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Harbouring success

The PPP model has been quite successful for the development of Greenfield seaports in India - says Captain Sandeep Mehta, CEO (Operations) of Mundra Port and Special Economic Zone Ltd, in this interaction with Shyamal Asangi

What is so different about a public private partnership (PPP) arrangement in the development of ports in India compared to other countries?
Public Private Partnerships (PPPs) in infrastructure projects, and more specifically in ports, commenced on a large scale across the globe sometime in the 1990s. Each country and region has followed its own model for PPP and India has not been an exception either.
What stands out, in terms of uniqueness, is the high degree of transparency in today’s bidding process for terminals in the major ports. Further, the level of standardisation of documents, the RFQ, RFP and the concession agreement is outstanding and has been done for the first time in the world.

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However, the Indian coastline is dotted with ports under the jurisdiction of the Federal Government (major ports) as well as that of the State Government (non-major ports). The development of the ports, under the purview of the state governments, has taken either the PPP route wherein they are bidded for or as the MoU route.
Hence, in the same country we have differing PPP regimes, and this is again a unique phenomenon. Related to this is the development of Greenfield ports in India developed by private companies with government providing only the land and some support infrastructure. Today, we have at least ten such port projects already operational / under development all across the country and no other country can boast of this kind of development of totally greenfield port projects.

How is the PPP model working in the development of port activities in the country?
PPP model in India has been very successful with hardly any defaults by private operators in the last 15 years. Further, almost all port projects are being developed under a revenue share model or royalty payment to the Government Model, with hardly any port being developed under viability gap funding model.
Hence, PPP in ports has resulted in the positive revenue generation for the government. Further, PPP in ports has not only resulted in capacity augmentation, but also high level of efficiency and service levels to the trade. Interport and Intraport competition has also increased and become more meaningful with concomitant benefits accruing to trade.
Further, the Greenfield ports being developed under PPP are all deep draft ports with high degree of mechanization and have been immensely successful in attracting cargo. These ports also offer customised service and a degree of commercial flexibility, not found elsewhere. All in All, PPP in India has been beneficial from the viewpoint of the government as well as trade.

What are the challenges faced by you in particular and the Indian shipping sector in general in the PPP model?
In so far as shipping is concerned, PPP in ports has enhanced port capacities and resulted in the faster ship turnaround. However, PPP in ports has not resulted in lower marine dues for ships and this continues to be an area of concern.
Another area, while not directly related to PPP is high cost of bunkers and spares, which hampers the competitiveness of the Indian shipping. Coastal trade between ports of Gujarat and other parts of India, noticeably South India and
East Coast is required to be encouraged by competitive pricing of port services and other policy interventions.

What are the other sources for access to funds for the privates sector other than the banks? We do see bank funding continuing to be a significant source of funding for PPP projects in the foreseeable future. With PPP models at the central and state government levels well established and accepted, Banks are lending money at competitive rates for viable projects, subject to the track record of the promoters.
Additional sourcing of funds can be arranged from private equity funds, who again would invest in viable projects with strong fundamentals.

What are the potential opportunities with an improved port infrastructure?
Better port infrastructure definitely results in higher trade volumes and in turn leads to increased business down the supply chain including container Freight stations, Freight Forwarders, Bunker suppliers, inter alia. Further, deep draft ports with competitive pricing have led to increased transhipment of containers as well as bulk cargo, something not feasible earlier.
As stated earlier, better infrastructure would also result in increased coastal trade. All in all, improvement in port infrastructure, possibly due to PPP, has already resulted in increased EXIM trade, transhipment trade and coastal cargo and the trend will continue, with this economic downturn being a small blip in the overall cargo growth story.

What are your expectations from the government?
We applaud the good work government has been doing on the PPP front and expect the same to continue. However, due to various procedural hiccups, port capacity addition has lagged behind the intent and hence government needs to reduce the cycle time between floating of RFQ document and the final submission of bid and selection of bidder.
Further, Indian shipping needs help from government on various fronts, the issues are well known. We expect government to provide much needed support to Indian Shipping.

Capt Sandeep Mehta is the CEO (Operations) of Mundra Port and Special Economic Zone Ltd (MPSEZL), the largest private port of India. MPSEZL is owned by the Adani Group and operates and maintains the Mundra Port located in the Gulf of Kutch in the Western state of Gujarat. The port is a deep water direct berthing port with a natural draft of 17 meters and can handle all types of cargos. Captain Mehta is very optimistic about the success of the Public Private Partnership model of development in infrastructure and expects that the governments at the central and state level will continue to iron out the problems faced by the private players in the shipping sector.

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