Fathoming the deeps

Grappling with funding, infrastructure and policy-related impediments, the sector has many nautical miles to cover before it can be at the high port.

The meandering course of the Indian ports sector, the backbone of the country´s trade and commerce, has long been raising alarms. There are no two views about the importance of ports and their contribution in sustaining the growth and development of the economy. According to the Ministry of Shipping, approximately 95 per cent of the country´s trade by volume and 70 per cent by value moves through maritime transport.

India has a long coastline of about 7,517 km along the western and eastern shelves of the mainland. It shares a different demography as compared to countries like Sri Lanka, Malaysia, and Singapore which are basically transshipment hubs. India has over dimensional cargo that requires other infrastructure support for port development. In India development of ports is need-based and is dependent on the development of the industries which are feeders to the ports. A robust national policy and efficacious execution will enable well-spaced, technologically advanced ports across the coastline rather than extensive concentration in certain sectors. Though the sector may not be flourishing, it is not deep in the abyss either. There is no dearth of progressive measures and policy formulations, but on ground implementation has been procrastinating. There have been flashes of optimism, with a plethora of non-major ports being ushered into the scene and sector-friendly policies like 100 per cent FDI under the automatic route for projects related to the construction and maintenance of ports and harbours. The overall EXIM trade has grown in the recent years. However, the growth at non-major ports has been much higher than the major ports in terms of cargo handled.

Despite positive developments over the last decade, the sector is faced with a number of bottlenecks such as financial and infrastructural constraints, policy-related issues, port tariff, draft restrictions, poor hinterland connectivity and slow progress of public-private partnership projects.

FUNDING HANDICAP
Indian ports lack the capacity for handling cargo, which currently stands at around 1700 MMT. Maritime Agenda envisages plans for creation of port capacity of around 3200 MMT for handling the expected traffic of about 2500 MMT by 2020. If this ambitious target is to be met, humungous amounts of funds need to flow in. ´The targets given in the Maritime Agenda look very ambitious. New capacities have been added in the last few years. Further, capacity enhancement has to be visible and cannot be just talking about numbers. Investment in capacity will be based on visibility of expansion,´ avers Capt. P Ravindranath, Head – Port Facility Management & Infrastructure, APM Terminals Pipavav (Gujarat Pipavav Port).

The Indian Ministry for Shipping recently announced a massive investment in India´s ports, but effective implementation would be the key. ´Increased investment by all established ports in increasing the handling capacity, evacuation facility, coupled with new investment in new ports is required to bridge the gap,´ points out Praveen Somani, Director, Inland Group.

The mounting cost of dredging has been a matter of concern as well. ´World over dredging is done by sovereign funds. In India, dredging has to be done by a developer. The government does not give any grant, which makes dredging expensive. Moreover, the government levied service tax, which further adds to the cost of dredging,´ says Vijay G Kalantri, Chairman & Managing Director, Dighi Port Ltd & Balaji Infra Projects Ltd.

Private investments have made major inroads into the sector with a gamut of new players venturing into the arena. Apart from the 13 major ports, over 200 non-major ports are operational in the country. However, when it comes to public private partnership, the investor sentiment has not been very flattering. ´The tariff fixing methodology under the Tariff Authority for Major Ports (TAMP) has had a negative impact on the profitability and returns of PPP project developers because of several factors,´ stresses Kalantri.

The PPP projects are making a rather cumbersome headway. According to Somani, ´Ports investment is a long gestation project. The government and private thought processes work on different trajectory and therefore a sustaining partnership becomes difficult. However, the successes in Gujarat under the BOOT policy are a major breakthrough and show that when public private partnerships work in tandem, it can deliver results.´

Allowance of 100 per cent FDI is a step in the right direction, and has affected the investor sentiment. ´Apart from FDI, the clearance procedures which take a lot of time have been addressed under ease of doing business; investor sentiments will definitely move up multifold in the long run,´ opines Somani.

INFRA DEARTH
Indian ports face various constraints like terminal congestion, poor and inefficient evacuation arms due to lack of infrastructure, both at the port and in the hinterland they serve. One of the key reasons for poor performance of Indian Ports has been lack of modernisation of port infrastructure. ´Over the last 10 years, there has been an improvement in ports with respect to new ports and terminals operating on the PPP model. Mechanisation is a major constraint as for faster capacity enhancement. All the non-mechanised major ports as well as the non-major ports should be mechanised through PPP model,´ asserts Ravindranath.

The Union Government proposes to invest `5,000 crore in the next five years to develop 10 coastal economic regions (CERs). ´The proposed coastal economic regions would be converted into manufacturing hubs, supported by port modernisation; thus providing impetus to India´s robust, multi-level, and diversified capital goods sector,´ affirms Ravindra Gandhi, Regional Director, Peel Ports Group.

The government´s focus is on enhancing the capacity of major and non-major ports and modernising them to make them efficient, thereby enabling them to become drivers of port-led economic development. ´Political will is in place and there is a thrust on infrastructure on the part of the present government,´ says an optimistic Kalantri.

CONNECTIVITY LOOPHOLES
Connectivity is a big issue, whether inbound or outbound. The most formidable challenge that the sector is combating is hinterland connectivity. ´While the number of containers handled at major ports have significantly increased, moving cargo from its origin to the export hub economically, safely and reliably still remains a hindrance. All of this has the effect of making the cost of container shipping in India more expensive,´ puts forth Gandhi.

Kalantri concurs, ´Inadequate hinterland connectivity hinders the growth of external trade. It results in suboptimal choice of route and mode of transport, leading to time and cost escalations, and in many cases, congestion in the ports due to the inability to move cargo. Thus, investment in port infrastructure becomes imperative.´ The government´s Sagarmala Project will facilitate movement of cargo by inland waterways and coastal routes. These routes will function as feeders to the port and will help in reducing cost of transportation when compared to road movement. ´The prime objective of the Sagarmala Project is to promote port-led direct and indirect development and to provide infrastructure to transport goods to and from ports quickly, efficiently and cost-effectively. It also aims to promote growth of industries in coastal areas in proximity to ports,´ asserts Ravindranath.

The project will provide logistical boost to all EXIM-based manufacturing companies reducing connectivity related infrastructural challenges for ports and in turn will create a win-win situation for both ports and industries. According to Somani, ´The project envisages creating a string of ports (major & non-major) around the entire periphery of Indian peninsula, which complemented with investments in ICDs and logistics parks will boost the entire logistics infrastructure sector.´

The special purpose vehicle (SPV) for efficient rail evacuation systems to the major ports will also ease the connectivity issues. It will improve the last mile connectivity to major ports and help in modernising port infrastructure. ´The SPV is expected to bring in substantial reduction in dwell time of cargo at ports and bring down the overall logistic cost for trade,´ says Ravindranath.

The proposed dedicated freight corridors are also expected to address connectivity constraints. ´Dedicated Freight Corridors (DFC) will revolutionise the movement of cargo in our country. The movement of cargo from gateway ports to hinterland will become faster and economical on DFC,´ affirms Anil Kumar Gupta, Chairman & Managing Director, CONCOR.

SNAIL PACE GOVERNANCE
Most of the port projects are getting delayed on account of permissions to be obtained from different government agencies in order to comply with project prospective and on account of approval during public hearing. ´Environment clearance takes the maximum time for getting approval. There are many agencies such as GSPCB, GCZMA, Expert Appraisal Committee, Public Hearings, etc., where role of state governments in recommending different clearances is larger. In order to overcome the delay, the processes need to be time-bound and having a single window system would further overcome the hurdles before MoEF shall grant permission,´ reveals I Jeyakumar, Chairman, Mormugao Port Trust.

The major ports suffer from perennial issues like very high volume, lengthy and time taking procedures, leading to detentions and additional costs. Comparatively, smaller non-major ports are more responsive and processes are quicker for the EXIM trade. There are various issues which need to be streamlined, like custom clearances, handling systems and procedures, and bringing in global best practices at all process levels. ´In the recent times, the government is taking action and has been able to clear policies in many areas. However, the impact of implementation is taking time and focussed approach is needed to ensure that the intent is converted to action,´ asserts Somani.

SHALLOW DRAFT The draft level is a major stumbling block in the Indian ports sector. According to Ambati Janardhana Rao, Managing Director, Indian Ports Association, ´The government is continuously monitoring the dredging requirements at major ports and committed to bring the draft level at major ports from existing 12-14 metres to 17-18 metres in a phased manner. Some of the recent initiatives include liberalisation of security clearance for dredging projects, SOPs for undertaking such projects, encouraging private sector participation for dredging activities, etc.´

There is a potential for deep draft ports and the dredging industry of India also needs to develop. ´Today, India is the second port of call because we don´t have deep drafts. We could replace countries like Colombo and Dubai if we have deep drafts and if the government supports the dredging movement in the ports sector. In case of Dighi Port, we have soft dredging and so we can go into dredging up to 18-20 metres,´ remarks Kalantri.

Ravindranath however opines that low draft was a major issue about 10 years ago. He states, ´Of late new ports and terminals have developed deep draft handling facilities. Most of such facilities have been developed along the coast of Gujarat and along east coast ports. The major ports have also been endeavouring to improve available draft.´

Deepening the draft is one way of addressing the current challenge in the Indian port sector. Gandhi suggests another, ´One can also consider making use of ports for specific trade that it can handle, e.g., car carriers do not require a very deep draft. Port operators should consider developing shallow draft ports for trades that do not require deep draft vessels.´

SILVER LINING?
The Ministry of Shipping has recently appointed a consultant for Sagarmala Project, whereby lot of minor ports are likely to be set up along the coast line with proper connectivity to the road and rail traffic and with deeper depths for getting economies of scale.

The long pending GST bill needs to be implemented. It will add revenue to the exchequer and do away with unfair practices and multiplicity of taxes. The major ports still suffer from the older dogma and take a lot of time to get the clearances for cargo. At every step, there shall be time limitations within which permits, clearan¡ces or recommendations shall be granted, failing which, the project should be termed as de-facto approved.

Part III of draft Major Port Authorities Bill 2015, which deals with the management restructuring of port authority, states that the Port Authority of each Major Port operating as a trust may change its structure and become a company. The bill, if passed, will have far-reaching implications and will accord greater autonomy to these ports.

Nevertheless, the massive capacity augmentation envisaged by the government under the Maritime Agenda 2020, the Make in India campaign and the Sagarmala Project, as well the as Major Port Authorities Bill 2015 may not be as hunky-dory as they seem. The aforesaid policies and projects are on the anvil and no significant developments have been witnessed so far.