In an attempt in counter India’s investments in Chabahar, Pakistan has signed a concession agreement with China for developing Gwadar Port in the Arabian Sea. Gwadar Port is an essential key to China Pakistan Economic Corridor (CPEC). In order to save time and logistics costs for import from Arab and European nations, Pakistan mulled China to build ports and chain of expressway cutting the mighty Himalayas to Kashgar Province in Western China. Looking at the proposal, China offered a $57 billion loan to Pakistan at the rate of 8% (4% LIBOR + 2% interest rate + 2% Security risk) wooing a chain of investments in developing the port, highways and coal-based electricity plants.
China took over work at Gwadar in 2013 after Singapore’s PSA International pulled out of a 40-year agreement to develop the port because of security concerns and problems making the project a commercial success. A key issue commercially was the failure of the Pakistan Navy to transfer land to the Singaporean company for the development of a planned 584 hectare (1,443 acres) free trade zone seen as essential to the commercial success of the overall project.
Maritime and diplomatic analysts cautioned the signing of the concessional loan on the fear of Pakistan’s inability to pay-back. Pakistan’s internal policies have failed in reducing Islamic terrorism. Masterminds of 26/11, 9/11 and major terrorist attack openly roam here, making a safe house for world’s most wanted terrorists. But, China’s payback terms could be a reiteration of East India Company. Pakistan’s Federal Minister for Maritime Affairs Mir Hasil Bizenjo informed the Senate that 91 percent of the Gwadar Port’s income would go to China while the Gwadar Port Authority would get 9 percent of the income for the next 40 years, reports Dawn. The revelation came after several senators expressed concern that the agreement was heavily tilted in favour of China. The port is being built on a build-operate-transfer (BOT) basis with a concession period of 40 years.
China and Pakistan relations go deep as the Islamic state has been the first to authorise the nationhood of the People’s Republic of China. Today, the Chinese have a majority share in Karachi Stock Exchange. Pakistan Telecom (Zong), the major player in internet services have been acquired by China Mobile. To woo the Chinese, some schools in Pakistan have also started teaching Mandarin. Under the CPEC deal, Pakistan’s ports, roads, electricity generation plants will be built by the Chinese company and Chinese labourers.
China Overseas Port Holding Company (COPHC) has 91 percent share of revenue collection from gross revenue of terminal and marine operations and 85 percent share of gross revenue from free zone operation. Gwadar Port cranes are also being built by the Chinese giant ZPMC. Last year, Pakistan welcomed the first large shipment of Chinese goods at Gwadar, where the China Overseas Ports Holding Company Ltd took over operations in 2013. It plans to eventually handle 300 million to 400 million tonnes of cargo a year. It also aims to develop seafood processing plants in a nearby free trade zone sprawled over 923 hectares.
Despite the huge investments, only two Chinese ships have arrived at Gwadar Port as per MarineTraffic. To payback high loans, Gwadar would have to be the best operating port in Pakistan in the Arabian Sea, which is dominated by Kandla, Mundra and newly built Chabahar Port. Pakistan’s deal with China is clearly tilted to benefit China for 40 years, only if the ships arrive at the newly constructed port.
Under the original development master plan, Gwadar was to handle about 110 million tonnes of cargo in 2017, but it is nowhere near achieving that figure. Just one major shipping company, Cosco Shipping, currently serves the port, mostly carrying construction materials for the China Pakistan Economic Corridor, or CPEC, a set of infrastructure projects costing $44.5 billion and the highest profile undertaking of China’s Belt and Road program. Another key challenge would be the security of Gwadar port which falls under Baluchistan which is affected by rebels and ISIS-linked hard-liners. Pakistan will also deploy 10,000 security personnel for port and safe road transportation. Initially, it feels like Pakistan’s ship has sailed into troubled waters.