Singapore takes over Gwadar

Singapore takes over Pakistani port
By Syed Fazl-e-Haider QUETTA, Pakistan -

Gwadar port on the Arabian Sea in the southwestern Pakistani province of Balochistan has been handed over to a Singaporean firm, which will run it for 40 years. The concession agreement for handing over operating rights of the seaport to the Port of Singapore Authority was signed on Tuesday between the Gwadar Port Authority (GPA) and the concession-holder company (CHC), a subsidiary of PSA International. Under the deal, the first ship and cargo will be handled at Gwadar port next month. Under the agreement, the GPA will receive revenues from PSA over a period of 40 years. The investment, revenues and income received from Gwadar port's entire operations have been estimated at between US$23.6 billion and $42.2 billion. The concession holder has committed to installing two additional quayside gantry cranes for the handling of containers within nine months. The PSA will also undertake construction of 14 more berths in a 4.5-square-kilometer area beside the existing three berths. The cargo-handling capacity of Gwadar port will be expanded by up to 300 million tonnes from the current 50 million tonnes within the next two decades. China financed 80% of the project's $248 million initial development costs. In December, a consortium led by PSA won the contract to operate the deepsea port on the Arabian Sea. Under the agreement, PSA will run the port for 40 years, during which time it will be exempted from corporate tax. Pakistan's AKD Group is part of the Singaporean consortium. PSA has envisaged investing $3 billion in the project, of which $550 million would be invested in the first five years. PSA International is owned by the Singaporean government's investment-holding company Temasek. Strategically located Gwadar will be a significant addition to PSA's global network of deepsea ports. PSA is a global leader in the ports and terminals business, operating 20 port projects in 11 countries - Singapore, Belgium, Brunei, China, India, Italy, Japan, the Netherlands, Portugal, South Korea and Thailand. The CHC will establish three separate operating companies for different business areas, which will enjoy a complete - federal, provincial and local - tax holiday for the first 20 years of the concession. The materials and equipment that will be used in the construction and operation of the port will also be tax-free. Likewise, the bunker oil used in the port or sold to visiting ships will be free of duty. These privileges will remain throughout the concession period. Under the agreement, the CHC will pay a fixed share of its revenues to the GPA. Pakistan will get a 9% share in income and revenue from the first day for the cargo operations and marine services. Three companies will work under the operator of Gwadar port. One company will manage the port area and cargo operation; the second will handle marine functions such as pilotage; and the third company will operate a "Free Trade Zone". Pakistan will get 15% of the revenue from the Free Trade Zone, where warehouses and other facilities will be constructed by the PSA. The Free Trade Zone is aimed at developing facilities and businesses that are conducive to the growth of the port. The concession holder will develop at least 20% of required facilities within the zone. The remainder will be developed by either the concession holder or other investors. The exports of goods from the Free Trade Zone into Pakistan or vice versa are subject to normal import and export duties. As well as being responsible for navigational safety and security, the GPA will develop and maintain the common port infrastructure including access channels, breakwaters and access roads. The international management-consulting firm Arthur D Little, which has extensive global experience and expertise in port planning and negotiations with port and terminal concession holders, has acted as technical adviser to the GPA during the process. Under the concession, two terminal areas, including a multipurpose terminal area, will be developed. The terminal areas will be expanded in an easterly direction up to a total length of 4.2km and cater for various types of cargo. The container terminal area is located along the western and northwestern coastline of the East Bay and is to be developed by the CHC. Initially, the GPA expects foreign investment of $5 billion to $8 billion in the multipurpose terminal area; the cost of relatedequipment will be be $1 billion to $1.5 billion; the terminals will cost $2 billion to $4 billion; the cost of the Free Zone development is expected to be $1.5 billion to 2.5 billion; while the marine services and others will cost $500 million. The GPA is to receive revenues from the CHC over the next 40 years estimated at between $17 billion and $31 billion. The revenue to be generated from containers and other cargo is projected at $10 billion to $18 billion; the Free Trade Zone is expected to generate $3 billion to $6 billion; and the terminals will generate an expected $4 billion to $8 billion during the period. Some ports and shipping experts in Pakistan believe the revenue-sharing formula goes against the country's interests. They contend that the negotiators have overlooked the fact that if the port stopped operating there would be no revenue. According to the experts, the GPA or the national exchequer will bear the permanent costs of navigational-channel maintenance, dredging, security and firefighting. The experts have also objected to leasing Gwadar port for a 40-year period. They say the longest acceptable long-term contract period is 25 years, mid-term 10-15 years and short-term five to seven years. Even in cases where a port is given over on a "build, operate and transfer" basis and operators bring in all the required equipment, they say the maximum lease period never exceeds 20-25 years. It is expected that with Gwadar port operational, Pakistan will become a key player in the Persian Gulf region and serve as an energy corridor for Central Asia, South Asia and western China. With the exception of Chahbahar port in Iran, Gwadar will be the only free port between Dubai and Colombo providing container storage and warehousing facilities. Gwadar has been designed to be operated as a hub port, and it aims to provide better investment incentive packages than regional ports such as the United Arab Emirates' Jebel Ali, Hong Kong, and Singapore. The port project aims to accommodate facilities that will help to develop Gwadar as an industrial city - privately owned warehouses and cold storage, private cargo-handling equipment, truck yards, and corporate infrastructure such as offices along the same lines as Jebel Ali, Hong Kong, Malaysia and Singapore. As a free-trade zone and as a corridor to the Central Asian republics, Gwadar offers great opportunities for investors. Pakistan has already declared Gwadar a special economic zone and all imports coming through this zone will be exempted from customs duty and sales tax along with concessions on income tax. Pakistan has reportedly decided to give a seven-year tax exemption to industrial and commercial establishments in the Gwadar Special Economic Zone (GSEZ). This is expected to boost both domestic and foreign investment in the area, especially in such sectors as fish-processing, real estate, and tourism-related infrastructure and services. Moreover, the Ministry of Ports and Shipping has recommended that the GSEZ be exempted from the Foreign Exchange Regulation Act of 1947 and the Protection of Economic Reforms Act of 1992. The Central Board of Revenue is of the view that no area in Pakistan could be exempted from these laws except as provided in the constitution, as in the case of the Federally Administered Tribal Areas and Provincially Administered Tribal Areas. The challenge before Pakistan is to attract international investors by trumpeting its incentive packages for investment in Gwadar Free Trade Zone. Pakistan plans to spend $7 billion in the next eight years to improve the country's road infrastructure, completing a network linking China and South Asia through Gwadar by 2014. Because of its geo-strategic location, Gwadar has the potential to become a regional maritime hub. The 14.5-meter draft of the port will be able to accommodate up to "fifth-generation" ships, including Panamax and mother vessels. Islamabad firmly believes that the Gwadar port is a key entry point for energy supplies for Central and South Asia, as well as western China. It will allow the expansion of oil trade in the region, as it provides the shortest possible route to landlocked, oil-rich Central Asian states.