Gwadar Port pain awaits China
By Syed Fazl-e-Haider

http://www.atimes.com/atimes/South_Asia/SOU-01-190213.html

KARACHI - Pakistan President Asif Ali Zardari has formally handed over the country's prized port at Gwadar to China. Simultaneously, China becomes the builder, financer and operator of the Arabian Sea port near the Strait of Hormuz, through which more than half of the oil imports for the the second-largest economy after the United States now pass.

State-run China Overseas Port Holdings Limited will purchase all the shares in Gwadar Port from the Port of Singapore Authority (PSA) and its local partners under a deal approved by Pakistani government on January 30. PSA sold 60% of shares in the the port, while Aqeel Kareem Dedhi (AKD) Group and the National
Logistic Cell (NCL) controlled by the Pakistani army sold their 20% stakes. 

"Handing over of the operation of Gwadar Port to China is manifestation of our growing ties and also shows the trust Pakistan has in the Chinese ability to deliver on our infrastructure projects," Associated Press of Pakistan (APP) reported Zardari as saying. "We are seeking to expand our existing areas of cooperation and exploring new avenues for fruitful collaboration."

Gwadar Port, located in the southwest province of Balochistan, is of immense strategic importance for China, which imports nearly 60% of its crude oil from the Gulf countries, a proportion that is likely to increase in the next decade. China contributed 75% of the initial US$250 million development cost of Gwadar and is taking over from PSA after the Singapore-based port operator's decision to pull out of the Pakistan port.

China is taking over the building of infrastructure that the Pakistan has not yet completed, with the port lacking crucial road and rail connectivity in Pakistan and north to Central Asia's booming economies and overland to China.

"Beijing has agreed to spend hundreds of millions of dollars to finish a 900-kilometer (550-mile) road that would link the port with Pakistan's north-south Indus Highway, facilitating overland transport from Gwadar to China," a senior Pakistani official was quoted by Associated Press as saying. Pakistan was supposed to complete the road last year but has only completed 60% of the work.

Operation of Gwadar port was formally awarded to China at a ceremony in Islamabad on Monday in the presence of President Zardari and China's Ambassador to Pakistan. Liu Jian and senior government officials. The contract was given to China after PSA last year quit a 40-year management and development contract signed in 2007 after the country failed to transfer 584 acres of land in possession of Pakistan Navy for development of free zone.

As a concession holder, the PSA installed two Gantry cranes, 200 meters of single rails and one sub-station at Gwadar Port. Under the deal, the PSA was bound to invest $775 million for the development of port, but it was unwilling to make investment without getting free of cost land.

The port has so far remained a commercial failure, and is operating a about 15% of its capacity. "[M]achinery originally installed by China is rusting for lack of use," Associated Press reported a Pakistani port worker as saying. "On a purely economic basis, the level of trade through the port should be zero because of its drawbacks, but the government is spending millions of dollars in subsidies to ship fertilizer through the facility. It would be cheaper to send the shipments through the coastal city of Karachi, 700 kilometers to the east."

An editorial recently published in Daily Times said,
"The Chinese company that has won the contract is expected to invest further to bring the port online. The problem though with the port is that no planning or implementation has gone into providing the inland infrastructure that could really make the port viable and take some of the pressure off Karachi and Bin Qasim ports to the east.

However, in the absence of road or rail links from Gwadar port to the rest of the country, goods imported via Gwadar have to travel overland along the Mekran Coastal Highway to Karachi before being shipped north to the rest of the country, a route that defeats the very purpose in terms of cost and time that the Gwadar port was intended to fulfill.

Now that the Chinese have moved back in, one hopes the federal and provincial governments and the port authorities will ensure that the Chinese contractor puts in place plans to train and induct local people to boost employment and allow some of the benefits of the project to trickle down to local citizens, thereby earning a lot of goodwill and allaying some of the resentment the project has left lingering in its wake."
Local analysts, however, believe that security concerns will bar China from making big investments in a country under attack from Islamist extremists, particularly in the insurgency-hit Balochistan. It is worth remembering that three Chinese engineers working on seaport project were killed in a terrorist attack in 2004. It was due to the security concerns that China shelved its multi-billion dollar Gwadar oil refinery project in 2009, according to the analysts.

China has become more cautious about big investment projects in Pakistan due to security concerns, AFP reported, citing Fazul-ul-Rehman, former director of the China Studies Centre at the Institute of Strategic Studies Islamabad. There is a long way to go on China-Pakistan economic cooperation and emphasizes that Gwadar will be a long-term project with Beijing looking for future alternatives to shipping routes for its oil and gas imports.

Syed Fazl-e-Haider (www.syedfazlehaider.com) is a development analyst in Pakistan. He is the author of many books, including The Economic Development of Balochistan, published in May 2004. E-mail, sfazlehaider05@yahoo.com