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Entering deep waters

Business

Although the government has envisaged large scale upgradation of ports; there are number of bottlenecks that need to be removed to equip the Indian ports to play a significant role in the Indian economy – particularly if private participation is to increase. Shyamal Asangi reports

The CII M-ASCON survey of nearly 100 sectors reveals that the manufacturing sector of the country is showing signs of revival mostly driven by an upsurge in capital goods. This is good news for the Indian freight industry in general and the maritime transport in particular as the latter ferries goods worth over 90% in volume. Despite such a large volume of international trade being handled by Indian ports, the ports in the country are severely lacking in cargo handling capacity and other infrastructure. However, with the opening up of the economy and increasing global trade the government is now encouraging public private partnerships in the development of the ports specifically to increase the capacity handling of the ports.

The Indian Port Sector

The 12 major and 187 minor ports in India handled 519.24 million tonnes of cargo in 2007-08 as per Indian Ports Association that went up to over 530.4 million tonnes in 2008-09. The container trade was 7.2 million twenty-foot equivalent units in 2007. India also has 27 shipyards and the business is expected to grow considerably as the international trading activity picks up and by an estimate may have an over 2% share of the international shipbuilding industry. The states of Andhra Pradesh, Maharashtra, Orissa and Gujarat are looking for significant capacity expansion in their major and minor ports in the eleventh five year plan. The minor ports of India are also earmarked for capacity expansion. According to the Port of Rotterdam Authority report, September 2007, the traffic forecast for major Indian port estimated during 2011-2012 in Petroleum Oil Lubricant – 217 MT, Iron Ore – 109 MT, Coal – 127 MT, Containers – 161 MT, Fertilizers – 20 MT and other cargo – 106 MT.

100% FDI & tax exemption

The Indian government in its eleventh five year plan (2007 to 2012) envisages the cargo handling capacity of the Indian ports to be 1016.55 MTPA annually while the estimated traffic is projected to be of 708 MTPA. This the government expects to achieve through upgrading cargo handling equipment, deepening and developing berths and jetties and modernization of the other facilities in the ports, though running of the ports is kept out of the ambit of the private sector. The government has allowed 100% foreign direct investment (FDI) in the 12 major ports and the private sector investment is encouraged in the construction and maintenance of important ports. To encourage private companies to enter the ports sector the government has introduced a Model Concession Agreement (MCA) and ‘Guidelines for upfront tariff setting for Public Private Partnership (PPP) projects to solve all the concerns of the investors.’ It has also allowed 100% income tax exemption for a 10-year period in port developments. The government is also planning approximately Rs. 10,000 crore package for the Indian shipping companies to help them acquire new ships.

NMDP

The National Maritime Development Programme (NMDP) has earmarked an investment of Rs55,803.73 crore for 276 projects in 12 major ports, out of which it is expecting private companies to invest Rs34,505.34 crore. The Indian government’s 20 year business plan for the ports is to make them comparable to international standards with similar facilities. The eleventh five year plan has earmarked Rs17551.24 crore for the major ports and the private sector investment is estimated to be Rs36868.24 crore.

Private sector responds

Prominent Indian companies with interest in shipping have responded well to the government initiatives and companies including Essar and L&T have taken up projects to develop the Indian ports sector.

• L&T and the Tamil Nadu Industrial Development Corporation have formed a joint venture to establish a shipyard worth US$ 686.21 million.
• L&T and Tata Steel are developing an all-weather deep port at Dhamra on the Orissa coast worth US$ 511.54 million.
• Shipping Corporation of India (SCI), Great Eastern (GE) and Essar, have ordered for 58 ships in Korea and China worth US$ 3.3 billion
• JSW Group plans to develop four ports.
• The Aditya Birla group will invest US$ 322.2 million to develop a sea port at Chudamani in Bhadrak Orissa.
• Essar Shipping Ports and Logistics to invest US$ 1.5 billion for capacity expansion.
• Paradip Port Trust and Blue Water Iron Ore Terminal will construct a deep drought iron ore terminal at Paradip port.
• Sical and MMTC will set up an iron ore terminal in Ennore port, Chennai with an investment of Rs5000 million.

International companies eyeing Indian ports

• German Konig and Cie Asia Advisors Pvt. Ltd, Norway-based DnB NOR Bank ASA and HSH Nordbank, have set up operations in India.
• Rio Tinto and Noble Group have envisaged interest in entering the Indian port sector.
• Classification societies like Korean Register of Shipping and Germanischer Lloyd are setting up offices in India.

As per the information provided by the Union Ministry of Shipping the details of projects under operation under the PPP mode and those developed by private players at the major ports are mentioned in the adjacent table. (courtesy: PIB).

Handling large vessels

Growing internationalisation of the global economies and the demand for handling large vessels has made it imperative for the Indian government to upgrade its port facilities to the international standards. One of the major factors influencing the choice of ports and construction of new ports will be the capacity to handle larger vessels. There is a need for deeper draft ports, and land for tankage at concessional rates in order to reduce the cost of operations. Mundra in Gujarat is equipped to handle large vessels as it has a deep berth and the future ports that are being constructed as deep water ports are Karwar in Karnataka, Dhamra in Orissa and Gangawaram on Andhra Pradesh. Responding to the market demands, the government has initiated corporatisation of major ports to provide better management and operational efficiency.

Lot needs to be done

Apart from the privatisation of the terminals/berths, number of developmental activities need to be looked into and some of which are developing liquid handling terminals, exclusive berths for coastal trade, rail connectivity to the ports, LNG terminals, coastal shipping and inland waterway transportation. Although the government has envisaged large scale upgradation of ports; there are number of bottlenecks that need to be removed to equip the Indian ports to play a significant role in the Indian economy – particularly with private participation. The government takes a long time to assess the feasibility of a project to be given to the private sector. It needs to create seamless efficiency in allotting ports to the private sector. Since finances involved are huge there should be a fast track clearance of the projects, easy financing options, less paperwork, a well defined master plan for all major and minor ports and the assurance that the government will back the private players no matter what the political compulsions.

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