Shoring up Efficiencies

Ports_CBTProjected cargo traffic to be handled by Indian ports by 2021-22 is 1,695 million metric tonne, according to a report of the National Transport Development Policy Committee. 2,422 million metric tonnes of cargo handling capacity will be required in Indian ports by 2021-22. For this, additional cargo handling capacity of 901 million metric tonnes is required to be created in Indian Ports in the next 6 to 7 years. Port Projects involving investment of over US $ 10 billion have been identified for award during the next five years. New construction opportunities abound, but existing ports need to shore up their efficiencies to attract more business.

The government's port led development augurs well for Indian ports but it needs to focus more on multi modal connectivity of existing ports rather than focus on developing new green field ports because India's individual major and non-major ports on India's west coast and east coast are already saturated with port capacity and there's intense competition among them to attract business. Under the circumstances existing ports need a two pronged strategy to become competitive and attract more business. First is to improve their road and rail connectivity and access to logistics infrastructure. The other thrust should be on developing port real estate in the form of SEZs (Special Economic Zones), and logistics and distribution parks.

 

Multi-modal connectivity

Underlining the importance of port connectivity to logistics infrastructure like road and rail connectivity, Vijay Kalantri, Chairman & Managing Director, Dighi Port Ltd, says, "We are setting up the first private port in the public private space near Mumbai and also establishing a Special Economic Zone around the port with modern infrastructure. The port is equipped with state-of-the-art facilities and forms an integral part of the Delhi-Mumbai Industrial Corridor (DMIC) and will have access to the Delhi Freight Corridor (DFC). The company’s growth prospects hinges on sound infrastructure policy supported by pragmatic investment policy. The speedy infrastructure development in the country in terms of roads , railways , ports , power and telecommunications will provide the necessary impetus to Dighi Port and enable the company to improve the overall economy of the region. Dighi will thus become a key catalyst in the growth and development of a vast stretch of the region it serves." A deep water, all-weather green field port in the Raigad district of Maharashtra, Dighi Port recently signed a 50 year "Build, Own, Operate, Share & Transfer (BOOST)" Concession Agreement with the Maharashtra Maritime Board (MMB), and the Ministry of Railways has approved a Dighi Port – Roha Rail connectivity project whose implementation will be through a JV route between Rail Vikas Nigam Limited (RVNL) and Dighi Port Limited (DPL). The railway line will be constructed as a feeder route to the Dedicated Freight Corridor linking JN Port to Ludhiana. It will have provision for running of double stack container trains and heavy freight trains.

Adani Ports and Special Economic Zone Ltd, (APSEZ), India’s largest port developer and part of the Adani Group, is another example of focusing on port real estate. Last year it formally began development of India’s first ever international transshipment project in Vizhinjam, Kerala, which is expected to be completed within the stipulated time period of four years. The project will be Kerala’s first ever deep water container transshipment port. Gautam Adani, Chairman, Adani Group, says, “We are honored by the trust bestowed on us by the Government of Kerala. Developing India’s first international deepwater seaport project in a record time of just one thousand days is another opportunity for us to fulfill our commitment to Nation Building. Given Vizhinjam’s access to prominent international waterways, the project will be a significant catalyst in positioning India strategically as a global transshipment hub. It will also help us in accelerating our journey towards achieving our vision of annually handling 200 million tons of cargo by 2020.” APSEZ is the country’s largest port company with footprint across the Indian seashore. It has proven expertise in building, operating and maintaining world class port infrastructure. The company currently operates ports in Mundra, Hazira, Tuna-Tekra (Kandla) and Dahej, in Gujarat, Dhamra in Odisha, and operates specialized coal handling facilities in Mormugao in Goa, and Visakhapatnam in Andhra Pradesh. It is currently setting up a container terminal at Ennore in Tamil Nadu. Just to underline the potential of port real estate like transshipment hubs, currently more than one million TEUs (twenty-foot equivalent units) of Indian cargo gets transshipped annually through foreign ports, such as Colombo in nearby Sri Lanka.

Another major player in the private sector is Essar Ports, which is already running ports across India. “The company has achieved another quarter of consistently strong performance. We are quite bullish at the moment with a few of our projects expected to start operations during this year. There is significant opportunity for the Indian port sector to multiply capacity and traffic over the next few years, which is being further strengthened through the government’s focus on the ‘Make in India’ campaign. We are well positioned to capture the growth,” says Rajiv Agarwal, Managing Director, Essar Ports Limited.

 

Idle capacities

While west coast ports are more comfortable in terms of business volumes, east coast ports are struggling to stay afloat due to more cargo capacity compared to the volumes of cargo traffic coming in. The contrast between Gujarat and Andhra Pradesh is glaring. While Gujarat's Maritime Board managed to attract huge private investments in a large number of ports, where hard-nosed businessmen studied capacity creation in Gujarat and made their own investment decisions, in Andhra Pradesh the proposed location at Dugarajapatnam in Nellore district will have to compete with both major and non-major ports who are entrenched players and therefore better placed to offer cargo handling facilities at greatly lower cost. Andhra Pradesh already has a major port at Vishakhapatnam, among the largest major ports in terms of cargo handled. In addition there are two other private ports, at Gangavaram and Krishnapatnam, which are regional players. And the Kakinada port, has been handling liquid cargo for quite some time. Neighboring states of Tamil Nadu and Orissa also have well developed minor and major sea ports. Further north the riverine port of Kolkata-Haldia has a perennial problem of shifting currents and silting problems to maintain adequate draft. Therefore there is some justification in the proposed deepwater port on Sagar Island, where the Indian Navy is also interested in using the port on the island. But considering the enormous investment required to build this green field port, it makes sense to develop further the nearby Paradip Port, which is already well connected by road and rail and has existing port infrastructure.

The government has announced plans for two new major ports on the east coast, estimated to cost over Rs 5,000 crore, even this is not enough. The Ministry of Shipping has said it would approach the Finance Ministry for Viability Gap Funding for these ports, because on their own they would not be able to attract investment. The moot question is why invest in green field ports when existing ports in area can be upgraded at a fraction of this cost. East coast ports are fighting for survival due to overcapacity and government will simply aggravate the situation by adding two major ports in the area.

TAMPering with efficiency

Major ports, especially government owned, need to urgently shore up their efficiencies because they are losing market share to private ports. This is reflected in the fact that since last few years major ports in India are losing business to private non-major ports run by the private sector. According to data from the Shipping Ministry, in 2013-14, the cargo volume share of India's 12 major ports declined to 55 per cent from 72 per cent at the end of 2007-08, and large private ports such as Adani Ports, Pipavav Port and Vadinar Port have gained market share. The major ports need to become more efficient to attract more business. For major ports the TAMP (Tariff at Major Ports) was a major inhibitor in contrast to private ports which can fix their own tariff. In this context the new revisions to TAMP in Jan 2015 are welcome. While allowing market linked tariff for major ports it has also set some performance standards and guidelines to be followed as per the revision. The major reason for major ports' poor performance is shoddy operations, hence the new standards to should boost efficiency of these ports. Already the Indian Ports Association (IPA) has launched initiatives to improve operational performance of its member ports by implementing an Information Technology (IT) project concerning the Ports, viz . Centralized Web based - Port Community System (PCS), which ultimately aims at a paperless regime with efficiency, productivity, and cost effectiveness. In addition, IPA has been conceptualizing a DashBoard and a B.I. System across the sector, by harnessing the strength of PCS at Central level and ERP System in Ports. The IPA's new motto is to achieve a situation of "No Congestion" in the ports sector. “IPA is committed to the transformation of Indian Major Ports into world class facilities for achieving International Standards in container/cargo handling and making India as a major player in the world maritime trade. It is our endeavor to play a supporting role in the various policy initiatives of the Ministry of Shipping, in exploring the possibilities of better utilization of the long coastline of India," says A Janardhana Rao, Managing Director, IPA.

However, to increase cargo handling capacities and make port lucrative and hence attractive for terminal operators the TAMP regime needs to be dismantled and allow major ports to operate on basis of efficiency. the older TAMP ended up penalizing efficient performance of port terminal operators. The Revenue share was calculated on ceiling rate determined by the TAMP rather than market determined rates. The new ceiling rate can become tricky for private operator in a weak demand environment where he will not be able to charge the 15 per cent higher tariff to users but will have to pay 15 per cent higher revenue share due to new ceiling rate. As per the TAMP the tariff hike in case of NSCIT (Nhava Sheva) if gets aligned with 2013 guidelines/new tariff lines will increase by 107 per cent to Rs 5,170/teu!

The government needs to dismantle the TAMP regime all together so major and minor, private and public, all ports compete in an open market. Such competition is bound to have a positive impact on the sector because competition breeds competence. Also this will make new port projects attractive to private operators. The MCA needs to be tweaked for private players to become interested. There plenty of cases of failed bids for ports in the recent past.

 

Lucrative prospects

With EXIM trade poised to grow steadily there are plenty of new and brown field projects coming up in the port sector. First is the road and rail connectivity required by Indian ports, which is far from adequate, especially on the eastern coast. The other major growth driver for construction here is the need for modern warehousing and logistics facilities. There will be steady demand for Container Freight Stations (CFS) and Distribution Hubs, and other related infrastructure in the vicinity of these smaller ports, expansion and up gradation of existing facilities. The government's proposed Sagarmala is another huge opportunity. And add to this the opportunities in Inland Water Transport (IWT). For competent EPC companies all these amount to plenty of projects running into the 13th Five Year Plan period.

 

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