The Port Paradocks

Cargo growth at Indian ports was subdued in 2011-12 with total throughput registering a 5 per cent year-on-year increase to 930 million tonnes, following a significant slump in volumes of iron ore due to mining restrictions and policy issues, according to a 30 July report by credit rating agency ICRA Ltd. In March last year, the government announced plans to establish a port finance corporation, and this is more than a welcome decision. Governments have sought private partnerships in infrastructure both for funding and expertise purposes, and a dedicated, independent state-owned company to fund ports comes at an opportune time.

It is opportune because it came close on the heels of the Maritime Agenda 2020 targets that ambitiously project a total traffic of 2,494.95 million tonne for all major and non-major ports taken together and a capacity of 3,280.04 million tonne.

Investments in ports by 2020 are proposed to be in the range of Rs 1.19 lakh crore for major ports, and Rs 1.68 lakh crore for non-major ports. To its credit, the Agenda 2020 took a holistic view of the requirement and envisaged the facilitation of infrastructure, including capacity-building and promotion of inland waterways and coastal shipping, to help achieve the targets.
Yet, the government’s first attempt at raising bonds has failed and it has asked for more time. Indian infrastructure’s negative experience with bonds should have been instructive to this idea; in addition, it was expected that the Maritime Finance Corporation would be formed before raising the bonds. But that is not the case—JNPT got the nod to raise Rs 5,000 crore.
The Finance Company was also warranted because non-major ports, which are owned by the states, are largely being constructed on PPP basis, following directives from the Centre. However, lack of volumes among these smaller ports in the immediate and medium term is deterring financiers. Therefore, Indian maritime’s paradox remains that while capacity in major ports remains tight, development of non-major ports has not progressed as planned. In addition, tariffs were recently slashed for some of the most congested ports, including JNPT. In commercial terms, this decision makes no sense, and has been received with widespread disapproval. ICRA recently called this the “tariff risk”.

Operational, private-owned ports seem to be attracting financiers who are convinced of their viability. Recent examples include IIFCL’s takeout financing of MARG-owned Karaikal port and reports that IFC may finance up to $170 million towards Gujarat-Pipavav port’s $303 million expansion. While capacity-building is essential to ease the pressure on the near 100 per cent capacity utilisation among the major ports, the thrust on state-owned non-major ports is hardly visible, with the result that investors cannot see revenues that can offset the costs anywhere in the near future in the case of most ports—except where the state itself has been proactive enough to dish out figures for bank consortiums. An example is the Vizhinjam port in Kerala. In the overall picture, however, many states have eagerly launched new, smaller port projects under PPP, but many ports have yet to justify their existence.

Ridden with natural constraints of shallow waters and self-inflicted ones including absence of infrastructure, ports will soon find that they would need to bundle projects—as Vallarpadam did—for an overall regional development that can help them make healthy income projections of the future, before finding suitable funding. Meanwhile, the planned Maritime Finance Corporation badly needs to take off and plug the gaping gaps in utilisation and finance options between Centre-owned and state-owned ports.