kush, the Kunlun Mountains and the Karakoram Range.

Construction was carried out jointly by Pakistan and China and became notorious for deaths among construction workers. After completion, the road was susceptible to mud slides, rockfalls and avalanche, and requires continual maintenance to keep it open.