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    China Business
     Sep 5, 2012

China set to run Gwadar port as Singapore quits
By Syed Fazl-e-Haider

KARACHI - China will take over the Pakistan's strategically located Gwadar Port in southwestern Balochistan after Singapore decided to pull out of a 40-year port management and development contract signed in 2007.

Port of Singapore Authority (PSA) and its partners - Aqeel Kareem Dedhi (AKD) Group of Karachi and the National Logistic Cell (NCL) - are ready to sell their share of Gwadar Port to China Harbour Engineering Co Ltd (CHEC), a state-owned company, and have been allowed to quit the Gwadar Port's development

contract after the government failed to transfer 584 acres (236. 3 hectares) of land under possession of the Pakistan Navy for the free zone at the port.

"The denial of land at Gwadar Port forced PSA to leave the port, which will be taken over by a Chinese company," Business Recorder reported Ports and Shipping Minister Babar Khan Ghauri as telling the senate's standing committee on ports and shipping last week after the government issued PSA with a notice to quit the contract five years after taking up the challenging project.

The deal between the government and the Singaporean company was thwarted by the security situation in Balochistan, which hindered PSA from investing the money it had promised for the development of the port and off-shore infrastructure, but PSA decided to give up on the project since problems were compounded by a Supreme Court decision in December 2010 to issue a stay order against the allotment of Gwadar land to a foreign company, following petitions from individuals.

Gwadar Port was built with Chinese assistance of more than $220 million. After taking control, China will simultaneously become the builder and operator of the Gwadar Port.

PSA, which owns 60% of shares in the project, and its partners, who own equal 20% stakes, have asked China Harbour for their investment plus interest of approximately $25 million, according to media reports, in a proposed transaction that local experts say is a typical share-purchase deal. Under a concession agreement, withdrawal from by any of the parties - either the Pakistani government or PSA - would mean they had to pay a penalty. While both were reluctant to withdraw, the transfer of shares to the Chinese company resolved the impasse.

Sardar Fateh Muhammad Hassani, who chaired last week's senate committee meeting, indicated that China would invest US$10 billion to develop the port and manage its operations, without giving details about the proposed agreement. Negotiations between the shareholders and Chinese officials over the sale had been going on since last year, according to The News. While some amendments will be made in the concession agreement for the new operator, it is actually the ongoing land dispute between the government and the navy that has stalled the development of the port for the past five years.

The committee recommended that the navy should take the available 300 acres of land from the government of Balochistan as an alternative and vacate 584 acres of land at Gwadar Port. Naval authorities, however, informed the committee that the navy was a legal and legitimate owner of 584 acres of land at Shamba Ismail area in Gwadar, which was allocated to it against payment by the Balochistan government for defense purposes.

Gwadar port was supposed to compete internationally to get a larger share in the world cargo. This required efficiency on the part of port operators and the installation of modern equipment. Unlike in Karachi and at Port Qasim, Gwadar Port was to totally depend on transshipment cargo. Since it was thought that only experienced, competent and neutral operators could turn Gwadar into a regional hub port - with returns to match its strategic advantage - the government of former President Pervez Musharraf in 2007 gave management and operational control of the port to PSA for 40 years.

PSA International operates 20 port projects in 11 countries including Singapore, Belgium, Brunei, China, India, Italy, Japan, Netherlands, Portugal, South Korea and Thailand. PSA Singapore Terminals is also the world's busiest transshipment hub, handling about one-fifth of the world's total container transshipment throughput, and 6% of global container throughput. The company says it provides shippers with a choice of 200 shipping lines and connections to 600 ports in 123 countries.

The Chinese-built first phase of Gwadar Port included three multipurpose berths of 602-meter quay length, one 100 meter-long service berth, and 4.35 kilometers of deep-water channel, alongside roads, operational craft and equipment and shore-based port buildings and facilities.

China sees Gwadar as the gateway for its products to international markets. The port can play a major role in serving as a corridor for energy, cargo and services among Central Asian countries, the Gulf and other surrounding regions. As the port operator, Beijing may restart a $12 billion oil refinery and oil city project that was shelved in 2009.

Strategically located at just 624 nautical kilometers to the east of Strait of Hormuz, the port is not only China's most favorable choice for oil trade, but it would also help it get commercial refueling and repair facilities. Located at the mouth of the Persian Gulf, the Arabian Sea port is likely to expand China's influence in the Indian Ocean, which is the strategic link between the Atlantic and Pacific Oceans in terms of communication and oil transportation in the region. That makes Gwadar a key node in the new great game, with control of proposed transnational energy pipelines the name of the game.

Control over Gwadar Port offers China a key card in pipeline politics, as future of all the major transregional pipelines battles may hinge on having a terminus for major pipelines, including Iran-Pakistan (IP) and Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipelines. China is interested both in monitoring the supply routes for its rapidly increasing energy shipments from the Persian Gulf and also in opening an alternative route via Pakistan for import/export trade serving its vast Muslim-majority Xinjiang Autonomous Region.

Presently, 60% of China's imported oil comes from the Middle East and 80% of that transported to China through the unsafe Straits of Malacca.

Syed Fazl-e-Haider (http://www.syedfazlehaider.com) is a development analyst in Pakistan. He is the author of many books, including The Economic Development of Balochistan (2004). He can be contacted at sfazlehaider05@yahoo.com.

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