QICT AN ADDED SOURCE OF REVENUE AND ENHANCED TRADE TIES

Night navigation, maintenance and simplified procedures must for smooth cargo handling

By Syed M. Aslam
Feb 23 - Mar  01, 1998

Sea remains the most viable and the least expensive mode of international trade facilitating over 95 per cent of the global trade.

The vital role the seaports play to allow, and aid, the international commerce and trade to take place, have put an extra onus on them to provide an efficient infrastructure to handle the over increasing cargoes.

Pakistan’s sea-borne cargo —liquid, dry bulk and general— has increased over six-fold from 5 million tonnes during in 1960-1961 to 31 million tonnes last year. It is expected to cross 35 million tonnes by year 2000.

The tremendous increase in the volume of cargo— some 82 per cent of which comprises imports— highlights the need for an efficient and cost-effective port and cargo handling infrastructure to facilitate smooth flow of goods within the country and beyond.

This present a challenge to the two national ports— the Port of Karachi and Port Qasim — to play a more important role to provide the infrastructure for multimode facilities to ensure smooth flow of goods and supplies to generate a chain of economic activities.

The rapid containerisation of the dry cargo during last decade has put a tremendous pressure on the two ports to improve the cargo handling facilities to meet the increasing flow of the containerised trade.

INFRASTRUCTURE

The containerisation has changed the priorities of both the ship-builbers and the ports in many ways— the construction of huge third-generation vessels to carry much heavier loads and the necessity of cost and time-efficient cargo handling and storage facilities respectively.

The containerisation has replaced a major portion of the old-fashioned multi-purpose and break-bulk cargo in the developed world while it is increasing in the developing countries. The trend is not only going to stay but is also expected to increase in the future.

VOLUME

The Karachi Port as well as high placed sources in the shipping sector seem to agree that the volume of container traffic is increasing at an annual growth rate of not less than 5 per cent.

The country manager, who asked PAGE not to mention his name, said that "the container traffic is increasing an an annual growth rate of 3-5 per cent increasing marginally from 535,000 TEUs in 1995 to 550,000 TEUs at present."

However, Ahmed Faruque, the Chairman of the first and the only integrated container terminal, Qasim International Container Terminal (QICT), puts the figure at 670,000 TEUs at present which with an annual growth rate of 10 per cent would reach one million mark in the year 2001.

Though the figures, quoted by QICT chairman and the shipping and official sources, differ, one thing is certain: The container tarffic will increase in future to demand better ship and cargo handling facilities at the two ports.

THE NECESSITY

Although, the Karachi Port has many container storage sites, spread all over its premises, it still does not offer a dedicated container handling facility.

In order to meet the increasing cargo handling demand, the government of Pakistan leased out three berths and the adjacent area at the Port Qasim to a foreign consortium to develop, manage and operate with an initial capacity of 200,000 TEUs.

Formed in July 1994, Qasim International Container Terminal Pakistan Limited (QICT) signed the Implementation Agreement with the Port Qasim Authority (PQA), the Manager of the Port, on July 25, 1995.

After many delays, QICT finally received its first vessel, a Maersk feeder vessel ‘Sea Pearl’ on August 10 last year. A month later the Eurpore-Pakistan-India Corsortium (EPIC), comprising 14 shipping companies including a number of major container liners shifted their business from Port of Karachi to QICT, some of them fully.

THE SHAREHOLDERS

The three major shareholders of QICT are P&O Group of UK and its subsidiaries comprising P&O Ports Australia, Mackinnon Mackenzie Pakistan and P&O Containers (49 per cent), Commonwealth Development Corporation UK (30 per cent) and Pakistan-Kuwait Investment Company (Pvt) Limited, a joint venture enterprise of the two governments (21 per cent).

The conversion of the three multipurpose berths— 5,6 and 7— at the marginal wharf— allows berthing of three vessels at QICT simultaneously.

The terminal, comprising three berths each of 200 meters (total 600 meters) in length and 400 meters in width is constructed on a total area of 240,000 square meters.

REVENUE TO PQA

According to the lease agreement, QICT will pay a flat rent of Rs 48 million per annum, a wharfage of Rs 400 per TEU, a 5 per cent royalty of the load on/load off revenue on cargo exceeding 150,000 TEUs to Port Qasim per annum.

In the initial phase the QICT will be handling 200,000 TEUs and 360,000 TEUs in the final phase. Further expansion of the concession area is possible, subject to the government agreement, by constructing new berths to the west of berth No. 7 or by acquiring the existing berth Nos 3 and 4 of the PQA.

But what kind of financial benefit would PQA be deriving from leasing out the three berths and adjacent area to the QICT. Based on the lease agreement a PAGE analysis shows that during the initial years of operation the PQA would be earning about Rs 100 million including a flat berth rental Rs 48 million, Rs 52 million in wharfage (expected handling of 130,000 TEUs @ Rs 400 per TEU based on the fact that QICT has, so far, handled 71,000 TEUs since it received its first vessel in August last year.

The QICT would not be able to realise 5 per cent royalty of the load on/load off revenue as it applies to all load in excess of 150,000 TEUs.

COMPARISON

It would be relevant to compare this lease agreement with that of a similar lease singed between the KPT and the American President Line (APL) for the under-construction Karachi International Container Terminal (KICT) at the Karachi Port.

Based on the information, provided to the PAGE by a top KPT official, the APL will pay roughly Rs 274 million per annum to the Karachi Port Trust (KPT), the manager and trustee of the Port of Karachi— $ 4 million (Rs 180 million at current exchange rate) in berth lease, Rs 34 million per annum land rental (114,300 sq. meters @ Rs 297 per metre) and Rs 60 million per annum as percentage of container business (calculated @ $ 5.36 per TEU for 250,000 containers in the initial phase). APL will be paying more to the KPT in the following year as the container handling capacity at KICT would increase upto 400,000 TEUs in the second phase.

KPT’s LOSS QICT’S GAIN

While KPT still retains the major portion of the container business including the APL, for obvious reasons, which enjoys the biggest share of container traffic in the country— 16 per cent— it has lost almost all of the 11 per cent container business of the Maersk liner and 7 per cent of its consortium partner Sealand. In addition, and P&O Nedlloyd which claims 6.5 per cent of the business and many other major foreign liners as Contship, CMA, CMB and others have also opted for QICT.

Ahmed Faruque claimed that of the 24 dedicated container liners calling at Pakistani ports, nine of the 19 top container liners calling at Karachi, have chosen to opt for QICT. Six more have shown interest to divert their business to the Terminal, he added.

Summing up, he said, the total container traffic would increase from 670,000 TEUs this year to 725,000 TEUs in the next. He further said that QICT was aiming to handle between 40-45 per cent of the one million TEUs as expected in the year 2001. We have a state of the art integrated container terminal to provide an efficient service to substantially reduce the cargo handling time for the benefit of shipping companies and terminal users, he added.

THE EDGE

Talking to PAGE the country manager of one of the major container liner attributed the decision to shift his business to QICT to a substantial reduction in cargo handling time and the availability of a deeper draft to accomodate ships which could not be accomodated at KPT.

The port charges at the Port Qasim, including that charged by it at the QICT, are 5 per cent lower than those charged by the KPT after the former increased its port tariffs by 10 per cent in August last. However, cargo handling charges at the Karachi Port went up from Rs 41.12 to Rs 70 per tonne due to a 70 per cent increase in wages and allowances of the workers of Karachi Dock Labour Board effective from January 1, 1998.

Thus liners calling at Port Qasim, and for that matter QICT, only save 5 per cent in port charges, the port users have been offered to pay 15 per cent less wharfage and demurrage charges at the QICT.

Though the cargo handling charges between QICT and the two consortiums— the Maersk-Sealand consortium and the Europe-Pakistan-India Consortium (EPIC)— calling at the Terminal once a week each are treated as a well guarded secret depending on many factors including the volume of traffic, a top executive of one such liner told PAGE. He also mentioned, "Though, we are not saving any money by calling at QICT however, in the long run it would benefit us in a way that we can predict the cost."

The availability of the dedicated container terminal and the modern cargo handling equipment (see Box 2), he said, has cut the cargo handling time by 65 per cent.

NIGHT NAVIGATION

However, he added, the absence of night navigation facility undermines the advantage at present.

The concern was shared by Ahmed Faruque who said that the absence of night navigation facility remains the top priority of Port Qasim and the QICT as the same is adversely affecting the economy of the both. QICT, he added, has spent $ 3 million on the installation of necessary night navigation aids already and will spend an extra one million dollars and the money would be reimbursed by the PQ.

Port Qasim still remains a strictly day-time port inspite of repeated claims that it would be able to facilitate night-navigation, a statement which has appeared in the print media many times during last year.

PORT USERS

The concerns of port users, however, seem to differ slightly from that of the shipping liners.

According to Bashir Ahmed, the chairman of Pakistan International Freight Forwarders Council, cargo handling charges at QICT are not only higher but are impractical for small shippers who use the facility for less than 200 TEUs a year. A small Karachi-based importer has to find ways to adjust his finances to bear the additional cost of transportation, paper work and clearance of his goods from the QICT as compared to a much more centrally located Port of Karachi previously. Though for importers and exporters of size, particularly those operating from the upcountry, the proximity of QICT to National Highway and Railways service is indeed welcomed, he added.

GATEWAY TO CENTRAL ASIA

He lamented that the Pakistan/Central Asia direct trade which had started flourishing during 1992 is now taking place through third-country channels due to transport, tariff and procedural problems.

He said that though QICT has all the potentials to offer the modern concept of the cargo village for sea/air/land cargo handling facilities not only for Pakistan but to the entire region of the 10 ECO countries the same has not been materialised for various reasons including the situation in Afghanistan.

RULES AND REGULATIONS

Shipping sources expressed concern that though the containerisation of cargo is increasing, according to a highly placed source in shipping industry, 60 per cent of all cargo, suitable for containerisation, is actually moving in containers in Pakistan— the Customs, port and all related laws are based on old-fashioned bulk-break business. It is the time to adopt relevant laws and simplify procedures to reflect this reality for wiping out confusion at all stages of clearance, he added.

PAGE talked to the Chairman QICT, Ahmed Faruque at his office in Karachi. The following is the excerpts of the talk:

Putting the current total container traffic of both the ports at 670,000 TEUs at present, Ahmed Faruque said, that it would cross one million mark in the year 2001 and 40-45 per cent of which would be captured by the QICT.

QICT, he said, has helped initiate a chain of economic activities to help boost the investment climate. For instance, he added, the construction of container freight stations in the vicinity of QICT would bring in an investment of Rs 400 million. The upcoming stations, a couple of which are already under construction and two more in the pipeline, would be provided by QICT whose economy depends on turnover instead of demurrage charged on storing the containers.

He said that cargo clearance procedure needs improvement as at present it is taking 2-3 days in the process of clearance.

Expressing concern over the absence of night navigation he said it is adversely affecting the performance of both, Port Qasim and the QICT. As per an agreement with the PQ the QICT has offered to spend $ 4 million to install the navigation and channel aids to make the Port accessible round the clock.

We have, so far, spent $ 3 million on repairs, installation and maintenance, he added.

He, however, tacitly avoided answering the question when the night navigation would commence.

He informed PAGE that QICT has invested a total of $ 50 million while it will be spending another $ 70-80 million to acquire additional cargo handling equipment and civil works for expansion.

Though he seemed satisfied at the maintenance dredging works by the PQ to maintain the minimum 11 meter darft to accomodate the vessels of size calling at the Terminal he expressed concern that PQ is short of money to pay for the capital dredging which is necessary to maintain the draft to accommodate bigger vessels means more revenues for the Port. We are planning to bring in a third-generation container vessel which could carry 4000 TEUs and expect that as per the agreement the PQ ensures that the required 13 meter draft to accomodate the 270 meter vessel would be available, he added.

Asked about the potential of the two national ports to become the ‘gateway to central Asia’ he said that apart from the ongoing civil war in Afghanistan the lack of related infrastructure— roads, rest areas, etc.— within and outside the country the same would not be materialised.

He said that 25 per cent of the total container traffic handled by QICT is transported to the uncountry directly in containers while the rest is moved in boxes after being sorted out from containers.

Fifteen per cent of all the cargo handled by QICT is transported by the Pakistan Railways while the rest is sent by road, he added.

He welcomed the government’s decision to allow Afghanistan to use Port Qasim for transit trade and hoped that the ministry of finance would issue the relevant S.R.O at the earliest to provide legal affect to the government decision.

Previously all goods booked for Afghanistan were cleared by the Customs collectorate at the Port of Karachi which required extra time, money and energy to move the goods within the premises of KPT.

Commenting on the take over of the QICT premises by the PQA union which disrupted work for two days a few months ago he said that though the lease agreement calls for the recruitment of 12 per cent of the QICT work force from the PQA it was to subjected to suitability.

Asked if the QICT fulfilled its part of the agreement, Faruque replied only that ‘all those suitable were taken.’ Putting the total staff and worker strength at 320 he said that QICT’s stand was supported by the government which has said that no interference would be tolerated to disrupt the work at the Terminal.

He lamented that investors such as QICT which contribute a considerable revenue to the PQA, and the exchequer, are neither consulted nor have any say in how their money is spent and what priorities have been set for the future development of the port.

It is essential, he added, the private sector investors associated closely with the PQA should have a say in the decision making. The PQA Board should include a broad spectrum of private investors— even government ones such as the Pakistan Steel — to cover manufacturing, oil/gas and terminal interests with a right of appeal to the government in case of unilateral decisions by PQA, he added.

He suggested that the sea-related activities of the PQA should be separated from the land-based operation.

The former should be privatised and handed over to the companies operating at terminals and ships. Most ports in the developed as well as the developing countries are already privatised or operate on Built Own Operate/Built Own Transfer basis and a port land holding would be an answer to cover tenancy leases to encourage prvatisation to improve efficiency and provide more funds to the government for other projects, he concluded.

LEASE AGREEMENT

  • Thirty-year renewable lease.

  • Flat rent of Rs 48 million per annum.

  • Wharfage of Rs 400 per TEU.

  • Five per cent royalty of the load on/load off revenue for all load in excess of 150,000 TEUs.

  • QICT to set load on/load off , storage and handling charges at the terminal.

  • Recruitment of 12 per cent of the QICT labour from PQA subject to suitability.

On its part the PQA is committed to:

  • Provide 24-hour night navigation facility.

  • Maintain a minimum draft of 11 meter.

  • Adequate electric power

  • Fresh water supply

Cargo Handling Equipment at QICT

  • 2 Quay Cranes (For loading/unloading vessels, each with a lifting capacity of 35 tonnes)

  • 5 Rubber-Tyred Gantries (Each with a lifting capacity of 35 tonnes to load/unload trucks/trailers)

  • 10 Trailers

  • 10 Prime Movers

  • 3 Forklifts to handle empty containers

  • 2 Reachstackers for rail operations

  • 2 Semi-automatic Spreaders

The cargo handling equipment are a combination of used quay cranes and rubber-tyred gantries and new trailers, forklifts and reach stackers.