India is blessed with a very long coastline and has a port infrastructure that is envied by some of the countries in the Asian region. With the entry of more private players, asset monetisation is expected to bring in more vitality to port operations as a whole. However, a section of industry experts harbour concerns regarding the existing port infrastructure.
In the last budget of July 2019, the central government gave a concentrated thrust on the asset monetisation plan. The process is focusing on the development and sale of non-core assets, including offloading of surplus land of public sector enterprises (PSE)s. The plan has been extended to almost all sectors, including shipping and ports.
As part of the plan, the government is first looking at the sale of loss-making or defunct PSEs. Further, it is identifying profit-making companies. While looking at the financial benefits through the initiatives, the government also aims to introduce efficiency that is currently lacking in some of the organisations.
Under the asset monetisation category, the list includes six airports, power transmission lines valued at Rs 200 billion, 11 port terminals valued at around Rs 57 billion, followed by highway projects of nearly 5,000 km.
India is the 16th largest maritime country in the world, faring much ahead of its direct competitors in the Asian region. Singapore occupies the fifth position, whereas China holds 25th and Malaysia 32nd position.
As per a report from the Ministry of Shipping, India uses the maritime route to transport more than 90 per cent of external goods by volume. That simply showcases the significance of having a well-developed port infrastructure to support cargo movement. Infrastructure development, especially connectivity enhancement to and from the port, is critical. Sadly, in India is there is no conclusive development and sporadic infrastructure development is not the answer to the perennial issue.
The country has 12 major ports and more than 200 smaller ports. Major ports, which handle around 80 per cent of the cargo movement, are directly under government control. According to government data, in FY2019 cargo traffic in major Indian ports were increased by 2.90 per cent YoY to 699.05 million tonnes (MT) as against 679.36 MT in FY2018. The major ports had a capacity of 1,452 MT by FY2018-end. The government's Maritime Agenda 2010-20 had set a target of 3,130 MT of port capacity by 2020. The cargo traffic in the country is expected to touch 2500 MT by 2025.
The latest report published in December 2019 by DHL Global Trade Barometer, India's trade growth remains buoyant owing to active ocean trade. The report says, "Strong ocean imports and exports will sustain India's trade growth over the three months ending in January 2020, making it the only country out of the world's seven largest economies with a positive trade outlook. The positive outlook is driven primarily by an uptake in ocean imports of basic and industrial raw materials and chemicals & products, coupled with a gradual revival in air exports of consumer fashion goods."
This is indicative of the contribution of the maritime trade route and the role of ports in the Indian economy.
REGION'S ENVY YETPOOR INFRASTRUCTURE
Jagannarayan Padmanabhan, Practise Lead Transport, CRISIL opined, "There is a healthy appetite within the investor community for built infrastructure. Hence, the government, as part of its strategy, is looking at monetising terminals and berths in major ports. Private players across commodities have evinced interest in participating either as an owner or as an operator of these assets. Also, I understand, there is interest among developers and terminal operators for these assets."
India is blessed with a coastline extending to more than 7,500 km and has a port infrastructure that is envied by some of the countries in the Asian region. With the entry of more private players, asset monetisation is expected to bring in more vitality to port operations as a whole. However, the concerns expressed by a section of industry experts regarding the ports and infrastructure may cast a shadow on asset monetisation.
OCCUPANCY OVER EFFICIENCY
Speaking to INFRASTRUCTURE TODAY, Kumar Ankit, Treasurer Indian Private Ports & Terminals Association (IPPTA) commented, "In India, the critical difference between the government side and operative side is occupancy vs. efficiency. What government values is the occupancy of port premises and not efficiency."
Now that points to the significant concerns raised by port users from across the globe. The main issue is the higher turnaround time. The turnaround time for a Capevessel, is typically 36-48 hours in Singapore or Dubai, whereas in India, it nearly eight days. This is way higher than the global average of good port benchmarking.
Unlike their global peers, the call time for vessels is more in Indian ports as most of the major facilities face the issue of congestion. Another critical issue is inadequate cargo-handling equipment and machinery in the ports. Lack of road networks within the port area hinders swift evacuation of cargo.
Connectivity is yet another problem as there is a lack of planned and integrated rail, road, highways, coastal shipping lanes and inland waterways network, especially in the hinterland. Further, where adaptation to newer technologies is concerned, India's approach is sluggish. CONCOR has 40 per cent of the market share but is yet to adopt a tracking system that is quite common across the globe. MAERSK is the only company that has implemented technology, but it is work in progress. Despite there being huge tracts of land available within port premises, there isn't adequate storage space, an issue that irks a majority of users of Indian ports.
Lastly, the waterfront dredging capabilities are not sufficient, an issue that Indian ports have yet to learn to deal with. Maintaining the draft of the inward sea is always a challenge in the country. Since the port in Haldia near Kolkata has a waterfront of only six metres, no big vessels can go in. However, ports Visakhapatnam and Goa have 12-13 metres of the draft.
Padmanabhan, however, points out that it may not affect asset monetisation in any way. "Efficiency of a port is not as important as the draft, hinterland potential, connectivity and nearness to mainline shipping route," he explained. "It is like somebody buying a resale house. The status of the house is not as important as the location. If it is in good condition, I"ll probably pay a bit higher. If it is not in great condition, I would have to undertake a renovation. It is the same as a port. The waterfront and hinterland cargo are difficult to alter, but terminal mechanisation can be done easily. If a port is not efficient today, it does not mean it can't be made efficient. That's precisely what turnaround strategies focus on."
The operating constraints could affect the turnaround strategies after asset monetisation. In terms of workforce, things such as absorption of labour in the set-up during the transfer agreement and re-skilling or upscaling will have an impact on new operations. The transfer of ownership should happen without any operational catch.
MOVE FULL STEAM AHEAD!
Padmanabhan added, "In the current context, brownfield assets are more attractive. But India is a growing economy. Hence, there will always be pockets, geographies and commodities where the gaps need to be filled. It may be a good idea to start looking at identifying locations where new ports can be built, and undertake some level of development such as groundwork, etc. That way, acquisition of the land becomes easier as port assets take around four years to develop."
While optimistic about government initiatives, Kumar voiced his concerns about the delays in handing over the allocated assets to private operators. "Under the Ministry of Finance, the government has established authority with special secretary logistics, which is a good step forward. I hope things will only get better from here," he said.
The monetisation of assets indeed unlocks a lot of revenue potential of assets that are otherwise lying idle. Sector players feel that asset monetisation should be without any operational constraints. A delayed handing over of assets heaps enormous losses on the investor and that is why they tend to stay away.
The sector players are hopeful that asset monetisation, especially the handing over, will happen as per the agreed timelines so that the private players will be able to make it turn around in the stipulated manner.
- LIZA V