Despite a largely sluggish SEZ segment, uncertain cabotage laws and now a TAMP regulation on lower tariffs, ports in India have been on a numerical expansion spree, thanks to the recent promotion of state-owned and private ports. Janaki Krishnamoorthi writes about the ups and downs along the way of a typical Indian port.
The Indian ports sector has been witnessing significant growth for over a decade with many ports going in for expansion and modernisation and development of several port-based Special Economic Zones (SEZs). In the last two years alone, four major projects were commissioned - the container transhipment terminal at Vallarpadam (Kochi), bulk terminals at Dahej, Mundra, Hazira (all in Gujarat) and a greenfield port Dhamra (Orissa). Many more are under implementation like the deep-water mega terminal at Chennai Port, offshore container terminal at Mumbai, container terminal at Ennore, three deep-draft berths at Paradip, international bunkering terminal and LNG re-gasification terminal and two port-based SEZs at Cochin Port etc.
Despite these success stories, all is not hunky dory with the port sector, as a wide gap still exists between the envisaged development and the actual progress. Many of these ports are far from meeting international standards in terms of vessel turnaround time, cargo handling etc. Several major ports still lack sufficient draft for large vessels. As a result they are berthed at Colombo, Singapore, or Dubai, and cargo is shipped to India in smaller vessels, escalating costs. Further, all leading ports handle cargo exceeding their capacity resulting in a longer turnaround time. Progress on the award and execution of new projects at both the major and non-major ports have also been sluggish. Some of the current projects are also embroiled in litigations.
Both the Central and many state governments have no doubt taken several initiatives including the National Maritime Development Policy, National Maritime Agenda (NMA) 2020, to promote port development in the country. But most of them failed to live up to expectations due to allegedly tardy implementation, and procedural bottlenecks. As a result, capacity enhancement, establishing hinterland connectivity, logistic parks, technology upgradation and automation etc continue to be the critical challenges for the port sector even today.
All the 13 major ports except Ennore are administered by the respective Port Trusts coming under the Central government while 187 non-major ports, of which only 60 are cargo handling, come under the purview of respective State governments. The major ports account for about 75 per cent of total traffic today. According to Indian Ports Association (IPA), the capacity of major ports which was 689.83 MMT in 2011-12 is expected to reach at 745.86 MMT in 2012-13 as per 12th Plan estimates. But the increase in capacity is hardly keeping pace with the demand resulting in overutilisation.
"Overcapacity utilisation is a major challenge for almost all major ports in India. With India's world trade increasing exponentially, existing ports are struggling to meet the growing demand. The average capacity utilisation at most ports is over 95 per cent which is very high compared to global standards," says Anil Singh, Senior Vice President and Managing Director, DP World, Subcontinent Region. The company is currently operating international container terminals at Nhava Sheva, Mundra, Chennai and Vallarpadam (Kochi) and has a 26 per cent stake at Visakha Container Terminal. Overutilisation of capacity in the so-called "Major ports" (those under centrally governed Port Trusts) has necessitated a shift in policy focus to non-major ports. Minor and intermediate ports have overshadowed their larger counterparts, posting double-digit growth in traffic in fiscal 2010-11 due to better infrastructure and value-added services. A quick estimate by IPA reveals that the capacity of minor ports which was 421.56 MMT in 2010-11 rose to 544.65 MMT in 2011-12. The contribution from these ports has been growing reportedly due to state governments' more favourable policies.
"Development of minor and intermediate ports including the development of inland waterways/terminals are important as they will help in meeting the growing traffic demands, ease the traffic congestion on road/rail transport and also help in reducing the pollution levels," states GP Rai, Chief Engineer, Cochin Port Trust (CPT). Cochin Port has plans to construct a deep draft outer harbour on the western coast of Puthuvypeen area at an approximate cost of Rs 7,000 crore. The project involves reclamation of about 1,200 acres of land, construction of breakwaters to the extent of 5 km and expansion of future activities of the port into the outer harbour.
According to Rai, Kerala government is deliberating on setting up a Maritime Board with main objective of developing the minor ports in the state. Likewise, other state governments too are planning to develop non-major ports in a phased manner, a good proportion of them involving Public Private Partnership (PPP).
PPP hit by global recession
The Central and state governments have been promoting PPP in the ports sector on a build-operate-transfer (BOT) basis, thereby stepping up capacities and traffic handling at ports, besides bringing in the requisite resources. "Private sector participation in infrastructure projects through PPP frame work is a significant change, helping capacity addition to meet the traffic demand. In Cochin Port, mega projects like International Container Transshipment Terminal (ICTT), LNG re-gasification terminal and an international bunkering terminal are coming up with private participation in the port-based SEZ of Vallarpadam and Puthuvypeen," reveals Rai. A number of downstream industries of LNG re-gasifica¡tion, including a power plant of 1,200 MW capacity, are also expected to come up in the area.
But the participation of private players is yet to pick up pace, aver some industry pundits. Although NMA envisaged converting all major ports into landlord ports by 2020, the movement towards corporatisation has been slow. Under this concept, port authority retains the port infrastructure and fulfils its regulatory functions, while port services are provided by private operators. So far, only investments in some berths or container hand¡ling facilities have been made by the private sector and the Port Trusts continue to handle the other berths and facilities. This hybrid approach has resulted in a conflict of interest between the Port Trusts, who continue to be port regulators and providers of commercial services and the private sector. The tariff structures at different ports vary widely. Tariff in major ports regulated by Tariff Authority for Major Ports (TAMP) is harming private initiatives, say private operators. "There are a few serious impediments that need to be resolved on top priority like the tariffs regulation regime for major ports, rationalisation of the model concession agreement for ports, 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," explains Singh.
Iftikhar Ahmed, Senior Deputy Director and Chief Administration Officer In-Charge, IPA, however maintains that slowdown in PPP is due to global recession: "The PPP in port sector is affected by the overall global slowdown and recession prevalent in all the sectors. The government is taking up the matter with all the concerned ministries for faster clearances of the projects." According to Ahmed, the total investment by private sector in 2011-12 was Rs 1,807.46 crore as against Rs 1,721.15 crore in 2010-11.
Will port SEZs pick up?
Several port-based SEZs have come and are coming up in India with private participation - thanks to the numerous incentives offered to private players. "The taxes and duty concessions available in the port-based SEZs is a major contributor for bringing in substantial investments for the port infrastructure build up. CPT's proposal to set up a Free Trade Warehousing Zone (FTWZ) in 40.85 hectares at Willingdon Island is awaiting Shipping Ministry's approval,ö avers Rai. But many of these SEZs have allegedly become self-serving for private players and failed to achieve its objectives like promotion of exports, creation of employment, and development of infrastructure.
Many ports have not yet adopted new technologies in construction or operation of ports. "Main reason is the price. But with new technologies construction time can be cut down making it possible to use the structures earlier, thereby enhancing revenue generation," points out Ajay Kumar Adusumilli, Senior General Manager (Sales & Operations) Dextra India, who provide engineered construction products and solutions.
Maximum availability of handling equipment is key to productivity. But many ports equipment are either obsolete or poorly maintained allege industry pundits. The ports equipment market has nearly doubled in the last decade in India and it is expected to grow by 15-20 per cent in the next two years, predicts Sami Korpela, Country Manager, Konecranes India. He however adds that all the required modern equipment for port development are not available in India. "At present, most port operators buy equipment based on their current requirements as they are not sure about the future growth. For the same reason they also buy equipment which can be used for many applications like a level luffing crane. However in western markets, the equipment is procured considering the increase in container traffic for the next 25 years and naturally they buy technically advanced and latest equipment. In India, many ports buy used equipment from western markets which are obsolete and poorly maintained," reveals Korpela.
"Imported cranes are highly advanced in terms of automation solutions, the fuel efficiency of cranes and its fast speed of operation. Also the modern crane comes with container identification technology which can help operator to identify the specific container location among the hundreds lying in the ports thus saving on time," adds Korpela.
Several policy frameworks and regulations including problems at the bidding, pre-construction and post-completion stages, delays in land acquisition and statutory clearances (coastal, forest, pollution and environmental) customs clearance procedures etc are only adding to the port infrastructure developers/operators' woes. Cabotage law in India is one such regulatory bottleneck reportedly curtailing sector's growth. India's cabotage regulations restrict the operation of foreign vessels in Indian waters. This resulted in lower capacity utilisation in Vallarpadam ICTT at Kochi, set up primarily as an alternative to other transshipment hubs in the region.
However, the government recently relaxed the cabotage law for Vallarpadam ICTT for three years. According to Singh, until 2005 approximately 68 per cent of India's EXIM volumes were transshipped at various hubs like Colombo, Port Klang and Salalah. "Though this has reduced to 42 per cent, the number of containers has actually increased on account of the EXIM growth. The major beneficiary on the main east-west sea route was Colombo given its proximity to India. With the development of the Vallarpadam container terminal and with the relaxation of the cabotage laws, Cochin is set to win back a share of the Indian EXIM volumes transshipped over various regional hub ports," says Singh.
The current regulatory environment is also likely to undergo a change with several new laws and policy measures being formulated: The Draft Port Regulatory Authority Bill, 2011, which seeks to bring tariffs and the performance of non-major ports under regulatory purview; Policy for Prevention of Monopoly at Major Ports 2010, which plans to restrain operators with existing facilities at a port from bidding for similar terminal development projects within the same port and/or within a radius of 100 km of it; Draft Captive Policy 2011, which seeks to allow major port users (port-based industries) to set up their own dedicated berths at the major ports on a nomination basis. More on the cards are: a specialised Maritime Finance Corporation to be formed with the equity of ports and financial institutions to appraise and fund port projects, a special purpose vehicle, Indian Ports' Global, to make investments in ports overseas; a monitoring and feedback mechanism to track progress at the level of the ports and at the government level.