UAE offers to acquire Karachi Port terminals

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ISLAMABAD:

The United Arab Emirates has sought the control of the Karachi Port terminals on lease for 50 years in a negotiated deal, which may mark the first foreign transaction without competitive bidding process.

According to the offer made by the Abu Dhabi Ports Company of the UAE, Pakistan will get $50 million upfront price for the fixed equipment and infrastructure. According to the offer, the UAE company will pay $18 per cross berth royalty fee and $3.21 per square meter fee.

These terms are subject to the approval of the federal cabinet.

The Karachi Port Trust will get about $23 million to $24 million per annum at the current projected sea cargo traffic, according to a member of the cabinet committee that discussed the draft Operations, Maintenance, Investment and Development Agreement between the Karachi Port Trust (KPT) and Abu Dhabi Ports.

Headed by Finance Minister Ishaq Dar, the Cabinet Committee on Inter-Governmental Commercial Transactions (CCoIGCT) on Wednesday discussed the draft of the Operations, Maintenance, Investment and Development Agreement between the Karachi Port Trust (KPT) and Abu Dhabi Ports.

Pakistani authorities were giving final touches to the draft agreement till the filing of the story. The agreement is expected to be signed today (Thursday), subject to Pakistan’s formal endorsement of the offer.

The Dar-led cabinet body was rushing through the transaction under the Intergovernmental Commercial Transactions Act of 2022, which absolves the government from the competitive bidding process. The government did not appoint any independent consultant for price discovery, which is required under the law.

Pakistan is in need of major foreign inflows but these small transactions may not resolve the issue.

Berths 6 to 9 are being handed over to the UAE government firm for a period of “50 years from the commencement date, as may be extended in accordance with this Agreement”, according to the draft agreement.

Although the agreement mentions 50 year one terms, some of the cabinet members were of the view that Pakistan should give two terms of 25 years each.
Any dispute arising out of or in connection with this Agreement is proposed to be settled by arbitration in accordance with the rules of 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.

The Abu Dhabi Ports — an affiliate of the Abu Dhabi Ports Group of the UAE– will pay an upfront amount of $50 million within 45 working days. Pakistan will charge a $3.21 per square meter fee for containers per annum in respect to the area of site in occupation of the UA, according to the offer.

From the Commencement Date, the Abu Dhabi port will pay to KPT a royalty at the rate of $18 per cross berth revenue move, excluding sales tax. There will be indexation of five 5% after every three  years. First indexation shall start after three years from the commencement date.

The UAE company has promised to make $100 million investment in five years in addition to paying Rs2 billion litigation charges.

The Abu Dhabi Port will have the right from time to time to revise its container handling charges. However, in case the increase in fee is more than 15%, the UAE government would seek the permission of the KP.

Just two days ago, the Cabinet Committee on Inter-Governmental Commercial Transactions had constituted the Committee to negotiate the commercial agreement between KPT and Abu Dhabi Ports. The committee was headed by Minister for Maritime Affairs Faisal Subzwari and its members were special assistant to PM on Government Effectiveness Jehanzeb Khan, Additional Secretary foreign affairs, Additional Secretary Finance, Chairman, KPT, General Managers of Finance, Law, and Planning of the KPT.

The Negotiation Committee examined and discussed the draft Commercial Agreement on Wednesday. The KPT Board also considered the matter regarding the Letter of Intent, Agreement and Commercial Proposal to acquire operations, maintenance and development rights of the container at berth No. 6 to 9 East Wharf at KPT, according to the Finance Ministry officials.

The KPT board has already ratified the commercial agreement for the approval of the Federal Government. The Framework Agreement was approved by the Cabinet on Tuesday, immediately after the cabinet committee recommendations without discussing it.

According to the draft of 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 to 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.

Pakistan, at any time, shall not put the UAE government at a disadvantage position compared to other terminal operators at the Karachi Port in any manner whatsoever, according to the agreement. The KPT will also 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 for working at the terminal. Pakistan will have the right to refuse clearance but purely because of security reasons.

Pakistan will also have the right to establish another container terminal facility at Karachi Port only when the aggregate container traffic at Karachi Port exceeds by more than 80% of five million TEUs and establish further terminals each time the aggregate annual container traffic at Karachi Port increases by 500,000 TEUs.

At any time such thresholds are reached, KPT shall first enter into good faith negotiations with the Dubai company to allow them to establish such additional terminal facility. If such discussions are not concluded within a period of two months, KPT can expand the port.

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