Revival of Indian ports

Fiscal and regulatory constraints remain despite the momentum in traffic growth, says Kumar Ramesh.

Currently, the maritime sector is one of the important investment arenas for private parti­cipants; this is directly improving the efficiencies and revenue generation of Indian ports. What are the specific areas of investment?

11th Five Year Plan

Across all port development, there is a clear indi­cation that the focus of projects is on containers. Out of the top 20 projects coming up in India, around eight would be towards a new container terminal.

Non-major Ports

The 11th Plan estimates that there will be investments into major ports worth Rs 35,932 million, out of which Rs 23,912 crore, 67 per cent, will come from private players. Gujarat, Maharashtra, Orissa, AP and Tamil Nadu are the main drivers of additional capacity in ports in the 11th Plan.

Across all states, new ports are looking at container terminals to attract more container traffic. Most eastern states are gearing up to handle bulk cargo to facilitate import of raw materials for industries due to strong trade ties with the ASEAN countries.

Private participation in major ports has been largely through the Build-Operate-Transfer (BOT) model. Build-Own-Operate-Transfer (BOOT) is a mode of contract for taking up infrastructure-related projects that has been adopted under a specially enacted legi­sla­tion of the state governments, wherein private inv­estor builds the infrastructure facility, owns and operates the facility for a stipulated lease period and transfers own­ership back to the licensor after the lease period is completed.

Ports in Gujarat and Karnataka follow the BOOT model to allow private participation. BOOST Build-Own-Operate-Share-Transfer (BOOST) is a contractual modality, wherein an investor (a licencee) is involved along with the licensor in building an infrastructure facility, owning and operating the facility for the stip­ulated period of lease and shares the facility with the licensor and finally transfers the ownership of assets back to the licensor, after the expiry of the lease period. A recent example for this model of execution is the Krishnapatnam Port, which is based on the BOOST Model. Most ports in Andhra Pradesh and Tamil Nadu follow this model.

Key development areas

Container terminals: There has been an increase in construction and modernisation of container terminals over the last few years, and this trend is exp­ected to continue during the next five year plan.

Storage and stacking yards: Modern ports are increasing their storage yards in order to attract bulk traffic in the course of international trade. This segment is considered to be developing at a fast pace.

Berths and docks: Around Rs 32,564 million will be invested in the construction of berths. The ROI from this segment is one of the highest amongst port infra­structure activities.

Inner and outer harbours: This low key segment contains office area and other miscellaneous spaces.

Opportunities: The 11th Plan expects to invest Rs 917 billion in developing port infrastructure. Considering the previous record of implementation, only 50 per cent of the pla­nned outlay is expected to be implemented. About 65-70 per cent of the total investments are esti­mated to come from private players.

Non-major ports perform better

In 2006-07, non-major ports handled around 171.9 mt of traffic, accounting for around 27 per cent of the total traffic handled at Indian ports. Compared to major ports, traffic at non-major ports has grown at a tremendous pace, recording a CAGR of around 20 per cent in the last 10 years, and around 9 per cent in the last 5 years. The inc­rease in traffic can be attributed to increase in cap­acity at these ports, as well as to efficiency in operations.

Challenges and uncertainties

Though the traffic momentum will continue and the ports have been regarded as a lucrative area of investment for private participation, there is a host of challenges looming over this sector: minor ports are unregulated and tariff for major ports is under various restrictions. The complex procedures followed in issuing projects is hindering private participation. Lack of rail-road connec­tivity to hin­te­rland have made maritime infrastructure projects seem unviable. Hence, an integrated plan to synergise the dev­elo­p­ments taking place in other sector should be drawn in order to accelerate the pace of growth in maritime infrastructure.