Potential entrants are cautiously optimistic

Foreign investment: Potential entrants are cautiously optimistic

Seeking to understand the Indian logistics sector better rather than to jump right in, potential investors and contractors from the developed nations are aware of the many a slip between the cup and the policymaker’s lip, which they hope domestic partners will help them overcome.

Shashidhar Nanjundaiah analyses what the infrastructure delegations to India from the UK, USA, Germany, the Netherlands and Canada in just one month should be looking for.

When the UK Trade & Investment (UKTI) bro­­u­ght five of its brightest aviation com­panies from 20 to 24 February to participate in inte­ra­ctions with policymakers and potential partners in India, they had little doubt in their minds about the big­gest entry challenge of all: dealing with the government.

“Regulation in aviation is viewed with apprehension,” said Alan Lamond, the Airports Mission Leader and Chairman of the British Aviation Group (BAG). “Con­sistency, clarity and confidence is what the UK par­ti­cipants would like.”

Don’t move the goalpost

India’s export-import traffic is expected to rise 300 per cent in the next decade, and this expansion offers opportunities for both investment and infrastructure-building. James Sutcliffe, CEO, Port Evolution Management, and leader of the ports mission from the UK, says that for efficient operation, it is important to “get it right” while developing ports. “We had similar inertia in the UK a few years ago,” Sutcliffe said, “where we desperately needed container terminals but they were simply not getting built because of planning issues in the roads and railways.” “India, too, will face these issues and eventually the authorities would be forced to respond to them,” he added.

Although the UK government will not provide financial support to UK investments in India, it encou­rages its companies to invest abroad. Responding to a question whether the governments of India and the UK can talk to each other to facilitate business, the delegates agreed such a move “may help open a few doors”. There is a precedent with the UK government in education and rail sectors in India or other markets, the leaders said it was more important for private companies to set up operations and build confidence to a point of recog­nition by governments. It is even more important, they emphasised, that the government’s game plan doesn’t change over time, and that the government then doesn’t “do something stupid and make it more difficult [to operate]” after companies invest heavily into a country.

“Living on an island, labour practices and privatised ports with huge overseas investments make UK ports some of the most efficient in the world,” said Sutcliffe. “We offer expertise in labour relations, health, safety and environment, training, design and all such capa­bilities prior to laying the first brick.” Sutcliffe said that the Indian environment’s challenges are not necessarily unique. Citing the example of the largest container terminal in south Baltic, which Sutcliffe’s port develo­pment company Port Evolution Management Ltd has developed, he said every region comes with its own set of problems. Sutcliffe, who is also a director of SKIL Ports and Logistics, which is developing a new barge terminal at Karanja near JNPT, said his company is “very very keen to expand [into development in India]”, once it proves its mettle at Karanja. The company has raised equity on the London Stock Exchange. Interestingly, there is an appetite for port projects, since they have faced a good success rate among investors.

Building world-class and competitive ports in India would need international expertise in efficient and safe material handling as well, and the UK delegation is keen to share its competency in building container terminals handling 30 boxes per crane as against the current 15. The UK companies also planned to visit and meet potential Indian partners such as Essar and Gammon.

On the other side of the pond, in the United States, enthusiasm to invest in Indian logistics sectors is somewhat more preliminary and more cautious. Most of the 11 companies that represented the US Ports and Maritime Technology Trade Mission in February were technology, process or expertise providers, not currently interested in playing developer.

The US Dept of Commerce Under Secretary of Commerce for Int’l Trade Francisco Sanchez, who led the US delegation, said his mission was a step in implementing President Barack Obama’s foresight that Indo-US relations were set to define the next century. “We’re going to continue to show up at your doorstep and continue to build our partnerships,” he said.

Port of Baltimore’s Deputy Director of Marketing Joe Greco said that during the tour of Kolkata, Chennai, Ahmedabad and Mumbai, he found himself overwhelmed by the response for expertise. Greco said several ports on both east and west coasts showed interest in investments and expertise. “We’d planned some opportunities to increasing trade with India. But it was overwhelming that people [from Indian ports] approaching us—for expertise in terminal operations, best practices, and so on. Since private development is so well-poised to take off in India, offering our expertise would be a good way to unlock our capital. Baltimore has a very aggressive truck turnaround time in our terminals. We can offer the efficiencies that we’re accustomed to in our ports.”

When Greco and his Director Mike Miller return to Baltimore, they will meet internally with the port authorities to, based on this unsolicited demand in India, discuss establishing a new entity that would be a profit centre exporting expertise of that kind.
Greco says he cannot see any real barriers in entry into India. “I can understand why there is so much interest among international companies to come in. I wouldn’t say infrastructure is a barrier, but a temporary challenge.” As a government entity, the Port of Baltimore is cautious about entering into JVs. The port is the largest port in the US for automobile, construction equipment and ro-ro, and sees many opportunities for trade between the two countries as well.

A smaller port on the west coast, San Diego, is looking at both imports and exports. Originally a strategic military cargo port, the 3 million tonne-a-year port now specialises in handling “clean cargo”—windmill components, gas turbines, solar and geothermal—and is seeking trade with India since it sees the country as a hub for renewable energy manufacturing. San Diego has already secured business with Suzlon and now seeks more. “In addition to the trade,” said Wayne Darbeau, President and CEO, Unified Port of San Diego, “we’re looking for partnerships in running ports. We may be considering operating terminals based on our experience with our deepwater terminal.”

San Diego port claims to have one of the best visitor services at its port, and the executives hope that this is perhaps a niche and specialised area of expertise that India could do with. “We have excellent marinas, parks, hotels, restaurants. We can be helpful to Indian ports in developing this balance them with the aesthetics.”

The port executives’ visit to Chennai led to their conclusion that the ports in India need three major plans: a) de-congestion b) building a bigger capacity in coastal waterways and c) visitor service through water­front development. Darbeau says lack of infrastructure was the most obvious lacuna—and opportunity—among Indian ports and port connectivity. Baltimore’s Greco agrees. With plans for investments but no imple­mentation, the port capacities would be choked, he said.

India’s expansion in dry ports is commendable, Darbeau’s colleague and Principal at the Trade Office James Popham said. “You’re really going to need those while building container cargo. In the US, we plan for congestion. It’s like a chicken-and-egg story.”

“You need those dedicated freight cargo,” Darbeau added, “particularly with the level of expansion, and then think about how it will all need to be integrated. I get the sense there’s more vertical integration in India than horizontal.”

Canada’s investors are a mix: If companies such as rail manufacturing giant Bombardier have gained much experience in India, others are trying to follow suit. Limited in comparison with the US in a number of gigantic companies, Canada has expertise and technology to offer, and its companies are doing so in delegation visits. The 11-member Canada Infrastructure Mission early this month was an example of diverse interests and eagerness to understand the environment.

The Netherlands has also shown a keen interest in partnering with Indian ports. While the delegation from the Port of Amsterdam, the world’s numero uno in petrol, made a presentation on how their port operates to optimum efficiency, the objective was to announce that shipping agency Samsara Group would market and represent the port in India. Port of Amsterdam’s CEO Dertje Meijer told this publication how the port clinically planned and is executing a more efficient and environment-friendly logistics mix: while road transport formed 80 per cent of the traffic in 1990, the percentage was reduced to 60 per cent by 2000. Road logistics will form only a third of the mix by 2030. The port has doubled its production without any additional land, and achieved 40 per cent carbon reduction since 1990.

Connectivity opportunities

Indeed, Bombardier, which will provide Metro Rail cars to Mumbai, seems enthused by its India experience and is gung-ho on its new infrastructure wing. Nicolas Banerjea-Brodeur, Director, Head of Contracts, Legal & Governmental Affairs, India, says the company is all set to take on rail infrastructure projects such as bridges and station-building. If that is any indication of how existing Canadian companies view the India logistics opportunity, it could set a trend in engineering services by international companies.

Likewise, although most of the British companies that UKTI’s Mass Transport Mission represented already have a presence in India, they now seek to augment their position both by strengthening the activities as well as by considering options in financing as well. Working within constrained infrastructure is a big stre­ngth that British companies bring, the representatives say. The challenges in India may not be altogether alien to those companies, Lamond said, adding that they had “many questions about the Navi Mumbai airport, which has been on the books for a while. But we’re very keen to help.”

Some of the natural constraints in Navi Mumbai that BAG sees would be the airspace capacity, traffic capa­­city and connectivity. Without some guarantees those issues that ensure growth, Lamond said, private players would not find it ‘a seductive offer’ to invest in. Some of the British companies are “talking about interest in” smaller airports as well.

Aéroport de Montreal is keen to replicate Zurich and Changi’s experience in partnering Indian airports, and the upcoming 15 greenfield airports could be a potential pie to eye. With the airport’s expertise in modelling airport revenues with an optimum mix of aero- and non-aero, Montreal’s entry should be keenly watched.

The rail sector continues to receive attention from investors, even with its inertia on every possible front, including PPP and other forms of private participation. That is perhaps why interested UK investors would like to limit themselves to participation in technology and “high-value opportunities” in modernisation (rather than greenfield construction, for example). A panel headed by atomic expert Anil Kakodkar has recom­mended that Rs 5,000 crore should be spent on safety measures in the next five years rather than on new trains. “We will be tracking the government’s budgetary announcements,” says Tim Gray, International Development Director of UK-based Railway Industry Association. “Several of our companies are already operating in India who keep a close watch.” The costs are an issue, Gray said, as are technical standards, although the legal systems in India are close to the UK framework, and so present less of a challenge.