Reactive is better than non-active. The fact that the Maritime Agenda 2020 is the biggest documentation of our future vision in maritime ever is both heartening and concerning. It means we have a vision now, but also that it will require obscene amounts of investments while entrepreneurs will scramble for funding. Shashidhar Nanjundaiah outlines why states need to take the lead in developing ports through proactive policies.
It's akin to our cities' response to road traffic. Over the last decade, total maritime traffic has grown by nearly 2.5 times across all ports and at non major ports it has quadrupled. Now, the government's slumber has been broken by the sheer noise around. Lo and behold! More than 275 projects worth Rs 55,800 crore have been identified for development. To be fair, the shipping ministry's response is less knee-jerk than that of our urban development authorities. Yet the bottom line is, that it has been reactive: What else could explain the fact that while our roads are choked, we have still not evolved sea and river (and more importantly, seamless river-sea and coastal) modes of transport and logistics?
Most expert reactions to MA 2020 has been that of concern of how to achieve the ambitious goals. “The Maritime Agenda 2020 is quite ambitious, and that is a good thing,” says Sabyasachi Hajara, Chairman, Shipping Corporation of India (SCI). “But we are talking about the port capacity going up to more than three billion tonne from today's one billion in a matter of less than 10 years. Such ambitious plans demand many facilitative measures if they were to bear real importance.”
Opinion is never divided when a good thing comes along, and the MA 2020 is no exception. But has the government started moving on it, considering that Shipping Minister GK Vasan has committed himself to producing annual reports on implementation of the Agenda? In fact, SCI's Hajara says, the MA 2020 seems to be somehow detached from the Budget 2011-12, adding, “Honestly, I haven't got a feeling somehow that the budget was really correlated in any way with the Maritime Agenda. I did not find any link between the two.”
Will PPP work?
A total of 21 projects are being worked on in a private or captive facility and most of them are concerned with the building of berths and container terminals, with a cost of about Rs 12,649 crore and cargo capacities of 171.45 mmtpa.
A further 13 such projects amounting to Rs 2,635 crore have been awarded in 2009-10, and they aim to handle about 65.65 mmtpa of cargo in similar areas. “Given the 10-year focus on various water-based modes of transport being conceived to improve the infrastructure situation in the country, key areas in which PPP models might be successful would be in the areas of material handling, littoral logistics, coastal navigation and inland waterway transport,” says Sandeep Rao of iMaritime Consultancy.
State policies will boost PPP: The case for private participation is a foregone conclusion. Although our ports are functioning at 70-90 per cent of capacity, with transshipment now a reality (at Vallarpadam, Kochiâ€”recently inaugurated, (See lead story in Kerala supplement with this issue), international competitiveness will determine how vessels will treat our ports. Competition can be fierce as the stakeholders are continuously looking to reduce cost and business is easily lost to other ports,” says Niek Van Der Sluijs, Head of the Maritime Delhi Business Unit at Dutch engineering consultancy Royal Haskoning. The very few private commercial ports that exist in India have shown the way in how to manage our ports efficiently and profitably by investing in dredging, port handling infrastructure and connectivity. Among them, the Mundra Port leads the way as a model. Indeed, Swaminathan SA Aiyar of CATO Institute points out, “Gujarat has taken advantage of a constitutional loophole to convert its minor ports into some of the biggest ports in the country, vastly improved the availability and efficiency of port infrastructure, and facilitated the development of industrial centres that otherwise would not have existed.”
While states like Orissa and Kerala have made announcements of allowing PPP in their 14 and 17 ports respectively, they have received lukewarm (if that) responses to their gestures. They have not yet followed up the announcements with aggressive policies and infrastructure and, more importantly, of communication with entrepreneurs. Gujarat is a model to follow in its impatient breakaway from lethargic central policies and developed minor (state-administered) ports that are in some cases as large as (centre-administered) major ports.
Logistics are likely to lead the way in private participation around ports, and this will include coastal and river-sea logistics: “Policies enabling the proliferation of private ports and incentives for coastal and inland waterway movement will enable leveraging of cheaper modes,” says S Vasudevan of KPMG.
Efficiency shot: Such lethargy from the centre and states have led to port ineffiencies and cost mismanagement. “There is a huge waiting, adequacy of draft and of mechanisation,” says Rajiv Agarwal, CEO and MD, Essar Shipping Ports and Logistics. “The manual process, loading and discharge rates are very low. It is a complete freight cost and logistics cost that you can see. The cost of bringing the ship, the long duration of its wait, the rate of discharge, the quality of labour, how you evacuate, what it takes to evacuateâ€”these are all additional costs, mostly borne by the consumer. Improving productivity will itself increase from the present level, the handling capacity be up by almost twice or thrice.”
Augmenting capacity can also be achieved by allowing more captive ports to go mainstream, Agarwal says. “Just like the power sectorâ€”where the government has allowed captive power plants to supply to the gridâ€”here, too, they should allow others to use the resources.” While Gujarat is likely to go that route, other states have not yet taken that initiative.
Replace the raj: Although it is a welcome gesture that the government has been recently mulling over replacing the Tariff Authority for Major Ports (TAMP) with a Port Regulator, a speedy introduction of a regulator will help ports earn or learn from market pricesâ€”which, in a global scenario, swing wildly depending on complex international factors. A regulator typically sets, monitors and administers standards in technical and performance levels, and this one should not be any different.
“Sops like refund of sales tax included in the exported goods will help to reduce the transaction cost; introduction of a single bond for export is meant to help exporters to carry out transactions from any port in India,” says S Dutt Majumder, Chairman, Central Board of Excise and Customs.
In parallel to the MA 2020, therefore, reforms will need to continue, and will do soâ€”if the current Budget and the government's right noises are any indication, for the next decade. Each such “reform” should be made and the MA 2020 must be the defining objective.
The Maritime Agenda 2020 (MA 2020) is a vision document for Indian shipping industry for the next 10 years. The Agenda was released mid-January this year. The Agenda aims to:
â€¢ Increase the Indian tonnage four fold to 43 million gross tonnage (GT)
â€¢ Enhance port capacity to around 3,200 million tonne
â€¢ Mobilise an investment of about Rs 3 lakh crore
â€¢ Boost India's share in global shipbuilding to five per cent
â€¢ Increase the share of Indian seafarers to at least nine per cent by 2015.
â€¢ In the fiscal year ending 2007, its minor ports handled 123.6 mmtpa of cargo, compared with the 53.0 million tonne handled by its only major port (Kandla).
â€¢ Its minor ports handled more cargo than all major ports put together in any other state; the closest rival was Tamil Nadu, whose three major ports loaded 82.1 mmtpa.
â€¢ Its minor ports accounted for 123.6 mmtpa of the total of 171.9 mmtpa handled by all minor ports nation-wide.
â€¢ Among the states with minor ports, Andhra Pradesh came in a very distant second to Gujarat, with just 18.6 mmtpa.
Source: Cato Institute, The benefits of port liberalisation: A case study from India.
Land on horizon
One of the concerns of the entrepreneurs and investors in ports is availability of land for core (port) and associated (hinterland) activities. Although land policy was introduced for ports in 2004, it underwent a review in January this year. By its own declaration in an internal memo, the Secretariat of the Ministry of Shipping recognises:
“Land Policy is one of the most significant policy frameworks guiding the overall functioning of the Port Sector.” The government had drafted a policy that then drew comments and suggestions from the sector. The policy will be valid for PPP (BOT) projects as wellâ€”for lease of up to 30 years to begin with, and up to 99 years maximum. The policy states that “ports are generally expected to utilise their land, with port related activities being given the first priority and activities incidental to the port being treated as secondary in nature,” and experts say this is a positive move. Former Secretary (Ports) MP Pinto points out that the landlord model (Port Trust as lessor) is a win-win framework in PPP, and more private participation is likely as a result of it. Government land is usually available at rates that are acceptable. While the “landlord” port can attract a steady stream of revenue, private partners can avoid heartburn stemming from land non-availability. A clause that can work in favour of investors, if exercised, is that the land should normally be leased through a competitive bidding process, with a reserve price normally of six per cent of the market value of the plot. However, Port Trust Boards are empowered to reduce the rates in specific cases, depending on the circumstances and for reasons to be recorded in writing.
Ports will especially realise the importance based on the response they receive following the Land Policy. States, too, would do well to quickly adopt this policy for non-major ports.