CPEC – Maritime Opportunities for Pakistan

 

CPEC has been variously referred to as an earth-shattering development and as a game changer. It is that of course, though it may be worth noting that far more important than conceiving and executing a project is the ability to make it work. CPEC after all is all about connectivity, a connection that is as strong as the weakest link in the chain. So not only is it vital for all the connecting links to be equally vibrant so as to afford mutual support, but that the unified whole should be able to better the lives of all those who come in contact with it in one way or another.

‘The journey of a thousand miles’, goes an ancient Chinese proverb, ‘begins with a single step’. The first step was taken way back in December 2005 when the first phase of Gwadar port was completed. The second step however took a long time in coming. Ever since the management of the port was handed over to China Overseas Port Holding Company in February 2013 and China announced a huge multi-billion dollar investment in CPEC as part of its One Belt One Road initiative, the overall pace has considerably quickened. One can now discern a master plan in play, with its phase-wise execution designed to knit the various components together in a bid to deliver short, medium and long term benefits as and when each phase kicks in.

Pakistan’s history, and indeed its geography, has always been defined and perhaps complemented by the mighty Indus and its tributaries, which spawned the ancient civilizations of Mohenjodaro, Harappa and Taxila. Even at present, all major centres of population  as well as those related to industrial and agricultural productivity are concentrated along its banks. CPECs immediate focus is understandably to strengthen the existing edifice to enable the low-hanging fruit to be plucked first. It is heartening to see that all aspects related to the project are being given attention, which include strengthening of the current road and rail network, as well as the availability of water, gas and electricity at the proposed industrial zones along the way.

Almost everywhere else in the world, major centres of population and productivity are all located close to the coast. Pakistan appears to be a rare exception as the major portion of its coastline, which lies to the west of Karachi, is sparsely populated and pristine. It is a challenge inasmuch as developing anything from scratch invariably is. It also yields an opportunity because of the chance it affords to keep sustainability and environmental concerns in mind while making it happen. We in Pakistan are so used to treating the land and sea as completely different entities, with the coastline forming a sharp divide between the two, that we have failed to notice that the rest of the world has moved on to accord the entire coastal zone a special status as a space where both terrestrial and oceanic processes are at work, by virtue of which the concept of Integrated Coastal Zone Management has crept in. Since competing activities are vying for the same space, the idea is to channelize the synergy of the stakeholders into formulating a consolidated ICZM plan prior execution. A monitoring and evaluation program also needs to be in place for oversight of ICZM processes aimed at providing a semblance of balance to environmental, economic, social, cultural and recreational objectives, keeping the broader theme of sustainability perpetually in mind.

Pakistan’s coastal development prior to the construction of the port of Gwadar was largely navy-driven. Pakistan naval ships and personnel were a familiar sight in the 1970s, particularly after an HF Direction Finding station was set up in Jiwani. This was followed up by coastal radar stations at Cape Monze and on the Ormara hammerhead as well as a naval base on the southeastern edge of the Gwadar ridge linking up with a jetty down below. Ormara’s fortunes changed for the better after it was selected as a suitable site for a secondary naval port. Since then, PN has set up a full-fledged hospital, a cadet college and some schools, both in and around the naval base, for the benefit of both the base personnel as well as the locals. A fish harbour had also been constructed at Pasni for storage and export of fish from Baluchistan, though the project never really took off. A secondary naval air station is also functioning at Pasni. Gwadar is now the jewel in the crown and its ascent would definitely have a positive impact on the development of the rest of the coast.

To say that Gwadar has really blossomed would be an understatement, particularly for those who had seen it in the days when it was simply a desolate backwater, with fishing the central theme around which its entire way of life revolved. Fresh water was scarce, with wells being dug up on the beach and then resealed. I used to be a regular visitor to Gwadar during early 1973 onboard a naval minesweeper, when apart from the stench of decaying fish, heat, dust and despondency hung in the air. But every time I visited it thereafter onboard various naval vessels for up to a fortnight at a time(right upto 2004), a distinct improvement was visible each time. This change was partially guided by the upward mobility of the local youths who were gainfully employed in the Sultanate of Oman, and whose lot improved as Oman’s economic index rose. The other factors were the permanent basing of naval and coast guard units, barter trade in fish and improved connectivity with Karachi via air, boat and bus.

Inauguration ceremonies of Gwadar port had become routine in the 1990s, but the one in 2002 created an immediate impact as it was actually followed up by construction work undertaken by a Chinese company. After the completion of Phase 1 by December 2005, there was an unduly long period of stagnation till port management was transferred in 2013 from the Port of Singapore Authority to China Overseas Port Holdings Company(COPHC).

The last two ceremonies held at Gwadar, the first in March 2007 and the other on 20 Nov 2016 were for the sole purpose of proving a point, a sort of a technology demonstrator. The first was meant to show to the world that Gwadar was open for business. The second one, held presumably at the urging of FWO, was intended to showcase a capability, that capability being the viability of the western trade route to Gwadar. But the question which still goes a-begging is when exactly will they convert into economically viable propositions.

But before I go to the heart of the matter, namely the maritime economic opportunities that CPEC represents, permit me to review the existing situation. As things stand today, the ports of Karachi and Bin Qasim can easily meet Pakistan’s entire trade requirements and possess enough surplus capacity to even handle China’s short to medium term transit trade needs just as they were earlier handling NATO and Afghan transit requirements. These ports are moreover linked right upto Peshawar through an adequate road and rail network. The north-south motorway is expected to be completed by 2019, with an upgraded rail line from the dry port at Havelian to follow in a further few years. So it is a safe bet to conclude that for the next ten years at least, China would find it more economically convenient to conduct its transit trade through the twin ports of Karachi and Bin Qasim. This also happens to be broadly the eastern route of the CP Economic Corridor.

I may add here that as far as inland transportation is concerned, whether it be via the eastern, central or western routes, rail happens to be the most cost-effective means. It is a pity though that following the Soviet invasion of December 1979 when our inland transportation needs rose with the influx of aid to the Afghan mujahideen, the state patronized the trucking sector in lieu of the Railways, which fell into decline. But now when the railroad from Karachi to Havelian is expected to be rejuvenated shortly, the eastern route would obviously be in line to become the route of choice till such time that Gwadar also becomes an integral part of the rail network.

So back to the multi-million dollar question about Gwadar’s prospects and its ability to weather the storms of the present and the future. Having already discussed the advantages which the ports of Karachi and bin Qasim possess, let us now turn to Gwadars’ strengths. Gwadar’s forte actually lies in its location, a stone throw away, figuratively speaking of course, from where the extensive shipping traffic exiting the Straits of Hormuz needs must pass. So firstly, that makes Gwadar, with its deep dredged channel and berths, an ideal transshipment hub. Since I see the term ‘transshipment’ being interchangeably used with what constitutes transit trade, allow me to settle the distinction. As opposed to transit trade, which constitutes inland transportation of goods through one’s own territory to another country or countries, transshipment pertains to onward distribution of containers to nearby ports through feeder vessels after being off-loaded at a central deepwater port. So Gwadar’s proximity to the international shipping lanes as well as the deepwater characteristics it is aspiring for, confers it with the right sort of credentials for a prospective maritime hub.

The competition it faces in this regard stems not from Chabahar as many seem to think but from the well-established ports of Sohar and Khorfakhan, both lying just across the Gulf of Oman and both enjoying a substantial head start. The transformation of these two ports into regional powerhouses came about because of brewing US-Iran tensions at the turn of the current century over the nuclear issue. Owing to persisting fears over the turmoil the Persian Gulf could possibly be subjected to, these two ports capitalized on their location on the eastern side of the Straits of Hormuz. Backed by the financial and economic clout of the UAE, Khorfakhan has surged far ahead of the pack as far as transshipment is concerned. Sohar, on the other hand, has modelled itself after Dubai’s Jebel Ali, by far the most successful and most efficient port in the region. Soon after its construction in 1979, Jebel Ali concurrently set up a large Free Trade Zone, which immediately attracted a large number of industries eager to market their wares in the ever expanding consumer market of the Gulf and even beyond. Sohar’s Free Trade Zone likewise has become a prime investment destination, and the ever increasing port calls have resulted in a number of shipping and logistics companies moving their offices there.

Gwadar also enjoys a similar advantage in that it has earmarked a large 1243 hectare tract as an Industrial Zone. Though many countries have expressed interest in investing there, Gwadar’s growth can only come about once Sohar-standard facilities, including foolproof security measures, are in place. While gas can easily be made available via the Friendship Pipeline from Iran or through the LNG terminal under construction, water scarcity is a grave issue that would need to be suitably addressed. And although the government has announced its intention of carrying out pre-feasibility of a 300kw coal-fired plant for electricity generation, Gwadar is ideally suitable for renewable resources of energy, being rich in the natural sources of wind and sun. The Alternative Energy Development Board is keen on expanding the renewable energy footprint from 3% to 15% by 2022, and Gwadar is as good a place as any to take the next step. The government is also according priority to the new international airport at Gwadar, which would make travelling easier. The bottom line however is that efforts for Gwadar’s ascendancy will continue to be stymied till all such elements are in place.

Gwadar is also ideally positioned for garnering the lion’s share of the Afghan transit trade. Pakistan would however have to strive hard to recapture the space it has recently ceded to Iran. For this to happen, better relations with Afghanistan, particularly in matters of trade, is a vital prerequisite. Afghanistan’s President is on record as having expressed his annoyance at the revised Afghanistan Pakistan Transit Trade Agreement of 2010 which allows Pakistan two-way access to all countries bordering Afghanistan but only permits one-way traffic of Afghan goods up to the Wagah border. To be fair, this agreement only came about because the earlier agreements of 1950 and 1965 did not include reciprocal rights for Pakistan but allowed the duty-free import of Afghan goods, a facility being obviously abused since the ‘bara’ markets of the country were found flooded with such goods. The upshot of all this is that Afghan importers, disillusioned by the high cost of doing business as well as the hurdles erected, have since been increasingly turning towards Iran’s Bandar Abbas, whose share of the transit trade has risen proportionally as Pakistan’s has plummeted.

Another significant advantage which Bandar Abbas enjoys is rail connectivity up to the Afghan border. A rail line is also being planned from Chabahar till the border checkpoint of Zaranj, from where it joins up with the East-West and North-South Road network within Afghanistan. Turkmenistan has already commenced building its portion of the rail link with Afghanistan while Uzbekistan is likely to follow suit. Once upgraded, Chabahar is expected to provide a more convenient transit trade route to Afghanistan.

For Pakistan, there is no escaping the fact that whereas Afghanistan provides the most convenient connection with the Central Asian States, a link-up between the rail network originating from Gwadar to the Iranian one emanating from Chabahar would provide easy connectivity to Iraq, Syria, Turkey and even beyond to Europe. A mutual accommodation with both countries is thus vital if Pakistan’s inland aspirations are to take shape. It needs to be understood that facilitating transit trade is not just about collecting transit fees, but about reciprocity, about fostering relations, and about generating employment opportunities for a number of people involved in the process, from the drivers, helpers and maintenance staff to the wayside hotels catering to their boarding and lodging.

Some positive steps have indeed been initiated recently like the introduction of Electronic Data Interchanges(EDI) which helps reduce the cost of cargo processing, and minimizing the scanning requirement of Afghan cargo to reduce delays. Another hopeful sign is Pakistan’s recent accession to the Customs Convention on the International Transport of Goods, also known as the TIR Convention. Joining this convention permits designated vehicles of a member country carrying an internationally accepted customs document called a TIR Carnet to pass through international borders without being checked. All other ECO countries had submitted their instruments of accession much earlier, with Iran having ratified it way back in 1984.

As mentioned earlier, the most cost-effective means of inland transportation is through rail. It thus follows that in order to recapture Pakistan’s lost share of Afghan transit trade, a railway line upto the Afghan border at Chaman is essential; the same can later be extended under the right conditions through Kandahar and Mazar Sharif to Termez, which lies at the confluence of Uzbekistan, Tajikistan and Turkmenistan. A shorter track due west from Gwadar can enable a link-up with the Iranian rail network emanating from Chabahar. These two lines will permit rail connectivity with CAS and Turkey.

Before this can happen, however, another hurdle would need to be circumvented. The Pakistan rail network works on broad gauge, while regional countries like Iran, Turkey and CAS rely on standard gauge. It thus stands to reason that the proposed rail tracks from Gwadar to Chaman or to Chabahar should preferably be of standard gauge so that it blends in seamlessly with the Iranian and CAS network, and even the Afghan network of the future.

Now reverting to an earlier argument, the main reason the seaport of Gwadar was supported by China was because of its suitability to act as a focal point for the transit trade needs of China’s western region. But as mentioned earlier, Gwadar can only compete with the likes of Karachi and Bin Qasim if a rail line is constructed along the central route upto Sukkur, from where it can link up with the existing North-South network.

Contrary to the general prevailing perception, ports are not simply meant for handling cargo; they have now become multi-functional settlements. Gwadar’s success thus depends on not only having a productivity advantage in cargo handling, but also in the number of value-added services that it can offer. While Gwadar has earmarked a large tract of adjacent land as an industrial zone, it may be advantageous for the port to act as a logistics centre which, apart from providing storage, gels the industrial and logistics activities together in an effective manner, since a logistics centre can attract cargo that can be shipped through the port.

Setting up of a shipyard at Gwadar is believed to be already under consideration. This would be a good step, though we mustn’t remain unmindful of the fact that  overcapacity in the shipping sector has recently caused even the Big Three South Korean shipyards to wobble. We can only hope that the global outlook improves by the time the yard is made functional. It may be mentioned that this yard would be competing with Karachi Shipyard for the same naval and Maritime Security Agency orders, on which the latter is wholly dependent. A key marker would be whether the Ministry of Defence Production chooses to pamper the yard which comes under it or favour the one that is most competitive.The outside market for ship repairs and construction is more important, for which the proposed shipyard has to prove itself by being regionally competitive. The biggest advantage of having a shipyard at Gwadar is that it would enable downstream industries to flourish. A steel mill would be direly needed for furnishing the basic raw materials for the trade.

As maritime businesses multiply and activities at the broader Gwadar port area flourish, it is but natural for maritime clusters to crop up, which should be actively encouraged by the government as well as the port management. Clusters create knowledge spillovers, labour market pooling and a competitive spirit, which in turn leads to innovation, which is the principal driver of economic growth. European clusters are technologically complex, so a good example to follow would be that of Dubai which looks at the enhancement of maritime clusters through the prism of marine insurance, finance, ship brokerage, ship classification, ship registration, ship cruises, marine activities, maritime safety and marine equipment supply.

For all this to happen, however, the need for capacity building, both at the functional and decision making levels, can hardly be overstressed. While the initial batch of trainers can be trained at foreign maritime universities and technical institutes, the requirement for setting up a National Maritime University can no longer be ignored. This maritime university can also develop linkages with the World Maritime University at Malmo, or the one next door at Chabahar or even with many others in China and Turkey.

To my mind however, CPECs biggest contribution lies in opening up the country’s impoverished western tract, which has been bereft of any development so far. The key to generating any meaningful impact is again Gwadar, which not only acts as a land-sea interface but also as the most vital and most vibrant component of the entire logistics chain. This momentum needs to be sustained to allow small townships along the way to prosper. CPEC does indeed open up a host of economic opportunities for Pakistan, but it is up to us how much or how little we choose to partake. Our biggest benefactor may well turn out to be our own competence.

 

Note: This forms the script of a talk delivered on 13 December 2016 during the International Maritime Conference on ‘CPEC & Gwadar Port’  held at Gwadar.

 

 

 

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