Not yet out

Despite the current slowdown, the long-term outlook for the port sector continues to be strong, especially because of increasing demand for coal, containers, crude oil and POL, fertilisers, and steel. The government also has taken into cognizance the issues impacting the sector and has taken several initiatives to address issues impacting the sector to increase interest of private sector. The increasing focus of government on an integrated and supportive framework lends the sector a seemingly brighter future, writes Arvind Mahajan.

Almost 90 per cent of the country’s trade by volume and 70 per cent by value is carried through maritime transport, thus highlighting the importance of ports and their contribution in sustaining the development of the Indian economy. Traffic at Indian ports has grown at a CAGR of around 10 per cent over the last two decades (1991-92 to 2011-12) to around 900 million tonne (mt). Over this period, non-major ports have grown faster than the major ports with a CAGR of 19 per cent compared to seven per cent for major ports. Although the total cargo traffic in the country grew by about five per cent between 2011-12 and 2012-13, as per the estimates of Planning Commission, the total traffic is expected to touch 1,758 mt by 2016û17 and to 2,500 mt by 2019-20.

However, the growth in port capacity has not gone hand-in-hand with growth in traffic. The total combined capacity of all the ports was around 1,200 mt at the end of FY 2012. In recent years, most of the major ports have operated at more than 90 per cent of their capacity, thus exerting pressure on their limited infrastructure.

Policy and promotion initiatives

Over the years, there has been an increasing focus on engaging the private sector for developing both greenfield and brownfield port projects. According to industry research reports, the private sector has contributed over 80 per cent of the total investment realised in port projects during the 10th and 11th Five Year Plans.

In 2005, government launched the National Maritime Development Programme as a mega programme to boost port infrastructure including capacity addition, improvement of port operations, promote competitiveness and enhancement of private investment. Further, the Government of India implemented investment promotion policies like:

a) Foreign direct investment (FDI) up to 100 per cent under automatic route;
b) 10-year tax holiday to enterprises engaged in the development, operations and maintenance of ports, inland waterways and inland ports;
c) Standardisation of Request for Quotation (RFQ), Request for Proposal (RFP) and Model Concession Agreements;
d) Tariff setting mechanism for public-private partnership (PPP) projects modified for upfront fixation before the projects are bid out.

In 2011, another major programme, the National Maritime Agenda 2010-20, was initiated. This programme outlined the framework for development of port sector setting a target capacity of over 3 billion mt by 2020. It envisages a cumulative investment of around Rs 2,774 billion expected to be met largely through private sector participation.

The agenda also suggests policy-related initiatives to improve the operating efficiency and competitiveness of Indian ports like turning major ports into landlord ports by 2020, thus limiting their role to being port infrastructure provider.

Latest Developments

The 12th Five Year Plan envisages the total port capacity in India to be increased to 2,289 mt. This would involve an investment of about Rs 1,978 billion during the period 2012-17. Though private sector participation has increased both in terms of investment and areas of operations, the rate of growth in investments has been low. This is because of issues such as litigations, delays in obtaining statutory clearances, poor port connectivity, slow pace of land acquisition, delays in security clearances etc.

Further, lower than expected trade growth on account of difficult global macro-economic conditions negatively impacted the private sector interest. In some cases such as JNPT Terminal 4, implementation delays were on account of unviable bid offers by the private sector participants. This also resulted in project implementation delays. As a result, the government could not achieve its targets for 2011-12 and 2012-13. For FY 13, the government could award projects resulting in less than 50 per cent of the targeted capacity augmentation of 244 mt.

To boost investments, the government recently initiated some policy and regulatory related changes. A snapshot of some of these is given below:

a) Enhanced financial powers to MoS: The Ministry of Shipping (MoS) empowered to award projects less than Rs 5 billion (as compared to Rs 3 billion earlier) on its own.
b) Relaxation of Cabotage Law: Relaxation of Cabotage law would allow foreign flagged vessels to tranship containers from ICTT Vallarpadam to other Indian ports. c) New security guidelines for port and dredging bidders: A list of port and dredging companies would be shared by the MoS to relevant departments for seeking security inputs.
d) Draft guidelines on tariff setting in major ports: Tariff Authority for Major Ports (TAMP) would be required to notify port-wise, commodity-wise reference tariff, which will be indexed to inflation to an extent of 60 per cent of variation in wholesale price index (WPI). TAMP would also notify minimum efficiency standards for the terminal. Port trusts allowed to charge higher tariffs after obtaining due approvals from TAMP. However, several important draft policies framed by the government like land policy, captive port policy and dredging policy did not see any progress and are yet to be finalised.

Way Forward

Higher investments, private sector participation and flexible regulations are key drivers that would facilitate the development of world-class ports in India. Further, development of hinterland connectivity options, enhancing levels of automation, and facilitating quality manpower training would drive operational efficiency. Following are some suggestions for way forward:

a) Integrated approach: As per research reports, logistics cost in India is over 13 per cent of its GDP, making India uncompetitive in the global markets. Thus, an integrated approach that promotes inter-departmental coordination between road, railways and ports should be developed along with uniform network of inland container depots and dry ports.
b) Development of mega-ports/ hub ports: Ports with supportive, high-potential surroundings need to be developed into mega ports that can derive the benefits of economies of scale.
c) Enhancing port infrastructure to improve port efficiency: As per research reports, the average time for clearing import-export cargo at Indian ports is about 19 days, compared to 3-4 days in Singapore. Hence, there needs to be an increased emphasis on upgrading both seaside and landside infrastructure.
d) Manpower skill enhancement: As per a recent industry release, the number of employees at India’s major ports declined at a CAGR of five per cent during 2010-11. Investing in more institutes through the Indian Maritime University (IMU) would help develop a talent-pool equipped with skills required in the sector. Collaboration with foreign universities should be established to facilitate sharing of best practices.
e) Reduction in project delays: The success of PPP model depends on timely award and roll-out of projects. Projects have often been delayed due to long lead time in obtaining environmental, security and other statutory clearances.
Despite the current slowdown, the long-term outlook for the sector continues to be strong specially because of increasing demand for coal,containers , crude oil and POL (upcoming refinery capacity additions), fertilisers and steel (mega projects proposed in the eastern part of the country).

Further, government also has taken into cognizance the issues impacting the sector and has taken several initiatives to address issues impacting the sector to increase interest of private sector. Although the impact of these measures is expected to take around 1-2 years, the increasing focus of government on an integrated and supportive framework lends the sector a seemingly brighter future.