Pakistan defends PSA incentives
Pakistani officials have defended the 40-year tax exemption given to the PSA International consortium as part of its concession to run the Gwadar Port and denied the tender was awarded more for strategic than commercial reasons.
Vote of confidence: Mr Shah (left) and Mr Hamid say they are satisfied that PSA's experience will enable it to manage the multi-purpose Gwadar Port effectively
The corporate tax holiday and other incentives have drawn the ire of Pakistani businessmen who say it creates an uneven playing field, as well as criticism from the World Bank and Asian Development Bank.
Speaking to BT earlier this week in Singapore, Pakistani government officials said that the tax and other incentives were necessary in order to develop the region as a whole around the Gwadar Port.
'The tax shelter is for companies to relocate into the special economic zone, to set up manufacturing and refining capabilities,' said Salman Shah, adviser to the prime minister on finance, revenue, economic affairs and statistics.
'The tax shelter is to develop the entire region and I think it is important that we give all the incentives for this to become a very thriving industrial and commercial region of Pakistan,' he added.
The incentive was also aimed at 'balancing the investment that PSA is making', said Zahid Hamid, Minister for Privatisation & Investment.
That investment is estimated to be about US$3 billion in total, of which US$550 million will be pumped in within the first five years to build up the facilities, including the special economic zone and port infrastructure such as the addition of 10 berths, according to Dr Shah.
China financed 80 per cent of the projects' US$248 million initial development costs, which started the port off with three multipurpose berths.
Although a significant portion of the port will focus on the petrochemical sector, including oil and chemical tanker cargo handling - an area which PSA has little experience - the Pakistani officials said that they were satisfied that PSA's experience of running ports would enable it to effectively manage this multi-purpose port.
'We believe that PSA is the right partner to develop this port efficiently and make it into a world-class port,' Dr Shah said.
Speculation has focused on the potential strategic reasons for choosing PSA over other port operators which may have wider experience outside the container transhipment realm.
Singapore, seen as a neutral player with close ties to the US, India and China, would not raise any suspicions compared to, say, a Chinese or Middle Eastern port operator, the theory goes.
But Dr Shah denied strategic factors were paramount, insisting at most they were simply 'background issues'.
'I think ultimately, it's a commercial decision and it's a commercial venture for PSA and, from our perspective, we thought that PSA was the most appropriate partner because of its experience handling ports and because its ability to market the potential of the port and get business for the port,' he said.
'The strategic thing is that we want the port to be a success and PSA is, we think, the partner which will help make it a success.'
The port and adjacent areas will ultimately handle transhipment of containerised cargo, oil storage, refining and related bulk cargo handling.
The port is being touted as the key enabler of trade connecting central Asia, western China and northern India to the rest of the world. It will also function as a key hub in an energy corridor, channelling in particular gas from central and western Asia, through Pakistan, to India and China.
'The development will open up a whole new continent of central/western Asia and western China and it has a very specific niche in terms of oil and so as Pakistan develops as the region develops, this port will have a very important role in that,' he said.
The Gwadar Port, unlike Pakistan's two other key ports - Karachi Port and Port Qasim - will be operated on a revenue sharing model rather than royalties.
It had been structured this way, according to Dr Shah, because of the fact that the other ports are well-established whereas Gwadar is still being developed. 'We wanted the operator to have incentives to make it into a very vibrant and successful venture and, if the port is a success, we will share in the benefits,' he said.
When asked how long he anticipates it will take the port to become profitable, Dr Shah said that it depended on how quickly the infrastructure can be put in place. 'The location couldn't be better, it's right on the busiest sea lanes for oil shipment, and the sooner the infrastructure is put into place the sooner we can get the profits in.
'There's no doubt in our minds this is going to be a very profitable venture and we have the best partners for the development.'
Vote of confidence: Mr Shah (left) and Mr Hamid say they are satisfied that PSA's experience will enable it to manage the multi-purpose Gwadar Port effectively
The corporate tax holiday and other incentives have drawn the ire of Pakistani businessmen who say it creates an uneven playing field, as well as criticism from the World Bank and Asian Development Bank.
Speaking to BT earlier this week in Singapore, Pakistani government officials said that the tax and other incentives were necessary in order to develop the region as a whole around the Gwadar Port.
'The tax shelter is for companies to relocate into the special economic zone, to set up manufacturing and refining capabilities,' said Salman Shah, adviser to the prime minister on finance, revenue, economic affairs and statistics.
'The tax shelter is to develop the entire region and I think it is important that we give all the incentives for this to become a very thriving industrial and commercial region of Pakistan,' he added.
The incentive was also aimed at 'balancing the investment that PSA is making', said Zahid Hamid, Minister for Privatisation & Investment.
That investment is estimated to be about US$3 billion in total, of which US$550 million will be pumped in within the first five years to build up the facilities, including the special economic zone and port infrastructure such as the addition of 10 berths, according to Dr Shah.
China financed 80 per cent of the projects' US$248 million initial development costs, which started the port off with three multipurpose berths.
Although a significant portion of the port will focus on the petrochemical sector, including oil and chemical tanker cargo handling - an area which PSA has little experience - the Pakistani officials said that they were satisfied that PSA's experience of running ports would enable it to effectively manage this multi-purpose port.
'We believe that PSA is the right partner to develop this port efficiently and make it into a world-class port,' Dr Shah said.
Speculation has focused on the potential strategic reasons for choosing PSA over other port operators which may have wider experience outside the container transhipment realm.
Singapore, seen as a neutral player with close ties to the US, India and China, would not raise any suspicions compared to, say, a Chinese or Middle Eastern port operator, the theory goes.
But Dr Shah denied strategic factors were paramount, insisting at most they were simply 'background issues'.
'I think ultimately, it's a commercial decision and it's a commercial venture for PSA and, from our perspective, we thought that PSA was the most appropriate partner because of its experience handling ports and because its ability to market the potential of the port and get business for the port,' he said.
'The strategic thing is that we want the port to be a success and PSA is, we think, the partner which will help make it a success.'
The port and adjacent areas will ultimately handle transhipment of containerised cargo, oil storage, refining and related bulk cargo handling.
The port is being touted as the key enabler of trade connecting central Asia, western China and northern India to the rest of the world. It will also function as a key hub in an energy corridor, channelling in particular gas from central and western Asia, through Pakistan, to India and China.
'The development will open up a whole new continent of central/western Asia and western China and it has a very specific niche in terms of oil and so as Pakistan develops as the region develops, this port will have a very important role in that,' he said.
The Gwadar Port, unlike Pakistan's two other key ports - Karachi Port and Port Qasim - will be operated on a revenue sharing model rather than royalties.
It had been structured this way, according to Dr Shah, because of the fact that the other ports are well-established whereas Gwadar is still being developed. 'We wanted the operator to have incentives to make it into a very vibrant and successful venture and, if the port is a success, we will share in the benefits,' he said.
When asked how long he anticipates it will take the port to become profitable, Dr Shah said that it depended on how quickly the infrastructure can be put in place. 'The location couldn't be better, it's right on the busiest sea lanes for oil shipment, and the sooner the infrastructure is put into place the sooner we can get the profits in.
'There's no doubt in our minds this is going to be a very profitable venture and we have the best partners for the development.'
