UAE’s AD Ports Group will invest $220 million under the agreement over the first 10 years
Pakistan’s federal cabinet on Tuesday approved a five-year framework agreement to handover four berths at the Karachi port terminal to the United Arab Emirates (UAE) government, paving the way for the signing of a commercial deal between the two nations, according to a statement issued by the Ministry of Finance.
“The Cabinet Committee on Intergovernmental Commercial Transactions (CCoIGCT) recommended the draft framework agreement to the federal cabinet for approval,” said the Ministry of Finance.
The finalization of the intergovernmental framework agreement sets the stage for the establishment of a conducive environment that promotes efficient operations, maintenance, upgrading, investment, development, and progress of the container terminal located at Berths 6 to 9, East Wharf, Karachi Port Trust.
50-Year concession agreement
The leading UAE port operator AD Ports Group has signed a 50-year concession agreement with the Karachi Port Trust (KPT) on June 22 to operate a terminal in the city.
Pakistan’s Federal Minister for Maritime Affairs, Faisal Subzwari, said the UAE and Pakistan both have a longstanding relationship, adding that the bond between the two countries was experiencing continuous growth in trade and investment.
“The signing of this agreement underscores both our great nation’s shared vision for the development of port infrastructure and sets the stage for a prosperous global maritime ecosystem,“ Subzwari said.
We have signed a 50-year concession agreement with Karachi Port Trust (KPT) to operate and develop the Karachi Gateway Terminal Limited (KGTL) – to handle berths 6-9 at Karachi Port’s East Wharf through a joint venture between AD Ports Group and Kaheel Terminals. pic.twitter.com/ePO1kmxtiU
— AD Ports Group (@ADPortsGroup) June 22, 2023
Agreement details
The approved framework agreement outlines a collaborative effort between the Karachi Port Trust (KPT) and the Abu Dhabi Ports Company to effectively implement the agreement and set the stage for a commercial arrangement that will establish the technical, economic, and commercial terms for the operation of the Karachi port terminals.
- Under the terms of the 50-year concession agreement, a Joint Venture between AD Ports Group, as a majority shareholder, and Kaheel Terminals, a UAE-based company has been formed to manage, operate and develop the Karachi Gateway Terminal Limited (KGTL), berths 6-9 at Karachi Port’s East Wharf.
- The JV will undertake significant investments in infrastructure and superstructure over the next 10 years, with the bulk of it planned for 2026.
- The development works will include deepening of berths, extension of quay walls, and an increase in container storage area.
- The terminal will be able to handle Post Panamax class vessels of up to 8,500 TEUs (Twenty-Foot Equivalent Units) and container capacity will increase from 750,000 to 1 million TEUs per annum.
- The Terminal’s operations are all dollarized with no foreign exchange exposure to the Pakistani Rupee. Historically, the terminal has been generating revenue of around $55 million and EBIDTA of around $30 million annually.
- This expansion and enhancement will further cement the Terminal and Karachi’s position as a key player in the maritime industry.
In the event of any disputes, both parties have committed to seeking an amicable resolution. If a dispute persists, the matter will be addressed through mutual negotiations, ensuring a cooperative approach to conflict resolution, remaining “within respective protocols or any other way specified in the subsequent agreements.”.
The government targets to conclude the deal with the UAE by June 30.
MoUs signned by Pakistan and AD Ports Group
AD Ports Group has signed three MoUs with the Government of Pakistan to establish a framework for cooperation in improving transportation infrastructure, facilitating efficient cargo movement, reducing logistics costs, and enhancing the competitiveness of Karachi Port or any other projects of mutual interest.
Rail Connectivity MoU – Under this agreement, the parties have agreed to collaborate under a bilateral framework of mutual cooperation to develop and upgrade the connectivity of Karachi Port to the railway systems.
Free Zone MoU – This MoU establishes a cooperative relationship between AD Ports and Port Qasim Authority for the development, operation, and management of industrial and/or free zone facilities in the Port Qasim area.
Digital Solutions MoU – Under this MoU, AD Ports Group and the Government of Pakistan will cooperate to develop digital trade and logistics solutions including customs digitalisation.
New Operator
Pakistan is actively pursuing a deal to transfer the terminals to Abu Dhabi Ports (ADP), a subsidiary of the Abu Dhabi Ports Group. The government of the United Arab Emirates (UAE) has shown keen interest in acquiring the Karachi port terminals, which were previously under the administrative control of the Pakistan International Containers Terminals (PICT) until last year.
PICT, a subsidiary of ICTSI Mauritius Ltd., which is ultimately owned by International Container Terminal Services Incorporated (ICTSI) in the Philippines, operated the Karachi terminals from June 2002 until the recently expired 21-year concession.
Agreement background
To address the pressing need for funds following the expiration of its agreement with the International Monetary Fund (IMF), the coalition government of Pakistan introduced the Intergovernmental Commercial Transactions Act. This legislation, enacted last year, facilitates the accelerated sale of state assets, enabling the government to raise necessary funds.
Initially, the United Arab Emirates (UAE) declined to provide loans to Pakistan and instead encouraged the country to sell stakes in its assets. However, the UAE later pledged a substantial amount of $1 billion. This committed sum remains unallocated, awaiting further actions or agreements between the two parties.