Port of Call

The Indian port sector has gathered pace with the government´s focus on revival of the manufacturing sector through the ´Make in India´ campaign. The manufacturing sector is likely to drive the growth of the port sector as the carrier of cargo – ports – carry 90 per cent by volume and 70 per cent by value of the EXIM trade. Apart from this, the Maritime Agenda 2020 and the revival of the Sagarmala project, focussing on the port-led development, bode well for capacity augmentation of the ports. While adding capacity in terms of development of new ports, the government first requires to improve the existing ailing infrastructure of the ports for bringing efficiency and modernisation.

The sea route provides cost-effective and environmentally sustainable means of cargo transport. Indeed, it was her sea trade that enabled ¨Britannia¨ to rule the waves, and establish an Empire on which the sun never set. Realising the importance of the port sector for the growth of trade, the National Democratic Alliance (NDA) government has revived the Sagarmala project, focussing on port-led development. Further, the government´s impetus on ´Make in India´, concentrating on the manufacturing sector, is expected to swell the volumes of cargo for the port sector. Apart from this, the International Monetary Fund (IMF) has also forecast that India will achieve the GDP growth of 7.5 per cent this calendar year, surpassing China. Ergo, the Indian ports sector will soon have to gear up for the massive growth in the movement of cargo.

According to Atul Kulkarni, Advisor (International Projects), Indian Ports Association (IPA), if manufacturing gains traction with the ´Make in India´ campaign, it will catapult the requirement for new ports for handling the growing volumes of cargo. ¨The sea route is still the major mode of international trade movement. Better ports will be required to manage the growing EXIM cargo movement from the country. Larger and higher capacity container ships are being built globally to cater to the demand. Thus, India needs new ports across our coastline to service this economic trend,¨ reiterates Adarsh Hegde, Executive Director, Allcargo Logistics.

Current Scenario
India currently ranks 16th among maritime countries. The Indian maritime sector comprises 13 major ports and around 200 non-major ports. 185 ports are notified under the 18th century Indian Ports Act. The major ports come under the ambit of Major Ports Trust Act 1963. In 1995, almost all the major ports developed the Landlord Model, where the port authority allots berths to private players for operations. For instance, Mumbai Port Trust has recently awarded its berth to Ambuja cement for handling cement cargo for a concession period of 30 years. Similarly, Mormugao Port Trust has also given berths to private players for operations. While taking note of the role of private players at the major ports, SS Kulkarni, Secretary General, Indian Private Ports and Terminals Association (IPPTA), informs, ¨In the next decade, it may be a feasibility that all the cargo operations will be handled by private parties, and marine operations will be tackled by the port trusts.¨

The non-major ports are also known as minority ports, and the state governments have the authority to award these projects to the private players. Gujarat leads in the development of private ports and terminals under Gujarat Maritime Board (GMB). Amrendra Kumar Rakesh, Vice-Chairman and CEO, GMB, states, ¨Gujarat has developed a very balanced model of port development. The state has adopted Build, Own, Operate, Transfer (BOOT) model and a conce¡ssion period of 30 years (extendable by another 20 years). Post the introduction of the Port Policy 1995 and BOOT Policy 1997, almost all the new port development projects of Gujarat have been undertaken on this model.¨

According to Siva Subramanium, Associate Director, India Ratings and Research, non-major ports share jumped to 42.89 per cent (FY14) from 25.08 per cent (FY02), while major ports declined to 57.11 per cent (FY14) from 74.92 per cent (FY02). It reflects the trend of cargo shifting towards the non-major ports from the major ports. The greenfield, non-major ports are efficient in terms of cargo handling, state-of-the-art equipment, and the supporting infrastructure. Consequently, these ports have been experiencing a swell in their volumes as a cargo owner also considers a port offering efficient and faster movement of cargo, apart from the overall end-to-end logistics cost. For instance, in Visakhapatnam Port, the coal handling rates are low as compared to Krishnapatnam Port. However, the cargo owner prefers Krishnapatnam as it offers fast turnaround of the vessel, cargo, trains, etc. Kulkarni from IPA informs, ¨Due to congestion at the major ports, a shipper prefers these greenfield minor ports. These ports have around 30 per cent capacity utilisation. So, this has caused a shift of volumes from the major ports to the non-major ports. Further, the major ports have their own constraints for augmenting capacity.¨

For instance, there is a scope for capacity addition at Mumbai Port. However, the evacuation of cargo will pose a threat due to the congested road and rail, he further adds.

Due to growth in EXIM trade, all these private ports are handling more volumes.

STUMBLING BLOCKS
During the last decade, the traffic at the Indian ports has doubled from 465 MMT in 2003-04 to 975 MMT in 2013-14, growing at a CAGR of approximately 7.5 per cent per annum. However, the port sector has been grappling with its own set of challenges, like the other infrastructure sectors. Despite having a huge coastline of 7,517 kilometres, the sector has not been able to compete with its peer countries like Singapore, Malaysia, China, Srilanka, etc. The industry players attribute it to the infrastructure bottlenecks like poor connectivity to the hinterland, shallow draughts, lack of modernisation, etc. Due to these hindrances, the average turnaround time for a ship at the Indian ports, as of April-November 2014, was around 50 hours as compared to 12 hours at Singapore Port and 10 hours at Hong Kong Port.

Further, most of the Indian ports lack port-based industries. For the long-term sustainability, the anchor customers are necessary for the ports. The industries around ports ensure a traffic base to the port through which it can sustain the market uncertainties. Ports like Kandla, Mundra, Mumbai, etc., are successful as a major chunk of the cargo is supported by the nearby industries.

The majority of the Indian ports is suffering from poor port connectivity- lack of good quality rail and road connectivity. The lack of proper connectivity has the overall impact on delay in terms of cargo reaching the end customer. This has a direct impact on efficiency and productivity of the trade itself. Today, most of the Indian ports face the biggest hindrance in terms of evacuation of cargo from the ports. The time taken for the evacuation of cargo spoils the business prospects of the ports. Kulkarni from IPPTA says, ¨In the liner trade, the shipper cannot afford to wait for berthing. Due to inadequacy of ports, the trade is getting hampered. Roads are congested and railways cannot provide rakes.¨

Both rail and road are saturated in terms of traffic carrying capacity. Due to over capacity utilisation of the rail lines, the commuting time between ports and hinterland increases. According to Anil Kumar Gupta, Chief Managing Director, CONCOR, the saturation of rail lines leads to the requirement for more assets for evacuation of cargo, thereby, increasing the cost. Road transportation has its own constraints like congestion, environmental issues, social issues, etc.

While stating the importance of the proper hinter¡land connectivity, Rajiv Agarwal, Managing Director & CEO, Essar Ports, elaborates, ¨Without good hinterland connectivity, even world-class port infrastructure is of no use to customers. Port is a key mode of supply chain of the customers, and without good connectivity port becomes a bottleneck.¨

The government has moved in improving the last mile connectivity. The projects like Dedicated Freight Corridor Project of the Indian Railways will help to provide a seamless connectivity on Delhi-Mumbai corridor, which is critical to the hinterland connectivity of Mumbai and Gujarat ports with North India. The National Highways Authority of India (NHAI) is also focussing on developing road connectivity with ports. The government has also announced setting up of an SPV for port connectivity projects. However, the government needs to expedite these projects in order to make the ports more competitive in the global market.

Pradip Kumar Agrawal, CEO, APM Terminals Mumbai, hopes, ¨Western DFC will connect Delhi with JNPT, which will significantly improve rail evacuation from the port. We are expecting the Dedicated Freight Corridor to be completed on time to facilitate the increasing capacity of the port. The new rail SPV will modernise the age old port-rail infra¡structure, and provide connectivity between the port and the Railways which was neglected so far.¨

NEED FOR DEEP DRAUGHTS
One of the major constraints, which the sector is facing is the lack of deep draughts at the ports. Due to this, the ports are not able to handle the capesize vessels. The very low draught at Indian ports does not match international standards. This is a major constraint in traffic handling. The world´s top 20 container ports have depths exceeding 15 metres. The inadequate draught leads to increase in time and cost, ultimately, losing the competitiveness of a port. On this, Kulkarni from IPPTA states, ¨Economies of scale can be achieved only when the port has the capability to handle larger vessels. If the port doesn´t have deep draughts, then it must have efficient connectivity with smaller ports.¨

The absence of deep draught leads to the need for dredging of the shipping channel, which is very expensive. In such a scenario, some of the ports, like JNPT, have offshore terminals in the mid sea. Mumbai Port has started developing such a terminal. However, the development of such terminals is also expensive.

TARIFF SETTING & INVESTMENTS
The decision of tariff fixing with the Tariff Authority of Major Ports (TAMP) has also proved a spoilsport for the sector. In the past, many port projects could not see the light of day due to the TAMP policy on tariff setting. ¨The investment decision by the private players in port infrastructure through the PPP route is hampering due to tariff regulation in the major ports, project clearances process in India, and poor hinterland connectivity,¨ states Pradip Kumar Agrawal.

Public-private partnership (PPP) projects were introduced in the Indian port sector in the late 1990s to augment the capacity. In this direction, the government allowed 100 per cent FDI for port development projects. Between April 2000 and January 2014, the Indian ports reportedly received FDI worth USD 1635.40 million. Private sector participation was expected to result in improvements in the operating efficiency and performance standards. However, certain issues regard¡ing Model Concession Agreement (MCA) need to be resolved. Kulkarni from IPPTA opines, ¨Private inves¡tors don´t get to share the reward as the entire risk regarding performance lies with the private player.

Tariff policy should be in tune with rewards. In order to induce the private player, the returns on investments should be attractive.¨ To illustrate this, Vedanta Group firm Sterlite Industries´ MCA with Vizag Port is in troubled waters as the promises of facilitating proper infrastructure have not been kept by the port trust. As a consequence, the terminal is operating at 30 per cent of its capacity. There is a need for periodical review of MCA for making PPP projects more viable.

Rajiv Agarwal from Essar advocates a pro-active role of the government in strengthening the PPP model and providing higher flexibility to the private players on fixation of tariff, designing of the terminal, etc.

In PPP projects, the Gujarat government´s proactive role in formulating policies has helped the state in setting the benchmark in the development of private ports and terminals. Today, the state has the highest number of commercial cargo ports, and its hinterland for ports accounts for 40 per cent of the total Indian trade.

CAPACITY AUGMENTATION
The development of six new ports, including Rs 12,000 crore Sagar port in West Bengal, Colachel in Tamil Nadu, Rs 6,000 crore Vadhavan port in Maharashtra, and Rs 1,200 crore Haldia dock 2 is also on the government´s radar. These projects are likely to scale up significant capacity.

Currently, the Indian port sector has the capacity of 1200 MMT, and the sector is handling 1000 MMT. As per the international benchmark of 70 per cent capacity utilisation, the sector requires 1400 MMT capacity. According to Kulkarni from IPA, in order to achieve seven-eight per cent of GDP growth, it is necessary to add significant volumes. We can add 150 MMT capacity to 200 MMT capacity every year in the form of new ports or privatisation of existing terminals or berths.

Further, Sagarmala project is touted to be the mother of all port projects. It is likely to bring about a transformation in the overall port sector scenario, consisting of development of six maritime economic zones, economic zones, special economic zones, FTWZ, projects for inland water, etc. While elaborating on the project, Kulkarni from IPA informs, ¨Sagarmala will be an integrated development. So, it will be more efficient. It will open opportunities galore not only for the maritime sector, but also for the manufacturing sector. Being closer to the gateway ports, it will help to accelerate import of raw materials and export of finished goods.¨ According to Pradip Agarwal, Sagarmala project envisages linking the major and the minor ports, various industrial and rural clusters, and evacuation infrastructure into a single system at a larger regional level- a Coastal Economic Region (CER), which will enable seamless and efficient movement of cargo through the gateways, thereby, allowing ports to enhance competitiveness, and offer multiple freight options to end-users. The ports, thus, will actively participate in driving the economic development of a wider region, which is similar to the role large global ports are playing in their respective countries.

Apart from this, the Maritime Agenda 2020 also envisages a capacity creation of 3200 MMT for handling a projected cargo load of 2500 MMT by the year 2020. In addition, the corporatisation of the major ports can also enhance the capacity of these ports by bringing more autonomy and efficiency in their operations. According to industry pundits, Kandla, Jawaharlal Nehru Port, VO Chidambaranar, Paradip, and Visakhapatnam ports have huge potential to double or even triple their cargo traffic, thus enhancing the capacity of these ports, and attracting the much needed investment in the sector.

QUALITY OVER QUANTITY
With all these developments of new ports, Sagarmala project augured well for a huge modernisation at the Indian ports. However, the need of the hour is to fix first the aforementioned challenges. Otherwise, the investments on the development of new ports will merely result in boosting the number of ports next to each other. These ports will spoil the business prospects of each other. The case in point is Andhra Pradesh, having ports like Krishnapatnam, Gangavaram, Visakhapatnam, etc., located at a dense pitch. In such a situation, the government has further announced the creation of one more major port at Dugarajapatnam in the state. The building of more ports will not attract more cargo. At last, what matters the most for the clients of ports is efficiency, hinterland connectivity, turnaround times, deep draughts, etc.

IT RECOMMENDATIONS

• The government needs to formulate policies that support port-based industries by facilitating allotment of waterfront and land for development of these industries.
• There is a need for the government´s key role in strengthening the PPP model and providing higher flexibility, and transparency to private players on fixation of tariff.
• The port trusts need to be empowered to take quick decisions for fast-tracking the decision-making process.
• It is the need of the hour to shape policies or reforms for seamless movement of cargo by facili¡tating proper connectivity to the hinterland.
• The adoption of Information and Communication Technology can bring efficiency in working of the ports.
• Corporatisation of the major ports will expedite decision making apart from investments and capacity infusion.

Need to develop Coastal Shipping
Road transport accounts for movement of 57 per cent of India´s domestic cargo, while railways accounts for 30 per cent. India has not developed the coastal shipping as compared to China and Japan, where the coastal shipping accounts for 20 per cent and 42 per cent respectively for domestic cargo movement. In Europe 40 per cent of the domestic cargo movement is carried through this mode. In India, the domestic cargo is mainly transported through rails or roads. The share of coastal shipping in domestic cargo movement is less than seven per cent. There should be a modal shift from rail and road to sea in order to bring the ports on a growth trajectory. Today, all ports depend on EXIM cargo. India needs to have dedicated coastal ships. The government needs to develop coastal shipping.

¨Progress of PPP has not been up to the mark¨

APM Terminals Mumbai has added a feather to its cap by handling a total of 2.01 million TEU. Pradip Kumar Agrawal, Chief Executive Officer (CEO), APM Terminals Mumbai, says that it is a landmark in India´s maritime history for any terminal to achieve 2.01 million TEU in a single financial year.

APM Terminals Mumbai has hit a new record for Indian ports by handling a total of 2.01 million TEU during 2014. How did you achieve this feat?
It was an unprecedented feat and a highly motivating milestone. It is a landmark in India´s maritime history for any terminal to achieve 2.01 million TEU in a single financial year. The achievements in throughput can be attributed to increased productivity and efficiency standards, which was made possible through team effort.

Despite having a huge coastline, can you please apprise us of the reasons for the poor performance of the Indian port sector as compared to its peers in Asia?
India shares different demography as compared to countries like Sri Lanka, Malaysia, and Singapore which are basically transshipment hubs, whereas India has OD cargo that requires other infrastructure support for port development. India´s ports have been facing constraints like terminal congestion, poor hinterland connectivity, and low productivity combined with labour issues and shallow drafts. These factors have a direct bearing on the port handling cost.

What are the pros and cons of the PPP model in the port sector? To what extent is it successful in the Indian port sector?
Public Private Partnership (PPP) has increasingly emerged as a preferred and viable mode for building the much needed infrastructure in the country.

The progress of PPP projects in the Indian port sector has not been up to the mark because of various policy-related impediments, both in the pre and post-award stages. In the pre-award stage, the problems initially arise because of lack of clarity on the bidding framework, qualification criteria, and concession terms. However, these can later be resolved with the finalisation of model documents.

In the bidding stage, the process tends to be protracted with the bureaucratic procedures at most major ports, often leading to cancellations and re-bidding. Post-award, there is feasibility of delays in execution because of the time taken for securing environmental and other statutory clearances. Post-commissioning, BOT terminals face operational problems because of their high dependence on the port trust for common facilities like capital dredging, pilotage, and vessel movement. Ultimately, these have an adverse impact on their efficiency and competitiveness. The decision of tariff fixing under Tariff Authority for Major Ports (TAMP) has impacted the profitability and the returns on PPP projects.

Recently the Modi Government has allowed the formation of the SPV for efficient rail evacuation systems to major ports. Please apprise us of the importance of seamless connectivity to ports?
The capacity and quality of the existing road or rail connectivity to the major ports in India require improvement for smooth movement of cargo. The projects on rail and road connectivity are implemented by the Railways and National Highways Authority of India (NHAI) respectively, but in several cases, a significant financial contribution is also made by the ports.

With a view to bring about seamless connectivity between the hinterland and the ports, India has embarked on two major freight corridor projects, i.e., Dedicated Freight Corridors. Western DFC will connect Delhi with JNPT, which will significantly improve rail evacuation from the port. We are expecting the Dedicated Freight Corridor to be completed on time to facilitate the increasing capacity of the port. The new rail SPV will modernise the age old port rail infra¡structure and provide connectivity between the port and the Railways which was neglected so far.

Maritime Agenda envisages plans for creation of port capacity of around 3200 MMT for handling the expected traffic of about 2500 MMT by 2020. However, do you think that our ports are geared up for such a massive capacity augmentation? If no, why? What should be the way forward for this capacity enhancement?
I am confident that the present government initiatives will definitely result in creating additional port capacity as envisaged in the Maritime Agenda, which is essential to support GDP growth targeted above eight per cent.

Can you please tell us about the current capacity of your terminal? What share do you foresee in this capacity augmentation by 2020? Please tell us about your expansion plans and proposed investments?
APM Terminals Mumbai also known as Gateway Terminals India (GTI), joint venture between APM Terminals and the Container Corporation of India (CONCOR-A Government of India undertaking), has a 30-year licence to build and operate 712 metre berth length and operating at optimum level of two million TEU. Since the beginning, GTI has set a fine example of a well-functioning PPP arrangement. This fact has been well-recognised and appreciated by various shipping bodies and port authorities from time to time. Capacity augmentation can be done through upcoming projects both in the major ports and non-major ports and the group will be always looking for right opportunities to invest in future projects.

How can Sagarmala project be beneficial for the overall Indian port sector?
Sagarmala envisages not only transforming the existing ports into modern world-class ports, but also developing the new world-class ports based on the requirements. It will integrate the development of the ports, the industrial clusters and hinterland, and efficient evacuation systems through road, rail, and inland, helping the ports to become the growth drivers of the economy in the coastal areas.

¨India needs state-of-the-art ports¨

Rajiv Agarwal, Managing Director and CEO, Essar Ports Ltd, the second largest developer and operator of ports and terminals, shares his views on the hidrances faced by the Indian port sector, the efficient model for the sector, and much more.

Can you please apprise us of the reasons for the dismal growth of the Indian port sector as compared to ports like Sri Lanka, Malaysia, Singapore, etc?
Growth of the port sector is also dependent on the growth of the manufacturing sector and international trade. For the last few years, the growth of the manufacturing sector and international trade has been low, which has affected the growth of the port sector as well. One major difference between Indian port sector and ports in Sri Lanka, Malaysia and Singapore is that Indian port sector is dependent on domestic demand, while ports in Singapore and Sri Lanka are on the major trading routes. Hence, they handle a lot of transshipment cargo destined for the other countries. India has also been trying to develop dedicated transshipment facility for containers. However, it has not been a success.

What kind of opportunities will Sagarmala project create for the overall Indian port sector?
Sagarmala project is an extremely good initiative as it will lead to integrated development. Good port connectivity with multi-modal transportation system is essential for the growth of ports. Once quality port infrastructure is developed, it would lead to port-based industrialisation and overall development of the region.

At present, India has 13 major ports and around 200 non-major ports. What is the country´s requirement of ports for fulfillment of EXIM trade?
As far as the numbers are concerned, it´s huge, but good quality ports are limited. What the country needs is state-of-the-art ports with deep draft, mechanised facility, and good evacuation infrastructure. Out of 200 odd ports operating in India, not more than 25-30 ports possess good infrastructure.

As per the Shipping Ministry data, India´s 12 major ports have witnessed a drop in share of cargo volume in 2013-14. Can you please tell us about the factors that led to the fall in the cargo volume share?
The major ports are facing various challenges, which include lack of mechanisation, quality of service, congestion, tariff control, and slow decision making process. Tariff restriction is hampering the future growth of the major ports and reducing the interest of private players in the development of world-class port infrastructure. The major ports should have more flexible approach to attract the private investments.

When it comes to port project execution, which model is feasible and efficient? To what extent, is it successful in the Indian port sector?
Public Private Partnership (PPP) model is an excellent model for the port projects with a decent track record.

I wouldn´t say that it has addressed all the issues, but the step is in right direction. Now, we need to strengthen the PPP model through more government support, by providing higher flexibility to private players on fixation of tariff, designing of the terminal, etc.

The government needs to play a more active role in making this model successful by facilitating the required statutory approvals for the project. The government is the biggest beneficiary of the success of PPP model as it ensures investments by the private sector, additional revenue to the government, and the creation of world-class port infrastructure.

What are the major challenges faced by the Indian port sector? What are your expectations from the government for sustainable growth?
The Indian port sector is facing challenges both on capacity creation and attracting customers. Quality of port infrastructure at most of the ports is not at par with the international standards. Capacity needs to be added through mechanisation of existing non-mechanised facilities and the development of new terminals wherever required.

With the National Democratic Government´s initiatives towards revamping India´s ailing infrastructure, how important is the port sector for the growth of the economy? How do you envisage the growth of the sector in the next five years?
The port sector is crucial for stimulating the growth of the country and for the success of the ´Make in India´ initiative. Port sector is the key to the growth of the manufacturing sector as it caters to export and import of raw materials and finished goods. The growth of the port sector will push industrialisation and the development of the country.

I am hopeful that in the next five years, the sector growth rate will be fast and Indian port facilities will become comparable to international standards.

Recently, the Modi Government has allowed the formation of an SPV for efficient rail evacuation systems to major ports. Please apprise us of the importance of seamless connectivity to ports? Do you have any immediate plans for rail connectivity to your port?
Connectivity is crucial for the success of any port. Without good hinterland connectivity, even world-class port infrastructure is of no use to customers. The port is a key mode of the supply chain of the customers and without good connectivity, it becomes a bottleneck.

We at Essar Ports have a key focus on rail connectivity, and plan to have the same for our Hazira and Salaya terminals. Our Vizag, Vadinar, and upcoming Paradip coal terminals are already integrated with rails.

Maritime Agenda envisages plans for creation of port capacity of around 3200 MMT for handling the expected traffic of about 2500 MMT by 2020. However, do you think that our ports are geared up for such a massive capacity augmentation? If no, why? What should be the way forward for this capacity enhancement?
Both traffic and capacity targets envisaged in the Maritime Agenda cannot be achieved due to slowdown of the global and the Indian economies in the last few years. New capacities have been added in the last few years, but it is below the target envisaged earlier.

For faster capacity enhancement, all the non-mechanised ports of the major ports as well as the non-major ports should be mechanised through PPP model. Mechanisation of terminal and enhancing the draft will augment the port capacity.

Can you please tell us about the current capacity of your port? What share do you foresee in this capacity augmentation by 2020? Please tell us about your expansion plans and proposed investments?
The current capacity of Essar ports in India is 120 MMTPA, which is expected to increase to 194 MMTPA by 2017. We will be investing approximately Rs 4,000 crore to add additional 74 MMTPA capacity. Capacity will be added through new dry bulk terminal at Salaya in Gujarat, new coal terminal at Paradip in Orissa, and enhancing capacity of Vizag iron-ore terminal and Hazira terminal. We are also exploring opportunities for the development of ports abroad.

– SUPRIYA ABHIJEET OUNDHAKAR