Expertspeak: Yet privatisation has been successful

Private participation may be hampered by thorny tariff issues and an unrationalised MCA, says Anil Singh.

With ICTT, by bringing mainline vessel calls to Cochin, shippers—especially in south India who earlier had to tranship their cargo over to Colombo and other regional hubs—will now save on the additional feedering cost at the hub port. Colombo handles close to 70 per cent of India’s transhipment cargo. The remaining 30 per cent is distributed amongst other regional hubs of Port Klang, Singapore, Hong Kong, Salalah and Jebel Ali. National flag vessels will definitely benefit because a large amount of transhipment cargo will be available and be uniquely placed to handle it because of the benefits available to them in India. Exim trade will be competitive because it will be transhipped within the country.

India’s ports sector has been battling with chronic delays, land-side bottlenecks and congestion, lack of much needed swift administrative reforms, outdated and restrictive labour policies and obsolete equipment. These factors greatly affect performance and are hurdles in the path of modernisation of ports in the country.

Private participation gathered momentum as late as in 1997 with the signing of the first licence agreement between Jawaharlal Nehru Port (JNPT) and the Nhava Sheva International Container Terminal (even today a premier facility in the ports and terminals portfolio in the Indian sub-continent). Some of the other notable initiatives of the government to attract private participation in the ports sector include 100 per cent income tax exemption for a period of 10 years and allowing 100 per cent Foreign Direct Investments (FDIs) in the ports sector.

A notable aspect of India’s port sector’s privatisation programme has been the significant participation by foreign players in developing facilities in both major and non-major ports. At present, 22 projects with private participation (on BOT or captive use basis) are in operation at the major ports (at a cost of Rs 6,300 crore) and another 21 projects are in the pipeline or under implementation (Rs 12,600 crore). Buoyed by the initial success of the privatisation policy, a number of major ports have entered into licence agreements with private entities for the development of private terminals on BOT. Some of the notable private investments in ports are AP Moller Maersk at JNPT, DP World at JNPT, Chennai, Cochin, Visakhapatnam, and PSA International at Tuticorin and Chennai. Further, the ports sector in the country has also seen the development of several greenfield port projects in container terminals, liquid and dry bulk berths like port and terminals at Pipavav, Mundra, Gangavaram and Krishnapatnam.

The success of the government’s privatisation initiative can be gauged from the fact that there has been a 400 per cent jump in the volume of cargo handled by the non-major ports or minor ports (many of which are private) in the last decade. Further, the private terminals have also proved to be more efficient and have matched world class standards. This has been one of the contributing factors to the growth of India’s EXIM trade.

Given the undeniable contribution made by private ports to India’s EXIM trade and in order to sustain the potential in this sector, the Government of India has in its Maritime Agenda 2010-2020 projected that the traffic at the major ports is likely to grow at a CAGR of eight per cent (from 561 mt in 2009-2010 to 1,215 mt by 2019-20) and at a CAGR of 16 per cent at the minor ports (from the present 289 mt to 1,270 mt by 2019-20). Notwithstanding the various initiatives of the government in respect of private participation and the successes achieved till now, together with the development and improvement programmes, there remain a few prickling issues that need to be resolved on top priority.

Chief among them is the tariff regulation regime for major ports, a review and rationalisation of the model concession agreement for ports including the upfront tariff setting guidelines, the mechanism of revenue sharing, the dredging and channel deepening programmes to allow larger ships to call at Indian ports, and road and rail connectivity projects. The Maritime Agenda 2010-2020 recognises these issues, but unless speedily resolved, growth in capacity and volumes could be hindered.

The author is Senior Vice President and Managing Director Subcontinent, DP World.