In this interview with BR Research, he talks about the importance and efficiencies of the terminal and growth potential he foresees in dirty cargo. Here are edited transcripts:
BR Research: How did this project come to light?
Sharique Azim Siddiqui: According to its master planning of the ports, the government invited bids for the construction of the country's first dirty bulk cargo in 2006. This project came out of that bidding process. It took us a few years to build it and attain regulatory permissions, and we came online last year on July 1. Like other terminals, port authorities invite bids for concessions and they give out a license for concession to the investor. The investor puts money in the project and operates it for a Build-Operate-Transfer (BOT) period. Our BOT is 30 years and we will be running the terminal for that period of time, and we pay a royalty to Port Qasim for that concession.
BRR: Walk us through how the terminal works.
SAS: We built the project in three phases. We built a jetty and a trestle bridge (2.5 km long) that connects the jetty to our storage area (62 acres). It's all in the sea. It's located on the far end of the Port Qasim. There are no industries, or residential areas next to us. When the vessel docks, we don't allow the cranes of the vessels to offload the coal onto the jetty. We do it with our own cranes, and the coal is offloaded onto conveyor belts which are transported all the way to the storage yard. We have our own sewage treatment plants and the best dust suppression systems compared to the industry globally (water sprinkling systems, wind fends among others).
BRR: What is a metric for efficiency in terminals? Give us a comparison for PIBT.
SAS: In a container terminal, the efficiency is how many containers per hour are loaded or offloaded on or off the vessel. In bulk terminal, the efficiency is how many 1000 tons of cargo per hour is offloaded and loaded. We have set up capacity to handle 2600 tons per hour of cargo at PIBT. About 60,000 tons per vessel we can handle in 1.5 days or less. That compared to Karachi Port, used to take five days for handling, in addition to the queue for birthing the vessel. It used to take a week for cargo imports there. These are the efficiencies that translate into cheaper costs apart from the great environmental benefits to the country of coal and clinker, which are both polluting.
BRR: Are there any global standards that you follow when handling dirty cargo?
SAS: The World Bank has financed us and is also the co-owners on the project. They have their own guidelines for cargo handling, which are even more stringent than those of CEPA or our own port authority.
BRR: What is your existing capacity?
SAS: We have the capacity of handling 12 million tons of coal per annum, and exporting 4 million tons of cement and clinker per annum. Now that we are in our second year of operations, the volumes are getting stronger. We have started handling export of clinker for Attock Cement, which is about 300,000 tons.
We are also hopeful to enter an agreement with Port Qasim for the handling of LPG. We are keen to set that up on our existing infrastructure.
BRR: What are your volumes vis a vis other ports handling dirty cargo?
SAS: In August, Karachi Port was closed by the orders of the Supreme Court due to the pollution it was causing at KPT. Coal being handled by the stevedores is the age-old method of handling cargo. There is no investment in technology or machinery such as cranes, conveyor belts, or proper coal yard.
Absence of adequate equipment especially in coal handling causes immense pollution. There were human rights petitions dating back years that were pending in the court submitted by people living around that area. SC took up that petition and wisely decided that since a dedicated facility on international standards have come up at Port Qasim, Karachi Port's coal handling must be stopped.
The Karachi port volumes also started coming to us. Right now, in terms of country's break up of volumes, there are three coal-fired power plants (Sahiwal Power Project, China Electric and Hubco in Baluchistan) that have their own jetties or are in the process of installing their own. They handle 4 million tons each per annum- together 12 million tons.
We are a common user terminal so we handle it for power plants, for cement factories and other commercial importers. This year, we hope to handle 6-7 million tons in volumes. Apart from the coal-fired power plants, the total imports in the country would be around 8-9 million tons.
BRR: With the cement industry expanding to over 70 million tons in the next two years, do you have the capacity to cater to the increased volumes in both coal imports and cement exports?
SAS: We can invest further and bring our capacity from 12 million tons to 20 million tons per annum, which should be adequate.
BRR: Do you set the prices for the handling of cargo at the terminal, and is there any regulatory oversight involved?
SAS: Our regulator is Port Qasim Authority and in our concession agreement with them, we have general guidelines of setting the prices and we remain under those guidelines. But we do have flexibility.
BRR: Some sources suggest that when the volumes of coal diverted toward the PIBT by orders of the Supreme Court, the handling prices at the terminal went up dramatically. Is that true? Can you give a price comparison between PIBT and other coal handlers?
SAS: No, that's not true. But let me give you a little background. The stevedore operations were taking place in Karachi Port where coal was being imported since 2002. Stevedores are basically contractors. The vessel comes in and takes out the coal from its own crane on the jetty and the stevedore hires the labour and trucks on contract. The coal is transferred from jetty to trucks and then dumped in the yard. This whole process causes a lot of pollution.
Stevedores do not have any investments, and they don't pay any royalty to Port Authority. So for 15 years, this informal system had been handling coal at about Rs350 per ton. When the Port Authority invited bidders to come in, invest and bring in the best technologies in the world, we came in. Our investments have been about $315 million in the project. When you invest that much and also pay a royalty ($2.27 per ton) you have to try and recover the costs.
In essence, one cannot compare the terminal costs with stevedore costs. That impact definitely came by the way, the terminal always charges in dollars since costs such as equipment, royalty, fuel etc. are in dollars. Our terminal costs include the investment costs and the royalty costs so the charges that have been there since the start have always been higher than stevedores. To say that we raised our prices after the judgment, that is incorrect.
Market dynamics also determine certain factors. For example, the number of days the coal can be stored at the terminal. Importers were used to 60 days' storage at Karachi Port. There was no terminal. They had a yard where they stored coal. Nowhere in the world can you store cargo for months at length because they get choked. You have to get the cargo out. There is a commercial angle there. We want to get the cargo out within 15-20 days, otherwise there are storage charges.
Moreover, we don't have a monopoly because if 12 million tons of coal is currently being handled by three power plants, our volumes are not even 50 percent of total imports.
BRR: What inefficiencies or limitations do you see at Port Qasim and Karachi Port?
SAS: All the terminals are limited by the channel where the vessels enter the port. The channel is restricted to 13-meter depth. If the channel was deepened further, we could handle larger vessels, which would be a benefit to the importers. This is the common demand for all terminals whether container, or other bulk. If the depth is deeper, then you can get in bigger vessels in Pakistan and the cost of importing those goods would reduce.
Moreover, an LNG terminal has come up in Port Qasim so when there is an LNG vessel movement in the channel, then Port Qasim does not allow any other vessel to move in the channel, which delays all other terminals, including us.
BRR: What do you think about the Gwadar port, its infrastructure, and the design of the terminals?
SAS: I have no idea about Gwadar as there is no clarity about Gwadar. As a Pakistani investor, the government has not advertised the planning of the port or the opportunities that may exist there for local players. We are in the dark. When in fact, the government should be bringing in the private sector to get involved; set up factories, terminals etc.
BRR: What are your projections for coal demand locally?
SAS: There are two more coal-fired power plants coming up in three years. Right now, if the total coal is 20 million tons, this will go up by another 8-10 million tons very soon. When the cement industry's expansion comes in, that will further boost demand.
BRR: Do cement players in the north route their coal from this terminal?
SAS: Yes, but the dynamics in the north are different. When coal prices globally go up, northern factories start getting their coal from Afghanistan. But they do suffer because there is a quality as well as a supply consistency issue.
BRR: Let's talk a little about transportation of coal. Currently, it is transported through trucks that wrecks the road network, causes accidents, and is a burden on the environment aside from being incredibly cost and time inefficient. The upsides of transporting freight, especially dirty cargo through rails are well-documented. Why isn't railway coming in?
SAS: Actually, the whole railways can turn around because of this transportation. It is the best way to transport goods, not just coal. It has a reduced carbon foot print. Globally, railways make money from freight, not passenger traffic, which is always subsidized. In the Sahiwal project, which was a pet project of the previous government, they ensured that the railways connected to the Sahiwal jetty. That coal is being transported from Port Qasim to Sahiwal through railway. From that project, as I understand, the railways is earning more than Rs 12 billion from transportation of 4 million tons of coal.
Infect, railway lines were part of the master planning of Port Qasim and our agreement with the PQA shows that the railways will be connected to the PIBT. We built the terminal based on that. At our inauguration in October last year, Railways announced that it would connect to PIBT. We are still waiting for it. I suppose the new government is learning the ropes. In any case, railways should connect, even just considering the profits it could potentially earn.
BRR: The world is moving away from coal, but Pakistan is moving towards it. What are your thoughts on that?
SAS: Globally, even today, more than 40 percent of the energy mix is coal-based. If you look at countries that had coal reserves, they exploited them and utilised them and generated power. India, China, Australia have developed through mining and using coal. In India, over 50 percent of power is still generated through coal. They burn 0.5 billion tons of coal every year. Their fast progress came from cheap energy.
The coal-fired power plants that have been set up in Pakistan, from what I understand, are on modern standards. These plants do not cause the same levels of pollution that one normally associates with old style coal-fired power plants. This is super critical technology, and is not as polluting. Of course, Pakistan must be cognizant of the environment while importing coal, mining coal reserves and transporting coal, the way we handle coal in environmentally controlled conditions. Railways ought to be involved for more efficient transportation.
BRR: There is so much noise around CPEC and expansion of exports, but there is no policy focus or even a conversation on the logistics industry, which should be central to CPEC plans.
SAS: You are absolutely correct. CPEC is all logistics based, we are not setting up factories. Logistics is where the focus should be on, which is where local private investors can come in. But there doesn't seem to be any plan in place to regulate and involve the industry as a whole. The private sector is the engine of growth and it is eager to be more involved in this project.