Roadmap Report_ Karachi Fish Harbour

DRAFT

Karachi Fish Harbour: Roadmap for Restructuring Harbour Management and Operations

Karachi Fish Harbour showing the overcrowding among the fishing boats

Competitiveness Support Fund Karachi Fish Harbour - Roadmap for Restructuring Harbour Management and Operations

Abbreviations

Beopari A moneylender and middlemanBOT Build, Operate, TransferCSF Competitiveness Support FundEOI Expression of InterestEU European UnionFCS Fishermen’s Cooperative SocietyGoS Government of SindhHa HectareKFH Karachi Fisheries HarbourKFHA Karachi Fisheries Harbour AuthorityMole Same as Mole holder, though perhaps not officially

sanctionedMole holder A seafood commission agent. Sometimes a boat

owner and exporter, and a moneylender. “Official” moles are sanctioned at the KFH

PR Pakistani RupeeSTOFA Sindh Trawler Owners & Fishermen Association TORs Terms of Reference

Currency

On 26th May 2008 US$1.00 bought PR 69.36 (State Bank of Pakistan)

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Contents

Executive Summary............................................................................................................... iv

1. Introduction.................................................................................................................. 1

2. Objective....................................................................................................................... 4

3. Rationale....................................................................................................................... 5

4. The process of privatisation of the management of KFHA......................................8

5. Timeframe................................................................................................................... 11

6. Getting consensus.....................................................................................................13

7. Nature of the management agreement for KFH.......................................................15

8. Contractual and legal matters...................................................................................17

9. Tendering and award of contract..............................................................................21

Appendix 1............................................................................................................................ 23

References.............................................................................................................23

Appendix 2............................................................................................................................ 24

Significant People met during assignment........................................................24

Appendix 3............................................................................................................................ 26

Terms of Reference for the Project.....................................................................261. Karachi Fish Harbour...............................................................................................................26

a. PHASE 1 - Groundwork........................................................................................................26b. PHASE 2 - Establishment......................................................................................................27

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Executive Summary

1. This Roadmap report is part of a continuing process undertaken by the

Government of Sindh in cooperation with the Competitiveness Support

Fund (CSF) and Federal Government to upgrade Karachi Fish Harbour

and restructure the management of the Harbour1.

Purpose

2. The purpose of the Roadmap is to provide the stakeholders with the

steps that they have to take in order to bring the Harbour up to a standard

that complies with international requirements.

3. It is important to emphasize that the work has to be undertaken by the

stakeholders; CSF can facilitate the process of change and indeed

provide guidelines (such as this Roadmap), however CSF will work with

the stakeholders, including the Federal and Sindh government to take the

necessary steps suggested here.

Aim

4. The aim of the process of change and restructuring agreed with the

Government of Sindh is to move forward the privatization of the KFH in

respect of an international management company to be brought in to take

over and manage the operations and assets in the Harbour. This should

improve the quality of the fish passing through Karachi Fish Harbour by

improving the management of the Karachi Fish Harbour, and through this

improvement in management2 also address income, infrastructure and

quality control issues.

1 The work commenced in early 2007 with CSF’s initial report on the KFH and resulting Action Plan. In January 2008 a Prime Ministerial Committee confirmed CSF’s approach. Other related work has been undertaken by UNIDO in conjunction with the Federal Marine Fisheries Department of MinFAL

2 The ADB (2007) Port Reform Toolkit (363 pp) has been used as the main guide to practical issues.

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Findings

5. The key finding of all the work undertaken by CSF related to the

Karachi Fish Harbour is that the problems there are not purely physical or

technical; the technical issues (e.g., condition of the auction halls, sewage

systems, condition of boats, provision of ice etc.) have tackled countless

times without lasting success. The fundamental issue is one of

management of the facility and the desire and capacity of owners and

managers to actually undertake their work in compliance with well-known

and accepted international standards.

6. It is important to be frank about this matter, the technical or physical

aspect of the KFH can be upgraded time and again. But there will be no

lasting impact if the stakeholders themselves (in particular the so-called

“moles” – the holders of auction licenses - do not recognize financial value

in upgrading the Harbour. So far they have not done so. If KFH is to be

upgraded and exports to international markets (specifically the European

Union) restored, then it is principally up to the Government of Sindh (as

owner of the Harbour) to convince the stakeholders of the value of the

changes proposed by CSF.

Next steps

7. A number of specific steps have been agreed. The Government of

Sindh must take ownership of the programme by designating an

implementing agency. This agency needs to be empowered to take all the

necessary actions which can only be taken by the GoS. The agency could

be the Sindh Secretariat, Livestock and Fisheries Department or the

Karachi Fish Harbour Authority itself.

8. Once an implementing agency and its primary staff are chosen, then

certain key things will need to be done by the agency on the GoS side

before CSF can continue its work on the project. These are:

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a. Notification of a reconstituted Board of KFHA as per previous

agreements (See Government of Sindh No.EC(Fish)(L&F)/15(15)2007.

Minutes of the meeting regarding Competitiveness Support Fund –

Action Plan for Karachi Fisheries Harbour Authority held under the

Chairmanship of the Chief Secretary, Sindh on 22.1.2008. Karachi

dated 24th January 2008)

b. A meeting of the newly reformed Board to pass a resolution to offer a

contract to a private management company in line with your decision to

privatize the KFH;

c. The stakeholders have to be consulted in order to build consensus.

Consultations including a series of Stakeholder Workshops and Formal

Consultative Meetings will build a consensus about the way forward –

we believe that it would be futile to pursue this project unless a full

consensus of all the stakeholders is reached.

9.Once these steps have been taken, CSF can move forward with the next

activities on the Roadmap for restructuring the KFH, such as preparing a

lease agreement, seeking possible management partners and developing

a PC-1 for federal funding if required.

Competitiveness Support Fund

Islamabad

June 2008

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1. Introduction

10. The Competitiveness Support Fund (CSF) is an independent body

established in 2006 to reposition the Pakistan economy on a more

competitive global footing. It is a joint initiative of the Government of

Pakistan, Ministry of Finance and the United States Agency for

International Development (USAID).

11. A study3 in 2007, designed to address the Pakistan fishing industries’

main and most pressing problems identified two areas of great concern.

These were:-

Overfishing, due to the open entry nature of Pakistan’s oceanic and

coastal fisheries.

A failure to maximise the value of the catch due to quality control

problems, particularly at Karachi Fish Harbour.

Serious issues related to the development of the fishery in

Baluchistan including development of Pasni and Gwadar ports

3 Competitiveness Support Fund (2007) Action Plan for Fish Quality and Value Adding at Karachi Fisheries Harbour

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12. Furthermore regarding the failure to maximise the value of the catch;

the situation at Karachi Fish Harbour was identified as critical, in that the

infrastructure and management of the harbour was inadequate for the

needs of the fishing industry and required strengthening before significant

progress towards alleviating quality control problems could be achieved.

13. The 34.4 hectares comprising Karachi Fish Harbour is situated on a

prime area of industrial land in West Karachi. It is the hub for all fisheries

exports and local fish marketing. Karachi is the major port of the country,

the city with the largest population (20 million estimated) the Competent

Authority, fish processing establishments, road, air and rail links to the

rest of the country, a busy international airport; and which is also the

centre of manufacturing and finance in Pakistan. 40% of the catch of

Pakistan passes through the Karachi Fisheries Harbour and at least

another 20% through the city, though much of this is fish for fishmeal.

14. Export fish generally passes through the Karachi Fisheries harbour,

around which the 32 major fish processing companies are concentrated,

and which has three auction halls. Some export fish and shrimp, coming

from Baluchistan, and the Indus delta, and possibly Ibrahim Hyderi on

Korangi Creek in Karachi, does not pass through the landing and auction

facilities and goes straight to the processors. Some fish is exported

directly to Iran and the Middle East from the Western ports of Baluchistan.

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15. KFH needs to deal with a number of disparate activities: the movement

of large numbers of fishing boats (large and small), the loading and

unloading of fishing boats to the various auction halls, management of the

auction houses, allocation of space to fish processors, vessel repair

facilities, boatbuilding activities and administration. Berths, warehouse

and other storage spaces have to be allocated and released. Many

thousands of people also rely on the KFH for their livelihoods. The

efficient management of KFHA involves managing these activities and

resources, managing the flows of money involved between the agents

providing and using these resources, and providing management

information to users and administrators.

16. In principle (or on paper) the Sindh Provincial Government owns the

KFA. The Karachi Fish Harbour Authority (KFHA) is the agency of the

Sindh Provincial Government that is responsible for managing the

harbour. KFHA receives money from Government of Sindh (GoS)

budgets and additional income from the hire of space on the harbours

already crowded site, for boatbuilding and for processing, and from the

use of the slipway, though this is rarely used for fishing boats.

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17. This system has not worked in reality and the facilities at the harbour

are deteriorating (though there has been some investment to improve

auction facilities). Many of the businesses operating out of the harbour

are not contributing adequately to the upkeep of the area and there are

serious shortcomings in the collection of dues. This has contributed to a

reduction in the quality of the fish landed and its value.

18. The intention is therefore to modify the management regime by

contracting out the port management function to an expert port operator.

2. Objective

19. The main objective of the process is to improve the quality of the fish

passing through Karachi Fish Harbour by improving the management of

the Karachi Fish Harbour, and through this improvement in management4

also address income, infrastructure and quality control issues.

20. This much has been agreed already by the Government of Sindh

(GoS), assisted by the Competitiveness Support Fund (CSF), and

memoranda have been issued to this effect. Regarding management it

has also been agreed that5, inter alia :-

Minuted agreement Comment

1

The ownership of the harbour will remain with the Government of Sindh and the Karachi Fish Harbour Authority (KFHA) will continue to exist

This is fundamental to the privatisation process as it defines the type of management agreement that can be entered into.

2 The Board of the KFHA shall be reconstituted.

This requires a “Notification” to the issued and the new members co-opted

3

The KFHA will outsource the management of the entire facility to an international/reputed company by open competition

This will require a change to the legislation, which is not too complicated.The current agreement with the FCS to manage the auction will also have to be rescinded

4

The KFHA will prepare the TORs and recruit a management company to manage the KFH with the assistance of CSF.

This is extremely complex and technical and will also require a change in the legislation.

5 The management company will The situation of the various stakeholders,

4 The ADB (2007) Port Reform Toolkit (363 pp) has been used as the main guide to practical issues.

5 Gov Sindh. No. EC(Fish)(L&F)/15(15)2007. Minutes of the meeting regarding Competitiveness Support Fund – Action Plan for Karachi Fisheries Harbour Authority held under the Chairmanship of the Chief Secretary, Sindh on 22.1.2008. Karachi dated 24th

January 2008.

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privatise the auction of fish, with the proceeds being split between the Fishermen’s’ Cooperative Society and the Management Company/KFHA.

particularly the mole holders will have to be carefully worked out, and enshrined in new legislation, otherwise the privatisation will face legal challenges and serious lack of cooperation.

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The CSF will continue to assist the KFA and also through their place on the board, monitor and evaluate the functioning of the harbour

Dependant on success of the above.

3. Rationale

21. Karachi Fisheries Harbour is obviously not run efficiently, does not

cover its running costs and provides a very poor service to its users. This

is accepted by all stakeholders, and is obvious to even the casual

observer. The whole country pays for these inefficiencies in that the price

of fish is not maximized due to poor quality, affecting fishermen

(incomes), traders (export earnings) and the consumer.

22. The harbour, 34 Ha of land in West Karachi should be an asset

producing dividends for the Sindh Government. Currently the Sindh

Government subsidises the harbour. The opportunity cost to the Sindh

Government of having these 34 Ha of valuable land as an inefficiently run

fish harbour is enormous.

23. Some of the reasons for the lack of efficiency, and its costs lie with

poor management, in that the administration by the various bodies

charged with management of the various functions is lax, overweight and

reported to be corrupt. Reform would overcome many of these

shortcomings and also remove the long term financial burden for

infrastructure investment, maintenance and some recurrent costs

presently lying with the GoS6.

24. The elimination or reduction of political interference and misuse of

funds is a very real reason for action. A private company, orientated

towards financial probity and commercial results will give a focus on the

market and its changing needs.

6 Through attracting foreign investment, reforming labour practices, making the harbour a commercial entity etc

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25. The auction of fish at the Karachi Fish Harbour site began in 1959

when the fish market moved from Karachi town to the harbour.

Responsibility for the auction was given to the FCS7 as the MFD, as it was

then, did not have the capability to run it.

26. The ownership of the KFH assets passed to the Sindh Government

when the responsibility for fisheries passed to the Provinces after 1973.

FCS claimed that an earlier understanding that they had with the Federal

Fisheries gave them ownership of the KFH but this claim was thrown out

after a court case.

27. The Karachi Fish Harbour Authority has been in existence since the

early 1980’s. It was constituted to receive a grant from the EU but has not

been disbanded since. Under its management the harbour has not been

well maintained over the last few years. Facilities are run down and there

has been a serious lack of investment in plant and equipment. Staff strive

to manage but their actions are constrained by the structure of the KFH

management (with the auction, the main revenue stream, controlled by

the Moles and the FCS) and a lack of will to change from above.

28. Although the Sindh Government and various donors have made

piecemeal investments to improve the facilities for handling and

auctioning fish (such as K1 Auction Hall and refurbishing K2 Auction Hall)

there remain many infrastructure problems. Recently GoS has made

available more than Pak Rupees 200 million in development funds, mostly

for maintenance and equipment, and the improvement of vessels fishing

to the harbor.

29. KFH has not in the past maximised its incomes. Some examples

(there are probably several others) include:

rents for plots on the Harbour Lands are much lower than

commercial rents elsewhere in West Karachi

no dues are collected by KFHA from boats entering or leaving

the harbour, or unloading, or just tied up in the harbour

7 With the FCS came the moles.

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the FCS owes more than Pak Rupees 30 million for rent of the

auction halls which remains uncollected.

30. KFHA is striving to collect outstanding rents and other receivables, and

is having some success. They are however, problems since many of

those owing money claim they have no money to pay. The fishing

industry has not been as profitable of late as in recent past years.

31. It is only relatively recently that there has been the political will in the

GoS to tackle the problem apparent at KFH, rectify the shortcomings in

management of the harbour and lack of investment in facilities.

32. Various vested interests, most notably the moles, have sound

economic reasons not to support change.

33. The EU has, through the de-listing of Pakistan processing units, made

it impossible to export directly to the European Union; but at the same

time brought the failings of the KFH to public attention and to the attention

of the Federal and Sindh Government. The Competitiveness Support

Fund has been instrumental in maintaining the high profile of the need for

change.

34. Ultimately the Government of Sindh Province (GoS) is attempting to

improve the management of the KFH to assist the general development of

both the Province and people of Pakistan, and specifically increase the

returns from fishing, which will support the fisherfolk of Sindh and

Baluchistan. At the level of the harbour the GoS seeks to ease the

financial burden on its budget by transferring part of harbour investments

and operating costs to the private sector, and raising its own revenues.

35. The task therefore is to design a Management System that will allow

the assets of the KFH to remain with Sindh whilst transferring the day to

day management of the whole harbour activities to the private sector.

36. These are admirable aims.

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4. The process of privatization of the management of KFHA

37. Privatizing the management of the KFHA will not be a simple nor quick

process8. Port and harbour privatization has occurred in many parts of

the world, including Pakistan, and a body of experience has been built up

which shows that the process is both more involved and more drawn out

than at first appears.

38. Preparing for privatization has to be done properly, or there might be

nobody prepared to take on the job of management, and any badly

prepared privatization will put back the process of reform for many years.

39. For KFH the concept of a “landlord” port9 has generally been accepted

as the best model to follow. If GoS, in the light of the possible difficulties

of getting consensus on introducing private management to the KFH

would prefer another arrangement, this could be re-considered, though

the alternatives do not offer the same advantages.

40. The first stage is the acceptance of all parties that change is to happen.

There is already a widespread recognition in the higher echelons of

decision making at Provincial and Central Government level that the

present situation cannot continue. KFHA is financially compromised, the

harbour is a drain on the public funds, development funds do not reach

the intended destinations, vested interests hinder change and the

financial losses to the fishing industry through continued failures in the

cool chain from capture to consumer are catastrophic. The management

structure of KFH has not changed significantly since 1984 when it was

formed, 24 years ago; the structure of the auction has not changed since

1958, 50 years ago when the harbour opened, and this was merely a

8 See: Port Reform Toolkit, World Bank Transport Division. (2007).9 In the landlord port model, infrastructure is leased to private operating companies. The lease to be paid to the port authority is usually a fixed sum per square meter per year. Depending on the lease conditions the private port operators may provide and maintain their own superstructure including buildings (offices, sheds, auction halls, factories etc). They also purchase and install their own equipment on the port grounds as required by their business. In an established harbour such as KFH arrangements for the labour, infrastructure and revenue have to be decided.

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continuation of previous practices at the town market, from the colonial

era.

41. Unfortunately it is still not certain that some of the powerful vested

interests, nor even the labour force of KFHA and FCS or other

stakeholders are fully convinced of the benefits of privatization.

Consensus must be obtained through negotiation and compromise

because a confrontational approach is unlikely to be successful.

Currently (May 2008) many people claim never to have heard that there

was a proposal that the management of the harbour might be privatized.

42. Very importantly, the contractual and management arrangements for

the private sector entity that will takeover the management of the harbour

must be scoped out and agreed upon before the privatization process can

go ahead. The size of the task must not be underestimated. The various

powers of the parties, procedures for solving disputes, rules, rents and

labour issues must be consistent with the public interest, but also defined

so as to allow the new management to manage in an efficient and

effective way.

43. Finally this all has to have a solid legal basis, particularly since the

management company or institution will require that its investment is

protected by law, as will the GoS who will retain ownership of the assets.

44. The GoS, through the KFHA has access to legal advice and services

which will allow it to alter, at little cost, the current legislation related to

changing the composition of the board of directors of the KFHA and

introducing more stakeholder participation.

45. Similarly the change of the ordinances and regulations relating to the

change of management of the KFHA can probably be addressed via

these channels.

46. Where the GoS and KFHA will probably require bringing in outside

legal advice or assistance is in the drafting and preparation of the TORs

and contract to engage the Management Company to manage the KFH.

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This is not uncommon in harbour or port privatizations, though in the case

of the KFH some of the common difficult problems are to be avoided,

partly by its relatively small size but also by deciding on a concession or

lease with the GoS retaining the assets and land. However, the

concession/lease arrangement will not be simple, far from it, because the

arrangements for dealing with the existing and ingrained vested interests

in the KFH remain to be sorted out. The Mole holders and Beoparis, for

instance, must be mollified by whatever arrangements are made.

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Competitiveness Support Fund Karachi Fish Harbour- Roadmap for Restructuring Harbour Management and Operations

5. Timeframe

47. It is advisable if a timeframe is placed on the various actions that have to be completed. This gives targets and helps the planning process. For the KFH the following timetable may be appropriate:-

ActivityTo be complete by

Responsibilities

KFHA Government of Sindh CSF

PreparationEnds August 2008

Continues with investigating aspects of the privatisation process particularly the preparation of TORs of the future management company. Getting consensus and the role of the vested interests are most important.

Ideally the GoS would publicise the intention to privatise the management of the KFH, through either a notification or through the media. Following this the objections and opinions of the various interests in the harbour will be obtained and can be discussed in various forums, leading to consensus.

Continues to provide assistance in the form of a consultant to aid progress

Basic Legal aspects

Starts Sept 2008

End October 2008

Prepares, with Fisheries Department, modifications & amendments to the existing ordinances so that the law allows the privatisation to go ahead.

VERY LIMITED FUNDING REQUIRED from Sindh Government or KFHA resources

Legal Department will check the proposed modifications and ensure that they are consistent with current legislation, before they are passed

Will not intervene at this stage as these actions are well within the capabilities of the GoS, its various Departments and the KFHA.

Preparation of TORs for contract

Starts end Sept 2008

Ends Feb 2009

KFHA engages a suitable legal drafting company to prepare the TORs and contract agreement.

FUNDING REQUIRED

Assists KFHA with information and administrative back up in the preparation of the TORs.

CSF provides funding for the engagement of a suitable legal drafting company to prepare the TORs and contract agreement

Request for EOI

Jan 2009 CSF assists by arranging media publicity in regional and “Port” publications

Shortlist Depends Government of Sindh procedures Assists KFHA where appropriate CSF consultant assists as required

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Competitiveness Support Fund Karachi Fish Harbour- Roadmap for Restructuring Harbour Management and Operations

On

Progress

With

TORs

Must be fully transparent

Tender

Provisional award

Negotiations

Final Award of tender to winning company

Handover

Dispute with the moles!

Forever!

The CSF envisages continuing assistance to the GoS to help progress towards the ultimate goal of privatisation of the KFH.

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6. Getting consensus

48. It is futile to attempt to privatize KFH if it is not agreed to by the

stakeholders that this is an appropriate way forward. There will always be

dissenters, but a general consensus can usually be achieved. A top down

approach can only be followed if the power to make and adhere to

decisions is available and will be enforced. This does not appear to be

the case in KFH, which is susceptible to political interference and

backtracking on earlier decisions, particularly with a fluid political

landscape. Thus consensus is a necessity.

49. A brief list of the main stakeholders and their main concerns in the KFH

includes:-

Stakeholder Concerns

1. 2000+ fishing boat owners, all members of the Fishermen’s Cooperative Society (FCS) who fish to the harbour. Also their crews, probably another 70,000.

Currently 2000 boat owners land to Karachi Fish Harbour. They wish to continue to do so and also to be guaranteed a reasonable price for their labours. If possible they would like to see price rises for landings coming from any privatisation. The crews are worried about their jobs.

2. The Members of the Sindh Trawler Owners & Fishermen Association (STOFA), which represents the interests of the larger domestic boat owners.

The STOFA needs a landing place for their vessels. Many are tied to the moles but the market/harbour must continue to serve them.

3. The administration and numerous junior employees of the FCS (380)

They are concerned about their jobs.

4. The KFHA staff and its numerous employees (~200)

KFHA staff is concerned about their jobs and long term future.

5. The various fish processors, (Pakistan Seafood Industries Association) their administrative staff and employees (no reliable figure for employment in these industries is available, but it must be considerable).

The fish processors are concerned about profits, so wish to see more and better fish landed, whilst the staff is concerned about their jobs and long term future.

6. The Official Moleholders, who are also financiers to the industry, owners of boats, auctioneers and though loans get sole access to some fish landed at the harbour.

They may also be boat owners

These individuals are concerned about the continuation of the status quo, which is heir livelihood. They will not allow changes that affect their businesses, leading to reduction of incomes. Mollifying these individuals is a necessity. Politically & financially these are very powerful people.

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7. The Beoparis; money lenders who finance the fishermen, usually through loans to the vessel owners

Not as powerful as the Moles, but will nevertheless oppose strongly any changes that reduce their access to or dealings with fishermen.

8. The large number of other middle-men and traders who deal in the fish, between it leaving the harbour and being retailed in the various markets in Karachi and the other major cities in Pakistan.

Not as powerful as the Moles, but will nevertheless oppose strongly any changes that reduce their access to the harbour or dealings with fishermen.

9. Suppliers to the fishing industry (nets, engines, spares, bunker, ice etc)

These industries are concerned abut the general health of the fishery, in that servicing and supplying this segment is the basis of many of their livelihoods

10. Ship repair and building businesses who hire land from the KFHA for their businesses, and other similar businesses

They will wish to be reassured that they can carry on their businesses on the KFHA land.

11. Retailers in markets and shopsWish for a continued supply of good quality fish and shellfish to supply to their customers

12. Consumers of marine fish from the KFH

Want a supply of good quality healthy food

13. The Government of Sindh, which owns the KFH assets

Wishes to protect its assets whilst reducing the KFH reliance on recurrent and development funding. Would like a return from the 34 Ha of land.

14. Local Politicians

Nothing to be done is allowed to “rock the boat” politically. The politicians do not wish for a large disaffected group to be created in West Karachi.

50. There may be pressing reasons, un-envisaged by the planning process

so far, why the form of change planned (a landlord port, with private

management of Government owned assets) is inappropriate; there may

be such grassroots revolt that it cannot be carried through; there may be

vested interests10 of such political and economic power that they can stop

the process. None of this will be revealed until a full stakeholder

consultation is undertaken.

51. It is thus incumbent on the GoS, through the KFHA to ensure that

change is on the agenda at all levels. The GoS must appoint a person or

group of people to address the issue of getting consensus. GoS must,

through a very public consultative process, advise all the stakeholders of

10 It was obvious on 22.5.08 that nobody had spoken to the Moleholders about privatising the auction.

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their plans and make the whole process transparent, right from the start.

This will have several affects:-

a. It will flush out the dissenters, who will be encouraged to put forward

their objections early on in the process; enabling the GoS/KFHA to

incorporate changes to the privatization process to satisfy their worries.

b. It will avoid problems, particularly with the diverse labour groups

employed at the harbour, who are already fearful that changes may

impact adversely on their livelihoods, because they will receive

reassurances.

c. It will convince the public, the stakeholders themselves and Aid Donors

that change is on the way and the problems of KFH are to be

addressed. This will lead to conformity of decision making in

investment and development options.

d. It will convince potential bidders for the management contract that the GoS has approached the privatization process in an open and transparent way.

52. The consultation process will also crystallize in the minds of the

decision makers at the GoS, the nature of the arrangements they wish to

make to privatize the operations of the harbour; what parts can be

privatised and what, if any, cannot.

7. Nature of the management agreement for KFH

53. Currently, though it is not yet formally approved by all stakeholders,

GoS and CSF have proposed that the KFH will be managed and the day

to day operations of the harbour controlled by a private company under a

lease, but guided by the board of the KFHA (who would presumably

control Government Development Funds expenditure, and act as a

moderating agency in any disputes between the GoS, the management

company, and any stakeholders). The KFHA as the arm of the GoS

would not be involved in the day to day running of the KFH. The GoS

would grant a “concession” to the management company. This is a

contract (or lease), legally binding, whereby the GoS will transfer

operating rights to the Management Company for the KFH. The

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Management Company will then manage the harbour and the assets in

the 34 Ha of land of the harbour under the terms of this contract.

54. The assets, land, buildings and other infrastructure currently owned

by the GoS will remain the property of the GoS, though depending on the

decision of the GoS, it may be leased to the Management Company for a

period not yet determined, though 20 years would seem appropriate.

55. The main point about any contracts that the GoS enters into regarding

management of KFH is that all are legal documents, and if not watertight

and clearly defining the rights and responsibilities of both sides, they are

practically worthless, since no responsible private company will be

attracted to sign up to a contract that does not make clear its

responsibilities.

56. A private Company will evaluate its involvement in KFH on several

criteria. These include the return on investment that can be expected,

proper financing for infrastructure and investment, a watertight contract

and legal and transparent support from the public sector. The obligations

and rights of each party to the contract must be explicit. The Company

will also expect to receive equitable treatment in the bidding process and

will have had to be allowed to make its own feasibility analysis based on

an examination of the past and current records of the KFHA and other

operators whose responsibilities it is going to take over (FCS and the

Moleholders11 for instance). If these criteria are not met then none but

charlatans and “get-rich-quick” merchants will reply to the Expression of

Interest (EOI) that will be issued.

57. It may be possible to privatize the actual operations of the KFH, and

lease out the infrastructure, but major investment in infrastructure must, in

the short term at least, come from the Government (of Sindh, or Federal)

so as to allow the harbour to be privatized. The lease contract could

perhaps allow for capital investment from income when harbour income

reaches a pre-determined level.

11 This latter most unlikely to be granted!

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8. Contractual and legal matters

58. The first matter to be addressed is whether the legal structure currently

existing in Sindh allows for the reconstitution of the KFHA board as

agreed and minuted12 in the agreement between GoS and CSF in January

2008. Apparently (Junaid Farooki, KFHA Advocate, Pers comm) this

does not constitute much of a problem and does not require a change of

legislation, merely a “notification” which is easily arranged.

59. The current legislation is inadequate to allow for a concession or lease

on the KFH assets and land. (Junaid Farooki, KFHA Advocate, Pers

comm). Legislation allowing this arrangement must be enacted, through

amendments to the existing legislation, to change the Karachi Fisheries

Harbour Authority Ordinance, (1984) and the Karachi Fisheries Harbour

(Control and Management) Regulations (1991).

60. The lease agreement between the FCS and the GoS pursuant to

Agriculture, Livestock and Fisheries Department, GoS, Notification

No.2(5) SO (FISH)/1996AL&F/2002 dated 13th February 2002, will have to

be cancelled. FCS are in breach of a large number of the clauses in this

lease agreement and the lease agreement in any case has clauses

allowing GoS to take back the assets after giving adequate advance

notice, or in the case of a breach of the lease clauses straight away

without compensation. The FCS currently owe Pak Rupees 30 million in

unpaid rent.

61. Work on the contents of the future lease agreement with the private

company could go ahead in anticipation of the passing of these various

amendments.

62. One of the valued features of a landlord port agreement is the

possibility of a clear division of responsibilities between the authority

(KFHA) and the Management Company, and the importance of getting

12 Gov Sindh. No EC(Fish)(L&F)/15(15)2007. Minutes of the meeting regarding Competitiveness Support Fund – Action Plan for Karachi Fisheries Harbour Authority held under the Chairmanship of the Chief Secretary, Sindh on 22.1.2008. Karachi dated 24 th

January 2008.

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this right when the lease is prepared cannot be over-emphasised. GoS

may require expert assistance in preparing these documents.

63. Depending on the specific situation, a concession agreement for a

harbour such as KFH may consist of a single contract or a combination of

legally binding contracts covering:-

i. The meaning of terms. A definition of all technical and legal terms

in the contract.

ii. The length of the concession/lease on the harbour

iii. The kind of lease (a landlord concession is envisaged)

iv. The arrangement of the lease, where either a rental ($/sq yd) is paid

by the Management Company for the concession to run the KFH, or

the KFHA shares the profits from operating the harbour. This share

may be on a sliding scale, where the first few years allow the

Management Company to make more money whilst it gets the

harbour under control, and rises later as cash flow improves.

v. Payment of any other fees, royalties and revenues, and any other

rentals to the KFHA.

vi. Once the management contract is granted how much can the GoS

through the KFHA board interfere in management of the harbour?

The relationship between the GoS, the KFHA board and the

Management Company has to be clear at the outset.

vii. The exact relationship, responsibilities and representation at all

management levels of the Management Company with FCS, Moles,

Sindh Trawler Owners Association and other stakeholders.

viii. Activities permitted to be carried out in the KFH.

ix. Arrangements for financing infrastructure in the harbour must be

clear. Some financing may come from income, in which case this

must be defined in the contract, and some of this may come from

Government development funds provided by either Federal or

Provincial Government. Yet more may come from the management

company depending on the agreement entered into. The exact

nature of the arrangements for disbursing development funds, and

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who has the say on how the money is spent (including awards to

sub contractors etc) must be defined in great detail.

x. Maintenance requirements for infrastructure and equipment

currently owned by KFHA.

xi. The relationship between the various premises and service

companies on the 34 Ha of KFH land in West Karachi and the

Management Company must be crystallized. (This includes boat

building plots, ice making premises, processing plants, offices and

workshops etc). Details (rent, duration of lease, special conditions,

maintenance clauses etc) of every sub-lease, or lease arrangement of

each of the operators paying rent to the KFHA have to collated,

presented in detail, and reassessed in commercial terms. The

possibilities and methods of increasing rents to commercial levels (far

above current levels) have to be detailed and their feasibility included.

Ultimately the Government’s investment in KFH land is going to have

to realize commercial returns. GoS cannot continue subsidizing the

large number of premises presently enjoying low rents and as landlord

the Managing Company will have to address this problem very soon

after establishment.

xii. The Managing Company is going to be responsible for day to day

operations of the Karachi Fish Harbour. These day to day operations

will require definition, since the new Management Company will be

expected to take them over. The KFHA must therefore prepare an

audit of its day to day management activities and relate them to what

is written in the Karachi Harbour Authority Ordinance (1984)

xiii. Human resources development and training for workers at the port,

fishermen and the employment of former KFHA and CSF employees

and staff, if applicable.

xiv. Provision of utilities, power, water and sewage. The present

arrangements should be compared with an ideal situation, and the

responsibilities of the Management Company, and the KFHA, in

reaching that ideal should be defined, as well as cost recovery

methods, billing and payments systems for users.

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xv. Arrangements for auction of fish13 in the harbor must be confirmed,

and then enshrined in the lease agreement. The currently

proposed shift in management of the auction halls from the FCS

and the mole holders to a private body is critical to the success of

the whole privatization process and any shortcomings in this part of

the lease will be catastrophic. This means the FCS and Moles must

agree to co-operate (probably under some mitigating conditions)

prior to any management contract being established.

xvi. Harbour use fees. Currently nobody pays harbour fees on entering

or leaving the harbour, or for tying up there. This clearly must

change to free up space in the harbour and the Management

Company has to be given the mandate to both charge commercial

rates and regulate vessel movements.

xvii. The statutory powers and duties of the harbormaster that will be

appointed by the Management Company. The legal basis for these

powers. (Related to many other issues below).

xviii. Ability of the harbour master to issue rules and regulations for the

better organisation of the harbour activities.

xix. The regulatory environment and the enforcement of marine safety,

environmental regulations, international shipping regulations and

the like. Who is to enforce these regulations and what are the

penalties? How is enforcement to be funded? Role of harbour

master?

xx. Cooperation with policing, customs and health authorities. The role

of the KFHA and the Management Company.

13 The auction has the potential to be one of the prime income generators in the harbour. Auctioning is currently undertaken by the moles (less than 30 in number) who raise 6.25% of the value of the catch and split this with the FCS, the FCS using their share to undertake social works with the fishermen members and to pay (or not as the case is) Rp10 million annual rent for the auction halls to KFHA. It has been proposed that the auction will be sub-contracted by the management company who will collect the 6.25%, providing half of this to the FCS who will withdraw completely from the KFH and restrict themselves to their social works with their members. The balance of the auction fees will pay for the sub-contract and provide income to the management company as revenue to be split up between it and the KFHA as agreed in the contract. The moles will no longer be responsible for auctioning the fish. FCS and the moles are yet to formally agree to this. There may be difficulties in getting their formal agreement and this has already been indicated in very strong terms by the senior mole holder.

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xxi. Dredging of the harbour. Who decides and how is this to be paid

for?

xxii. Access agreements with the GoS and municipal authorities for

people, boats and vehicles to the harbour area.

xxiii. Award of building contracts between the Management Company

and a construction company for construction or development work

(with the KFHA exercising some form of quality control?).

xxiv. Access for KFHA staff and other statutory bodies to the harbour

environs and what they are allowed to do there.

xxv. More esoteric activities such as the promotion of the harbour,

restaurants, tourism etc

xxvi. Arrangements for violations of the lease agreement by any of the

contracting parties and a dispute resolution path, clearly laid out.

xxvii. Arrangements for the termination of the lease, either at the end of

its term or prior to that, in the case of gross violations of its clauses

by one of the two contracting parties. This would cover the return of

assets, among other things

xxviii. Any other issues that may become apparent during either the

preparation of the draft leases or the contractual negotiations.

9. Tendering and award of contract

64. This is a long way ahead in the future.

65. The GoS will enter into a contract with a Management Company to

provide the management services required. This process has to be

completely transparent, or potential bidders will be put off.

66. The exact procedure will be in line with GoS standard tendering rules.

It will involve advertised invitation to make Expressions of Interest (EOI), a

shortlist, tender, assessment of tenders, decision on preferred bidder,

negotiations with preferred bidder and award of tender.

67. Expert TA may be required to assist this process.

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Appendix 1

References

ADB (2006) Technical Assistance Consultant’s Report. Pakistan: Sindh

Coastal and Inland Community Development Project. Project Number: PAK

37188. December 2005. (& appendices). Prepared by ANZDEC Limited

Consultants.

ADB (2007) Port Reform Toolkit (363 pp)

CSF (2007) Action Plan for Fish Quality and Value Adding at Karachi

Fisheries Harbour

Fishermen’s Cooperative Society Ltd (2005) FCSL (an information sheet on

the Fishermen’s Cooperative Society Limited.)

Fishermen’s Cooperative Society Ltd (1969) Bye-Laws of the Society as

Corrected up to 12th June 1969

Government of Sindh (1984) Karachi Fisheries Harbour Authority Ordinance,

1984. This law provides the legal basis to carry out efficient operation of

harbour facilities and for periodic inspection of hygienic conditions of

processing plants, ice plants, cold storage and other related activities.

Government of Sindh (1991) Karachi Fisheries Harbour (Control and

Management) Regulations. 1991. Came into force 30th Jan 1992.

Regulations set up under the Karachi Fisheries Harbour Authority

Ordinance 1984. Lays down the regulations for the proper management of

the Karachi Fisheries Harbour.

KFHA (2008) PowerPoint presentation “Briefing to Minister for Fisheries

Sindh”

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Appendix 2

Significant People met during assignment.

Abdullah Khoso - Communication Officer, Pakistan Fisherfolk Forum

Aisha Moriani – Deputy Sec MinFAL

Allan Kelly – ADB Principal Rural Development Economist. Central & West Asia.

Anis Soomro – Dep Dir KFH

Anwar-ul-Islam - Director Fisheries Sindh

Arsala Khan Niazi – President STOFA

Baboo Ismail – The Senior Moleholder

Badar ul Islam - SME Expert, UNIDO

Capt Ajamal Khan Ghoury – KFHA Harbourmaster

Dr Ali Abbas Qazilbash: - Expert, Lab Accreditation, TRTA. UNIDO

Dr Ian Goulding – Consultant for UNIDO/EU

Dr Khawajh – Administrator for FCS

Dr Muhammad Hayat: - Fisheries Development Commissioner, MFD

Fazal Sajidi Baloch – President KFHA Employees Union

Gulam M’d Mehar - DG Fisheries

Hasim Mahmood Shosa – Chief Secretary, Government of Balochistan

Hussain Jarwar – Manager Programmes PFF

Javed Ishrat - DG Fisheries (MFD)

Lt Gen Muhannad Zubair – Executive director IMU

M. Habib Sangji – Al-Noor Enterprisees. Diesel/bunker provider, processor

M.Junaid Farooqi –KFHA Advocate

M’D Ali Shah – Chairman PFF

M’d Ghazanfar Ali – FCS Manager

Major Iqbal Ehmad: - Executive Director, Board of Investment

Memon. Shuneed. Executive Engineer. KFHA

Muhammad Iqbal Lakho – Staff officer to ACS

Muhammad Suleman Niazi – President of the Ice Dealers Association for Fisheries

Nazar Hussain Mahar – ACS Planning Sindh

Professor Mike Dillon – Consultant for UNIDO/EU

Quamruddin Baloch – Freelance Consultant (Fisheries)

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Sagheer Ahmed – Public Relations Officer KFHA

Sahoor Hussain Abbasi – Dep Dir KFH

Samir S. Amir – Director Research, Pakistan Business Council

Sarwar Siddiqui – Chair STOFA

Sarwar Siddiqui – Chairman STOFA

Shahbaz Anwer – MD ABC Gold Ltd and General Secretary of Deep Sea Fishing Trawler Operators Association

Shahid Gulzar Shaikh – MD KFHA

Shaukaat Hussain Dir F & T MFD. MD KFH –

Shoaib Siddiqui – Sec, Livestock & Fisheries. Sindh

SM Tarique – Executive director Korangi Fisheries Harbour Authority.

Steffen Kaeser – Industrial Development Officer UNIDO

W.M. Malana – Law Dept Sindh Province

Yasir Abbas Syed – Al Noor Enterprises

Zahid Burghary – Sindh Minister for Fisheries

Zawdu Felleke: - Chief Technical Officer TRTA UNIDO

Zazi Jan M’d – Dep Sec Livestock & Fisheries Sindh

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Appendix 3

Terms of Reference for the Project

1. Karachi Fish Harbour

a. PHASE 1 - Groundwork

Broadly the CSF will support the Government of Sindh in:

1. Defining the objectives that the GoS wishes to achieve in the KFA

2. Identifying the basic public functions and public responsibilities that will

remain with the GoS and which will define the role of the KFHA in

management of the public assets.

3. Identifying the functions and responsibilities that will be suitable to be

privately managed, either through concessions or under leases, and

thus to be managed through the proposed management company.

4. Identifying the assets needed to support each of the functions, their

adequacy, available funding and improvement schemes.

5. Defining the methods of oversight so that the public interest is

protected: strategic planning, technical and economic regulation of the

port management and the port itself.

6. Addressing labour issues

7. Ensuring that the legislative base for the new management structure is

compliant with existing Pakistan and Sindh laws, decrees and by-laws.

8. Ensuring that the proposal fits in with International law, environmental

legislation and any coastal zone management issues current in

Pakistan and the region.

9. Ensuring that the various actors (notably the GoS and its subsidiary

body, the KFHA, together with the Auctioneers and Co-operatives)

accept the responsibility for port reform at KFH, though a suitable

legislative act.

It will be necessary for the various parties to be aware of and support the

reform process, so the CSF will organise a series of meetings to explain the

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process, involving all the stakeholders at the KFH. Feedback from these

meetings will be incorporated into any plans.

b. PHASE 2 - Establishment

Further assistance from CSF will then be necessary so that a suitable

management structure can be initiated; a management company recruited

and suitable oversight can be arranged. Once the detailed preparation has

been done the GoS can proceed to identifying suitable companies as

candidates for the management function in the KFH.

The CSF will support the GoS in:-

1. Outsourcing to a suitable Pakistan based body the responsibility for the

preparation & completion of tender documents for the management of

the KFH, including within the documents the results of the discussions

and consultations of Phase 1 and ensuring that the tender

documentation is compliant with Pakistan and Sindh laws and

regulations.

2. Advertising for suitable companies (internationally) to be short-listed for

management of the KFH

3. Assisting GoS with providing adequate background information to

potential bidders and assisting with site visits by potential bidders.

4. Assisting with negotiations with the various bidders, the selection of the

successful bidder, and the award of the tender. ( All to be transparent,

open and competitive).

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Roadmap Report_ Karachi Fish Harbour

Documents

Transcript of Roadmap Report_ Karachi Fish Harbour