SHIP-BREAKING: THE BALOCHISTAN'S BIGGEST INDUSTRY

SYED FAZL-E-HAIDER
Jan 14 - 20, 2008

During the year 2007, about 34 ships with 152,260 light displacement tonnage (LDT), have been brought at Gaddani ship breaking yard in Lasbella district of Balochistan for dismantling. Though ship breaking is the province's biggest industry at Gaddani with over 5,000 employees, yet it has been a victim of negligence of successive governments.

By February 2007, four ships of 100,000 tons had anchored at Gaddani beach for breaking. Then more huge oil tankers also arrived and the total number of ships docked at the Gaddani beach for dismantling had increased up to seven by May 2007. By the end of last year, the ship breaking activity at Gaddani witnessed signs of recovery and the number of vessels reached to34.

The ship breaking activities have been slowing down since 1999, which was considered best year for the industry as 64 ships of 926,067 LDT were imported and the industry paid revenues in terms of taxes and duties to the tune of Rs 3.53 billion during the year.

From early 90's till 1998-99 the breaking tonnage varied from 300,000 to 926,000 LDT, which was reduced to 71,000 LDT in 2005-06.

In the FY1999-2000, 37 ships were brought at Gaddani and the government earned Rs 2.40 billion revenue. During the FY 2000-01, 27 ships arrived for breaking purpose at Gaddani and the government earned Rs 778 million in tax revenues. In the FY2001-02, the number of ships increased to 36, whereas government earned Rs 2.40 billion in revenues. In the FY 2002-03, the number of imported vessels touched the figure of 43 and the government only earned revenue of Rs 710 million. In the FY 2003-04, 32 ships anchored at Gaddani and the industry paid Rs 1.08 billion revenue to the national exchequer. In the FY 2004-05, only 27 ships anchored with revenue paid to exchequer was as low as Rs 280 million. In the FY2005-06, 21 ships anchored and the government received Rs 160 million revenues.

The ship breaking activity peaked in 1998-99 due to low international prices averaging $118-148 per LDT. It dwindled since 2001-02 due to gradual increase in the prices of ship, ranging $118 to 382 LDT. The industry had contributed Rs2.41bn in 2002 to the national exchequer In spite of the relief in custom duty, sales tax and income tax the industry could not take off. Presently, the difference between international prices of shredded scrap and ships for breaking is in the range of $80-100 LDT.

LACK OF ESSENTIAL FACILITIES

Ship-breaking industry in Pakistan is mostly concentrated at Gaddani where 90 per cent of country's ship breaking activity is carried out. Gaddani still lacks the essential facilities like health, potable water and gas. The industry has to use costly oxygen gas for cutting and scraping millions of tons of scrap. Besides, the massive smuggling of roll able scrap without paying any duty from Iran and Afghanistan is destroying the industry.

The workers at the ship breaking yard work in permanent danger. On board gasses cause fires and explosions. The incidents take place frequently due to fires and explosion, suffocation and inhaling CO2 and the steel plates and other material, which may hit the workers while falling off the ships. As a result of frequent accidents at the ship breaking yard, many workers lost their lives because of the absence of health facilities at Gaddani.

SMUGGLING OF BANNED ITEMS

The local ship breakers allege that smuggling of banned items such as moon shaped pipes, girders, angles, channels, pipes, shafts, and used ship chains are finding their way into the local market through Quetta-Chamman border and from customs due to large-scale miss-declaration which is hurting the ship breaking activities at Gaddani

The smuggling of "half Mooa-cut pipes, the substandard material through the Taftan border has also harmed the ship breaking industry. According to one estimate, about one million tons of such material is being smuggled annually and supplied to the re-rolling mills in Karachi and Lahore. The "half Mooa-cut pipes do not conform to the required standard for construction in terms of its elongation flexibility and strength.

The local ship breakers allege that the sales tax charged on this material is not based on proper assessment thus incurring loss to the national exchequer. The local ship breakers demand 25 percent regulatory duty on the import of steel junk and illegal imports of substandard material and its easy access to Pakistan steel markets. They have asked the government to restrain the use of construction bars made from substandard material, which do not meet PSI standard.

The steel and other material available from the dismantled ships at Gaddani not only meet the PSI standard but have internationally been acknowledged as quality steel scraps for the steel and building sectors. The government should take steps to plug the smuggling of the substandard material for the revival of the industry. It must impose regularity duty on import of re-roll able scrap from the Taftan border.

POLICY MEASURES

The policy measures adopted by the former government, including reduction in duty on scrap for ship-breaking from 15 per cent to 10 per cent, helped the industry to revive and progress. The local ship breakers had not sought any tax remedies in the budget 2007-08, but they had warned against any change in present duties and taxes structure, which could seriously disturb the momentum of the industry.

The ship-breaking industry faced crisis due to wrong polices of pervious governments which resulted in unemployment and people involved in this business faced losses and they withdrew investment from this important sector. In the 70s, 100 to 150 ships used to come at Gaddani beach for breaking. However, owing to imposition of heavy taxes, the industry got paralyzed. It goes to the credit of the former government, the industry once again gained momentum and people, who were earlier fed up at the state of affairs, began reinvesting in this sector.

The industry is a major contributor to the economy by meeting half of the steel requirement of the country. It is a significant source of supply of steel for Pakistan Steel Mill. Besides high quality steel, Gaddani dismantled ships also provide cheapest possible non-ferrous material such as copper, brass, aluminum, machinery, generators, boilers, wood and tools of international standard for country's ever growing sectors of industry and commerce.