Inland freight subsidy for export from Karachi: move termed conspiracy against Gwadar port
ISLAMABAD (August 12 2009): The Ports and Shipping Ministry, Singapore Authority, and Balochistan government have jointly opposed Finance and Commerce Ministries’ bid to give inland freight subsidy from Rs 40 billion export investment fund to cement, chemical, leather and marble tile exporters for exporting goods through Karachi Port, terming it a conspiracy against Gwader Port.
In order to help the textile and other export industry Rs 40 billion export investment fund was proposed in the federal budget for 2009-10. Around Rs 27 billion will go to Pakistan’s main export earner-cotton and textiles-and Rs 13 billion for other export sectors to boost export earnings.
Sources in Finance Ministry told Business Recorder that the main beneficiary of inland freight subsidy would be cement sector, which has requested Rs 1000 per ton inland freight subsidy on export of cement from the government. Finance and Commerce Ministries are making all-out efforts to fulfill their demands, and the Ministry of Industry and Production is a silent supporter of this bid.
The Ports and Shipping Ministry had moved a summary to Economic Co-ordination Committee (ECC) of the Cabinet to give Rs 23 per ton inland freight subsidy to exporters for Gwader Port. That was rejected due to opposition by Finance and Commerce Ministries and now these two ministries are making an effort to give Rs 1000 per ton inland freight subsidy to cement exporters, sources said.
In a meeting held on July 24, the Ports and Shipping Ministry and Balochistan government strongly criticised the bid of Finance and Commerce Ministries to grant inland freight subsidy for export of goods through Karachi Port. They demanded giving inland freight subsidy only to exporters willing to export through Gwader Port.
They said that it would help increase the activities at Gwader Port. Cement sector exported 11.5 million tons cement during financial year 2008-09. Out of total exports, 7.5 million tons cement was exported through Karachi Port to Middle East countries, whereas 4 million tons cement was exported to India and Afghanistan.
Cement exporters have to pay demurrage during the loading of goods at Karachi Port, and sources were of the view that if export level remained at 5 million tons per year, then exporters would not have to pay demurrage. If it exceeded 7 million tons, demurrage is not affordable for exporters and, therefore, inland freight subsidy, aimed at enhancing export through Karachi Port, will not help where there is no room for traffic due to congestion, sources argued.
During the meeting it was noted that in this context, there would be no export enhancement by giving inland freight subsidy to the exporters for Karachi Port due to its congested position. “Gwader Port can be helpful in increasing exports,” representatives of Ports and Shipping Ministry and Balochistan government said in the meeting, adding that cement exporters want to take the demurrage charges from the government disguised as inland freight subsidy.
Cement exporters have submitted to the government that they were exporting cement at $53-54 per ton on fob basis through Karachi Port to Middle East countries and they are exempted from 16 percent general sales tax (GST) and Rs 700 per ton federal excise duty.
According to calculations based on their export rate of cement, total cost of cement including GST, FED and freight is calculated at Rs 234 per bag here in Pakistan but they were selling cement in the country at Rs 350-360 per bag. At this time all the ministries including Ministry of Industry and Production and Finance are silent over the high rate of cement in the market and there is no ministry to take up the issue to protect the consumers.
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The limping Gwadar port In view of the port operations, which have boosted the trucking activity, the Gwadar Development Authority (GDA) needs to build a truck stand in the port area. — File
The arrival and anchorage of first commercial cargo ship Al-Fahdah carrying 650 tons of dates at the Gwadar port on July 22 indicated that the port can handle big cargo vessels. Presently, three berths are functional but significant issues in making the port fully operational have yet to be addressed. ‘There are two key issues in port operations: one is land connectivity and other is land acquisition’, said Khurram Abbas, director PSA Gwadar Pakistan, while talking to this scribe on phone. He said, ‘the land under possession of Pakistan Navy and coast guards has not yet been handed over to the Singapore Port Authority (PSA) for development of free zone and other port-related infrastructure.’ ‘Without Gwadar port connectivity through rail and road links, goods cannot be transported to Afghanistan, the Central Asian States and other regional countries’, he added. Abbas said, ‘we need land for the development of a free zone for the port related facilities at East Bay of Gwadar. Without land acquisition, the PSA is unable to develop offices, residential facilities, port back up area in the proposed free zone and provide the traders, industrialists, businessmen, shipping companies, stevedoring firms, transporters with all possible facilities for doing business at Gwadar’. The ball is in government’s court to make the port fully functional. Under the concession agreement signed with PSA in February 2007, the government was committed to hand over 923 hectares of land to the Singaporean firm by June 2008 on lease for the development of a free zone. The Gwadar Port Authority (GPA) is bound to acquire 350 hectares for ‘free zone area’ in addition to 584 acres in the possession of Pakistan Navy and 70 acres with the coast guards. . Though 700 km long Makran Coastal Highway links Gwadar with Pasni, Ormara and Karachi, other regional linkages such as Gwadar-Ratodero motorway are yet to be completed. The motorway would link Gwadar with Indus Highway through districts of Turbat, Awaran and Khuzdar. Similarly, no progress has been made on the proposed rail link from Gwadar to Quetta and Zahidan. Mekran coastal highway is the only link which is being used by a large number of trucks to transport urea and wheat from Gwadar to Karachi. In view of the port operations, which have boosted the trucking activity, the Gwadar Development Authority (GDA) needs to build a truck stand in the port area. In the absence of truck stand, vehicles are parked on roads and traffic congestion has emerged as a problem in the port area. The long-term solution would come after completion of East Bay Expressway project, which will ensure a smooth flow of vehicles and link the port to the National Highway network. In this year’s budget, the federal government has earmarked a mere Rs30 million for East Bay Expressway project that would cost Rs3.77 billion, according to one estimate. Gwadar-Ratodero Road project, which will connect Gwadar port with the upcountry, is also facing financial crunch for its timely completion. Ports and Shipping Minister Babar Khan Ghauri recently told the Senate that the Navy’s occupation of the land was adversely affecting the functioning of the port and could force its closure. The federal government plans to establish a tax-free zone in the new port city of Gwadar for which transfer of 584-acre land to the Singaporean operator is a prerequisite. Analysts fear that the Singaporean firm may ultimately go to the Arbitration Court in London, holding the government of Pakistan accountable for defaulting on its contractual obligations. The ministry of defence has refused a free-of-cost transfer of the said land to the GPA for the proposed free zone. Pakistan Navy had acquired 584 acres of land with seafront from Balochistan government in 1980. On refusal of the Navy to hand over the land, the previous government decided that Pakistan Navy would hand over only 30 acres to GPA for developing the road-rail-link leading to the free zone at Gwadar port. The defence ministry has been of the view that GPA has long enough waterfront available for mercantile needs and development of free zone. It believes that 584 acres of land with Pakistan Navy is essentially required for defence of maritime interests and for the protection of the port itself. Another issue in making the port functional has been the delay in fixing the port tariff announced after the arrival of first vessel at Gwadar port in March 2008, a year after the ceremonial opening of the port in March 2008. Ship agents and cargo consultants have been waiting for the announcement of port tariff to start doing the business. ‘We have already fixed tariffs and port charges, which are available on our website,’ says Abbas. Only a competitive tariff could attract shipping lines to discharge cargoes at Gwadar instead of cruising to Dubai and Karachi and leaving for the next port for loading. Critics say that the project has been the victim of lethargy and an unprofessional approach. They argue that the port was not ready to start cargo handling at the time of its inauguration in March 2007, as the handling equipment including gantry cranes, post-panamic rubber-tyre cranes and fork lifters were not installed. The installation of the handling equipment took almost eight months. The operationalisation of the port was also delayed to December 2008. The port began cargo handling from March 15, 2008 and was declared officially functional last December. Ships carrying urea and wheat have so far berthed at the port which can a handle cargo ships up to 0.25 million tons.
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