Unlocking Maritime Potential: CPEC's Dive into the Shipbuilding Sector
The China-Pakistan Economic Corridor (CPEC) presents a significant opportunity for Pakistan's maritime sector, particularly in the realm of shipbuilding. However, Karachi Shipyard, with its limited tonnage capacity, faces stiff competition from regional shipyards in the Gulf. These Gulf shipyards boast state-of-the-art facilities for shipbuilding, ship repair, oil rig construction, and oil rig support. Major players in the Gulf, such as Dubai Dry Docks in the UAE, King Salman Global Maritime Industries Complex in Saudi Arabia, and Abu Dhabi Shipbuilding (ADSB), have been capturing a substantial share of the regional business.
The current facilities at Karachi Shipyard & Engineering Works (KS&EW) are inadequate to meet the needs of the Pakistan National Shipping Corporation (PNSC), the growing demands of Pakistan's economy, the modernization of vessel categories, emerging trade route requirements, and the competitive services available in the region. For instance, KS&EW's two Graving Docks have limited capacities (18,000 and 26,000 DWT), and its three Shipbuilding Berths offer varying capacities (6,000 DWT, 15,000 DWT, and 26,000 DWT).
KS&EW's limitations were evident when emergency repairs had to be conducted on a 250,000 DWT vessel at Karachi's outer anchorage because the vessel couldn't enter Karachi Harbour. This raises concerns about the facility's capacity to handle unforeseen security scenarios, underscoring the importance of expanding and upgrading the existing facilities at KS&EW to meet the national flag carrier's needs.
The shipbuilding industry is capital-intensive and often regarded as a nation-building endeavor. China, South Korea, and Japan dominate this industry due to their strategic approaches, lower labor costs, and strong government support. Pakistan, despite its reliance on sea trade and a lower labor cost advantage (about 82% less than China), has not made significant efforts to tap into the shipbuilding sector. Most of its skilled workforce ends up working in the Middle East. However, with the potential offered by CPEC, Pakistan can attract this workforce back home by providing favorable financial packages and opportunities.
In March 2018, the Federal Cabinet approved plans for a new shipyard in Gwadar, but progress has been slow, possibly due to unclear project financing and model approaches. Nonetheless, this initiative in Gwadar should establish a state-of-the-art facility capable of repairing and building ships up to 600,000 DWT to meet regional and global demands.
Experts have raised concerns about market demand and the facility's size, particularly whether it should cover Very Large Crude Carriers (VLCC) and Ultra Large Crude Carriers (ULCC). However, the government's forward-thinking vision can be realized through a phased, market-driven approach. The first phase could focus on Suezmax-sized vessels (between 120,000 to 200,000 DWT) with plans to expand in later phases to accommodate vessels up to 500,000 to 600,000 DWT, aligning with potential market demand.
Market analysis indicates promising prospects for such an initiative in Gwadar, which could lead to the development of a successful maritime city. Gwadar's strategic location, coupled with ongoing projects like the New Gwadar International Airport, makes it an ideal hub for global shipping lines and offers lucrative opportunities for ship repair and maintenance.
The establishment of this facility would require a capital investment of approximately $0.6 to $1 billion for shipbuilding and $0.5 to $0.75 billion for ship repair and maintenance. Despite the capital-intensive nature of this venture, the long-term benefits for national security and technological advancement justify government involvement, even if immediate returns are not guaranteed.
While there have been discussions about establishing the facility through joint ventures with foreign investors, Pakistan Navy's support, and public-private partnerships (PPP) using a Build-Operate-Transfer (BOT) model, the government's roadmap remains unclear. Prioritizing and initiating this project under the CPEC framework offers a fast-track solution to harnessing the potential of Pakistan's shipbuilding industry.