May 11 - 17, 2009

Viability of Gwadar port project in Balochistan is threatened by a row between the Ministry of Ports and Shipping and the Ministry of Defence over transfer of 584-acre land to Port of Singapore Authority (PSA), the concessionaire and operator of the port, for establishment of the long-awaited Free Zone. The Singaporean firm may take Islamabad to the Arbitration Court in London holding the Government of Pakistan accountable for defaulting on its contractual obligations under the Concession agreement in case of further delay in the transfer of said land, which is presently in possession of the Pakistan navy. On the other hand, the Ministry of Defence has refused a free-of-cost transfer of the said land to Gwadar Port Authority (GPA) for the proposed Free Zone.

As the media reports go, the Ministry of Ports and Shipping has warned high-ups in Islamabad of the likely legal action by the PSA, as Pakistan had already defaulted on its contractual obligations. Under the concession agreement signed in February 2007, Pakistan had committed to hand over 923 hectares (2281 acres) of land to the Singaporean firm by June 2008 on lease for the development of a Free Zone for the port related facilities at East Bay of Gwadar. The PSA would develop offices, residential facilities, port back up area in Free Zone and provide the traders, industrialists, businesspersons, shipping companies, stevedoring firms, transporters with all possible facilities for doing business at Gwadar.

Under the concession agreement, Singaporean firm is bound to set up three different companies to look after various activities at the Gwadar port, including cargo operation, marine operation and the free economic zone. Under the accord, PSA is bound to invest $550 million for improvement of Gwadar Port, besides building additional berths. The areas where the concession agreement was to be implemented are terminal and cargo handling operations, marine services and free zone development.

In view of the geo-strategic importance of Gwadar and the national defence requirements, the Pakistan Navy had acquired 584 acres of land with seafront from Balochistan government in 1980 to safeguard the maritime interests and seaward defence. Under the concession agreement, the GPA is required to purchase additional land of 350 hectares for 'free zone area' in addition to 584 acres in the possession of Pakistan Navy and 70 acres with the coast guards at Gwadar. The ministry of defence and the Naval Headquarters (NHQ) had reportedly refused to hand over 584 acres for the envisaged 'free zone area' at Gwadar despite persistent requests by the Prime minister secretariat under former government of president Pervez Musharraf and prime minister Shaukat Aziz. Former government had ultimately decided that Pakistan Navy would hand over only 30 acres to GPA, for the development of road-rail-link leading to the Free Zone at Gwadar Port.

The defence ministry has been of the view that GPA has long enough waterfront available for mercantile needs and development of free zone. It argued that waterfront was not required for a free zone while the same was a necessity for naval operations infrastructure. The ministry believes that 584 acres of land with Pakistan Navy at Gwadar is essentially required for defence of maritime interests of Pakistan as well as for the protection of the port itself. The Defence ministry realized the need to dovetail the operational requirements of Pakistan Navy in the Gwadar Port Master Plan by providing seafront for jetties to the navy.

Cash strapped Pakistan has taken crucial steps to make its prize port on its southwest coast fully functional. The accord signed in 2007 with the Singaporean firm for handling operations at strategically located Gwadar port will be reviewed and likely to be cancelled, according to the Pakistani officials. On the other hand, PSA has reiterated its commitment to make Gwadar port fully operational. Gwadar project had come to a standstill and no economic activity had been witnessed until December after the first shipment in March 2008.

With a depth of 14.5 meters as against 11.12 meters of Karachi Port, Gwadar has the capacity to handle Panamax ships. Gwadar port has become a virtual tax-free port to the extent of its development and operations after Pakistan granted 40-year tax exemptions to the Singapore-based operators. Some of the major tax exemptions and incentives given to PSA included complete exemption from corporate income tax for 20 years, duty exemption on import of material and equipment for construction and operations of Gwadar port and development of Free Economic Zone for 40 years and duty exemption for shipping, bunker oil for Gwadar port for 40 years.

The agreements signed by the former government on the Gwadar port caused a delay in making the Gwadar port functional, according to the provincial government. The provincial government proposed to reconsider or revise the agreements to make the new port fully functional. The concession agreement entails ministerial authority over the operators to fix port fees to attract shipping lines. The scope of the concession includes obligations to handle mixed and general cargo, containers, dangerous goods, dry bulk, cars and ferries and the obligations to provide and operate bunkering and water supply facilities for visiting ships.

Present government has re-iterated that the reservations and apprehensions of locals would be addressed and vowed to give local people jobs in Gwadar port to end their prevailing sense of deprivation. "If the fruits of the Gwadar project did not reach to the masses, then the agreement with the PSA could be cancelled", the state minister for Ports & Shipping recently declared in a Press conference.

The port remained non-functional for more than one year even after its official opening in March 2007. The first ship arrived at the port in March, but the port did not see arrival of any ship for the seven months until December. Moreover, the port's connectivity with main roads and rail links is still required.

Present government should immediately resolve the issue of transferring the committed land to the Singaporean port operators so that free zone, which is essential part of this mega project, could be established. The port is expected to be a higher revenue earner in terms of foreign exchange for the country, as China, Afghanistan, Central Asian states and Russia would also be using the port where huge cargo ships up to 0.25 million tons could anchor.