Pakistan finds UAE’s port terminal offer below par

Pakistan on Monday did not approve the United Arab Emirates (UAE) offer for the development of two Karachi seaports terminals, finding the current value of the future stream of payments over a period of the next 25 years too low to be accepted.

The Cabinet Committee on Inter-Governmental Commercial Transactions (CCoIGCT) reviewed the UAE’s offer for the development of clean and bulk cargo terminals on the East Wharf of the Karachi Port, according to the finance ministry.

The net present value of the UAE’s offer for 25 years was around $1.2 billion, which was below the government’s expectations, according to a member of the negotiation committee. The committee directed the maritime affairs ministry to reengage the UAE authorities and ask them to increase the price, he added.

The CCoIGCT considered and reviewed the progress of the negotiation committee, which held its negotiations on 4 and 5th of August, 2023, on the commercial agreement between Karachi Port Trust (KPT) and the Abu Dhabi (AD) Ports, UAE, for the development of Bulk and General Cargo Terminal at East Wharf, Karachi, according to the Finance Ministry.

The CCoIGCT “directed the negotiation committee to re-engage with the AD Ports to improve the terms” offered by it”, the ministry added.

The officials stated that the UAE had initially offered terms having net present value of just little over $800 million. Subsequently, they added, the UAE authorities increased their offer by another $350 million. These payments will be made over a 25 years’ period. The current value of the offer is hardly $50 million per annum, they added.

The government has adopted a negotiated path for handing over the control of its seaports to the UAE instead of taking the route of the international competitive bidding, which is transparent and can get the best price.

It went ahead with the negotiated deal route despite initiating the competitive bidding process.

The cabinet committee would meet again on Tuesday (today) and consider the final offer by the UAE authorities. The government is rushing through the deal, as it has announced to dissolve the National Assembly on August 9th (tomorrow).

Pakistan had last month given the initial approval for signing a framework agreement with the UAE to hand over two more Karachi port terminals, including the development of a new multipurpose cargo terminal.

The government has already approved the government-to-government (G2G) framework agreement. This will be the second major seaport terminal deal that Pakistan will sign with the UAE in less than two months.

Under the deal, the berths from 11 to 17 will be handed over to the AD Ports for the development and management of two cargo terminals. The general cargo terminal will comprise berths 11 to 13, and the clean terminal will include berths 14 to 17.

The new terminal will be managed for handling food cargo and other commodities, including fertiliser. The contract will also include the upgradation of Pakistan International Container Terminal (PICT) facilities and the development of associated infrastructure.

Earlier, Pakistan had handed over the operations of five berths (6-10) of the port on the East Wharf. The AD Ports had shown fresh interest in the acquisition of 1,833 meters quay length out of the total quay length of 3,124 meters of East Wharf, as shown in the official documents.

The AD Ports already acquired 800 quay meters last month under the Karachi Gateway Container Limited (KGCT), and after the new contract, it will control 85% of the quay length of East Wharf.

There are three wharves at the Karachi Port, the East, West, and the South. The government is going to hand over 85% of the East Wharf to the UAE company under a concession agreement.

The price discovery is being worked out on the basis of the cost of the contract, the term of the agreement, cost of construction, lifespan of the terminal, maximum capacity to handle cargo, length of the quay wall, royalty per tonne, land rent, storage charges, dock labour charges, upfront payment, and quantum and type of investment, according to the maritime affairs ministry officials.

The KPT earns about Rs3.1 billion in annual revenue from these two terminals of the East Wharf. It also has operating expenses of about Rs675 million and is paying roughly Rs3 billion annually in interest on a loan that it took from the World Bank to construct these terminals in 2016.

The KPT runs in about Rs575 million deficit after paying interest cost and operational cost, according to the maritime affairs ministry officials.