Gwadar The Race to the Swift

Published in Hilal English May 2014

Written By: Brig Rashid Wali Janjua

The providence has been munificent in bestowal of its bounties upon Pakistan and Gwadar is one such treasure that lies unclaimed due to desultory planning and the lack of right focus. It is a natural deep sea water port that can outshine all such regional ports like Dubai, Salala, and Bandar Abbas due to its strategic and geographical location. It has the potential to usher in a revolution in the fields of international trade, commerce, and oil refining with the promise to alter the economic fate of the entire country. The question that begs an answer is as to who then is impeding the country's inevitable march towards prosperity. What is the economic and strategic cost of this egregious failure to develop the port and associated network of roads? What are pitfalls that lie ahead of the much vaunted second phase of the project and what are the implications of letting the competitor ports like Chabahar get ahead in the development race? An attempt shall be made to answer some of the above questions in this discourse. Before proceeding ahead it is worth highlighting that nature has endowed Gwadar with certain topographical advantages that beat all other rival regional ports hands down notwithstanding their sedulous development efforts. The only way a nation strapped for cash and beset with daunting economic challenges can propitiate the gods of prosperity is by offering a libation of progress. The past inaction begotten out of poor planning, flawed agreements, vested interests and a lack of will needs to be remembered if the past mistakes are to be avoided. A brief background of the past development efforts is apposite in order to understand the possible caveats to future development endeavours.

The significance of Gwadar as a deep sea port was well recognized by the government of Pakistan as far back as 1964 but the first serious initiative to develop it as a deep water port was taken in 1993. The project was launched in right earnest after a painful delay of eight years in 2002 and was completed by a Chinese firm in 2005 at a total cost of $248 million out of which $50 million was contributed by Pakistan. The present miniport has three berths with a handling capacity for 50,000 ton ships and 25,000 ton containers. It was further planned to enhance the capacity of the port for 100,000 ton bulk carriers and 200,000 ton oil tankers along with nine additional berths in the second phase.

The phase two's development, however, has been a saga of procrastination and wrong selection of the developer that kept the port undeveloped till now. The contract instead of being awarded to the Chinese, who had developed the phase one of the port quite proficiently ,was awarded to PSA Gwadar Private Limited, a subsidiary of Port Singapore Authority with National Logistics Cell and AKD group as shareholders. The agreement signed in 2007 between the government of Pakistan and the PSA Gwader Private for management and operation of the port for 40 years came in for a lot of criticism due to the unwarranted concessions given to the private entity. The failure of the PSA Gwadar Private Limited to spend even 5% of the originally promised $500 million and its inability to attract even a single commercial ship to the port since 2007 prompted the government of Pakistan to press for a revocation of the agreement.

The development and operation of the port is now being handed-over to the Chinese. Care, however, should be taken to ensure that the new agreement does not repeat the flaws of the previous one in order to guard the best interests of the country. The Chinese involvement in the deal bodes well for the project due to the strategic and commercial interests of the China that wants an outlet towards the Indian Ocean and the Middle Eastern oil routes from its South-Western region. While its South-western Xinjiang province is 4500 km from Eastern Coast, Chinese ports, it is only 2500km away from Gwadar. In addition to above the ships travelling to the Chinese East Coast have to travel an additional distance of 10,000 km from the Persian Gulf as compared to those travelling to Gwadar. 60 % of China's oil comes from the Gulf travelling 16,000 kilometres in a few months to Shanghai. Gwadar reduces the distance to just 5000 kilometres with fewer risks. The sea traffic of China from the East Coast to Persian gulf would save up to 20 days in travel-time and $500 per 20 ton container after an operational Gwadar port gets linked with China. Gwadar affords another incomparable advantage to the sea traffic plying towards the Straits of Hormuz and the Persian Gulf as it provides the shortest distance from the high seas to a natural deep port without running the gauntlet of traffic management in the narrow straits.

Gwadar port has the promise to address Pakistan's strategic vulnerability due to availability of only two closely located ports vis à vis any naval blockade in times of conflict. Besides ministering to the domestic trade needs of the country, it has the potential to service the Central Asian trade markets, Afghanistan and the littoral countries of the Indian Ocean as a hub port. There is an ideal symbiosis of the strategic and geographical advantages conferred upon Gwadar due to its location near the mouth of the oil rich Persian Gulf and the landlocked, Central Asian countries. A network of roads linking it on the Makran coast with the Pakistani hinterland, Afghanistan, Central Asia and China would metamorphose this small city into a bustling trade and commerce centre rivalling any developed coastal metropolis of the world.

A brief mention about the trade potential of the port is in order. The sea trade contributes around 36% of the national GDP of Pakistan and is likely to reach 80 million tons by the year 2015. Considering the fact that it would further grow in future while the two ports i.e Karachi and Port Qasim are reaching their optimum development potential, the bulk trade would be handled by Gwadar. According to some UN estimates, the sea borne containerized trade of the world is likely to double by the year 2015. Combined with this exponential rise in sea trade, the tremendous potential of Central Asian trade ($20-30 billion annually), Gwadar is ideally poised to tap this trade bonanza. The trans-shipment potential of Gwadar alone makes it the top development priority of the country. It is worth highlighting that for majority of the countries of the world the seaborne commercial activities contribute at an average of 20% of the respective national GDP. Gwadar's true potential would be realized when in addition to port operations, it develops as a regional oil refining and ship repair hub. The oil pipelines from Iran and Turkmenistan, in addition to the ease of transportation of the seaborne crude oil towards the port make it one of the most promising locales as an oil refining hub. The transit fees from these oil conduits and the trans-shipment operation revenues alone would take Pakistan few notches up the national revenue ladder.

All of the above developments, however, are hamstrung by several caveats. These include a secure environment, a network of communications’ arteries, a lucrative tax concessions' regime for commerce and an astute port development agreement without compromising on the vital national interests. Generally the well developed sea ports all over the world contribute at an average of 10% of GDP towards national economy. The wastage of the eight years from 2007 to 2014 due to lack of development efforts by developers, therefore, has already cost Pakistan a loss of $160bn, a phenomenal sum considering the perennial debt dependence of our frail economy. A national commission, including eminent jurists, bureaucrats and engineering experts, needs to be set up to identify the reasons leading towards the loss of eight years and also to apportion blame wherever necessary.

The petty urban rivalries and vested interests that viewed the Gwadar development project through the prism of their petty interests and zero sum game need to be identified in order to avoid their baleful machinations in future. The failure of the private developers to achieve desired results needs to be examined critically in the context of their grouses vis à vis the government. The failure of the government to ensure law and order, acquisition of land for development and provision of energy grid needs to be evaluated in order to ensure that the new development initiative also does not meet the same fate as the previous one. The security of the areas straddling the putative “Pak-China Economic Corridor” should be made a national priority. If the enabling investment and security environment is not provided, neither the port nor the allied communication infrastructure can be developed despite the sincerity of our Chinese developers.

While conceding maximum tax concessions to the developers, the mistakes committed while entering into agreement with PSA Gwadar Private in 2007 need to be avoided. Some of the erstwhile mistakes are reportedly being repeated in the new agreement with the COPHC China, the company charged with the development of Phase Two's nine berths including 4 container berths, one bulk cargo terminal having a capacity to handle 100,000 DWT ships and two oil terminals to handle 200,000 DWT ships. The mistakes committed in the erstwhile flawed port development agreement with PSA Gwadar Private Ltd need to be avoided in the interest of timely completion of this vital national project. These concessions that bartered away the rights of Pakistan's Gwadar Port Authority to a foreign entity included the right to levy tolls, determine rules and impose tariffs without approval of the federal government. Only a paltry 9% of the gross revenue from the “Terminal Services” was to be shared with the Gwadar's Port Authority that was saddled with the difficult responsibilities of dredging of the channel and the turning basin. Hefty exemptions like tax holidays for 20 years, and right to ownership of the existing land of the port including the future reclaimed land were such carte blanches that hamstrung the federal government's ability to balance the national interests with that of the foreign port developer. While munificence is the key for providing tax and tariff concessions to make Gwadar a free trade port capable of attracting maximum investment guarding of genuine national interests is also an imperative.

The conflation of strategic and economic interests of the country in the development of this vital port makes the oversight of the whole project at the highest level, a top national priority. The several elements germane to the port operation and development of the urban infrastructure need to be holistically viewed from the development perspective and resources allocated accordingly. The development of road and rail network linking Gwadar with Central Asia, Afghanistan, and Pakistan's main trade centres should be accorded the same urgency and importance as the port operations. A special wing under National Highways Authority (NHA) needs to be raised with a professional head answerable directly to the Prime Minister for timely progress of the project. The construction arms associated with armed forces like NLC and Frontier Works Organization (FWO) should be relieved from urban centred projects and the bulk of their assets employed in development of communication network linking Gwadar with China, Afghanistan and Central Asia. A Joint Cantonment of Army, Air Force and Navy can act as a veritable “security anchor” to reassure the port developers and entrepreneurs. The development of the “Joint Cantonment” should be accorded top priority in order to underscore the seriousness of the country towards the Gwadar Port project.

The development of Gwadar is a veritable “Race to the Swift” that needs to be won in this competitive age when ports like Chabahar are vying to outpace Gwadar as a regional hub port; conversely a Dunkirk like fate awaits our national development endeavour. India has committed $100 million to upgrading facilities at the port after spending $100m on building a 220 km road linking Chabahar with Kandhar and Herat. A linking of Chabahar with Central Asia will give India a trade route towards a resource and energy rich region bypassing Pakistan. It is in the interest of Pakistan to expedite the development of Gwadar Port as well as the communication network linking it with the national hinterland, Afghanistan/Central Asia and China. While giving generous incentives to Chinese developers for maximizing their cooperation, care should be taken to assuage the concerns of the rival ports and countries that have a reason to feel threatened by the new port. The likely Indian and US concerns vis à vis Chinese presence in the Indian Ocean and the possible military use of the port need to be addressed through a constructive engagement with these countries and offering of commercial incentives. The credo of such a diplomatic initiative should be, “let a thousand flowers bloom”. The development of Gwadar is an idea whose time has come and one that can alter the destiny of the country. Let no land centric predilection of a continental mindset obtrude constraints upon the project that has the promise to singlehandedly usher the country in the next tier of the developed nations. The development of communication infrastructure, facilitative tax incentives and improvement of security environment are the essential pre-conditions that need to be met at priority without which the idea of Gwadar as an engine of economic growth will remain a pipe dream.

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  • Comment Link Aisha Aisha 19 October 2015

    You have made some decent points there. I checked on the
    net for more info about the issue and found most people will go along with your views on this site.

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