Thursday, February 21, 2013

Gwadar port

The day after Pakistan awarded the management contract for Gwadar Port to state owned China Overseas Port Holdings Limited it prompted the Chinese Foreign Ministry to issue the following statement: "transfer of managing rights is a business project that falls under trade and economic co-ordination conducted between China and Pakistan...and boosting China-Pakistan co-operation is not only in the interests of both countries but also conducive to maintaining regional stability and development." A short history of the port is in order. Gwadar port project, like other projects whose construction would considerably fuel economic activity in Pakistan, remained hostage to federal-provincial disharmony over control and distribution of revenue. It was originally identified as a site in 1954 when Gwadar was still an Omani enclave. Pakistan became interested in the site after a survey along its coastline carried out by United States Geological Survey concluded that it is suitable for a deep sea port. After four years of negotiations Oman finally agreed to sell it to the government of Pakistan at a cost of 3 million dollars. A small port was constructed by the Pakistan government by 1992 at a cost of 1.6 million rupees that included a foreign exchange component of 1.4 million Belgian francs. Technical and financial feasibility studies for a major deep-sea port at Gwadar were initiated in 1993 and a UK company in association with a Pakistan company was engaged for the purpose. The contract of the port was awarded to a Chinese firm and construction commenced in 2002. Phase-I was completed in December 2006 at a cost of 248 million dollars and included 3 multipurpose berths, approach channel, turning basin and related infrastructure and handling equipment. And Phase-II began in 2007 at a cost of 932 million dollars and included 4 container berths, one bulk cargo terminal, one grain terminal, two oil terminals and approach channel. The same year, in 2007 the government awarded the management contract to Port Singapore Authority (PSA), the highest bidder after Dubai Port World backed out of the bidding process, for 40 years for the development and operation of the tax free port and duty free trade zone. According to the agreement, the Government of Pakistan would get a fixed share i.e. 9% of the revenue from cargo and maritime services, and 15% of the revenue earned from the free-trade zone. PSA agreed to invest 550 million dollars in the port. And subsequently while there have been periodic statements by Pakistani governments that a deep natural sea port (while Karachi Port is a natural sea port, Port Qasim is not) would provide untold financial benefits to the country through opening a trade route for Central Asian Republics to the rest of the world yet nothing concrete has come of it. The government of Pakistan (GOP) had to give subsidy for offloading and loading of some bulk cargoes at Gwadar. PSA were unhappy because GOP did not fulfil their side of the bargain because land that was to be handed over to PSA for development of the port support infrastructure did not materialise while the GOP argued that PSA did not invest the agreed amount in the enterprise. It is now greatly hoped that with China in the driving seat the financial benefits to the two countries would begin. China was rightly upset that while it won the contract to construct the port yet the management tender was opened internationally and therefore China opted not to submit a bid. There is no doubt that China remains an all weather friend to this country and in that context Pakistan's interests would be served; however details of the actual agreement have not yet been publicly released and one would have to wait and see the agreement before evaluating the merits of the contract. India's Defence Minister AK Antony, however, has expressed concerns premised on fears that China would as a result get a strong strategic foothold in the Persian Gulf and the Arabian Sea and may decide to use the port as a naval base. It is of course unlikely that Indian strategic interests would play any role in Pakistan's decision-making. However, if the port management is being viewed in a geopolitical context one would hope that the government of Pakistan would better play the situation to suit its long term economic and geopolitical interests. Last but not least. One must not lose sight of the fact that in China's case in particular economic security factors have greatly come to overshadow other strategic interests. After three decades of high economic growth momentum China increasingly believes that it is now required to take a strategic approach of economic statecraft in order to play its due role in global politics. For example, the construction of the China-Central Asia gas pipeline was fraught with grave dangers in relation to China-Russia bilateral relations, because that project had virtually broken the Russian monopoly on natural gas export routes. Credit goes to China that it successfully convinced Russia that although Beijing had built a gas pipeline and was purchasing directly from Central Asia, it did not have any intention of challenging Moscow in Central Asia energy exports. China's unprecedented presence in the former Soviet space was necessitated by its economic imperatives, particularly its energy needs. The gas pipeline project or Russian-Chinese energy competition did not lead to a conflict between these two members of the five-member umbrella of emerging economies, Brics. It is, therefore, strongly believed that China would also be able to allay India's concerns, however much less warranted as compared to Russia's, by propelling its commercial diplomacy into the fore.

No comments: