When we finally hit the target?

Missing Maritime Agenda targets has been the norm. But now, the Shipping Ministry is pushing the much needed expansion of its severely congested ports with some urgency, even as the new targets for the year have been announced. As major ports are losing their lure with investors, the government finally seems keen to take initiative. The ministry has set a target of awarding 30 projects, entailing Rs 24,633 crore of investment for the current fiscal to add 288.48 million tonne capacity. More than half of the amount is expected to be sourced from private investors, including foreign players through PPP route. However, the ambition of the expansion plan is deviating from its target due to the slow progress in the overall process, writes Janaki Krishnamoorthi.

Growth in cargo traffic coupled with capacity constraints has created a huge demand for additional port infrastructure. According to the Ministry of Shipping estimates, the cargo volumes in India are expected to reach 2.4 billion tonne by 2019-20. To meet the surging demand, Indian government has made ambitious plans for developing new ports, enhancing existing facilities, mechanisation, improving logistics infrastructure etc. But to meet the high volumes of outlay required for all these plans, private participation is the need of the hour. Maritime Agenda 2020 too, while identifying the possible sources of funding for the port development, has stated that the largest share will have to come from private sector (96 per cent). Other sources identified were internal resources (2 per cent), budgetary supports (one per cent), and external borrowings and others (one per cent).

This has been reiterated by the Planning Commission’s 12th Five Year Plan Working Committee on ports. While stressing the need for Indian ports to gear themselves, the report states, "For doing so, essentially what is required is modernising the port infrastructure, improving the service quality and an increase in productivity levels. The resources required to build the necessary infrastructure are much larger and therefore, public investment has inevitably to be supplemented by private sector investment in public private partnership (PPP) mode."

In 1997, the first project under PPP took off with the setting up of Nhava Sheva International Container Terminal at Jawaharlal Nehru Port developed by P&O Ports (now DP World). Since then, private participation in port sector has been growing but not at the anticipated pace, more so in major ports.

The context

A recent study conducted by Associated Chambers of Commerce and Industry of India (ASSOCHAM) to assess the growth and development of Indian ports, the extent of public and private investments in the sector among other things, highlights the status of PPP projects. DS Rawat, National Secretary General, ASSOCHAM, reveals, "Currently, we have about 62 projects in the port sector worth over Rs 82,000 crore in the different stages of implementation across India. Of these, 31 PPP projects worth over Rs 24,700 crore are under operation as of 30 April. About 21 PPP projects with a share of 52 per cent worth over Rs 43,000 crore are under construction, eight projects worth about Rs 14,000 crore with a share of about 17 per cent are under bidding. Of the remaining, one project is in the expression of interest stage (EoI) and one has been cancelled."

Under these circumstances, the 12th Plan envisaging to generate Rs 1.05 lakh crore (97 per cent of the estimated resources) under PPP model for the development of non-major ports during 2012-17, this seems farfetched according to industry pundits, unless governments take some remedial measures.

Government has no doubt taken several initiatives for attracting private players like formulation of a National Maritime Development Policy to facilitate private investment, opening up of all port operation areas for private participation, permitting 100 per cent foreign direct investment (FDI) in port projects, taxation benefits, granting enhanced financial powers to shipping ministry for approving projects up to Rs 500 crore as against Rs 300 crore earlier etc. Yet, the response from private sector has been lukewarm, more so for major ports.

In fact, throughput in the 12 major ports put together has shown a declining trend in the last few years. In the fiscal year ending March 2013, cargo handled by the 12 major ports shrunk by around 2.6 per cent to 546 million (metric) tonne (mt) from 560 mt in 2011-12.

The competition

On the other hand, total cargo throughput at non-major ports has been increasing in the last few years, notching up 39 per cent of total throughput in India. Mundra, Krishnapatnam, Gangavaram, Pipavav, Karaikal and Dhamra, have achieved higher growth compared to the major ports. Capacity of non-major ports is also predicted to increase at a faster pace. While capacity at major ports is likely to rise to 1,459.53 mt by 2020 from 616.73 mt in 2009-10, at non-major ports it is expected to reach 1,660.02 mt by 2020, from 346.31 mt recorded in 2009-10.

Evidently, non-major ports and private ports are presenting a more positive picture and attracting more private investments. ASSOCHAM study reveals that Gujarat accounts for over 50 per cent in value terms of the total number of completed projects in the ports sector under the PPP model. Orissa ranks second with a share of about 17 per cent followed by Maharashtra where five projects worth over Rs 3,700 crore are under operation.

AK Rakesh, Vice Chairman and Chief Executive Officer, Gujarat Maritime Board, explains the reasons behind Gujarat’s success story, "Apart from setting up the first maritime board in the country, we were also the first state to announce an investor-friendly Port Policy in 1995, which spelt out an explicit strategy envisaging development of 10 new greenfield and world-class ports where the private sector would play a dominant role. The announcement of the build-own-operate-transfer (BOOT) policy in 1997, followed by the Gujarat Infrastructure Development Act (GID Act), progressive policies offering complete tariff and operational freedom and a host of other benefits further boosted private sector participation in Gujarat." (Read interview on pg 40 for more details).

Gujarat has only one major port and the rest all are non-major or private ports. Several natural factors too have contributed to Gujarat’s success, says Santosh Mohapatra, CEO, Dhamra Port. "Gujarat will always lead in the ports sector mainly because nearly a third of the coastline of mainland India belongs to Gujarat. In addition, it is the nearest coast line from the economically more advanced region of north, northwest and western India, large parts of its coast are naturally sheltered obviating the need for break-waters and a high tidal difference which increases the depth during high tide reducing the need for excessive dredging. "According to him, the investment made in Dharma port has been the main reason behind Orissa’s second position. Dhamra Port is a private port developed as a joint venture by Larsen & Toubro and Tata Steel.

Rawat lists out the reasons behind the private players’ interest in these two states, "Better infrastructure together with better capacity utilisation, enhanced efficiency, modernisation and other such aspects are key to decline in logistic costs for customers, which has led to private port operators’ growing interest in these two states."

But not all states have been as successful. Seven states-Andhra Pradesh, Goa, Karnataka, Kerala, Maharashtra, Pondicherry and Tamil Nadu-have created much lesser capacities than was envisaged in the 11th Plan.

The constraints

Why have some states been lagging, and why are the major ports with huge assets unable to attract private participation like non-major ports?

"High rate of financing, difficulty in getting rail connectivity, delay in environmental clearances, and opposition to land acquisition are some of the major problems faced by private players. States that address these issues effectively achieve better performance" reasons Mohapatra.

While all these factors also apply to major ports, there are issues peculiar only to major ports, which were also identified by a consolidated port development plan prepared by Port of Rotterdam Authority in 2007 appointed as consultant by Indian Ports Association. The report had pointed out to the following limitations at major ports: old infrastructure, limited depth, old and inefficient cargo handling systems, poor hinterland connectivity, rigid institutional framework, high tariffs, poor quality of services, overstaffing, lack of capacity and lack of extension possibilities. Till date, not much has been done to overcome these shortcomings.

Rawat stresses the need to address these limitations, "We need to modernise our ports, improve efficiency in port operations and provide top-notch infrastructure facilities. Besides, the government should tone down difficulties in getting loans and even the restrictions arising out of port tariff rules and regulations."

The different tariff framework for major and non-major ports and drastic rate cuts imposed by Tariff Authority for Major Ports (TAMP) is impairing private initiatives. Hence, many private players opine that TAMP should be abolished and government should let the market set the tariff rates. This indeed is a major road block, points out Mohapatra, "The number of bidders for privatisation of berths in major ports is usually much more than that for greenfield ports in the non-major or state sector, as the latter is much more challenging. However, the only issue has been the tariff cap by TAMP which is perhaps on its way out."

Optimism around the corner

The Ministry and the machinery have recently seemed charged up after the 2013-14 infrastructure targets of Rs 1.15 lakh crore have been announced. The Prime Minister’s recent announcement bore some emphasis on ports: new ports on PPP mode-one at Sagar (West Bengal) and the other Durgarajapatnam (Andhra Pradesh)-approved by Cabinet will be awarded. Predictably, PPP forms a major model-at least Rs one lakh crore is targeted under that mode. New announcements to ease tariff norms and delinking major ports from TAMP may also trigger a sense of optimism among players, especially those who have been shying away from investing in major ports in recent times.