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Perspectives

Pakistan’s merchant marine policy-2020: headwinds or booster to the ports and shipping industry?

Prospects for Private Shipping Companies Private shipping companies have not been an alien concept for Pakistan. At...
Updated 28 Aug 2020

Prospects for Private Shipping Companies

Private shipping companies have not been an alien concept for Pakistan. At the time of partition in August 1947, there were four private cargo ships owned by private companies/individuals. Though those vessels were too aged to sail for longer time but the existence of those ships could reflect that people were not only accustomed with the port and shipping business, but there were capable indigenous seafarers too who did not let their sailing stop. The Pakistani flag carrier shipping company with the name of “National Shipping Corporation (NSC)” was erected in 1963 through an Ordinance. It was an umbrella organization under which 53 vessels of 10 privately-owned companies started sailing as the national fleet. Till the year 1970-71, the number of these national flag carriers had increased to 71 showing massive growth of the sector. There were 15 vessels owned by Cowasjee Family’s “East & West Steamship Company”; with special distinction that on Quaid-i-Azam Muhammad Ali Jinnah’s personal request, Rustom Fakirji Cowasjee got his ship registered as Fatima at Karachi Port Registry as the first vessel of Pakistan, in August 1948. Similarly there were 8 vessels owned by Muhammadi Steamship Company Limited, the first Pakistani shipping line which got enlisted publicly at Karachi Stock Exchange.

The declining trend of the privately owned shipping companies took place after the federal government’s decision of nationalization of all private business organizations including shipping in 1974. There was “Pakistan Maritime Shipping (Regulation and Control) Ordinance” promulgated in 1974 which was converted into an Act in 1976 as “Pakistan Shipping Corporation Act” which took over entire shipping business comprising on 9 shipping companies, with the name Pakistan Shipping Corporation (PSC). The PSC started working as a parallel corporation of NSC. Through “Pakistan National Shipping Corporation Ordinance-1979”, both national flag carriers were merged into one “Pakistan National Shipping Corporation (PNSC). Further change was brought through the “Companies Ordinance-1984” when the remaining nationalized shipping companies were incorporated to the PNSC. Though that merger increased the number of vessels to 60; that was proved the last nail to the private shipping business in Pakistan.

In the contemporary era when the ports and shipping industry has emerged as high value and capital intensive one, it cannot be overlooked by any means due to its greater importance for being invaluable source of economic activity and monetary returns. Since Pakistan has started focusing on its Blue Economy and all of its all related sectors, the previously ignored port and shipping industry has been acknowledged as strategic one, and an amended Merchant Marine Policy had been launched in September 2019. In August 2020, during a press conference, Federal Minister of Maritime Affairs, Syed Ali Haider Zaidi announced a newer version of shipping policy that should be called as another addition, yet valuable, inherently to the Merchant Marine Policy of Pakistan-2001. This version is mainly focusing on loan facility policy by the State Bank of Pakistan to make the shipping industry apostolic for private sector and to support the amendments made in 2019. The ship refinancing has been permitted under Long Term Finance Facility (LTFF) as per existing markup rate of 6.00% for a maximum period of 10 years or Islamic Long Term Finance Facility (ILTFF) as per modarba principles without exceeding the loan ceiling. The payments can be made in local currency and the foreign exchange both, and this scheme will not support the refinancing requests by the 100% government/public owned entities. The SBP refinancing policy supports brand new or imported second hand cargo ships and all kind of floating vessels including pilot boats, tugs, fishing vessels, dredgers etc, of not more than 10 years old, and should be in the right condition to pay back the loan within given time limit.

Now the fact is that the ships are of higher value, usually costing over US$ 100/150 million when built. On the other hand, the only national flag carrier, the PNSC owns 11 ships which are ageing fast and about to cross the maximum age limit sooner. Along with the purchasing or leasing the vessels by the PNSC which would obviously require some time, Pakistan needs to encourage the private sector simultaneously to fill the gap which, otherwise is and would be filled by the foreign shipping companies already eating up the local market share. Another important factor is that the global shipping companies are financially stable and larger economies of scale, their financial wherewithal is much higher to support market competitiveness resulting into monopoly over the international shipping lines as well as the multimodal trade. The approach to entice the private investor through attractive policy incentives is rather an effective measure to deal with the challenge.

The enforcement of the amended shipping policy has certain encouraging factors for the national flag carriers. The relaxation in payment of annual Gross Tonnage Tax (GRT) equal to US$ 0.75 per tonnage for the first 05 years granted to the New Resident Ship Owning Companies is very attractive. After five years, these vessels will increase the amount of the payment to US$ 1.00 per GRT for their shipping operations income whereas PNSC will not enjoy this incentive and keep paying US$ 1.00 per GRT. The reduced tax is conditional as it would be applicable only if these companies agree to pay the freight charges in the local currency and not in foreign exchange which has been approved duly by the finance bill, 2020-21. The Pakistan Resident Ship Owning Companies have to be registered with the Security and Exchange Commission (SECP) for better regulation. However another significant relaxation is non-imposition of any direct or indirect Federal Taxes to these companies for the exemption period of 05 years. Other incentives include priority birthing rights on reaching at any Pakistani port like the ships owned by the PNSC, and by saying that “no preference shall be given to PNSC in private sector cargo,” the avenue has been opened for the private shipping companies registered under Pakistan flag.

Apparently these amendments and further SBP policy of refinancing of the shipping companies owned by Pakistan resident and registered under Pakistan flag have reopened the previously shut doors, and discouraging factors have been diminished or at least are being addressed. As the year 2020 has been declared as the “Year of Blue Economy” coinciding with the theme of the World Maritime Day-2020 “Sustainable Shipping for Sustainable Planet”; ports’ business along with shipping sector should be focused more and environmental factor should be made part of the policy guidelines. There can be some more measures which would act as booster to the Blue Economy like further subsidy to the 6% markup rate. It could be relaxed a little more to 3-4% for initial 3 years and gradually brought to 6% after 5-6 years of starting of the shipping company. Another prospective measure to be included could be Public-Private Partnership in the port and shipping business as there are terminals already working by private companies, the inclusion of the option of PPP in the shipping companies too would prove an attraction to the investors and could enhance the economic opportunity.

The success of any policy in general and shipping related policy in particular requires implementation of all clauses and amendments without falling prey to traditional practices, political interference, and bureaucratic hurdles and turf wars. This success would mainly be reflection of the inside-out approach and intrinsically will transform the economic perspective of the common people and private investors.

Dr Maliha Zeba Khan

Dr. Maliha Zeba Khan is working as an Assistant Professor at the Department of International Relations, National University of Modern Languages (NUML), Islamabad, Pakistan and her area of research is maritime affairs and politics.