Gwadar Port set to face regional competition

ISLAMABAD — Pakistan’s almost tax-free, new deep sea port at Gwadar will get going in March, and welcome big ships. But, it will have to compete with other regional ports which are already doing good business.

By M. Aftab (Analysis)

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Published: Sun 18 Feb 2007, 9:11 AM

Last updated: Sat 4 Apr 2015, 9:55 PM

The sail-in and start up are expected March 22, government and shipping industry sources say. The first cargo ship will dock at the harbour that day. Gwadar is located just across the Straits of Hormuz, proverbially a stone’s throw away from the world’s boom centre —United Arab Emirates and Dubai.

Even in its state of infancy, Gwadar Deep-Sea Port (GDSP) hopes to supplement Dubai and Salalah. A good deal of Pakistani cargo is transshipped through these ports, as of now. The key port of Karachi, and Port Qasim will stay in business, besides Gwadar, as both export and import cargoes are growing. The foreign trade is increasing rapidly as Pakistan stays on a high growth trajectory of nearly seven per cent a year. The GDSP, when completed, will cost $ 1,138 million. Its first phase has already cost $ 298 million, mainly financed by China. Its second phase will cost $ 840 million. It now has four births, but plans are afoot to raise the number to 14, that will, simultaneously accommodate more than a dozen ships. Infact the port has been receiving merchant ships since January 2003 which brought most of the cargo, imported for the port project. Gwadar’s deep draft is 14.5 metres.

The port has been designed to serve the entire region from the Gulf to South Asia, Afghanistan, Central Asian Republics (CARs) and Western China. Shaukat Aziz, an international banker of great repute, leading Pakistan as its Prime Minister, has an eye on the economic and strategic potential of GDSP, and it's hoped for role as a trade, industry, telecom and energy-hub for the region and Asia which is billed as the world growth centre in the 21st century. President Pervez Musharraf, a military strategist, values it because of its military and security significance, located at global trade and shipping lanes.

Gwadar is considered suitable for transshipment cargo as it is located on the world sea lanes. It makes landlocked Central Asian countries accessible to sea. Iran’s nearest border post is located at 70 kilometres from Gwadar, which will also be used for cargoes to CARs. Iran also has railroad and road network to carry cargoes, while Pakistan has constructed its own highway from the port to the Iranian border. Iran and Pakistan this week also signed an agreement to build a $ 86 million, 170 kilometres, 220 kv double circuit electricity line to supply 100 mw power to Gwadar Port. The project will be completed by TAVANIR of Iran and Water & Power Development Authority (WAPDA) of Pakistan. Iran will construct its 70 km portion at a cost of $ 26 million and WAPDA the remaining 100 km line costing $ 60 million. Yet another advantage to Pakistan and other users of Gwadar will be cutting cost because Pakistani cargoes which come as transshipment will land straight at this port.

"Gwadar will emerge as the central energy port in the region. It will become an important and strategic storage destination because it is located near the world’s largest hydrocarbon resources," Aziz said. He was speaking at this week’s signing of a 40-year agreement between Singapore Port Authority (SPA) subsidiary Concession Holding Company (CHC) that will operate and manage Gwadar Port. Commodore Muneer Wahid, Chairman Gwadar port Authority (GPA) and Eddie Teh, Chief Executive Officer of SPA signed the agreement. SPA was one of the three bidders for Gwadar. The two others were Dubai Port World, and Hong Kong-based Hutchision Port Holdings.

SPA and its subsidiary CHC which have been given the Gwadar poort handling operations on a lease for 41 years, have yet to unveil their proposed tariffs and charges for various facilities to shipping companies, users and related business. But, a wide range of tax exemptions it will receive under the agreement with Pakistan, provide it with a big cushion which should help it keep the Gwadar Port tariffs substantially lower than the port facilities in the region. Other business and services at the port will also get major tax exemptions. Ministry of Ports and Shipping will be able to make more offers to companies doing business at Gwadar, a government spokesman said. "It will be an almost tax-free port," the spokesman also said.

The government has provided a 20-year tax holiday on corporate and income tax. The government has granted a 40-year tax exemption and incentives on import of equipment and machinery to make the port operational and develop Free Economic & Industrial Zones. There will be a 40-year tax holiday on import duty on shipping lines and oil bunkers to attract business to Gwadar. The provincial government of Baluchistan will also not levy local and provincial taxes on any business in the Gwadar port area for 20 years, officials say.

Aziz is very upbeat about the role Gwadar can play, and the services it can provide to the Gulf, and the region, including the landlocked Afghanistan, Central Asia, and Western China because of its short, cost-effective and quick route to meet their growing energy and foreign trade needs. "Gwadar will become an attractive destination for cargo traffic as it will provide better facilities to larger vessels. The cost of doing business in Gwadar will be less than in Dubai. It also has all prospects to become a support centre for Dubai."

"As a result of competitive services expected to be offered at Gwadar Port, there will be much more investment, and increased employment and economic activity," he says. It will enhance "Pakistan’s strategic importance in South West Asian region and will usher in a new era of socio-economic development in the province of Baluchistan, that has remained largely under-developed." "China has greatly helped us in translating the dream of Gwadar Port into a reality," Aziz also said.

SPA plans to invest $550 million in Gwadar facilities over the next five to 10 years. SPA operates 22 ports in 11 countries. The government has exempted SPA from almost all corporate, income, and business taxes, import duties for equipment, and machinery for port development, income from cargo handling & terminal operation, marine services, and free zone development. GPA and CHC share in various categories of income has also been specified.

The agreement provides that SPA will develop two terminal areas which will include multi-purpose terminal area and container terminal area. It also covers three separate business areas, including terminal and cargo handling operations, marine services consisting of piloting, tugging, mooring, vessels traffic and anchorage management and free zone development.

Gwadar will have a new airport, and a duty-free industrial zone, and tax-free foreign and domestic facilities to turn it into a telecom, transport, business, and warehousing hub, capable of handling large volumes to serve the region, besides Pakistan. Its links to the national road and railroad system have been established or are being speedily completed. The roads and railway network, is being assisted by international financial institutions, including World Bank and Asian Development Bank. Still other plans, recently discussed at the Shanghai Summit of Heads of State and Prime Minister, are to establish an international energy pipeline and trade corridor, linking Gulf-Middle East to the region.

The award of Gwadar to SPA is being criticised because the numerous tax exemption given to it will generate hardly any revenues for Blauchistan, the poorest of the four provinces of Pakistan. The federal government in Islamabad, however claims, that the business and industrial activity Gwadar will generate will benefit the province and its population. Minister for Ports & Shipping and officials, however, estimate Gwadar Port will earn $ 40 billion revenues which will be shared with Baluchistan.

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