Pakistan port opens new possibilities

Posted in Asia | 22-Mar-07 | Author: Syed Fazl-e-Haider| Source: Asia Times

A ship is seen anchored at Pakistan's Gwadar deep-sea port on the Arabian Sea.

QUETTA, Pakistan - President General Pervez Musharraf on Tuesday formally opened Gwadar Port in Pakistan's Balochistan province, the South Asian country's third port.

The Arabian Sea port will be completed at a cost of Rs16 billion (US$264 million), with financial and technical assistance of China, which has so far provided 80% of the $248 million initial development costs.

The operation and management of the port was handed over to the Port of Singapore Authority (PSA) under an agreement signed between the Gwadar Port Authority (GPA) and the Concession Holding Co (CHC) - a subsidiary of the PSA. The CHC is committed to invest $550 million over the next five years.

The agreement, which regulates the rights and obligations of both parties, has a duration of 40 years, with the GPA receiving revenue from the PSA. The investment attracted and revenue generated by Gwadar Port have been estimated at between $23.6 billion and $42.2 billion.

Gwadar is on the southwest coast of Pakistan, close to the Strait of Hormuz that links the Persian Gulf and the Gulf of Oman. Its location marks the confluence of three increasingly important regions - the oil-rich Middle East, heavily populated South Asia, and resource-rich Central Asia. The seaport will serve as an economic and trade transit point for Pakistan and Afghanistan, as well as Central Asian and Middle Eastern countries.

It is expected that the port will not only promote trade with Persian Gulf states, but will also facilitate the transshipment of containerized cargo, unlock the development potential of the hinterland, and emerge as a regional hub for major trade and commercial activities. It is also expected that Gwadar, 70 kilometers east of the Iranian border and in close proximity to Gulf shipping lanes, will handle transshipment traffic for the Gulf and ports on the Arabian Peninsula.

Some analysts see an operational Gwadar port as China's first foothold in the oil-rich Middle East, as well as providing road and rail links to the economic powerhouse. Beijing wants Gwadar to be the gateway port for its western region, as its eastern seaboard is 3,500km from Kashgar, the main city in the far west of China's Xinjiang Uyghur Autonomous Region, whereas the distance from Kashgar to Gwadar is only 1,500km. This makes it feasible and cost-effective for China's interior regions to carry out trade through this port. That is why China expressed interest in helping Pakistan to develop Gwadar into a full-fledged deepwater commercial port, capable of handling cargo ships of up to 50,000 tons or more.

Energy-hungry China is eyeing Central Asia's oil and gas reserves and is increasingly looking to Pakistan for oil and gas supplies. Beijing plans to run at least five oil and gas pipelines to Gwadar from the Central Asian republics and wants to turn the facility into a transit terminal for Iranian and African crude-oil imports.

Gwadar is expected to play a key role in China's energy security, as its strategic location gives it greater scope as a free oil port in the region, and it will be the endpoint of all gas pipelines from Central Asian states, Iran and Qatar. Pakistan and China have also held talks on the construction of the strategic pipeline from Gwadar to China's borders, enabling it to import oil from Saudi Arabia.

The port has a depth of 14.5 meters and an approach channel of 5km. Three multipurpose berths of 210 meters in width have also been built. The port can currently handle bulk carriers of up to 50,000 deadweight tons through its three berths.

The dredging of Gwadar Port's 4.5km approach channel was completed in February.

The CHC has established four separate operating companies - PSA Gwadar Ltd, PSA Gwadar Terminals Ltd, Gwadar Marine Services Ltd and Gwadar Free Zone Co Ltd.

Beijing wants to build a refinery and petrochemical complex with an initial 10 million tons per year capacity, later expanding to 21 million tons. Under a memorandum of understanding signed between Pakistan and the China, the Great United Petroleum Holding Co (GUPC) began carrying out a feasibility study and preparation work for the petrochemical city project last December.

The GUPC, China's largest private petroleum group, was established in June 2005 and is a conglomerate of nearly 50 private petroleum enterprises. China's petroleum industry has been monopolized by large state-owned enterprises such as the China National Petroleum Corp (CPNC), China Petrochemical Corp (Sinopec) and China National Offshore Oil Corp. However, the establishment of the GUPC, through the unification of private enterprises, has helped to break up China's state petroleum monopoly.

The petrochemical city, a two-phase project, is part of the proposed oil mega-city in Gwadar. In the first phase, the petrochemical city will be set up. In the second phase, the biggest refinery and petrochemical logistics and storage complexes will be set up.

Pakistan has allocated 5,060 hectares of land in Gwadar for the project, which will be leased at nominal rates to parties interested in establishing the refineries or investing in oil logistics and storage facilities.

In the first three years, the refinery will be able to refine 10.5 million tons of oil annually. In the first phase, its capacity is expected to be increased to refine up to 21 million tons of crude oil within seven to nine years. In the second phase, the capacity of the refineries will be increased to refine 63 million tons of crude oil within 15 years.

The Chinese Petroleum Chamber has also shown keen interest in the $12.5 billion investment plan for constructing the petrochemical city and shifting energy-related industry to the Gwadar Port Energy Zone (GPEZ).

The two countries will set up a joint-venture consortium to finalize the preferential policy and tax incentives package for the establishment of the GPEZ. It has also been estimated that the GPEZ will be able to attract investment of about $13 billion. The proposed zone will comprise an oil refinery, liquefied-natural-gas terminals and petrochemical plants.

Islamabad is finalizing incentive packages to induce the Chinese petroleum-services industry to relocate to the GPEZ. The incentives may include free land for refinery construction, unlimited duty-free import of crude for processing, and sales-tax exemption for refined-product exports.

A Pak-China Energy and Trade Cooperation Promotion Association has been proposed to be established for steering these plans. The association would be broad-based and include members from the oil-and-gas and power sectors. Pak-China Joint Investment Co has been proposed to finance the projects.

According to official sources, both countries will announce the establishment of the Pak-China Joint Investment Co during the visit of Pakistani Prime Minister Shaukat Aziz to China next month.

Critics in Pakistan oppose the idea of China being heavily involved in the development of Gwadar Port. They believe that Gwadar should have a neutral image and that Islamabad must declare it an open port. They also believe that continued emphasis on Gwadar's strategic position may be at the expense of some of the economic benefits it can provide.

Musharraf also announced on Tuesday that the country's fourth port will be built at Sonmiani in Balochistan.

Syed Fazl-e-Haider,, is a Quetta-based development analyst in Pakistan. He is the author of six books, including The Economic Development of Balochistan, published in May 2004.