Ports play an integral role in the economy of any nation. Pakistan is blessed with a coastline that stretches 1,046 kms with the Karachi Port being the largest port in the country. Karachi Port Trust (KPT) claims to have handled a record 50.05 million tons of cargo during fiscal 2015-16 up 15.25% from 43.42 million tons in 2014-15.With KPT handling over 70% by value and over 60% by weight of all sea borne trade in Pakistan, shipping lines and trade bodies continue to question the efficiency and cost of this handling. At purchasing power parity, the period during 2015 and 2016 has globally witnessed some of the lowest shipment charges in history. However, cargo handling at Karachi arguably remains one of the most expensive in the South Asia region.
The early 1980s witnessed a new trend in the global ports sector with major ports migrating towards the landlord port concept to improve cargo handling and rationalisation of pass on costs. Over the period, major ports have either outsourced cargo handling to terminals specialising in such handling or have outright sold port infrastructure to private entrepreneurs specialising in the handling of large volumes of specific class of goods owned both by themselves and by others. Ports authorities in Pakistan unfortunately have yet to awaken to the logic and benefit behind these concept resulting in by far some of the highest levels of inefficiency, pilferage, damage, loss of opportunity and costs in the region.
The Karachi Port Trust (KPT) in 2007 embarked on a venture to building the Pakistan Deep Water Container Port (PDWCP). The project was envisioned to have berths specifically designed to handle the largest container vessels afloat in the world and to have yard operations using the latest equipment, processes and technology available anywhere in the world. All of this would have been a very first in the region.
In 2007, Hong Kong-based Hutchison Port Holdings (HPH) and KPT signed an agreement to construct the first phase of PDWCP at Keamari in Karachi. The terminal was to originally commence operations in 2010 after a three-year construction period. Under the agreement KPT was responsible for providing the infrastructure whereas HPH as the terminal operator would building the yard and equip the terminal with the latest technology.
This terminal was planned to relieve insistent congestion witnessed at KPT. Both container ships and their containerised cargos were suffering delays due to congestion. Vessels had to wait at the outer anchorage while berths at which they could come alongside became available. The large number of small ships calling at the port in Karachi strained its vintage infrastructure. Large ships that offer economies of scale could not call at the port due to the inherent limitations of crumbling berths, shallow navigation channel, small turning circles, small cargo handling cranes, redundant processes and incapable port staff.
Containers once off-loaded from vessels had to sit at the port for days awaiting customs backlogs and limitations of yard space and long gate procedures. The customs clearing process, by and large, left a lot to be desired and scrupulous officers regularly bringing a bad name to the organisation. The landside handling was plagued with cargo losses due to damage and pilferage.
These and other inefficiencies result in the high cost of shipments, both imports and exports. This in turn generally increases the cost of doing business in the country thus enticing businesses, both big and small, to dodge the taxation system and to compromise on quality of products and to ignore environmental considerations. Individual business and their respective trade organisations have regularly questioned why ports in Pakistan continue to remain expensive while the global trend has been for reductions in costs incurred at ports.
The PDWCP, was planned to fill the gap at the port of Karachi resulting from use of old infrastructure and processes. The project would have resolved the limitations issues by providing containerised vessels shortest steaming times to berths capable of handling the largest containerised vessels. The berths were planned to be equipped with the largest and most technologically advanced cranes. The yard was to have the latest systems and processes and most efficient customs procedures akin to those at global modern terminals.
Shipping lines willing to upgrade their vessel size to large panamax and post-panamax sized vessels could enjoy economies of scale offered by these large ships. To put things into perspective, the total container handling capacity in Pakistan before the first phase of the PDWCP was about 2.5 million TEUs per annum while terminals handled in excess of 2.8 million TEUs in 2015. The handling over designed capacity have heavily constrained terminals doing more long term harm than good. Current terminals are also constrained to handle vessels over 8,000 TEUs whereas the average is in the region of vessels sized about 3,500 TEUs. The first phase of the PDWCP was designed to handle the Triple-E class of container ships, the largest afloat anywhere in the world today.
While embarking on building the first phase of the PDWCP, KPT has been wounded by numerous obstacles, most of which are said to be self-inflicted. In the view of many, KPT has bitten off way more than it can chew, PDWCP project being the largest persistent delays in providing the facilities in KPT's 100 year plus history. Delays in providing infrastructure to the operator has left the terminal project in a sorry state and unable to commence operations even after almost 10 years from the signing of the agreement in 2007.
With more than a year having passed since the terminal operator imported major equipment in 2015 the start of operations is nowhere in sight. KPT has yet to commence dredging of the navigation channel and Customs have yet to notify the terminal as a landing place for loading and unloading of containers from ships at the terminal. Sources within the shipping sector have confirmed that the operator has completed its obligations in advance of KPT's long delayed works and awaits the notification from Customs and KPT's dredging.
KPT has invested over $800 million in the project with HPH investing over $600 million. Despite the huge investment into this project and even after a lapse of over nine years since the signing of the agreement, the local economy remains deprived of the benefit that should have started to accrue from the project that currently is said to providing employment to over 350 employees and when fully operational this number is expected to increase to over 1500 direct employees.
The sources within the shipping sector confirm that since August this year the operator is ready to start operations of the first phase of the project and has had to cancel commencement of operations at least three times due to delays from KPT and Customs. It remains to be seen if the Ministry of Ports and Shipping is able to take stock of the situation and whether it can play a role in getting the project on track and operational.
This project was seen to be positioned to facilitate CPEC by way of efficiently handing the imports required by projects within CPEC. PDWCP itself not being a part of CPEC would be instrumental in the success of Gwadar during the initial years when PDWCP could act as a hub port for Gwadar and handle the feeder trade to Gwadar port.
Delays to the PDWCP project need to be investigated as these will have a follow-on effect for the Pakistani economy as a whole. The benefits from such a major project of national importance should have started to accrue to the economy way back in 2011. It would be extremely difficult to estimate the quantum of losses inflicted to the economy by these delays however, a conservative estimate of the loss suffered by KPT alone as a result of delays to the project exceeds $150 million due to the loss of rent, royalty and port dues. Somewhere in the corridors of power, this question needs to be taken up and addressed towards an attempt to set right a project of strategic national importance.
Foreign and national ship owners and lines are riled over increase in port tariff. It is virtually doubled after lifting cap on gross tonnage of ships. My humble recommendation that KPT may revert to its existing tariff, as hike has made it very expensive in the region being bench marked to Colombo and JNPT, India.
(The writer is an advisor to the Karachi Chamber of Commerce and Industry. The views expressed in this article may not be necessarily those of the newspaper)