In what could be a significant move, the United Arab Emirates has made a bid for a 50-year lease on the terminals at Karachi Port. The prospective deal, which could be a first-of-its-kind foreign transaction, will be conducted via negotiation rather than through competitive bidding.
The proposal, made by the Abu Dhabi Ports Company, stipulates an upfront payment of $50 million to Pakistan for the terminal’s infrastructure and fixed equipment. The agreement would also see the UAE company pay an $18 cross berth royalty fee and an annual fee of $3.21 per square meter.
These terms, however, hinge on the endorsement of the federal cabinet. If the deal progresses, the Karachi Port Trust (KPT) could net an estimated $23 to $24 million per year based on current sea cargo traffic projections, as per a cabinet committee member.
The Cabinet Committee on Inter-Governmental Commercial Transactions (CCoIGCT), chaired by Finance Minister Ishaq Dar, met on Wednesday to scrutinize the draft agreement between the KPT and Abu Dhabi Ports. The finalizing of the agreement was in process at the time of reporting, with an official signing expected shortly, contingent on Pakistan’s approval.
The deal is being fast-tracked under the Intergovernmental Commercial Transactions Act of 2022. This legislation relieves the government from engaging in a competitive bidding process. Notably, the government has not assigned an independent consultant for price discovery, typically required by law.
As per the draft agreement, berths 6 to 9 will be transferred to the UAE government firm for a period of 50 years. However, some cabinet members suggest the lease should be granted in two separate 25-year terms.
The agreement also outlines that any disputes arising in relation to the agreement would be settled by arbitration in accordance with the London Court of International Arbitration.
Under the proposed terms, Abu Dhabi Ports will make an upfront payment of $50 million within 45 working days. Thereafter, an annual fee of $3.21 per square meter for container usage will be charged. Moreover, a royalty of $18 per cross berth revenue move will be paid to the KPT from the commencement date, with a 5% indexation every three years.
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Abu Dhabi Ports has also pledged to invest $100 million over the next five years, along with bearing Rs2 billion litigation charges.
The UAE firm will be allowed to revise its container handling charges periodically, but any increase beyond 15% would necessitate the approval of the KPT.
Just two days before the CCoIGCT meeting, a Committee was set up to negotiate the commercial agreement between KPT and Abu Dhabi Ports. Chaired by the Minister for Maritime Affairs Faisal Subzwari, the committee includes representatives from multiple relevant departments.
According to the draft agreement, the UAE company will also have the option to list on a Pakistan stock exchange and issue up to 49% of its paid-up share capital to the public.
While the UAE firm will maintain control of the terminals, Pakistan retains the right to assume control under national emergency or severe security conditions. However, the agreement specifies that Pakistan cannot place the UAE government at a disadvantage compared to other terminal operators at the Karachi Port.
Finally, the UAE firm must obtain prior clearance from Pakistan before appointing any foreign national to work at the terminal, and Pakistan reserves the right to deny clearance for security reasons.
