KPT, PQA SHOULD COMPLEMENT NOT COMPETE EACH OTHER
CAPT. ANWAR SHAH
July 11 - 17, 2011
Since the time of Alexander The Great, it is recorded in history, Pakistan's geographical location has been strategic for the control of resources and military power. It is situated at the crossroads from Europe to Asia. Armies have used Pakistan as a launching pad to conquer lands in India and beyond. Today, there is war of a different kind, an economic one.
Pakistan offers overland access to the countries of Central Asia and Western China to serve these territories for their flow of goods. Such flows are important to the development of these countries. Pakistan is of economic strategic importance to central Asia and western China. Pakistan's economic fate is locked in one with these central Asian countries. Action is needed for Pakistan to take up its role as a strategic corridor to serve the territories.
To capitalise on the full strategic advantage, our leaders need a comprehensive plan. There needs to be a full scale infrastructure to support the movement of goods and people from the shores of Pakistan to the landlocked areas of central Asia and beyond. There is a need for ports to serve as the gateway for goods and a need for the required transport infrastructure to move cargo. Needless to say, there is a need for supporting systems, and an educated workforce to support our vision.
Most of all, there must be the right policies. In respect of the ports, prime minister/minister of ports and shipping stressed, "Following examples of various developing countries, the government is always seeking new avenues to facilitate and encourage foreign investment into the country through the provision of incentives and business friendly policies in the shipping and port sector."
The government of Pakistan started with the assistance of the World Bank and its transport specialist Mr. Durrani, the National Trade Corridor Improvement Program (NTCIP) in June 2009 to improve the logistics infrastructure of Pakistan, with a view to enhance connectivity and boost trade in the South Asia-Central Asian region. One of the key initiatives under the NTCIP is to develop a Port Master Plan (PMP) to optimise the port development requirements and identify short term (2011 to 2015) and long term (2015 to 2030) operational requirements, port infrastructure facilities and setting a rational indicative project investment programs, prioritising development objectives and optimising resources. There has been no official announcement of the stage of the PMP.
According to a media report and the World Bank sources, the bank is said to have completed the technical and financial evaluation of the port's master plan. The contract negotiations for the project would soon begin between the government and a consultant firm. The study is financed under the second trade and transportation facilitation project and the procurement is still in process. All procurement of goods and services under the WB-supported projects are undertaken by authority involved in implementation i.e. the concerned ministry or department responsible for the implementation, they said. Since, the implementation is at the discretion of the concerned ministry, thus consultants and director will be appointed by ministry adhering to PPRA 2004. It must be clearly understood that the funding is not a grant, but has to be paid back. It is assumed that advertisement will be made accordingly.
It is imperative to carry out such study as it is over due and it is feared that in absence of such study excessive development may take place. Our port planners and managers are devoid of any electronic data processing in short term port simulation and long range planning, thus the bank program of Port Master Plan will assist our planners for the next 25/30 years development.
I, was amazed / astonished to see the news item on 20th November, that Karachi Port will accommodate post panamax generation of vessels of 100,000 deadweight tons as the berth draft has been increased to 16 meter, however there is no mention of the channel depth and at the same time, it is intriguing that Karachi Deep Water Port of 16 meter draft is being built. There appears to be some misstatement or reporting error. If true as reported in such a situation Port Master Plan necessity has increased manifold so that adequate capacity planning be forecasted. The PMP is in limbo, thus needs to be expedited.
Pakistan currently has three major ports, Karachi, Gwadar and Port Qasim, each under a different regulating authorities and reporting to the ministry of ports of shipping. Together these two ports handled 2.1 million TEUs (twenty foot equivalent boxes) in 2009. To put things into perspective, Pakistan has a population of 170 million and our ports handling 2.1 million TEUs. India with a population of 1.1 billion handled seven million TEUs. The reason for this favourable disproportionate figure is due to the forward looking policies of Pakistan which treats investors right and that we have an orderly development of port infrastructure, through Public Private Partnerships (PPP). I restrained myself to discuss Gwadar port since it was subjudice.
We are uncertain at this moment, what is the stage of the PMP i.e. whether it is still being pursued or that more thinking is necessary. In the meantime, there is no coordinated development of facilities, each left to their own devices, having different visions and disparate plans. Investment decisions and expansion are made individually and sometime indiscriminately without central coordination. One example is the planned conversion of general cargo berths at the Karachi Port into container terminal facilities while the execution of the Pakistan Deep Water Container Port project expected to cost US$1.5 billion is being executed. KPT will be investing close to US$1billion to build the breakwater, quaywall, dredging and reclamation and the connectivity (road and bridge) infrastructure while the private investor will invest US$500 million for phase I. KPT investment will serve Phase I and two future phase, which will be executed depending on demand. Without clear thought and policy decision making, in the long run, there is a risk of over building, with catastrophic impact for the nation.
In a system of PPP, it is crucial for any government to have the right policy strategies in place to attract and, most important, maintain investors interest in our country. Investors who cannot see a clear policy strategy will put their money elsewhere. Government policies should be aimed at an orderly development of infrastructure. Especially with port infrastructure, investments decisions are not made lightly and involved hundreds of millions of dollars on the part of the investor. The government or the port authorities are partners and co-investors, pouring their part of the hundreds of millions of dollars. Without a serious plan of orderly development, the government having poured such mega dollars, building the basic infrastructure such as breakwater, dredging, may land ourselves in a situation where investors do not find it viable to participate as an operator under public-private partnership.
In the manufacturing and logistics industry, there is a concept of just-in-time as the most efficient manner of allocating resources. The concept envisages raw materials arriving just in time at the factory floor for production to take place. Material arriving too early would take up warehouse and factory space, which cost rental, insurance and other storage costs. Materials arriving too late will result in underutilisation of production capacity and loss of sales. Therefore, planning is essential.
JIT could be applied to the timely development of port infrastructure. In this case, it is even more critical as overdevelopment could result in mega losses to investors who will lose interest in investing in the country. Untimely underdevelopment will result in loss of economic opportunities for the nation. Ideally, investment infrastructure should be just in time. JIT involves the need for accurate forecasting of demand and building ahead to ensure that facilities are available when needed.
Any Port Master Plan of Pakistan should envisage the proper coordination of port infrastructure development. Such development must cater for the interest of investors in such infrastructure and support the long term economic development of Pakistan. In the context of such infrastructure development, there has been initiatives to build container terminal facilities in the Karachi Port and Port Qasim. Terminal II of Port Qasim is expected to be completed and operational soon.
Karachi Port Trust is in the midst of executing the development of the Pakistan Deep Water Container Port (PDWCP) at Keamari Groyne. These developments will bring on stream huge facilities in the next five years and should serve to put Pakistan on the regional maritime map. These facilities involved billions of dollars, after serious consideration by all concerned -investors, governments, and port authorities.
Having poured in billions of dollars, investors do not wish to see a disorderly and disparate expansion of excessive facilities only to drive the revenue down to a point where they see their investment. Experiences in the other parts of the world have shown that a disorderly expansion of facilities will lead to dangerous trends with disastrous impact. Firstly, existing operators will adjust prices downwards to cater for their short term interests. Secondly, lower prices will mean lower royalties for the government and the port authority. Thirdly, such a downward spiral will translate into lower revenue in the form of profit tax, and other taxes related to prices of logistics services. Fourthly, and most important, lower revenue collection will result in much lower funding available to the port authority and government for the development of future infrastructure. Fifthly, the downward spiral in revenue may lead to a point where investors find it unviable to bid for future phases of a container port. This is economically disastrous, where the government has already sunked in mega sums on the basic structure, costs of which are to be spread over a few phases. In summary, one can say that a disorderly expansion of port infrastructure will only serve to waste money but will also squander the golden opportunity of our strategic location.
The solution to this could be a trigger rule adopted by those who direct the strategic policies of port development as seen in Korea. In the years prior to 2005, Korea suffered from excessive supply of container terminal infrastructure, resulting in total lack of interest from private operators in their public private partnership (PPP) arrangement. The scenario was so chronic that the Korean government had to find creative ways to utililise such facilities, turning tracts of container handling space into movie studios, resulting in a reputation of Korean movies in Asia today.
The lessons were painful and Korea has today implemented a trigger rule i.e. that new facilities will be developed in line with market. When capacity reached a certain strategic level, say 70 per cent, new facilities will be developed.
Concerned ministry and planning commission must put their heads together with port consultants of repute to ensure that just in time philosophy and strategic level of 70 per cent be followed to avert surplus capacity. The development of at least Karachi and Port Qasim be coordinated and monitored by planners. Port management is a very complex subject today and it requires expertise in various fields related to ports, be it planning, bench marking in port cost or qualitative requirements.
Despite 10 per cent contraction of container throughput in 2009, containerised growth in South Asia has been forecast at 4.7 per cent, whilst the Far East and Middle East at 4.3 per cent. Most of the loading terminal operators are said to be adding capacity to their network by 2014. It is also opined that global terminal operators scope to achieve organic throughput growth will be limited by the recession and its impact on world GDP growth, thus our planners must take into account the forecast for creating additional capacity.
The planners must ensure that instead of KPT and PQA competing each other, they may coordinate and complement each other by ensuring same tariff regime, as the case in India where tariff authority of major ports ( TAMP) is responsible for uniform tariff. It is equally essential to bear in mind that ISAF cargo adding 3/400,000 TEUS will also be gone, once USA pulls out of Afghanistan. Planners must ponder professionally as opportunities are like sunrise, if you wait too long you can miss them. Excellence in profession is not an exception, it is a prevailing attitude that our planners have to bear in mind. Nine tenth of wisdom consists in being wise in time as President Roosevelt said.
The writer is Governor World Maritime University, Malmao, Sweden.