“We have reached an agreement with PSA where they have decided to leave the port at Gwadar. They are in discussions with a possible Chinese investor,” Babar Ghauri, Minister of Ports and Shipping, told the Financial Times in an interview.
Although the transfer of management control is likely to be portrayed in both Pakistan and Singapore as a commercial decision, any step that increases Chinese influence over its ally Pakistan will be watched closely by the US and India.
Gwadar, built with the help of a loan from China, is close to the Pakistan-Iran border and the Strait of Hormuz, through which much of the Gulf’s oil exports are carried by ship to international markets. PSA began running the port five years ago under a contract valid for up to 40 years but is now preparing to leave.
PSA declined to comment but Ghauri and Singaporean sources confirmed that PSA’s imminent handover of control was triggered in part by Pakistan’s failure to fulfil its commitments, one being the building of a motorway link to service the port. Other differences included the government’s failure to transfer land for the port’s expansion.
“There is a decision for PSA to leave and we have given our consent,” said Ghauri, who declined to name the potential Chinese replacement.
However, Pakistani officials said strategic as well as commercial interests played a part in the change. China’s assumption of the port contract ‘will be a landmark development, both for Pakistan and China’, said a senior government official. “This has great value for China,” he said. “We believe the Chinese may use their presence at Gwadar to lay down a pipeline in future for transporting Middle Eastern oil to western China.”
Another Pakistani official said the port contract would be ‘the second most vital Chinese investment in Pakistan after the Karakoram Highway”, the road linking Pakistan to western China.
Any Chinese expansion of its interests in South Asian ports is likely to reinforce concerns in India about ‘encirclement’ by China.
Liang Guanglie, China’s defence minister, is visiting Sri Lanka and is expected in India early next week.
Last year, Chaudhry Ahmed Mukhtar, then Pakistan’s defence minister, told the FT that it had asked China to build a naval base at Gwadar and expected the Chinese navy to maintain a regular presence there, although Liang said the Chinese government had not discussed the proposal.
Chinese military experts have been debating how the People’s Liberation Army navy can transform itself into a deep water force and support missions far from home, where ships need access to foreign ports to refuel, change staff or replenish food supplies.
Beijing agreed to lend Sri Lanka more than $800m for the second phase of development at Hambantota port on the island’s south coast, Reuters reported from Colombo last week. The first phase was financed with a US$400m Chinese loan. The port is being built by China Communications Construction, a state contractor.
Gwadar Port, which had a total investment of $248m, received $198m in funding from China, according to the commerce ministry in Beijing. The port was built by China Harbour Engineering Company, a subsidiary of China Communications Construction.
Pakistan in talks to hand Gwadar Port to China