25-year KPT lease to UAE approved
design: mohsin alam
Pakistan approved on Thursday the lease of Karachi Port Terminals (KPT) on East Wharf to the United Arab Emirates (UAE) for a period of 25 years, marking a significant step in deepening economic relations between the two countries in recent years.
“The Cabinet Committee on Intergovernmental Commercial Transactions (CCoIGCT), after detailed discussions and comparative evaluation of the terms of references, recommended the commercial agreement for approval by the federal cabinet,” according to the finance ministry.
Chaired by Finance Minister Ishaq Dar, the cabinet committee meeting began on Wednesday evening and continued until Thursday morning to finalise the commercial agreement.
Under the deal, the Abu Dhabi Ports Company (ADPC) will have all the rights for 25 years, with the option to extend for an additional 25 years.
Subsequently, the KPT and ADP signed a concession agreement for the operations, maintenance, investment, and development of berths 6 to 9 on the East Wharf of the Karachi Port.
Pakistan’s Minister for Maritime Affairs, Faisal Subzwari said, “The signing of this agreement underscores the shared vision of our nations for the development of port infrastructure and paves the way for a prosperous global maritime ecosystem.”
The finance ministry stated that the negotiation committee, constituted by CCoIGCT, held meetings on June 19th, 20th, and 21st, 2023, under the chairmanship of the Maritime Affairs minister, to negotiate the commercial agreement to acquire the operation, maintenance, and development rights of the container terminal by AD Ports UAE.
Pakistan will receive an upfront price of $50 million for the fixed equipment and infrastructure, compared to the initial offer of $40 million three days ago. Additionally, the UAE firm will invest $102 million over the next five years, according to the documents. The UAE company will pay a cross-berth royalty fee of $18, which is only $2 higher than the fee paid by the Philippine-based company that had been operating these terminals since 2002.
Pakistan will also receive approximately Rs1,100 per square meter in annual rent, which is only Rs7 higher than the price paid by the outgoing contractors.
The Ministry of Maritime Affairs had proposed charging this rent in dollar terms at a rate of $3.21 per square meter. However, Finance Minister Ishaq Dar and Minister of State for Petroleum Dr Musadiq Malik proposed setting the price in rupee terms at Rs1,100.
The government did not appoint any independent consultant for price discovery, which is required by law.
Instead, the Negotiation Committee adopted a terms and conditions comparison mechanism for price discovery. For internal price discovery, the terms and conditions of the previous operator at KPT were compared with the rates offered by ADP, according to finance ministry officials. They added that the rates offered by the UAE were found to be favourable.
For external price discovery, the terms and conditions at three comparable terminals were contrasted with those offered by ADP. The first external terminal, KICT, is located at KPT, similar to the terminal under consideration for the proposed transaction. The outgoing contractor was paying a royalty of $16.01 with a 5% increase after every three years. In comparison, ADP offered $18.
Pakistan is in need of major foreign inflows, but these small transactions may not resolve the issue.
ADP oversees the operations of several major ports, including Khalifa Port, Zayed Port, as well as ports in Spain, Iraq, and Egypt.
The new terminal operator will make a $102 million investment for improvement, rehabilitation, and port connectivity during the initial five-year period. An additional area of approximately 65,00 square meters will be added to the existing terminal, which will generate an additional revenue of Rs60 million per annum for KPT in the form of rent.
The government sought the external legal opinion of Senior Advocate of the Supreme Court of Pakistan, Anwer Mansoor Khan who advised that the proposed arbitration jurisdiction at the London Court of International Arbitration by UAE Ports should be in Pakistan. However, the negotiation committee did not agree with the external legal opinion.
Any disputes arising out of or in connection with this agreement will be settled by arbitration in accordance with the rules of the London Court of International Arbitration, by one or more arbitrators appointed in compliance with the rules, according to the draft agreement. The place and seat of arbitration will also be London, United Kingdom.
ADP will have the right to revise its container handling charges from time to time. However, if the fee increase exceeds 15%, the UAE government will seek permission from KPT.
The KPT board has already ratified the commercial agreement for the approval of the federal government.
According to the Operations, Maintenance, Investment, and Development Agreement, the UAE company will also have the right to be listed on a stock exchange in Pakistan and issue and sell shares not exceeding 49% of its paid-up share capital to the public.
Pakistan will have the right to take over the terminals in the event of any national emergency or under supreme security conditions. KPT will not have any right of representation on the Board of Directors of the terminal operating company.
The UAE government will obtain Pakistan’s prior clearance before appointing any foreign national to work at the terminal. Pakistan will have the right to refuse clearance, but only for security reasons.
Published in The Express Tribune, June 23rd, 2023.
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