By Azhar Ahmad

According to media reports, the federal cabinet has approved the transfer of Gwadar Port from PSA Gwadar Pte Ltd to China. The news of the cabinet decision has generated some discussion in the press. However, it is felt that most of the writers are not fully aware of the subject and therefore, the reports are misleading and lacking objective analysis. The new deal with the Chinese company is likely to take place soon, it is, therefore, vital to understand and review the entire issue.

Firstly, the current Port Operator/ Concession Holder’s name is incorrectly being reported in the media as “Port of Singapore Authority”. The existing port operator is a Special Purpose Vehicle named PSA Gwadar Pte Ltd created exclusively for this purpose (Interestingly, the company did not exist even at the time of bidding and the bidding was done by its “sponsors”). The name Port of Singapore Authority does not appear anywhere in the Concession Agreement.

There are two different impressions being given in the press: First, the government of Pakistan is revoking the agreement with PSA due to its non-performance and secondly, some writers are also suggesting that the PSA is backing off the agreement because the government failed in its commitments. Both the impressions are not entirely correct. The fact is that the Agreement is challenged in the Supreme Court. Both parties knew that the Agreement is mala fide and could easily be struck down by the honourable court. In addition, the names of culprits involved in this scam would also be brought to the book. It was, therefore found convenient to settle the issue outside the court.

Some politically motivated people are also suggesting that the local population is against the project, which is not true. The author visited Gwadar very recently and the local population is fully aware of the benefits of the port. However, some separatist elements, from the tribal Baloch are raising voice against the port on behest of some entities which are averse to progress in this region.

[box] Gwadar port is an extremely important project both from economic as well as from strategic point of view. If handled properly this port has the potential to transform not only Makran and Balochistan but it can contribute significantly in the economy and security of the country in the long run. It is, therefore, imperative that this national mega project is handled with sincerity and above all politics.[/box]

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Presently, the deal is between PSA Gwadar Pte Ltd and the Chinese for transfer of their rights/shares to the Chinese company, GPA (Gwadar Port Authority) is not even involved in the negotiations.

While the Chinese should have been the first choice to operate the port and the development is welcomed, there is a need to revisit the Agreement. Since the Concession Agreement was prepared unscrupulously there are some lacunae that must be rectified. For example:

  1. It appears from the Agreement that the rights, powers, functions and obligations of GPA have been surrendered in favour of a private foreign entity.
  2. Under GPA ordinance even GPA is not totally free to determine the scale of tolls, dues, rates and charges as all such charges require prior approval of the federal government and then required to be notified in the Official Gazette. In this case a foreign entity has been given a carte blanche to not only operate the port and its facilities but to also determine the above mentioned charges at its sole discretion.
  3. Highly favourable concessions have been granted to the Concession Holder which include tax holiday for a period of 20 years; exemption from income tax; exemption from sales tax; exemption from all the provincial and local taxes, duties, charges and levies etc for 20 years; exemptions on import duties and sales tax on materials and equipment for construction and operations for the entire duration of the Agreement (at least, 40 years); permission to vest right, title and interest in the land comprising the Concession Area including the land to be reclaimed in future; full autonomy to the Concession Holder in respect of collection and fixing all port rates and tariffs; prohibition of trade unions in the entire Concession Area etc. Some of these concessions are in direct contravention of the existing rules.
  4. Complete transfer of current Gwadar Fish Harbour cum Mini Port to the Concession Holder.
  5. The transfer and vesting of immovable property of Gwadar Port in favour of the Concession Holder is also contrary to applicable law and against the public and national interest.
  6. The Concession Holder is required to pay a measly sum of nine percent of its Gross Revenue from the Terminal Services to GPA for the entire 40 years term. Whereas, the GPA is responsible for the drudging of the channel and the turning basin which is a very costly exercise. In addition, GPA was made responsible for construction of breakwater, berth-side dredging; financing of access roads and wave, current and sedimentation studies etc.
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The above are just a few glaring examples. Study of the Concession Agreement reveals that the Agreement is heavily prejudiced against the Pakistani government and lends extraordinary discretion to the Concession Holder and financial liability of the GPA for many years. The entire thrust of PSA Gwadar Pte Ltd and its partners (Abdul Karim Dhedhi and National Logistics Cell) seemed on acquiring several thousand acres of government purchased land free of cost and commercializing it for substantial profits. Even some members of National Assembly and the previous Chief of the Naval Staff expressed their reservations against the Agreement.

It is also worth mentioning that the Concession Holder failed to attract even a single commercial ship to the port since it took over operations in 2007. But the government, instead of taking any action against the company provided business to the company by diverting Karachi bound cargo to Gwadar causing substantial loss to the public exchequer. It is stated that millions of metric tons of cargo has been diverted to Gwadar port, and the government of Pakistan had to pay an additional Rs.2500 per ton in transportation costs.

Operationalizing of Gwadar port is also in the interest of China. If China diverts its Xinjiang bound cargo to Gwadar it can open up avenues for much needed progress and prosperity in Makran and Balochistan. The decision of handing over the port operations to China should, therefore, be supported. However, handing over the port under the same terms and conditions to the new company is not advisable. Following recommendations may be considered before transfer of the port is executed:

  1. The Concession Agreement needs revision. Articles in contravention of the regulations or against public interest be removed/ replaced.
  2. Handing over an entire strategic asset to a foreign entity is not wise. The government of Pakistan/ GPA should be a share-holder in port operations. In this way the government will be able to maintain its control on the port as well as gain valuable experience.
  3. Provision should be made for allowing other companies, as well, to construct/operate terminals. It will generate competition and we will not be dependent on one entity for port operations. This concept is already working well in Karachi/ Port Qasim.
  4. Efforts should be made to build the requisite infrastructure at war footing. Without the required infrastructure and rail/road access the port cannot deliver.
  5. Those responsible for the delay in operationalizing of the port and the loss to the public exchequer be brought to justice.
  6. The Balochistan government and the local population must be taken in confidence.
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Gwadar port is an extremely important project both from economic as well as from strategic point of view. If handled properly this port has the potential to transform not only Makran and Balochistan but it can contribute significantly in the economy and security of the country in the long run. It is, therefore, imperative that this national mega project is handled with sincerity and above all politics.

[author] [author_image timthumb=’on’][/author_image] [author_info]The writer is an independent researcher based in Islamabad. He has extensively researched on Gwadar port for his PhD thesis. Azhar Ahmad Distinguished Researcher Asia-Africa Development & Exchange Society of China, Beijing Senior Research Associate Institute of Policy Studies, Islamabad Associate Member The Corbett Centre For Maritime Policy Studies, King’s College, London [/author_info] [/author]