Competition's fine, but competitors are few: Experts

The National Maritime Agenda 2020 envisages that all the Major Ports should have a draft of about 14 m. Two mega hub container terminals—one on the east coast and a second on the west coast are planned with a draft of about 17 m. This presents both opportunities and challenges—especially given that domestic players in dredging other than DCI are only a handful in number with limited capabilities. Our experts cruise through what a new dredging policy, on the anvil, must include, and how private participation can be spurred.

What is the role of the Dredging Corporation of India (DCI)? How has the quality of maintenance dredging been from DCI?

Paparao
There is a trend among Indian ports preferring foreign dredging companies due to their knowledge and efficiency in dredging, but if the ports don't support the Indian dredging industry now, there won't be any Indian dredging companies in the future which will leave them with fewer options. This will eventually allow foreign competitors to charge exorbitant charges and there will be no one to turn to then. This has happened already in other countries.

Tayal
DCI's role is to undertake maintenance dredging of the approach channels leading to the ports as well as within the ports. DCI, however, does not undertake the dredging of the rivers of the inland water transportation (IWT) sector in the National Waterways which suffer from shallow depths.

Kulkarni
The coastal characteristics of the east and west coasts of India in terms of sea-bed slopes/ bed material /tidal range/tidal currents/climatic conditions/littoral drift etc, differ considerably. Nevertheless, ports on both the coasts need regular dredging. Unfortunately the Indian dredging industry still remains underdeveloped. Acute shortage of dredgers, lack of support infrastructure like shipyards and manufacturing of spare parts, major repair yards as well as facilities for minor repair works and acute shortage of trained manpower are some of the handicaps faced by the industry. DCI continues to suffer from the above problems and hence is unable to meet the requirements of customers. Other Indian players such as Dharti, Jaisu, Mercator, Meka, Sanghi, Ocean Sparkle, ISDPL and so on are still too small. Some of the ports maintain their own dredgers for de-silting works.

Dredging is a continuous process for the highly silted Indian ports. Has it been an effective experience to outsource dredging to DCI or other company?

A Subbiah
Our Port Trust has not undertaken any major maintenance dredging programme. However, the Port conducted capital dredging in 1999 to deepen the approach channel and basin. Currently a major capital dredging programme by a foreign dredging company is underway. Open global tenders are floated and based on the competitive bids the dredging contract is given to the successful bidder. Our experience with the foreign dredging company so far has been satisfactory.

Tayal
In the current environment, for both maintenance and capital dredging, the dredging of approach channels or ports should be awarded on competitive and economic basis by outsourcing, in order to be efficient and competitive. DCI may also compete in the open tender. There were limitations earlier due to the absence of private agencies. Now tenders can be accepted on a global basis.

However, this should not necessarily mean that DCI will always be more expensive than private players. At times DCI's rates may turn out to be more competitive than private players (including those of foreign companies), and in such an event DCI may be able to balance out inflationary offers which may result from cartelisation, bid rigging and abuse of dominance etc. This is why central PSUs continue to be relevant in today's times.

Victor
India has ports with varied dredging requirements ranging from pre-monsoon or post-monsoon to permanent dredging with the siltation rate being altered due to the recent developments on the coastline. It is not an easy task to conclude if DCI or any other company is effective in maintaining the shipping navigational channels, since such effectiveness depends on many parameters including the award of project in time, mobilisation of suitable equipment in time, the competence of the dredging crew, planning and schedule of the works, unforeseen circumstances and events etc. Therefore, based on its past records, DCI has been effective with their maintenance dredging projects.

Dhawan
A few ports have made expansion plans; instead of outsourcing dredging work to service providers, they prefer to do it themselves, to reduce hurdles in contract monitoring and for commercial reasons.

The advantage of outsourcing dredging services is to have specialist solutions to complete dredging works within a scheduled time. Moreover, a service provider can more easily provide specific equipment that may be required for unanticipated hurdles while executing the works.

Has the contracting system with DCI been adequate?

Victor
The contracting principles are unique and tailormade for each and every dredging company whether Indian or international , depending on the respective company's business prepositions and board decisions. In my role as the Secretary General of Eastern Dredging Association (India), I can vouch that almost all the dredging companies including DCI at all times cater to the interest of the clients as stipulated in the tender clause and conditions.

Kulkarni
Both the popular contract methods, ie, lumpsum (for assured depth concept mostly used for maintenance dredging contracts) and item rate contract method (generally used for capital dredging contracts) have been employed.

The Shipping Ministry is preparing a policy to bring in private players in the sphere of underground excavation in the marine sector, thereby ending the monopoly of the state owned DCI. According to you, what items must the new policy on dredging include?

Tayal
Here are a few items the new draft policy must contain to avoid disputes and failure of dredging contracts:

1. A proper method and an empirical formula must be ascertained for the measurement and quantification of dredged material (in cu m), as most disputes arise from this issue alone. For this purpose, the dredged materials may be dumped somewhere for approximate measurement, with a provision for expenditure for idling the dredger's time, as there will be a standing cost.
2. There should be a method for ascertaining and measuring the guaranteed draught of the channel or port, to be measured immediately after dredging. Use of sidescan sonars may be used. This provision will avoid the disputes regarding performance.
3. The proposed dredging projects should be in line with natural environments. For example, you cannot dredge too deep in shallow waters as the area is likely to get silted faster. If the projects are made in line with nature, then the success rate of the project is likely to be better and sustainable.
4. Until the private sector in India builds its own dredgers and/or foreign players get dredgers from abroad, the existing government-owned dredgers can be offered on bare boat charter rather than departmentally to the professional dredging operators to do the same job.

Kulkarni
The cargo related (handling) charges at Indian ports are very competitive and the lowest in the region. However, the vessel related (marine) charges levied by the port authorities are astronomically high—3-5 times higher—as compared with ports in the region as well as globally. A substantial portion of the marine charges is on account of the huge dredging expenses incurred by the port.

The government needs to devise a scheme to subsidise the dredging requirements of the ports. This would be in line with the practice followed by many countries where dredging is sponsored by the government

The need for creating a Central Dredging Authority, as enunciated in the Maritime Agenda 2020, is of utmost importance. If necessary, viability gap funding (VGF) for dredging projects may be considered. Dredging must be treated at par with “land excavation” and be exempted from service tax.

Domestic dredging companies lack in modern equipment and trained personnel. These capabilities must be developed through a process of investing in latest technology and training.

Dhawan
 The preference given to all domestic dredging companies irrespective of PSU/private firms gives an opportunity to promote Indian industry. Competing on level playing fields infuses efficiency.

Paparao
1. The Ministry should follow the FIDIC format, internationally recognised for dredging charters and contracts. In India, a port's civil department formulates the dredging tender which is extremely one sided and against the contractor. The FIDIC conditions allow a fair format to be adopted and the government should move toward this internationally accepted practice.
2. The policy should give some consideration to surveying companies. There are such few quality survey companies in India, and dredging companies are dependent on them for quality results and payment. If they are incentivised, more quality personnel will come into the industry.
3. Financing support for buying dredging equipments. As dredging contracts are not necessarily always available, a financial institution wants a guaranteed job to fund the dredger. Dredging jobs are usually 3-6 months long and this does not allow funding to come easily, as FIs look for a 2-3 year job to guarantee their pay back.

As per the existing Dredging Policy 2007, all major ports invite open competitive bids for dredging works with Indian players having the first right of refusal if the rate is within 10 per cent of the lowest valid offer. But DCI can still be preferential through nomination. Your comment?

A Subbiah
As per the 2007 policy, the Department of Shipping reserves the right to assign, in public interest, any contract for dredging work in any of the Major Ports to DCI on nomination. This was valid for a period of three years from 1 April 2007. Since the period has lapsed already, the present position is not known.

Victor
It was evident between 2004 and 2011, wherein the clause of nomination of certain port maintenance projects were awarded to DCI without inviting the tender that it should be removed for twofold reasons––first, today DCI is not a monopoly dredging company, we have nearly 23 small, medium and big dredging companies and hence equal and fair opportunity should be provided to all the potential Indian bidders to participate in the tenders, secondly, by inviting open tenders, the client and the port shall have the advantage of creating competition to receive very competitive price bids.

Tayal
Preferential clause for DCI should be removed only when there is enough confidence in the participation of some capable private players, Indian and global. This will improve efficiency, productivity and economics and will encourage competitiveness leading to economy of operations.

Is there a need for a dredge building yard?

A Subbiah
The implication of the Maritime Agenda 2020 is that the dredging requirements of the Indian port sector consisting of major and non-major ports will be huge considering the capital dredging of existing ports, development of new ports as well as continuous maintenance dredging of the ports due to littoral drift in the Indian Peninsula. Currently, other than DCI, only a few Indian companies operate. The foreign dredging companies despite their expertise may not be available to the Indian ports at the time of their requirements resulting in delays in the dredging programme affecting the progress of capacity addition.
Hence, I am of the opinion that a modern dredging building yard can be set up for manufacture of high quality dredgers for deploying not only in Indian waters but to also fetch overseas contracts. Such a yard can be set up in the form of PPP.

Victor
As it is evident from the statistics of the dredging volume and the degree of development along the Indian coast, it is time for us to be self sufficient to have our dredge building yard. India has a track record of building world class hulls, but it has a long way to go in building machinery customised to the Indian dredging industry. We could collaborate with international machinery manufacturing industry.

Perhaps the only disadvantage I foresee is that unlike shipping, dredge building demand and supply is minimum. Nevertheless, I would strongly vouch for upgrading and/or having dedicated dredge dry docks one on the east coast and another on the west coast, with technically competent engineers to repair and overhaul the machinery. Today we have nearly 70 vessels registered under MS and CV Act to keep the two dry docks occupied.

Kulkarni
Lack of big players in the industry has prevented Indian shipbuilders foraying into dredger manufacturing activity. So is the case with dredge repairing and spare parts manufacturing. As the demand picks up we could see foreign dredger OEM setting up base in India.

Tayal
In my opinion, the government should not make a government-owned dredging building yard to build dredgers from
government funds. The government could facilitate a suitable site by balancing other factors—cost, acquiring agricultural lands, industrialisation for such a yard, and even allow foreign direct investment (FDI). The government should allow a professional engineering firm of repute to build them and let experts operate dredgers.

Paparao
The key is sourcing the dredging components, which are the intelligent parts: specialised pumps and wearing plates, hydraulics, design, metallurgy, etc, are still under the purview of foreign manufacturers.

As the number of ports burgeons, what opportunities do you see for domestic dredging spares industries?

Victor
Domestic dredging spares industry in India is negligible other than one or two dedicated spares manufacturing industries restricting their manufacturing to small dredgers. Since dredgers are either built in Holland, Germany or (of late) China, the builders prefer to have after sales service and it has become mandatory for working efficiency, to purchase spares from the builders. As long as the local demand grows they will prefer the durability and efficiency of the builders' spares. I am of the opinion that no dredging owner will be willing to take a risk on his business and hence the domestic dredging spares industry will have to wait a long way till the dredgers are built in India with indigenous technology.

Tayal
The opportunities are great. Some private Indian dredging companies have already appeared on the scene. Some engineering giants and even the small engineering industry will grab the opportunities for dredging spares industries. It is only a matter of time. A good parallel is that of automotive spares, which are now being manufactured in India for foreign cars.

Dhawan
With appropriate tie-ups, most spare parts can be manufactured in India and hence there is a huge potential in the spare parts market. Further improvement is necessary with regard to metallurgy and technology for producing quality spares that encourage the development of ancillary industries.

Much like shipbuilding, critical equipment could be imported, the hull and other machinery can be indigenous thereby reducing initial and subsequent maintenance cost.

How has increasing private sector participation in port development influenced or impacted dredging activity? In what ways does the emergence of private ports indicate new rules of the game?

Kulkarni
As per current estimates, the requirement of major ports just for maintenance dredging is 55.5 cu m at a cost of Rs 5 billion. The ambitious Maritime Agenda 2020 envisions major ports providing a draft of minimum 14 m and hub ports of minimum 17 m. This will call for huge amounts of capital dredging opportunities. Further, the maritime states have drawn up substantial plans for deepening of channels/berths of the non-major ports with an investment of approximately Rs12,000 crore. All this will lead to lot of churning in the dredging industry.

Victor
There is a positive impact and influence of the development of private ports and terminal on the dredging industry, whereby the dredging volume and demand for requirement of dredgers has increased attracting more investment in the dredging industry, although the costs of the dredgers are very high with the returns spread over 12-18 years of operations. The emergence of the ports has infused competition, timely completion of projects with incentives for early completion, and performance-based operations.

Paparao
We haven't seen a tremendous jump in dredging jobs. There is a fallacy that dredging costs are very high, but in actuality if one takes into account, the cost of fuel, specialised manpower, imported spares, the cost of equipment and the extremely cyclical nature of the business, the returns are normal only if the dredger is occupied continuously. Continuous contracts are rarely possible in India. That's why several dredging companies are taking up projects outside India.

The Experts:

A Subbiah, Chairman, VO Chidambaranar Port Trust, Tuticorin (formerly Tuticorin Port Trust)
George YV Victor, Deputy CEO of International Seaport Dredging Limited (which designs, develops, procures and executes dredging and land reclamation works) Board Member of EADA and Secretary of Eastern Dredging Association (India)
Meka Paparao, Chairman & Managing Director, Meka Group (Owners of Meka Dredging)
Praful Tayal, Chairman & Managing Director, CIWTC, a Kolkata-based company established in 1844 in Inland Water Transporter in the rivers, where dredging is not always the best solution—river training works such as bandalling and channel marking besides night navigation
Sanjeev Dhawan, Joint Managing Director, Ocean Sparkle Limited (OSL), which is carrying out Capital Dredging of approximately 3 million cubes in Kakinada Port
SS Kulkarni, Secretary-General, Indian Private Ports & Terminals Association