THE much-delayed inauguration of the Gwadar port is now expected in March. Meanwhile, a controversy has begun as to why the Singapore-based company, which will operate it, has been allowed a 40-year tax holiday despite the government's claim of following a policy of providing a level playing field to all investors.

A question is also being asked whether the Gwadar port project is financially viable and whether it will it fulfil the objectives of attracting bigger vessels and ships as claimed by the government.

"If you ask me, I will simply say this third port is not a viable project, at least in the near future. It is bound to incur losses but may achieve some profitability in the long term," a former senior government official said.

He also wondered as to why a 40-year tax concession was allowed to its operators. In his views, it negated the government's own policy of discouraging undue concessions and ending discrimination in fiscal and non-fiscal incentives to local and foreign investors. Foreign investment has now become the preferred sector.

A financial analyst says it is a policy shift towards linking tax incentives with specific projects. Many foreign and local businessmen feel that fiscal concessions should be industry, project and product-specific, keeping in view the cost of doing business.

Chairman of the Central Board of Revenue Abdullah Yousuf defended the government's decision of offering 40-year tax holiday to the Singapore company. He said there were problems of basic infrastructure such as roads, electricity, water and housing in Gwadar which warranted certain concessions to the new investor.

He also said the banking sector needed to be made vibrant in Gwadar and that other businesses must be supported there. "The government is already extending tax holidays to various industrial zones and duty-free economic zones, then why there should be any problem in extending such a facility to the Singapore company which will invest $550 million in the project," he asked.

Mr Yousuf explained that the Singapore Port Authority’s subsidiaries will be allowed to import tax-free equipment for years and there will be an exemption from customs duty. “They will not start making profit overnight and it will take time to reach that level, they, therefore, deserve this 40-year tax holiday,” the CBR chairman said. Corporate tax has been excepted for twenty years.

The World Bank and the Asian Development Bank have also expressed their concern over the issue of tax holiday to the Singapore Port Authority (SPA) for such a long period. But they were informed that foreign investors were hesitating to come to Pakistan, particularly to Balochistan, and under these circumstances the operator of Gwadar port had to be given liberal concessions.

Earlier, the inauguration of the port was delayed as the government was undecided as to which of the three international companies competing to operate the port should be awarded the contract. The competition was mainly among the Dubai Port World (DPW), the Hutchision Port Holding of Hong Kong and the SPA International of Singapore, while a Chinese company joined the race afterwards.

Now a high-level Chinese delegation, led by the Chinese prime minister, is expected to attend the inauguration.

Some of the officials of the ministry of ports and shipping were of the view that the terms of reference of the three companies needed to be reviewed to decide the issue.

The Gwadar port is being considered a future trading hub in the region because of being close to the Gulf. Initially, the port is expected to face competition from Port Salalah of Iran. But after the completion of Phase-2 by 2010 at a cost of $840 million, it is likely to become one of the busiest ports in the region, providing warehousing, trans-shipment and industrial facilities for trade to over 20 countries, including Gulf countries, Iran, Central Asian States, India, China and East Africa. Phase-1 of the Gwadar port has cost $298 million.

A number of foreign investors have shown interest in establishing mega refineries, building storage capacity and undertaking other businesses in Gwadar to help expedite the process of industrialisation in Balochistan.

With the completion of the two phases of Gwadar port development, a Special Industrial Development Zone (SIDZ) with an area of 4,000 hectares has also been proposed for setting up various industries. The SIDZ is located in the north of Gwadar town at a distance of about 30km from the port.

The federal government is also providing special Rs700 million funding to help meet 15 years’ water demand of the Gwadar Industrial Estate (GIE) through installation of a foreign-assembled desalination plant. Several suppliers of desalination plants have been contacted to provide 2.0 MGD plant for the GIE.

The future demand of water supply will be met partly by recycling of waste water (irrigation and industrial cooling) and partly by addition to the desalination plant. At present there is no water resource available in the area.

The Balochistan government has provided 3,000 acres through two separate allotment letters, out of which 20 acres will be made available free of cost through the Gwadar Industrial Estate to set up the desalination plant, intake work, storage tanks and other facilities.

There will be approximately 2,000 industrial units in Gwadar. Most of the production will be export-oriented and will bring foreign exchange to the country. The project will be implemented by appointment of consortium of consultants.