Rationalising public private partnership in shipping sector

Currently, Pakistan’s biggest issue is the lack of foreign exchange. Therefore, there is an urgent need to reduce the freight bill. Pakistan’s seaborne freight bill is estimated to be over 3 Billion US dollars per annum. Shipping facilitates trade and reduces the freight bill. Unfortunately, Pakistan’s Shipping could not compete globally.

With a current fleet of 11 vessels, Pakistan National Shipping Corporation (PNSC) lifts approximately 12-14% of the total import/export tonnage. The reasons for lack of shipping capacity are exceptionally high capital cost of new ships, archaic burdensome processes, conservative approach, corruption and lack of confidence in the Government policies. There is a need to promote private ship owning endeavours.

According to PNSC sources, in the recent past, it has not made significant developments in attracting new Pakistan based business, relying either on long standing contracts with refineries or simply chartering out vessels in the international market. On 12 July 2016, the then PNSC Chairman Arif Elahi offered the private investors the opportunity for joint ventures (JVs) with PNSC.

Before a public entity enters into a joint venture, it will need to check if it is technically feasible and empowered to do so under the law. Public private partnership (PPP) has been successful globally in regions including Pakistan, EU and UK, with diversified PPP markets. In Pakistan, various applications of the PPP have been found including infrastructure projects and energy projects, except shipping sector.

The stakeholders, including PNSC, have different understandings on PPP-JV in the shipping sector. However, a PPP in the form of a JV between PNSC and the private sector, would technically mean that PNSC would provide management or all shipping-related services, whilst the private sector would provide the finance or ships. However, finance is not an issue for PNSC and the major cause for concern is the guaranteed cargo.

Apparently, PNSC’s management anticipates cargo supply from the private sector in order to develop a Joint Venture for which the financing / profits could then be shared in an agreed-upon percentage and a similar arrangement is reflected in its current Contracts of Affreightment (COAs) with refineries.

The powers of PPP Authority under Section 4, sub-section 2 lists a number of powers and PNSC falls into the federal legal ambit and is within PPPA’s jurisdiction. However, there are three points stated in the Act and PNSC Ordinance which may remove the authority’s jurisdiction.

According to PPPA Act 2017, the purpose of PPP is to promote domestic and foreign investment in infrastructure to increase the availability of public infrastructure, reduce transaction costs, ensure appropriate regulatory controls, and provide legal and economic mechanisms to enable the resolution of contract disputes, among others through transparent and fair procurement process. Secondly, the PPPA Act defines a project as “an infrastructure project, provision of infrastructure related services or both, under a public private partnership”.

However, there is no definition of infrastructure itself in the Act. If the definition of infrastructure is assumed to be the same as appearing in other laws in Pakistan, such as ‘The Infrastructure Development Authority of the Punjab Act 2016’ which defines it as ‘including public buildings or civil structures, road and related or incidental facilities’, that would mean that any JV between PNSC and the private sector does not fall in the definition of a project, as a JV constituted strictly for the purpose of trade and provision of shipping services (even if the JV owns a vessel) is not classified as infrastructure.

Thirdly, is that in the PNSC Ordinance, 1979, Section 3, Standing Orders not to apply, it specifically states that ‘Notwithstanding anything contained in the West Pakistan Industrial and Commercial Employment Ordinance (Standing Orders), 1968 (W.P Ordinance VI of 1968) or in any other law for the time being in force, no provision of the said Ordinance shall apply to or in relation to the Corporation’. However, the considered legal opinion of the PPP Authority and corporate lawyers indicates that the PPP Authority Act 2019 is fully applicable to PNSC. Moreover, PNSC will be an implementing agency within the meaning ascribed to it by Section 2(g) of the PPPA Act 2017, for any case of PPP JV development.


It seems complex to materialize a PPP-JV for PNSC. The basic understanding of PNSC’s management about a PPP-JV is not workable at the level of the private sector as it deviates from technical contours of shipping business and various public sector interests. On the other hand, confusion still exists in the PPPA Act, 2017 regarding the definition of the project. The Federal Government needs to revisit and make this definition generic so as to cover all the sectors’ economy.

In addition, there is a need to engage and consult private sector stakeholders for workable solutions in order to overcome the mistrust factor which is a limiting factor for private ship owning in Pakistan. The Government of Pakistan needs to take trust building measures through actions and a clear direction in order to bring back private investment in the shipping sector.

 

Source: Pakobserver


— The writer is Lead Researcher National Institute of Maritime Affairs (NIMA) Bahria Univeristy,
Islamabad.