Gwadar Port and Free Zone
Chinese Name: 瓜达尔港
Location: Gwadar District, Balochistan, Pakistan
Type of project: Logistics; Industrial
Project developers: Since 2013, China Overseas Port Holding Company, affiliated with China Communication Construction Corporation, Ltd. (CCCC)
Main contractors: China Communications Construction Company, Ltd. (CCCC) is the main contractor for the Gwadar Free Zone (start-up zone)
Known Financiers: Phase 1 (2002–2006): foreign aid grants from the Chinese government and loans from the Export–Import Bank of China; Phase 2 (2013–): China Development Bank
Estimated Cost: Phase 1: 248 million USD; phase 2: Unknown
Project Status: Operational
Since discovering its potential to become a deep-sea port in the 1950s, Pakistan has sought to develop Gwadar into the country’s third major port. In 1958, Pakistan acquired Gwadar from Oman, which had controlled this enclave located on Pakistan’s southwestern coast for over two centuries. However, actual development of the port did not come to fruition until the early 2000s, when then president Pervez Musharaf (in power from 2001 to 2008) secured Chinese assistance for its construction. Through a combination of grant, interest-free loan, concessional loan, and export buyer’s credit, China provided 198 million USD of financing, while the Pakistani government financed the remaining 50 million USD. This initial phase of port construction was contracted to China Harbor Engineering Company (CHEC), a state-owned enterprise (SOE). Talking about the importance of Gwadar, the company cited its potential to serve as an alternative route to the Malacca Strait for China’s energy transport, given the location’s proximity to the Strait of Hormuz. The port was inaugurated in 2007.
Despite the expectation that Chinese companies would be involved in the operation of the port, no enterprise from China participated in the bidding organised by the Pakistani government in 2006 to select an operator. Subsequently, a consortium led by the Singaporean port operator PSA International was selected and granted a 40-year concession for the operation of the port. However, this consortium was unable to develop the port due to the Pakistani government’s failure to transfer the agreed land from the Pakistani navy’s possession to the developers.
Meanwhile, in 2010 it was reported that some unspecified Chinese parties had shown interest in building more berths for the port if it was given the right to operate it. In 2012, PSA quit the contract, which was then transferred to China Overseas Port Holding Company (COPHC) in February the following year. COPHC inherited exactly the same terms as the PSA contract, which meant that COPHC was to invest its own funds to build the port and an associated free zone, then transfer back the fixed assets to the Gwadar Port Authority at the end of a 40-year concession period. The fact that COPHC does not provide any information about its background, other than saying that its parent company is based in Hong Kong, raises many questions about its identity. However, available evidence strongly suggests that it is related to China Communications Construction Company, Ltd. (CCCC), the parent company of CHEC, which built the first phase of the port. Zhang Baozhong, the Chairman and General Manager of COPHC, was a vice general manager of CCCC’s Overseas Department at least until 2015. When the Vice President of CCCC visited Pakistan in 2018, for example, representatives of COPHC briefed him as one of CCCC’s subsidiaries.A few months after the Chinese company reentered the scene in Gwadar, in May 2013, Chinese Prime Minister Li Keqiang visited Pakistan and proposed to build a China–Pakistan Economic Corridor (CPEC). The corridor has been conceived as linking China’s Xinjiang province all the way down to Gwadar to reach the Indian Ocean. A special Joint Working Group dedicated to Gwadar was established under the Joint Cooperation Committee for CPEC. A number of projects have been proposed under the CPEC framework, financed by Chinese government aid (grant, interest-free loan, or concessional loan) or Chinese company investments. COPHC and fellow subsidiaries of the CCCC are the contractors of all but one project. In April 2016, COPHC signed a Memorandum of Understanding (MOU) with China Development Bank, which pledged to support the development of the Gwadar Port and Free Zone.
Table 1 Official CPEC Projects in Gwadar
|Project Name||Estimated Cost (million USD)||Details||Status (as of January 2021)|
|Gwadar East-Bay Expressway||168||Financed by Chinese government interest-free loan. Contracted to CCCC||Under construction|
|New Gwadar International Airport||230||Financed by Chinese government grant. Contracted to CCCC||Under construction|
|Construction of breakwaters||123||Financed by of Chinese government concessional loan and grant. Contracted to COPHC||Under construction|
|Dredging of berthing areas & channels||27||Financed by Chinese government concessional loan. Contracted to COPHC||Under construction|
|Development of Free Zone||32||Invested and operated by COPHC.||1st phase completed and inaugurated in January 2018|
|Pak China Friendship Hospital||100||Financed by Chinese government grant. Contracted to Gansu Construction Investment Holdings Group, a Chinese SOE under Gansu Province||Under construction|
|Pak-China Technical and Vocational Institute at Gwadar||10||Financed by Chinese government grant.||Under construction|
|Gwadar Smart Port City Master Plan||4||Contracted to CCCC-FHDI Engineering Co., Ltd., a subsidiary of CCCC.||Completed|
|300MW Imported Coal-Based Power Project||542||Co-invested by CCCC Industrial Investment Holding Company, a subsidiary of CCCC, and Tianjin Energy Investment Group, a Chinese SOE under Tianjin Municipality||Under construction|
Source: CPEC official website
In addition to the above, a number of other facilities have been constructed with donations from Chinese state-affiliated entities, including an emergency facility built with donations from the Red Cross Society of China, a middle school funded by China Foundation for Peace and Development and built by CCCC-FHDI. The intensity of China’s investment of resources in Gwadar reflects CPEC’s status as a showcase in the Belt and Road Initiative (BRI) and the strategic importance attached to Gwadar.
Despite the density of projects in the area, the development of Gwadar’s port, which is supposed to be the cornerstone of local economic growth, appears to be slow. Under COPHC’s management, the port received the first commercial containerised cargo shipment in May 2015 (carried by another Chinese state-owned shipping company). In November 2016, the Pakistani and Chinese governments co-organised a trade convoy that carried 160 containers from Xinjiang all the way down to Gwadar. By showcasing the connectivity between Xinjiang and Gwadar and the port’s handling capacity, the purpose of this military-escorted convoy was to ‘dampen some of the “despondency” that was beginning to surround the project’. In January 2020, Gwadar port started to handle transshipment for Afghanistan, and Pakistan is also looking to provide transshipment for other Central Asian countries. But according to shipping tracking databases, only a handful of ships visited Gwadar Port in 2020 and in January 2021, and Pakistani officials had to urge businesses to make use of Gwadar. Analysts have thus questioned the wisdom of such a strategy to target regional transshipment rather than the local economy to drive Gwadar’s growth. The feasibility of using Gwadar to transport energy through pipelines to China is also in doubt due to the technical difficulties.
In addition to the port, COPHC is also developing a 923-hectare Free Zone in Gwadar for manufacturing, trading, and service activities, which will enjoy 23 years of tax holiday and land lease of up to 99 years. The company’s plan is to develop the whole zone by 2030 in four phases, and a start-up zone of 25 hectares was already completed in 2018. At the inauguration, the company announced that the zone already received investment of 474 million USD from 30 companies. But at an August 2020 event, COPHC’s Zhang Baozhong said that four Chinese companies had set up factories in the zone, and 12 other companies had registered. It emerged in early 2021 that the slow progress in the development of the Free Zone was partly due to the fact that some of the land remained in the possession of the Pakistani Navy, who was slow to vacate it despite the urging of the federal government.
While the port and the Free Zone are relatively secluded from the local residents, the Gwadar Smart City Master Plan, drafted by the Chinese company CCCC-FDHI, a subsidiary of CCCC, will guide the city’s development and reshape the local life. It envisions a great transformation of what now is a small fishing town with a population of 90,000 into an economic hub of South Asia with 2 million residents by 2050. The plan also proposes multi-billion USD investment into new power plants, water desalination plants, skyscrapers, and a man-made island. It was approved by the Balochistan provincial government in September 2019, after a long delay. However, after media reports drew attention to the man-made Island, the Gwadar Development Authority (GDA) announced that it would be dropped from the Master Plan. The federal government approved the plan in December 2020.
However, such a prospect feels surreal in light of the situation on the ground. Gwadar currently suffers from severe power and water shortage. Due to its remote location, Gwadar’s power network is separate from the national grid and has to import the bulk of its electricity from neighboring Iran. Unstable supplies have led to long hours of load shedding, a cause of frequent protests. The 300MW power plant planned as an ‘early harvest’ project under the CPEC has yet to be completed, partly due to the delay of the provincial government to issue the necessary permissions. But even if built, the power plant feeding on imported coal is hardly a sustainable solution. COPHC generates its own electricity for the port and the Free Zone, giving the projects a relatively stable power supply that remains a luxury for the ordinary residents in Gwadar. However, the company’s application in November 2020 to build an 8.75MW diesel-fired power plant suggests that even the port and the Free Zone are facing shortages.Another major roadblock for the Free Zone was that Pakistan’s tax authority initially refused to grant some of the tax exemptions for COPHC and the companies operating within the zone that were promised in the concession agreement. The issue had been lingering for years, until October 2019, when Pakistan’s cabinet approved an extraordinary legislative change specially for Gwadar to receive the tax exemptions. It was pushed through ahead of Pakistan Prime Minister Imran Khan’s visit to China, at a time when there was growing anxiety about the lack of progress in CPEC projects since the Pakistan Movement for Justice (PTI) government came into power in 2018. In June 2020, it emerged that a 40-year tax holiday instead of 23 years would be granted to COPHC and the other companies, and conflicting information concerning the exact agreement between COPHC and the Pakistani government was presented in the legislative process.
- Socio-political conflicts: Due to the long-existing tension between Balochistan and Pakistan’s federal government, China’s involvement in Gwadar’s development is also viewed with suspicion by some locals, who see China as colluding with the federal government to marginalise the Balochs in their own land. Terrorist attacks targeting Chinese nationals have resulted in dozens of deaths of both Chinese and Pakistanis, including an attack on the Chinese consulate in Karachi in 2018. A heavy military presence was installed in Gwadar to protect the Chinese personnel, who have not been able to mingle with the local residents.
- Unmet basic local needs: In strong contrast to the heavy investment into mega infrastructure projects, Gwadar’s residents continue to suffer from power and water shortages. This has caused frustration among the local population, with anger largely targeting the federal government for its perceived inattention.
- Exclusionary decision-making: Local stakeholders were excluded from the negotiation of the contract between the Chinese government, company, and Pakistani government, as well as from discussion of the policies regarding the CPEC. This has added to the distrust between Balochistan and the Pakistani federal government.
There is long-standing tension between Balochistan, the province where Gwadar is located, and Pakistan’s federal government. Many in the province feel that the federal government, dominated by the Punjabi ethnic group, has exploited their rich natural resources for the development of other regions while neglecting their needs. Such tension has resulted in armed insurrections in the past, to which the federal government responded with heavy-handed crackdowns. A number of armed insurgency groups from Balochistan remain active nowadays. In such a context, the federal government’s historical attempts to develop Gwadar have been viewed with suspicion in the province, with many fearing that this would lead to the marginalisation of the Baloch ethnic group in their own homeland.
As China became involved in Gwadar, the insurgency groups have also begun targeting Chinese personnel. In 2004, during the construction of the first phase of the port, three Chinese engineers from CHEC died in a car bombing. In 2006, another three Chinese engineers were shot dead in a different project site in Balochistan. An attack targeting Chinese workers in 2007 killed 24 Pakistanis instead. With all these incidents in mind, when the CPEC was launched, security was China’s top concern and the Pakistani navy created a 400-strong special task force to protect Gwadar. Chinese personnel are heavily guarded within their compound, with little interaction with the local community. But even so, in May 2019, a luxury hotel in Gwadar only a few kilometres from the Free Zone was stormed by gunmen, resulting in the deaths of at least five Pakistanis.
The secrecy with which the Gwadar concession was negotiated between the Chinese company and the Pakistani government did not inspire confidence. When the concession was awarded to COPHC in 2013, the Balochistan provincial government already voiced concern that they were not consulted in this process. A prominent Baloch politician even argued that the concession violated Pakistan’s constitution. The nature of the agreement was also later called into question. As is typical of the Build-Operate-Transfer (BOT) model, the Chinese company will receive the majority of revenue from the project during the concession period (91% of the revenues generated from the Gwadar port and 85% of the Free Zone). Although this information had already been made public before, it came into the spotlight in November 2017 when raised in a Senate meeting. This was at a time when many doubts were being raised about the lack of transparency in the CPEC Long-Term Plan. Both the Pakistani government and Chinese state media responded to defend the revenue-sharing arrangement, justifying it with the amount of investment the Chinese company has to put in to make Gwadar viable.
Since the initial phase, China’s involvement in the development of Gwadar has caused suspicions about its potential military use of the port, especially in India and the United States. Such suspicions continue to exist, despite the denial from both Chinese and Pakistani officials. In return, the Pakistani military has accused India of actively working to sabotage Gwadar’s development. Such geopolitical tensions have added to the security concerns on the project site.
The stark contrast between Gwadar’s supposed importance for the CPEC and the lack of basic services in the city has upset the local population. One of the most pressing local challenges is water, as Gwadar faces a deficit of 4 million gallons a day due to extended droughts in recent years. Early on, the CPEC had included plans to provide ‘necessary facilities of fresh water treatment, water supply and distribution’ financed by grants from the Chinese government. However, this item later disappeared from the CPEC official page for Gwadar. As of June 2020, the Pakistani government’s promise to build large desalination plants for Gwadar was yet to be fulfilled, as the federal government had cut the budget for public investment. For its part, COPHC built a smaller desalination plant in January 2018, and signed an agreement in May 2018 with the local government to provide 300,000 gallons of fresh water a day to the local communities. In a 2020 interview, COPHC’s chairman Zhang Baozhong said that the agreement has been amended to increase the water supply to 1.5 million gallons per day, but it is not clear whether this amount of water has been delivered.
There is also concern among the local fishing population that they may not be able to benefit from the modern economy that the Gwadar port and Free Zone promise. Even though the Gwadar Port Authority and the Chinese company are building a vocational training institute in Gwadar to train the youth, the local fishermen worry that they may not make as much money for waged labour as what they did fishing. Some of the newly constructed road infrastructure already limited access of fishing boats to the sea, causing protests by the local population. As of June 2020, the Gwadar Port Authority’s promise to build facilities for the fishermen to remedy the situation had not been met.
The local population’s distrust of the government also emerged in a controversy that occurred in late 2020 regarding a project to fence off Gwadar city, supposedly as a security measure against terrorist attacks. It quickly sparked strong resistance by the local population, with many fearing that the fence would hinder their free movement and split their community. Faced with a backlash, the Balochistan provincial government halted the fencing project soon thereafter. While reports citing official sources say that the fence had been envisioned in the Gwadar Smart City Master Plan, this is disputed by some influential commentators. Although evidence in this regard is lacking, many speculated that the fencing project was requested and even financed by the Chinese.
With the Gwadar Master Plan projecting the need of tens of thousands of new homes in the coming decades, many Pakistanis have rushed to buy land in Gwadar with the expectation of appreciation. As land prices have been skyrocketing, many housing schemes turned out to be scams.
In November 2021, thousands came out to protest in Gwadar, including women, students, and sympathetic urbanites from nearby towns, a scale of protest rarely seen in Balochistan. Their expressed grievances included threatened livelihood of the local fishing population due to deep-sea trawling by predatory fleets from both Pakistan and abroad—including China—as well as excessive checkpoints associated with CPEC security, shortage of water and electricity, lack of health care facilities and educational and employment opportunities. While the protests did not directly target the CPEC, they demonstrated its failure to improve the living conditions of the local population, contrary to the promises. In response to questions about China’s responsibility in the situation, the Chinese Ministry of Foreign Affairs spokesperson Zhao Lijian categorically denied, in a press conference on 30 November, any fishing activities by Chinese trawlers in the surrounding waters of Gwadar port, calling such reports ‘fake news’. The protests caught attention from global media because of their implications for the BRI. The protests ended after 32 days as the Chief Minister of Balochistan signed a deal in December 2021 with the local community leaders promising to address their grievances, including banning illegal fishing in the area.
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Updates & Corrections
5 February 2022: Updated to reflect the protests in Gwadar in November and December 2021.