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Paper 259                                      18.06.2001

by B.Raman

There has been an increase in Chinese activities in Balochistan since Gen.Pervez Musharraf, the self-styled Pakistani Chief Executive, seized power on October 12,1999.

Even before the military take-over, the Governments of Mrs.Benazir Bhutto and Mr.Nawaz Sharif had awarded to Chinese firms contracts for the exploitation of the gold-copper reserves at Saindak in Balochistan and part of the natural gas reserves of Sui.

However, the Saindak project has been lying idle since 1995 due to the bad law and order situation in Balochistan, the hostility of the Balochi nationalists and shortage of working capital.  In 1998, the Nawaz Sharif Government had started negotiations with a consortium of Western banks for a credit to re-start the project, but the banks withdrew from the negotiations after the Chagai nuclear tests.

During the five-day visit of the Chinese Prime Minister, Mr.Zhu Rongji, to Pakistan from May 11, China agreed to re-open the project with an investment of US $ 40 million.  The project would be given on lease to the Metallurgical Corporation of China (MCC), for US $ 500,000 per month for 10 years, with the produce being equally shared by the Chinese Corporation and Pakistan.

The Nawaz Sharif Government had awarded to a Chinese petroleum firm, the Bureau of Geophysical Prospecting (BGP), a one million-dollar contract for a seismic survey over 178 kilometres in Sui.  This was the first time that the Chinese had entered gas and oil exploration activities in the country, which were till then largely in the hands of American and French firms.

However, the BGP has halted its operation after the military take-over after having failed to get assurances from the Balochi sardars of the area for the security of its staff.  A four-member BGP team, headed by its Chief Operating Officer, Han Rue Min, had called on the Balochi leaders to seek their assurance for the security of the company's staff.  The leaders reportedly turned down the Chinese request.  Thereafter, Mr.Yousuf Abdullah, Secretary, Petroleum, in the Federal Government, had met the Balochi leaders, but they turned down his request too.

Even in the past, there had been attacks on Chinese experts working in Balochistan and, just before Mr.Zhu's visit, one person was killed and three others, including a Chinese engineer, were injured seriously when the survey team of a Chinese company was attacked in the Sunny area of Sibi district, 160 km northeast of Quetta in Balochistan, on May 7.  Suspected militants of the Balochistan National Liberation Front (BNLF) fired rockets at the vehicle of the survey team, reportedly as a warning to the Chinese not to help the Musharraf regime until the demands of the Balochis were met.

BNLF cadres again struck after Mr.Zhu's departure when major parts of Balochistan, including Quetta, went without natural gas for more than 24 hours on May 19 following a blast in the main Sui Southern Gas pipeline the previous night.

Concerned over the increasing activities of the Balochi nationalists and pressed by the Chinese for an improvement of the law and order situation, the military regime established contact with the traditional Balochi leaders before Mr.Zhu's visit and sought their co-operation in improving the situation in Balochistan.

Sardar Akhtar Mengal, former Chief Minister of Balochistan, confirmed on May 12 that the Balochistan Minister, Agha Abdul Qadir, had approached his father, Sardar Ataullah Khan Mengal, in London and sought the co-operation of the Balochis for the exploitation of the mineral wealth of Balochistan and that Sardar Ataullah had set certain conditions for co-operation.  The conditions included the immediate release of Nawab Khair Bukhsh Marri, the Balochi nationalist leader, immediate issue of an ordinance for the transfer of oil, gas and natural resources, including metallic and non-metallic minerals, portfolio from the federal Government to Balochistan and other provinces, allocation of substantial percentage from the income generated from oil, gas and other minerals for the development of the areas where these resources were found and priority to the local people in the recruitment of personnel to work in these projects.

Despite this, during Mr.Zhu's visit,  the Chinese pledged US $ 240 million for the development of the Gwadar port in Balochistan and another of US $ 200 million for the construction of a coastal highway linking Karachi and Gwadar.  The "News" quoted Pakistani official sources as saying that China was seeking "sovereign guarantees" from Pakistan before finalising its commitment to assist in the construction of the Gwadar port.

The decision to develop Gwadar in order to reduce the dependence on Karachi and to cater to the external trade of the Central Asian Republics (CARs) and the Xinjiang Province of China was taken by the first Nawaz Sharif Government in 1992.  It had also decided to construct a second naval base at Ormara, also in Balochistan.

The Jinnah naval base at Ormara, situated 240 Kms from Karachi and constructed at a cost of Rs. 4.5 billion, was inaugurated by Gen. Pervez Musharraf on June 22,2000.  It is meant to provide berthing facilities to eight ships and four submarines with space for small auxiliary units.  The 3.5km-long approach channel leads to a turning basin and both have been dredged by 10 meters.

Speaking on the occasion, the General accused India of aspiring to dominate the Arabian Sea and the Indian Ocean and of building up a navy much beyond its requirements.  He said that India's "hegemonistic designs" had serious political, economic and military implications for Pakistan and that it had, therefore, become imperative for the Pakistan Navy to build an alternative to its Karachi naval base.  He lauded the performance of STFA, a Turkish company, in constructing the base in time.

Under the plans drawn up in 1992,the Karachi Port Trust was to fund 60 per cent (US $ 120 million) of the Gwadar project's estimated US$200 million first-phase development cost.  This was to have involved the construction within two years of three 200-metre multipurpose berths capable of handling 50,000 DWT cargo ships and oil tankers of up to 100,000 DWT.  The rest of the money was to have been raised externally.

The Nawaz Sharif Government cancelled the contract signed by the Benazir Government with an Omani firm in 1995 for the construction of the deep-water Gwadar port and, instead, awarded the contract to the US-based Forbes and Company, which was to not only construct the port, but also run it after the construction.  However, the project remained a non-starter due to the post-Chagai economic sanctions.

During their separate visits to Beijing last year, Gen. Musharraf and Mr.Shaukat Aziz, the Finance Minister, had urged the Chinese to assist Islamabad in the construction of this project and reportedly promised, in return, berthing facilities for the Chinese Navy not only in Gwadar, but also in Ormara and also facilities for a Chinese monitoring station on the Mekran Coast of Balochistan to intercept the communications of the US military bases in the Gulf.

In response to this, a Chinese delegation led by the then Chinese Minister for Communications, Hu Xijie, visited Pakistan for preliminary discussions in November last. During his stay, he offered an oil tanker to the Pakistan National Shipping Corporation (PNSC) and reviewed the working of several Chinese construction companies, which were already engaged in completing highway projects in Pakistan such as the Indus Highway, the Chablat-Nowshera Highway and the Karachi Northern Bypass.  There was also discussion with the Pakistani authorities on Chinese assistance for the Mekran coastal highway project.

Pakistan has a coastal belt of about 700 kilometres in the south of Balochistan facing the Arabian Sea.  The area from Hub (near Karachi) to Jiwani (near the Pak/Iran Border) is called the Mekran Coast.  There are four ports on this coast-- Ormara, Pasni, Gwadar and Jiwani.  The access to these ports from inland is now difficult due to the non-availability of roads.

The Mekran Coastal Highway would connect Lyari, North of Karachi, with the Pakistan town of Gabd on the Iran border.  It is proposed to be constructed in the following three sections:

* Lyari-Ormara including link to Ormara Town (248 kilometres)

* Ormara-Pasni including link to Pasni (197 kilometres)

* Pasni-Gwadar-Pak/Iran border including link to Gwadar, Jiwani (208 kilometres).

Gwadar, which is at a distance of approx. 650 kilometres from Karachi and 900 kilometres from Ratodero near Sukkur, is presently a small fishermen's town.  However, it has an airport which links Gwadar with Karachi, Turbat, Jiwani and Muscat (Oman) by regular flights.  A road track exists which connects Gwadar to Karachi and Ratodero.

It was as a follow-up to the discussions of November last that Mr.Zhu announced the Chinese financial pledges for the development of the Gwadar port and for the construction of the coastal highway, subject to satisfactory feasibility studies.

The visit of Mr.Zhu was followed by a visit to Pakistan by Rear Admiral Zhang Yan, Deputy Commander, North Sea Fleet, China, from May 21 during which he visited Karachi, Ormara and Gwadar.  He also addressed a ceremonial parade at the Karachi naval dockyard held to commemorate the 50th anniversary of Pakistan-China diplomatic relations.

Welcoming the Chinese visitor, Rear Admiral Shahid Karimullah, Commander of the Pakistan Fleet, said:"Since the induction of PNS Nasr, the fleet tanker from China, our mutual relations had improved at a steady pace.   Development of Jalalat- type missile boats, equipped with state-of-the art anti- ship missile, acquisition and successful testing of surface-to-air missile system on board Type-21 destroyers are the hallmark of our developing naval relations."

THE PORT OF GWADAR --An Explanatory Note

The annual maritime traffic in Pakistan is forecast to increase from its present 41 million tons to 120 million tons by 2020.  Although Pakistan’s two ports, Karachi and Qasim, need to be modernized to handle this increased traffic, there will also be a need to develop a third port in Pakistan.  The Government has approved the building of Pakistan’s third port at Gwadar, which is at about 234 nautical miles west of Karachi. This port will serve as a regional hub, handling traffic to/from ports of Sri Lanka, Bangladesh, Oman, UAE, Saudi Arabia, Qatar, Iraq, Iran, and landlocked countries like Afghanistan, Uzbekistan, and Tajikistan.

Gwadar is currently a fishing town on the western end of the Balochistan Coast, formed by a natural headland connected to the mainland by a sand spit.  The headland stretches east to west for about 13 km with the maximum width of 3 km.  The east and west bays, created by this feature, are generally protected from the southwest monsoon waves.  Past studies indicate that the east bay is more protected than the west.  The deepwater port site will take full advantage of the natural shelter of the East Bay and will be located in the northern side of the headland with a potential development area of some 500 hectares.

The primary objectives of the port are to:

* Provide port facilities at the strategic location opposite to Straits of Hormuz and on the mouth of the Persian Gulf and provide port, warehousing, transshipment, and industrial facilities for trade with over 20 countries;

* Provide additional capacity to relieve congestion at Pakistan’s two ports,Karachi and Qasim;

* Provide an alternative and economical access to maritime trade for the northern region of Pakistan;

* Initiate the economic development of Balochistan by establishing industrial zone, oil storage and refining facilities adjacent to the Port; and

* Boost cargo trade for the export of the abundant mineral resources of Balochistan, particularly from the Saindak Copper-Gold Project.

To implement the project, the Government has formed the Gwadar Implementation Committee (GIC) under the Ministry of Communications.  The project will be implemented in two phases:

* Phase I will involve the construction of three berths, 200 m each, with 350 m back-up area.  There will be a five-km access channel with 11 m water depth.  This phase will also include the procurement of cargo handling equipment and operation crafts, as well as the development of port infrastructure and support facilities.  The Government will carry out this phase.

* The second phase, which is being planned, for development through private sector participation, will involve the following facilities:

* Container Terminal - 2 berths (300 m each)

* Bulk Terminal - 2 berths (300 m each)

* Ro-Ro Terminal - 1 berth (200 m)

* Oil Terminal - 2 piers (8 million tons/year each)

* Future container terminal - 2 berths (300 m each)

* Channel dredging (15.6 m to 20 m deep)

The GIC is working on implementing the first phase of the project, which will provide three multipurpose berths and the related infrastructure.  It is intended that this initiative will provide a clear demonstration of the Government’s commitment to the project and generate a positive environment for the implementation of the Phase 2 components under a BOO or a BOT basis.

The bids for Phase II components will be announced in stages.  The period of lease for Phase II project components is expected to be 25 years, which is extendable further on mutually agreed terms.  It is expected that Phase II construction will be completed in 36 months.

The first phase construction is expected to cost $200 million.  This stage will be undertaken and financed by the Government.  All of the second phase components are being planned for implementation under a BOO or a BOT scheme.  The breakdown of Phase II cost by each terminal is as follows:

* Container Terminal ---US $ 35 million

* Dry Bulk Cargo Terminal ---US $ 40 million

* Grain Terminal ---US $ 26 million

* Ro-Ro/General Cargo Terminal ---US $ 200 million

* Oil Terminal ---US $ 125 million

* Future container terminal expansion--US $ 100 million

* Total --- US $ 526 million

In general, the principal competitors of U.S. businesses in Pakistan are European, Japanese, and South Korean firms.  Financing is usually the most important component of project implementation decisions in Pakistan.  These countries often offer more favorable credit terms, making it difficult for U.S. suppliers to compete.  Still the U.S. port equipment suppliers, design and engineering firms, and construction contractors have a strong competitive position, since U.S. products and services are perceived to be of high quality.  This should be supplemented by an aggressive marketing position, following up on bidding announcements.  Teaming with local firms in these service areas will be beneficial to achieving success.

U.S. companies are expected to be competitive in providing the port with cranes and crane components, RTGs, forklifts, tractor and trailer units, unloading/bagging systems, conveyor systems, and security and environmental equipment.  Opportunities also exist for project design, engineering, and construction management services as well as terminal operators.

(The writer is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, and, presently, Director, Institute For Topical Studies, Chennai. E-Mail: )