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Gwadar can become a Shenzhen-level city in ten years,' Dostain Khan Jamaldini, Chairman, Gwadar Port Authority
January 23, 2017
BR Research recently visited Gwadar to get a look and feel of CPEC projects in the famous fishing district. There we also had a detailed sit-down with Dostain Khan Jamaldini, Chairman, Gwadar Port Authority (GPA). Mr. Jamaldini started his civil services career in 1990.
He has served on many top positions in Balochistan, including Secretary Finance, Secretary Energy, Secretary Religious Affairs, Joint Chief of Economics, and Chief, Planning and Development. Mr. Jamaldini has been serving as Chairman GPA since 2013. Following are edited excerpts from our extended discussion on issues related to the planning and development of the Gwadar Port and the Gwadar Free Zone:
BR Research: Development of Gwadar Port has been on the policy radar since almost a quarter century. Why did it have to wait for a major bilateral investment to come back to life?
Dostain Khan Jamaldini: The thinking to develop Gwadar as a port city came in 1964, when it was realized that the port in Karachi was not enough for foreign trade and it was too close to the Indian border. But for decades, progress lacked due to operational and funding difficulties. After all, it was a project located more than 600 kilometers from the nearest big city, Karachi.
When a national effort to integrate the Makran Division with the rest of the country started in the 70s, it was decided to build airports in these areas first, as the thinking went that building road connectivity would take time. That is why, despite the poverty and under-development in these areas, you will see many airports, about five, for a very low population base, in the Makran division. That was a planning decision, in part influenced by Pakistanis moving to the GCC region for labour. Port development, however, continued to suffer.
Gwadar Port came into focus again in the early 90s, during the first Nawaz Sharif government, when KPT was given the task to develop it. The PC-I of Gwadar Deep Sea Port Project was approved by ECNEC in 1999. Finally, work started in 2000 with the financial support from the government of People's Republic of China. But the fact was that the whole Gwadar region was disconnected from the rest of the country and the port was being built in a city, which had major issues of water and electric supplies and had no road and rail connectivity. However, to support the port and the city a number of infrastructure projects were initiated during 2000s. Except the Makran Coastal Highway (N-10), all the remaining connectivity and basic infrastructure projects either remained slow in implementation, or shelved. It was only from early 2014 that the implementation of these projects restarted.
BRR: Now that the port project is at the heart of CPEC, what does the potential look like?
Jamaldini: Gwadar Port is currently a small port, but the area that it straddles can potentially house more than 120 berths. That's the promise. An international bidding took place in 2006 that resulted in the port's 2007 master plan, which identified a potential of more than eighty berths. Now the China Overseas Ports Holding Company Limited (COPHCL) is working on project feasibility and design of the first expansion of the port so that they can build more berths in less area. The concession area granted to the Chinese is about 21 to 22 kilometers sea-front area. Another potential expansion area of 29 kilometers lies outside this concession area. The master plan recommends building multipurpose, container, dry and liquid cargo terminals and handling facilities around this area. This is a comprehensive and massive port development project.
BRR: Why do we not see operational activity at the port?
Jamaldini: Technically speaking, the current multipurpose terminal is operational with ability to handle container, break-bulk and loose dry bulk cargo, as well as vehicular shipment through its Roll-on/Roll-off facility. However, there are some issues that need to be addressed before the port can become fully operational in commercial sense.
Connectivity is one issue. The development of the Eastbay Expressway is absolutely critical to port operations. Currently a 50,000-60,000 tons cargo from a single urea ship fills up the whole city with some 3,500 trucks, which take about ten days to leave the city. The port cannot become operational in a situation where roads are not developed and there is no railway line. Then there is the utilities situation, where electric supply is not adequate and required amount of water is not available. Also, production and consumption base is absent in its immediate hinterland area, though we have already started creating a base for industrial production and consumption within Gwadar port via Gwadar Port Free Zone.
BRR: Were there any specific timelines for development of connectivity and utilities for port's use?
Jamaldini: Yes, with coming up of China Pakistan Economic Corridor (CPEC), we have agreed on timelines on implementation of different projects of Early Harvest Phase (which is the pre-short term phase of CPEC). Since CPEC is a bilateral project; there are some procedural delays on both sides. The Eastbay Expressway was approved in 2015 and it was supposed to complete in 30 months, but the project has not started yet. It is a similar situation with the new airport project, which has a 36 month timeline. Also with water and power supplies it is the same situation and the Chinese have been asking us to fast-track utilities for port development. The coal-fired 300MW power plant, which we have been urging the Ministry of Water and Power to start on a war footing since 2015, is still on paper. The Pakistan-China Vocational Training Institution (PCVTI) project was supposed to complete in two years, but it is still in a project-finance feasibility-study stage by the Chinese side.
Some progress is happening though. The government had approved the handover of land for the Free Zone project back in 2014. The Chinese were initially hesitant to take over the land because doing so would have started their lease period without connectivity and utilities in place. I convinced them to do so and now the project is under construction within its pilot phase area. Previously, the top concern of Chinese port operator, and other investors in Gwadar used to be security. But now Gwadar is peaceful. Thanks to the government and the army, a special security division has been raised and immediately its first brigade was moved to Gwadar during early 2016. At our insistence, the work on N85 and M8 was completed in record time by NHA and FWO. At our insistence, the Government of Balochistan has also started work on two dams and completed them - Shadi Kaur and Sawar Kaur dams.
But things need to go at a faster pace on utilities. With the 10-12 MW that we receive from the grid, we cannot run the port and the planned industries in Gwadar. One option was to import 100MW from Iran, but due to financial sanctions on Iran, that proposal is still on paper. The already existing transmission network can transmit another 30MW from Iran, and in fact, negotiations have just concluded on that proposal, but due to growing population in bordering areas, very little of the additional 30MW will reach Gwadar. The Chinese government instructed one of its state-owned companies to start the coal-fired power project on IPP basis and the honourable Prime Minister has directed the relevant authorities to complete the formalities so that the work is started before March 31, 2017. The project will take up to three years.
As for water, the two million gallon per day desalination plant, funded by the Federal Government and implemented by the Balochistan Government with almost one billion rupees, is no more operational due to a technical fault. We have asked the provincial government to rehabilitate the plant. For the new city, Gwadar Development Authority (GDA) has proposed and China has agreed under CPEC a complete water management project, which will have connectivity with the dams, have a five million gallon per day desalination plant, install a distribution system for the city, and make provisions for rainwater, water treatment, and sewerage. The project, which has three phases, will meet requirements for the medium term. Connectivity with dams will be overseen by GDA under local funding. The Chinese component will oversee the desalination plant, water distribution and water treatment within the city.
BRR: So essentially, port operations are dependent on water, power, and transport connectivity.
Gwadar Port is a massive Greenfield project within a Greenfield city. The previous port development project had built a 4.5MW power project, which is functional and runs on expensive furnace oil. It also installed 100,000 gallons per day desalination plant, which is also functional. These two inputs are sufficient for the current port capacity, but for port expansion and Free Zone development, the port needs much more water and electricity. The whole concept of a functioning Gwadar Port will not materialize until you address these basic issues.
BRR: What is the root-cause behind these many delays?
Jamaldini: The basic reason, I will again stress, is the Greenfield nature of Gwadar. When they tried to build a deep-sea port in Karachi, they did it within an established port, which was located in a mega city where there was no shortage of labour, contractors, equipment, water and power supplies. And how long did it take for that port to come online? Well, that deep-sea port still hasn't come online. Pakistan's development planning has never really focused on maritime sector development. Focus has been on building roads, agriculture, and agro-based industries, as a result of which institutional and human capacity for maritime sector has lagged other sectors and this lacking is clearly exhibited in case of implementing mega Gwadar Project.
BRR: What is the outlook on those three inputs in 2017?
Jamaldini: We, the CPEC team, had thought that 2016 would be the year when things would move faster vis-à-vis Gwadar Port and Gwadar City. But that didn't happen. We need to keep in mind that CPEC is basically for trade and industrialisation - the port and the roads infrastructure is only there to facilitate. Pakistan's biggest economic bottleneck is energy right now. We saw that CPEC-related energy projects took off in 2015, and by 2018 Pakistan might have up to 7000-8000MW additional power in the system. We believe that energy projects have been getting the necessary attention, and perhaps 2017 would see more attention directed towards other projects.
We also need to understand that overland connectivity is essential for the functioning of the Gwadar Port. Road connectivity is seeing progress under CPEC. Gwadar needs land connectivity not only to Xinjiang but also to Iran, Afghanistan, and the Central Asia Republics (CARs). We are hoping that work on the Eastbay Expressway will start at the latest by March and on the new Airport by April. Under CPEC, we have agreed to start South-North connectivity by constructing Gwadar-Panjgur-Mashkail-Nokundi highway so that to connect Gwadar Port with the mineral-rich Chagai district in the short-term and later linking it with CARs through Afghanistan in mid-to-long term.
By using the water and power supplies available within the port, we have convinced the Chinese to start the next phase in the Free Zone area so that the businesses' applications can be processed this year and work on building a small industrial base can commence from May this year.
BRR: Do you think that Nespak had the adequate technical and human capabilities to conduct the city's master plan back then? Also, is the port's 2007 master plan still relevant?
Jamaldini: No, Nespak did not have the capacity when it worked on the City master plan back in early 2000s, although it prepared a dependable city development framework. But the 2007 Gwadar Port master plan is still relevant, as it is part of Gwadar Port Concession Agreement. In fact, the first phase of the master plan, which should have been implemented by now, we had started implementing it from 2014 by developing the things that are immediately allied to the port. These include setting up a small industrial setup, resolving immediate connectivity issues, providing water and electricity, and enhancing security. In short, Eastbay Expressway and Free Zone: these are the two priorities, which will help create activity on the port.
BRR: You must get this question a lot: will the port activities use local labour?
Jamaldini: The question is: do we have the locals who can fully participate in this development with adequate skills required? Definitely not! Lest another problem drags progress on the port, it is better to pursue local skill development side by side. During our first meeting of CPEC in December 2013, I proposed the PCVTI, the Federal Minister for Planning seconded it, and the Chinese promptly agreed. Even now, it is two years late, but a state-of-the-art technical training institute, which will impart training on port operations and free zone activities, is in progress. We seriously need skilled people.
Land prices have increased a lot in Gwadar. Thanks to that, locals have money but they don't have port-related skills yet or the skills to go towards entrepreneurship. Now these people, who had no exposure to professional skills and used to live in katcha houses, have money and they are spending that acquired money outside Gwadar, not circulating it in the Gwadar economy so that the local-based economic transformation process starts fully-owned by the local residents. It is unfortunate that both capital and entrepreneurship in Gwadar is from outside. By default, and by our fault, the problems of water and power and roads yet remain unresolved. Had they been resolved, Gwadar manpower would have been in a different place as port would have been operational by now.
BRR: Let's now turn towards the bilateral understanding. Please tell us about the timelines and responsibilities in the concession agreement between the GPA and the port operator, COPHCL.
Jamaldini: It is a BOT model of concession. In the concession agreement, there are many requirements on the operator. There is a forty year business plan which has all the targets. We review those targets after every year for terminal business, marine services, and free zone businesses. From year zero to forty years, there are targets for every year such as throughput and berth length. Right now we have a 602 meters berth length at the port - 200 meters will be used for general cargo and 400 meters for container cargo. The plan also details increase in berth length, deepening of the ship navigation and berthing areas over time by COPHCL.
BRR: What are GPA's main responsibilities in the agreement?
Jamaldini: The port's master plan called for a 'landlord model', which basically means engaging a private operator and provide the necessary land for port development and expansion. We have completely handed over the existing port infrastructure to the operator, and for further expansion, we have acquired the land for them. We have also got them a forty-year tax exemption because they are going to bring in all the investment for operating and expanding the port infrastructure.
The other responsibility that we have is to clear and light up the navigation channel via navigation aids and maintenance dredging. During port expansion, capital dredging and breakwater, wherever required, will be done by GPA. Whereas tasks like building the jetties, installing cranes and mechanised equipment and undergoing civil construction, all of that is Kohl's responsibility. When they will do marketing and business development, GPA will assist them via government support. In the end, more than 85 percent of the capital investment will be done by COPHCL. Besides, they will also be responsible for all port-related maintenance.
BRR: How will the revenue sharing work out?
Jamaldini: Revenue sharing mechanism derives from the business model, which is based on capital investments made by operator. One extreme is where a port authority only provides a super-structure to the operator, who only runs the port and doesn't need to do large capital investment. The other extreme is where the port authority only provides land to the operator, who undertakes port development and expansion and then runs the operations. So, revenue sharing differs accordingly.
We are following the latter model: complete development of a Greenfield port on BOT basis. The master plan calls for a 12.5 km long container terminal, another 5.5 km long container terminal, and 4.8 km multipurpose berth. That's about 23 km long stretch full of berths, translating into about 76 berths of 300 meters each. One jetty requires at least US $200 million to build, so we are talking about a potential capital investment of some $15 billion over forty years.
Our revenue sharing mechanism agrees that the GPA would receive a 9 percent share in gross revenues from port operations: terminal services and marine services. The GPA will also have a 15 percent share in gross revenues from the Free Zone. These percentages are fixed for the forty years. By the way, this is the same concession agreement that Pakistan entered into with the Port of Singapore Authority in 2007.
BRR: What are the GPA's main responsibilities vis-à-vis the Free Zone?
Jamaldini: Our main responsibility there is to provide land for the Free Zone. We procured the 2,283 acres land for about Rs6.5 billion - its current market value is Rs32-33 billion, so it benefits us in the long run because the land has been leased, not sold, to COPHCL under a BOT mechanism. We are also responsible for bringing water lines and power transmission up to the boundaries of the Free Zone. That's it. The rest, including demarcation, internal development & construction, roads, etc is COPHCL's responsibility.
COPHCL, which is the developer and operator, has registered three companies with the SECP - one each for terminal business, marine business, and the Free Zone. As mentioned earlier, the GPA is entitled to 15 percent of the gross revenues of the Gwadar Free Zone Company Limited (GFZC). Here, 'gross revenue' means all the revenue and fees the GFZC will collect from the companies inside its tax-free premises, including rent, utilities, etc. The Free Zone development, spanned over 10 square kilometers, will cost COPHCL about $4 billion.
BRR: Are there provisions in the concession agreement for audit of COPHCL accounts?
Jamaldini: One clause is really clear in the agreement. To maintain transparency, the GPA can ask them for financial details and documents any time.
BRR: Will there be regular audits?
Jamaldini: No, it is not a practice. Greenfield projects have their own compulsions. And you have to encourage the investor. However, they have to follow the corporate governance policies and practices as per the SECP laws and regulations.
BRR: Do you have information on what kind of clusters will be there in the Free Zone? And are locals aware of such clusters so they can ready themselves for the future?
Jamaldini: The Free Zone will house industries that support productivity/throughput of the port. It will have re-export industry and logistic businesses zone. Overall, we have agreed on four areas for the Free Zone: trade, services, manufacturing units, and logistics. On their own, the logistics business - which involves warehousing, container break bulking, stuffing & de-stuffing, etc - and the value-adding industries such as processing - fruits, meat, gemstones, etc - and component & product assembly plants will create activity.
We currently have a growing list of forty types of businesses that can be done inside the Free Zone. We also have a negative list of items such as explosives, arms and ammunitions, drugs, and pollutant industries. Heavy industry will not be based at the port Free Zone premises but moved to the non-concession area of Gwadar Port. There, it will have an oil terminal, dirty bulk cargo, LNG terminal, steel mill, etc.
China's Bao steel group is negotiating with the Balochistan government for their steel plant and they will build their own iron ore jetty. Similarly, the provincial and the federal governments have a plan to develop a huge Oil City at eastern-most area of Gwadar about 70-80 km from the existing town. Some Chinese investors have shared their plan with Balochistan Government to establish a petro-chemical industrial complex in Gwadar Oil City.
BRR: What types of businesses have shown interest in applying for space in the Free Zone?
Jamaldini: In the initial phase, there will be a steel pipe plant, a fish processing area, a gemstone processing facility, and two exhibition centers. We are planning to hold Gwadar Expo from 2018 onwards at the Free Zone every year. We also have a proposal to make a China-Pakistan Product Display Center, which can exhibit Chinese products here for businessmen who cannot visit China but order from here. So this will be a model Free Zone where there will be manufacturing, processing, display, and warehousing, everything. In the main (northern) area of the Free Zone, these pilot undertakings will be in a mass scale. We expect around 400 companies to be registered in Gwadar Port Free Zone. Our Free Zone is open for Pakistani, Chinese, and other investors.
We are at an MOU stage with many Chinese and Pakistani firms. Foton Automobiles is interested. Then there are electronic and household appliance makers. We are also negotiating with a stainless-steel maker. Also, we are talking to agro-business firms. After the Free Zone business plan is finalised by GFZC, things will move forward.
BRR: The port is going to need the city. Does the existing Gwadar City master plan adequately meet the Port's master plan?
Jamaldini: The Gwadar City master plan will be upgraded under CPEC, through a grant, with a twelve month timeline. GDA, our sister organisation, will work with a Chinese firm so that the city master plan can be improved and up-scaled in a way that it can meet the future requirements of Gwadar Smart Port City .
BRR: How long will it be before Gwadar Port becomes operational?
Jamaldini: Gwadar port is modelled on Busan, South Korea and Shenzhen, China. Just as Shenzhen, there will be a port and there will be port-related commerce & industry and port-related city development. The Chinese tell us that it took them ten years to make the Shenzhen Port operational and thirty years to make the port city fully developed. They foresee that Gwadar port could be operationalised in five years and achieve the Shenzhen-level city and port development within ten to fifteen years provided that the basic infrastructure is in place and there is a strong and consistent investment policy for Gwadar.
BRR: There are too many departments dealing with CPEC. Do you think there is a need for a centralised task force to expedite things?
Jamaldini: I will speak for Gwadar. After Islamabad, Gwadar is only the second city Pakistan will ever build anew. Any investor coming here has to go to dozens of authorities for different licenses and registrations. In China, the mayor is leading the economic development within a new city, which gets treatment of a special region. We need de-centralised centralisation - that is, devolve powers to the mayor but make the mayor powerful. My personal view is that Gwadar should be a provincial autonomous region.
BRR: Are there any misconceptions out there about Gwadar Port that you may want to clarify?
Jamaldini: This perception that the Gwadar Free Zone is only for the Chinese investors is wrong. Pakistani investors should come and they will be encouraged. We even have expatriate Pakistanis showing interest in this area.
We will welcome everyone. Another misperception is that the Gwadar Port is becoming a naval base. Let me, as Gwadar Port Chairman, strongly underline that this port is a pure commercial area. Every port in the world receives naval ships for bunkering, for services, for repairs, etc - that's something else.
This is our business to serve ships and make money for the port. Gwadar is open for business and whoever wants to use the port services will be welcome to dock here.
Copyright Business Recorder, 2017
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January 23, 2017
BR Research recently visited Gwadar to get a look and feel of CPEC projects in the famous fishing district. There we also had a detailed sit-down with Dostain Khan Jamaldini, Chairman, Gwadar Port Authority (GPA). Mr. Jamaldini started his civil services career in 1990.
He has served on many top positions in Balochistan, including Secretary Finance, Secretary Energy, Secretary Religious Affairs, Joint Chief of Economics, and Chief, Planning and Development. Mr. Jamaldini has been serving as Chairman GPA since 2013. Following are edited excerpts from our extended discussion on issues related to the planning and development of the Gwadar Port and the Gwadar Free Zone:
BR Research: Development of Gwadar Port has been on the policy radar since almost a quarter century. Why did it have to wait for a major bilateral investment to come back to life?
Dostain Khan Jamaldini: The thinking to develop Gwadar as a port city came in 1964, when it was realized that the port in Karachi was not enough for foreign trade and it was too close to the Indian border. But for decades, progress lacked due to operational and funding difficulties. After all, it was a project located more than 600 kilometers from the nearest big city, Karachi.
When a national effort to integrate the Makran Division with the rest of the country started in the 70s, it was decided to build airports in these areas first, as the thinking went that building road connectivity would take time. That is why, despite the poverty and under-development in these areas, you will see many airports, about five, for a very low population base, in the Makran division. That was a planning decision, in part influenced by Pakistanis moving to the GCC region for labour. Port development, however, continued to suffer.
Gwadar Port came into focus again in the early 90s, during the first Nawaz Sharif government, when KPT was given the task to develop it. The PC-I of Gwadar Deep Sea Port Project was approved by ECNEC in 1999. Finally, work started in 2000 with the financial support from the government of People's Republic of China. But the fact was that the whole Gwadar region was disconnected from the rest of the country and the port was being built in a city, which had major issues of water and electric supplies and had no road and rail connectivity. However, to support the port and the city a number of infrastructure projects were initiated during 2000s. Except the Makran Coastal Highway (N-10), all the remaining connectivity and basic infrastructure projects either remained slow in implementation, or shelved. It was only from early 2014 that the implementation of these projects restarted.
BRR: Now that the port project is at the heart of CPEC, what does the potential look like?
Jamaldini: Gwadar Port is currently a small port, but the area that it straddles can potentially house more than 120 berths. That's the promise. An international bidding took place in 2006 that resulted in the port's 2007 master plan, which identified a potential of more than eighty berths. Now the China Overseas Ports Holding Company Limited (COPHCL) is working on project feasibility and design of the first expansion of the port so that they can build more berths in less area. The concession area granted to the Chinese is about 21 to 22 kilometers sea-front area. Another potential expansion area of 29 kilometers lies outside this concession area. The master plan recommends building multipurpose, container, dry and liquid cargo terminals and handling facilities around this area. This is a comprehensive and massive port development project.
BRR: Why do we not see operational activity at the port?
Jamaldini: Technically speaking, the current multipurpose terminal is operational with ability to handle container, break-bulk and loose dry bulk cargo, as well as vehicular shipment through its Roll-on/Roll-off facility. However, there are some issues that need to be addressed before the port can become fully operational in commercial sense.
Connectivity is one issue. The development of the Eastbay Expressway is absolutely critical to port operations. Currently a 50,000-60,000 tons cargo from a single urea ship fills up the whole city with some 3,500 trucks, which take about ten days to leave the city. The port cannot become operational in a situation where roads are not developed and there is no railway line. Then there is the utilities situation, where electric supply is not adequate and required amount of water is not available. Also, production and consumption base is absent in its immediate hinterland area, though we have already started creating a base for industrial production and consumption within Gwadar port via Gwadar Port Free Zone.
BRR: Were there any specific timelines for development of connectivity and utilities for port's use?
Jamaldini: Yes, with coming up of China Pakistan Economic Corridor (CPEC), we have agreed on timelines on implementation of different projects of Early Harvest Phase (which is the pre-short term phase of CPEC). Since CPEC is a bilateral project; there are some procedural delays on both sides. The Eastbay Expressway was approved in 2015 and it was supposed to complete in 30 months, but the project has not started yet. It is a similar situation with the new airport project, which has a 36 month timeline. Also with water and power supplies it is the same situation and the Chinese have been asking us to fast-track utilities for port development. The coal-fired 300MW power plant, which we have been urging the Ministry of Water and Power to start on a war footing since 2015, is still on paper. The Pakistan-China Vocational Training Institution (PCVTI) project was supposed to complete in two years, but it is still in a project-finance feasibility-study stage by the Chinese side.
Some progress is happening though. The government had approved the handover of land for the Free Zone project back in 2014. The Chinese were initially hesitant to take over the land because doing so would have started their lease period without connectivity and utilities in place. I convinced them to do so and now the project is under construction within its pilot phase area. Previously, the top concern of Chinese port operator, and other investors in Gwadar used to be security. But now Gwadar is peaceful. Thanks to the government and the army, a special security division has been raised and immediately its first brigade was moved to Gwadar during early 2016. At our insistence, the work on N85 and M8 was completed in record time by NHA and FWO. At our insistence, the Government of Balochistan has also started work on two dams and completed them - Shadi Kaur and Sawar Kaur dams.
But things need to go at a faster pace on utilities. With the 10-12 MW that we receive from the grid, we cannot run the port and the planned industries in Gwadar. One option was to import 100MW from Iran, but due to financial sanctions on Iran, that proposal is still on paper. The already existing transmission network can transmit another 30MW from Iran, and in fact, negotiations have just concluded on that proposal, but due to growing population in bordering areas, very little of the additional 30MW will reach Gwadar. The Chinese government instructed one of its state-owned companies to start the coal-fired power project on IPP basis and the honourable Prime Minister has directed the relevant authorities to complete the formalities so that the work is started before March 31, 2017. The project will take up to three years.
As for water, the two million gallon per day desalination plant, funded by the Federal Government and implemented by the Balochistan Government with almost one billion rupees, is no more operational due to a technical fault. We have asked the provincial government to rehabilitate the plant. For the new city, Gwadar Development Authority (GDA) has proposed and China has agreed under CPEC a complete water management project, which will have connectivity with the dams, have a five million gallon per day desalination plant, install a distribution system for the city, and make provisions for rainwater, water treatment, and sewerage. The project, which has three phases, will meet requirements for the medium term. Connectivity with dams will be overseen by GDA under local funding. The Chinese component will oversee the desalination plant, water distribution and water treatment within the city.
BRR: So essentially, port operations are dependent on water, power, and transport connectivity.
Gwadar Port is a massive Greenfield project within a Greenfield city. The previous port development project had built a 4.5MW power project, which is functional and runs on expensive furnace oil. It also installed 100,000 gallons per day desalination plant, which is also functional. These two inputs are sufficient for the current port capacity, but for port expansion and Free Zone development, the port needs much more water and electricity. The whole concept of a functioning Gwadar Port will not materialize until you address these basic issues.
BRR: What is the root-cause behind these many delays?
Jamaldini: The basic reason, I will again stress, is the Greenfield nature of Gwadar. When they tried to build a deep-sea port in Karachi, they did it within an established port, which was located in a mega city where there was no shortage of labour, contractors, equipment, water and power supplies. And how long did it take for that port to come online? Well, that deep-sea port still hasn't come online. Pakistan's development planning has never really focused on maritime sector development. Focus has been on building roads, agriculture, and agro-based industries, as a result of which institutional and human capacity for maritime sector has lagged other sectors and this lacking is clearly exhibited in case of implementing mega Gwadar Project.
BRR: What is the outlook on those three inputs in 2017?
Jamaldini: We, the CPEC team, had thought that 2016 would be the year when things would move faster vis-à-vis Gwadar Port and Gwadar City. But that didn't happen. We need to keep in mind that CPEC is basically for trade and industrialisation - the port and the roads infrastructure is only there to facilitate. Pakistan's biggest economic bottleneck is energy right now. We saw that CPEC-related energy projects took off in 2015, and by 2018 Pakistan might have up to 7000-8000MW additional power in the system. We believe that energy projects have been getting the necessary attention, and perhaps 2017 would see more attention directed towards other projects.
We also need to understand that overland connectivity is essential for the functioning of the Gwadar Port. Road connectivity is seeing progress under CPEC. Gwadar needs land connectivity not only to Xinjiang but also to Iran, Afghanistan, and the Central Asia Republics (CARs). We are hoping that work on the Eastbay Expressway will start at the latest by March and on the new Airport by April. Under CPEC, we have agreed to start South-North connectivity by constructing Gwadar-Panjgur-Mashkail-Nokundi highway so that to connect Gwadar Port with the mineral-rich Chagai district in the short-term and later linking it with CARs through Afghanistan in mid-to-long term.
By using the water and power supplies available within the port, we have convinced the Chinese to start the next phase in the Free Zone area so that the businesses' applications can be processed this year and work on building a small industrial base can commence from May this year.
BRR: Do you think that Nespak had the adequate technical and human capabilities to conduct the city's master plan back then? Also, is the port's 2007 master plan still relevant?
Jamaldini: No, Nespak did not have the capacity when it worked on the City master plan back in early 2000s, although it prepared a dependable city development framework. But the 2007 Gwadar Port master plan is still relevant, as it is part of Gwadar Port Concession Agreement. In fact, the first phase of the master plan, which should have been implemented by now, we had started implementing it from 2014 by developing the things that are immediately allied to the port. These include setting up a small industrial setup, resolving immediate connectivity issues, providing water and electricity, and enhancing security. In short, Eastbay Expressway and Free Zone: these are the two priorities, which will help create activity on the port.
BRR: You must get this question a lot: will the port activities use local labour?
Jamaldini: The question is: do we have the locals who can fully participate in this development with adequate skills required? Definitely not! Lest another problem drags progress on the port, it is better to pursue local skill development side by side. During our first meeting of CPEC in December 2013, I proposed the PCVTI, the Federal Minister for Planning seconded it, and the Chinese promptly agreed. Even now, it is two years late, but a state-of-the-art technical training institute, which will impart training on port operations and free zone activities, is in progress. We seriously need skilled people.
Land prices have increased a lot in Gwadar. Thanks to that, locals have money but they don't have port-related skills yet or the skills to go towards entrepreneurship. Now these people, who had no exposure to professional skills and used to live in katcha houses, have money and they are spending that acquired money outside Gwadar, not circulating it in the Gwadar economy so that the local-based economic transformation process starts fully-owned by the local residents. It is unfortunate that both capital and entrepreneurship in Gwadar is from outside. By default, and by our fault, the problems of water and power and roads yet remain unresolved. Had they been resolved, Gwadar manpower would have been in a different place as port would have been operational by now.
BRR: Let's now turn towards the bilateral understanding. Please tell us about the timelines and responsibilities in the concession agreement between the GPA and the port operator, COPHCL.
Jamaldini: It is a BOT model of concession. In the concession agreement, there are many requirements on the operator. There is a forty year business plan which has all the targets. We review those targets after every year for terminal business, marine services, and free zone businesses. From year zero to forty years, there are targets for every year such as throughput and berth length. Right now we have a 602 meters berth length at the port - 200 meters will be used for general cargo and 400 meters for container cargo. The plan also details increase in berth length, deepening of the ship navigation and berthing areas over time by COPHCL.
BRR: What are GPA's main responsibilities in the agreement?
Jamaldini: The port's master plan called for a 'landlord model', which basically means engaging a private operator and provide the necessary land for port development and expansion. We have completely handed over the existing port infrastructure to the operator, and for further expansion, we have acquired the land for them. We have also got them a forty-year tax exemption because they are going to bring in all the investment for operating and expanding the port infrastructure.
The other responsibility that we have is to clear and light up the navigation channel via navigation aids and maintenance dredging. During port expansion, capital dredging and breakwater, wherever required, will be done by GPA. Whereas tasks like building the jetties, installing cranes and mechanised equipment and undergoing civil construction, all of that is Kohl's responsibility. When they will do marketing and business development, GPA will assist them via government support. In the end, more than 85 percent of the capital investment will be done by COPHCL. Besides, they will also be responsible for all port-related maintenance.
BRR: How will the revenue sharing work out?
Jamaldini: Revenue sharing mechanism derives from the business model, which is based on capital investments made by operator. One extreme is where a port authority only provides a super-structure to the operator, who only runs the port and doesn't need to do large capital investment. The other extreme is where the port authority only provides land to the operator, who undertakes port development and expansion and then runs the operations. So, revenue sharing differs accordingly.
We are following the latter model: complete development of a Greenfield port on BOT basis. The master plan calls for a 12.5 km long container terminal, another 5.5 km long container terminal, and 4.8 km multipurpose berth. That's about 23 km long stretch full of berths, translating into about 76 berths of 300 meters each. One jetty requires at least US $200 million to build, so we are talking about a potential capital investment of some $15 billion over forty years.
Our revenue sharing mechanism agrees that the GPA would receive a 9 percent share in gross revenues from port operations: terminal services and marine services. The GPA will also have a 15 percent share in gross revenues from the Free Zone. These percentages are fixed for the forty years. By the way, this is the same concession agreement that Pakistan entered into with the Port of Singapore Authority in 2007.
BRR: What are the GPA's main responsibilities vis-à-vis the Free Zone?
Jamaldini: Our main responsibility there is to provide land for the Free Zone. We procured the 2,283 acres land for about Rs6.5 billion - its current market value is Rs32-33 billion, so it benefits us in the long run because the land has been leased, not sold, to COPHCL under a BOT mechanism. We are also responsible for bringing water lines and power transmission up to the boundaries of the Free Zone. That's it. The rest, including demarcation, internal development & construction, roads, etc is COPHCL's responsibility.
COPHCL, which is the developer and operator, has registered three companies with the SECP - one each for terminal business, marine business, and the Free Zone. As mentioned earlier, the GPA is entitled to 15 percent of the gross revenues of the Gwadar Free Zone Company Limited (GFZC). Here, 'gross revenue' means all the revenue and fees the GFZC will collect from the companies inside its tax-free premises, including rent, utilities, etc. The Free Zone development, spanned over 10 square kilometers, will cost COPHCL about $4 billion.
BRR: Are there provisions in the concession agreement for audit of COPHCL accounts?
Jamaldini: One clause is really clear in the agreement. To maintain transparency, the GPA can ask them for financial details and documents any time.
BRR: Will there be regular audits?
Jamaldini: No, it is not a practice. Greenfield projects have their own compulsions. And you have to encourage the investor. However, they have to follow the corporate governance policies and practices as per the SECP laws and regulations.
BRR: Do you have information on what kind of clusters will be there in the Free Zone? And are locals aware of such clusters so they can ready themselves for the future?
Jamaldini: The Free Zone will house industries that support productivity/throughput of the port. It will have re-export industry and logistic businesses zone. Overall, we have agreed on four areas for the Free Zone: trade, services, manufacturing units, and logistics. On their own, the logistics business - which involves warehousing, container break bulking, stuffing & de-stuffing, etc - and the value-adding industries such as processing - fruits, meat, gemstones, etc - and component & product assembly plants will create activity.
We currently have a growing list of forty types of businesses that can be done inside the Free Zone. We also have a negative list of items such as explosives, arms and ammunitions, drugs, and pollutant industries. Heavy industry will not be based at the port Free Zone premises but moved to the non-concession area of Gwadar Port. There, it will have an oil terminal, dirty bulk cargo, LNG terminal, steel mill, etc.
China's Bao steel group is negotiating with the Balochistan government for their steel plant and they will build their own iron ore jetty. Similarly, the provincial and the federal governments have a plan to develop a huge Oil City at eastern-most area of Gwadar about 70-80 km from the existing town. Some Chinese investors have shared their plan with Balochistan Government to establish a petro-chemical industrial complex in Gwadar Oil City.
BRR: What types of businesses have shown interest in applying for space in the Free Zone?
Jamaldini: In the initial phase, there will be a steel pipe plant, a fish processing area, a gemstone processing facility, and two exhibition centers. We are planning to hold Gwadar Expo from 2018 onwards at the Free Zone every year. We also have a proposal to make a China-Pakistan Product Display Center, which can exhibit Chinese products here for businessmen who cannot visit China but order from here. So this will be a model Free Zone where there will be manufacturing, processing, display, and warehousing, everything. In the main (northern) area of the Free Zone, these pilot undertakings will be in a mass scale. We expect around 400 companies to be registered in Gwadar Port Free Zone. Our Free Zone is open for Pakistani, Chinese, and other investors.
We are at an MOU stage with many Chinese and Pakistani firms. Foton Automobiles is interested. Then there are electronic and household appliance makers. We are also negotiating with a stainless-steel maker. Also, we are talking to agro-business firms. After the Free Zone business plan is finalised by GFZC, things will move forward.
BRR: The port is going to need the city. Does the existing Gwadar City master plan adequately meet the Port's master plan?
Jamaldini: The Gwadar City master plan will be upgraded under CPEC, through a grant, with a twelve month timeline. GDA, our sister organisation, will work with a Chinese firm so that the city master plan can be improved and up-scaled in a way that it can meet the future requirements of Gwadar Smart Port City .
BRR: How long will it be before Gwadar Port becomes operational?
Jamaldini: Gwadar port is modelled on Busan, South Korea and Shenzhen, China. Just as Shenzhen, there will be a port and there will be port-related commerce & industry and port-related city development. The Chinese tell us that it took them ten years to make the Shenzhen Port operational and thirty years to make the port city fully developed. They foresee that Gwadar port could be operationalised in five years and achieve the Shenzhen-level city and port development within ten to fifteen years provided that the basic infrastructure is in place and there is a strong and consistent investment policy for Gwadar.
BRR: There are too many departments dealing with CPEC. Do you think there is a need for a centralised task force to expedite things?
Jamaldini: I will speak for Gwadar. After Islamabad, Gwadar is only the second city Pakistan will ever build anew. Any investor coming here has to go to dozens of authorities for different licenses and registrations. In China, the mayor is leading the economic development within a new city, which gets treatment of a special region. We need de-centralised centralisation - that is, devolve powers to the mayor but make the mayor powerful. My personal view is that Gwadar should be a provincial autonomous region.
BRR: Are there any misconceptions out there about Gwadar Port that you may want to clarify?
Jamaldini: This perception that the Gwadar Free Zone is only for the Chinese investors is wrong. Pakistani investors should come and they will be encouraged. We even have expatriate Pakistanis showing interest in this area.
We will welcome everyone. Another misperception is that the Gwadar Port is becoming a naval base. Let me, as Gwadar Port Chairman, strongly underline that this port is a pure commercial area. Every port in the world receives naval ships for bunkering, for services, for repairs, etc - that's something else.
This is our business to serve ships and make money for the port. Gwadar is open for business and whoever wants to use the port services will be welcome to dock here.
Copyright Business Recorder, 2017
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