GWADAR IS YET TO SHINE

SYED FAZL-E-HAIDER
(feedback@pgeconomist.com)

Mar
22 - 28, 2010

Gwadar Port on southwest coast of Pakistan will take a long time to become operational. Firstly, there are the unsettled issues between the government and PSA, the concessionaire and operator of the port. The 40-year agreement signed with PSA in February 2007 has not yielded any results in its first three years. The government and the PSA are in default of commitments. PSA had undertaken to spend $525 million in five years, but has invested nothing during the first three years. Pakistan could not hand over 2281 acres of land free of cost 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 is unwilling to make further investment in Gwadar port without getting free of cost land, that would cost the government at least Rs15 billion.

Secondly, the port's connectivity with main roads and rail links is still required. Thirdly, law and order situation has worsened over the past five years.

Baloch nationalist parties flayed the former government of president Musharraf for ignoring the people and the Baloch leadership while it signed accords with various international firms without taking them into confidence.

Gwadar port, a strategically important project in Balochistan is costing its operator- Port Singapore Authority (PSA) millions of rupees, as the government has failed to hand over land under possession of Pakistan Navy for construction of free zone to the Singaporean operator. Critics say that Gwadar port only needs serious and sincere efforts of the government to emerge as a regional transshipment hub, as the port has full potential to become one of the most user- and trade-friendly ports of the world with its 4.7-kilometres long and 206-metre wide approach channel, 595-metre diameter turning basin, three 600-metre long multipurpose berths and other state-of-the-art cargo handling equipment.

PSA has so far invested $31.5 million in capital cost while the net revenue earned so far is Rs 260 million - nine percent of this amount is passed on to Gwadar Port Authority (GPA), according to the media reports. Despite the best efforts of Ministry of Ports and Shipping, Pakistan Navy has so far failed to hand over the stipulated land to GPA.

Gwadar Port has been built with Chinese assistance of more than $220 million and over $66 million from the south Asian country. PSA International, the operator of Gwadar port, is a global leader in the ports and terminals business. In total, PSA operates 20 port projects in 11 countries including Singapore, Belgium, Brunei, China, India, Italy, Japan, Netherlands, Portugal, South Korea and Thailand.

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 2008, but the port did not see arrival of any ship for the seven months until December. Some 72 ships have so far brought government cargo via Gwadar Port that has so far not witnessed the arrival of any commercial vessel in the last three years.

The government seems indifferent. The developers of the port had perceived it to be the future of Pakistan's economy, but Gwadar is yet to shine despite all the potential of becoming a major port in the region.

The Planning Commission's task force on maritime industry has termed the Gwadar port's operation deal signed with PSA a complete disaster. The task force strongly recommended the present government to cancel the deal with PSA, which had undertaken to spend $525 million in five years, but has invested nothing during the first three years, and it is not likely to even spend during the next two-year period.

Under the deal, the 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. Without land acquisition, the PSA is unable to develop free zone and port-related infrastructure.

As per concession agreement, the PSA has been demanding of required land from Gwadar Port Authority (GPA). Pakistan could not hand over 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. Under the deal, 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. On the other hand, the Ministry of Defense has refused a free-of-cost transfer of the said land to GPA for the proposed 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.

The Planning Commission's task force has recommended that the concession agreement can be revisited and the best option would be to cancel the agreement. In this case, penalty potential is estimated at only $8 to $10 million which can be negotiated with the port operator. It has also been recommended that viable alternatives for use of three berths at Gwadar be opted. It has also been recommended that there must be infrastructure available for attracting investment in petroleum storage, refinery, pipeline, oil filled related equipment, construction fabrication and repair etc. Logistics port concept should be introduced, with appropriate industries, according to the task force.

Gwadar Port was supposed to be connected by construction of road links and a timeframe of four years after reaching port operation agreement. Gwadar Port rail connectivity, which includes establishment of rail network with the rest of the country as well as with neighboring countries especially Afghanistan, and through Afghanistan to Central Asian Republics (CARs) as well as China, is expected in 10-15 years period.

The port is not viable for transshipment, as well as not for transit until Afghanistan and Western China are connected by road and rail with Gwadar. Prevailing uncertainty on political and security fronts in Afghanistan, Balochistan and Western China is also a setback for execution of these infrastructure projects.

In the absence of warehousing facility, no trans-shipment of containers activity can take place, as there is no backspace for containers storage. The port still lacks road and rail connectivity and its usage has so far been restricted to bulk cargo such as wheat and Urea. The cost of doing business at Gwadar is more than double, as all the cargo handlers charge double for their services at the far-located port. Each ton of the commodities in 71 vessels imported through Gwadar cost Islamabad at least Rs 2,500 extra on transportation and handling charges and PSA bore an expenditure of Rs 590 millions - which is more than double the revenue earned so far.