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While the waterfront of a port is difficult to alter, mechanisation of terminals can be done easily, and is central to turnaround strategies, says Jagannarayan Padmanabhan, Practise Leader & Director, Transport & Logistics, CRISIL Infrastructure Advisory.
The Government is looking at monetising assets and port is one of the segments that is being looked at. Your comment.
There is a healthy appetite within the investor community for built infrastructure. Hence, the government, as part of its strategy, is looking at monetising terminals and berths in major ports. Private players across commodities have evinced interest to participate either as an owner or as an operator of these assets. Also, I understand, there is interest among developers and terminal operators for these assets. Considering the current port capacity in India is far higher than the throughput, acquiring terminals makes more sense for a private player than undertaking a greenfield project.
There are concerns such as the turnaround time in Indian ports and higher call time for vessels etc. How are we going to address these?
These are assets that have been built over time, and many have been operational for over a decade. The advantages and constraints are well-documented. Some of the constraints are in terms of connectivity. Connectivity to and from the port is typically a constraint faced by minor ports. In contrast, major ports generally have good connectivity.
Secondly, on the subject of turnaround and call time being high, it could be because of seaside constraints, or because one is unable to get either a shipper or a vessel of the desired capacity. Or there may be mechanisation issues on the berth or terminal side.
Anybody who buys an asset will have a plan and a timeline in which the asset should become profitable. For this, the awarded player might need to make investments. Also, the awarded company will have its own strategy to reduce timelines or costs, improve market access, etc., to add value to its clients, and that will entail further investments.
Most of the ports in India are categorised on a lower scale of efficiency. How does that affect monetisation?
The efficiency of a port is not as important as the draft, hinterland potential, connectivity and nearness to mainline shipping route. It is like somebody buying a resale house. The status of the house is not as important as the location. If it is in good condition, I will probably pay a bit higher. If it is not in great condition, I would have to undertake a renovation. It is the same in the case of a port. The waterfront and hinterland cargo are difficult to alter, but terminal mechanisation can be done easily. If a port is not efficient today, it does not mean it can't be made efficient. That's precisely what turnaround strategies focus on.
The lower efficiency could be because the existing owner has some constraints. But nothing stops the new owner from improving efficiency. Indeed, this would be priced in when the private player bids for the asset. The other critical component is that the terminal should have no encumbrances. In other words, it should not have any operating constraints for the new owner.
The government has been talking about integrated infrastructure with a well-established connection to ports, airports, roads, linkage to railways and so on. We also heard the government's vision of developing the ambitious inland waterways. Can you throw some light on the progress made?
Connectivity infrastructure, be it road or rail, remains a major issue. The Indian Port Rail & Ropeway Corporation Ltd was established to look into the external connectivity of ports. But not much has happened on that front. On the inland waterways front as well, considerable planning has been done, with the declaration of national waterways and also the construction of infrastructure in National Waterway (NW)-1 and NW-3. But there is still work to be done. Overall, therefore, the integrated transport plan is still a work in progress.
If we compare the government expenditure on infrastructure, roads & highways get the biggest piece of the pie and ports gets the least concentration. Your comment?
Road transports both freight and passengers, while port is used primarily for freight. Also, roads are primarily for inter-state and intra state connectivity, the users of road and stakeholders far outnumber the ports, also there is a social obligation for the government to provide good roads. Hence, the magnitude of spending on roads would be 10-15 times that on ports. This is visible in budgetary allocations, too.
You said we can rule out a greenfield project coming up in India because of the current overcapacity. But globally, countries are looking at developing more water transport.
In the current context, brownfield assets are more attractive. But India is a growing economy. Hence, there will always be pockets, geographies and commodities where there are gaps that need to be filled. Having said that, the emphasis in the last two years has been on overhauling the existing setup, which is a smart thing. But it may be a good idea to start looking at narrowing down locations where new ports can be built, and undertake some level of development such as groundwork, etc. That way, acquisition of the land becomes easier as port assets take around four years to develop.
- LIZA V