 "Private investments still at sea in the ports sector")
Two years earlier, the country's largest container port, Jawaharlal Nehru Port Trust (JNPT, at Navi Mumbai)) got what it thought was a very profitable bid. Port of Singapore Authority (PSA) formed a consortium with ABG to outbid others for the Rs 8,000-crore fourth container terminal, offering JNPT a revenue share of around 50 per cent.
Other competitors were stunned and the port authorities were thrilled. However, a few months later, the PSA-ABG consortium fell apart, as did their bid and JNPT's hopes. The project is coming for rebidding, for a third time. And, companies and JNPT are certain there is no way it will ever get a bid that high. For the past three years, the annual capacity of JNPT is stuck at 64 million tonnes (mt).
JNPT apart, the government has been struggling to get private investment going in port projects. The investments totalled Rs 35,000 crore in the 11th Plan (2007-12), just 40 per cent of the target. For a sector with 12 major and 199 notified non-major ports, with total cargo handling capacity of 1,243 mt, largely dependent on private sector funds, this is not good news. (Click for tables)
Low efficiency, high costs
All this has perceptibly hit the sector, as capacity constraints have a direct bearing on efficiency, then impacting the transaction cost of shipping lines. For instance, Kandla Port, with the largest capacity of 91.2 mtpa, is the least efficient among all the major ports in terms of average turnaround time for a ship, 6.42 days in 2011-12 compared to 5.9 days the previous year. For the 12 major ports, the average turnaround time is 4.6 days; for Singapore port, it is less than a day.
"Each day's delay adds 0.5 per cent to the cost of carrying cargo. If there is a delay of 10 days, we are overpriced by five per cent. In commodities, the margins are two to three per cent and in such a scenario, exporters are major sufferers," said Ajay Sahai, director-general, Federation of Indian Export Organisations.
Project hurdles
Many projects are stuck for reasons beyond the shipping ministry's control. Several companies, including Adani Ports, Gammon Infra, Lanco and Punj Lloyd, have been denied security clearances for various projects. An instance is the Rs 3,600-crore Mega Container Terminal at Chennai, awarded to Adani Ports. While the shipping ministry is pushing for these with the home ministry, private sector companies note that the delay is leading to escalation of their costs, diluting the plans and blocking capacity enhancement.
"Security clearances have stymied so many projects. If you are so concerned about security, then put more mitigative measures, conditions, in the contract, instead of holding up a project," said Subhrarabinda Birabar, head of the ports sector at Gammon India. The company has been denied security clearance for port projects in Tamil Nadu. It has also been struggling to get security approval for installation of cranes by Shanghai Zhenhua Port Machinery Co Ltd at the Indira Gandhi Container Terminal in Mumbai Port, with an estimated cost of Rs 1,000 crore.
The long-drawn procedure for awarding projects is itself an issue. Getting approvals from other ministries and then getting past the PPP Appraisal Committee and then the cabinet is a tardy process. The only reprieve was when, in keeping with the norms for the roads sector, it was decided by the Cabinet Committee on Infrastructure that the shipping ministry could award projects less than Rs 500 crore on its own. However, says a senior shipping ministry official, "Port projects cost much more than that. Anything in the range of less than Rs 500 crore will not lead to any significant capacity addition."
Other issues
Besides the layers of approvals, industry analysts feel the 'highest revenue share wins' model for awarding projects has a flaw, as it makes the private sector shoulder all the risk. "There is an imbalance between risks and returns in the current PPP model. The government should not focus on making profits but in creating infrastructure," said Hemanth Bhattbhatt, senior director, Deloitte India.
The private sector's long-standing grouse has been the existence of the Tariff Authority on Major Ports (TAMP). The absence of any such regulator for the 180 non-major ports makes it difficult for the major ports to have a level playing field, they contend. Taking cognizance of this sentiment, the government is working towards making TAMP just an appellate body.
There is also the slowing economy, with a reduced GDP growth projection of five per cent this year. Last year was the first time in a decade when major ports saw a decline in traffic volumes handled. Between April and December, major ports handled 405.2 mt in 2012, as against 418.2 mt for the corresponding period in 2011. The total capacity of major ports was estimated at 696.5 mtpa as on March 2012. The shipping ministry has set a target of achieving a capacity of 3.000 mt by 2020.
"Containerisation of cargo has not taken place as expected. Supply of infrastructure is more than the demand, due to reduced trade in the economy. So, companies are not finding it lucrative to build more berths, terminals, etc," said Atulya Mishra, chairman, Chennai Port Trust.
In June 2011, when the Prime Minister set the port achievement targets, he said it was ambitious. The shipping ministry is now only trying to get within shouting distance of the target but, so far, even this looks unlikely. There's an effort once more to push big-ticket projects, with JNPT's fourth container terminal again in the spotlight. Hopefully, this time it will find more committed suitors.
Other competitors were stunned and the port authorities were thrilled. However, a few months later, the PSA-ABG consortium fell apart, as did their bid and JNPT's hopes. The project is coming for rebidding, for a third time. And, companies and JNPT are certain there is no way it will ever get a bid that high. For the past three years, the annual capacity of JNPT is stuck at 64 million tonnes (mt).
JNPT apart, the government has been struggling to get private investment going in port projects. The investments totalled Rs 35,000 crore in the 11th Plan (2007-12), just 40 per cent of the target. For a sector with 12 major and 199 notified non-major ports, with total cargo handling capacity of 1,243 mt, largely dependent on private sector funds, this is not good news. (Click for tables)
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The shipping ministry's current year target is to award 42 projects, including 29 public-private partnership (PPP) ones, an investment of Rs 14,500 crore. The reality is that only eight PPP projects have been awarded thus far, about Rs 1,795 crore of investment, for capacity addition of 33.3 mt annually (mtpa).
Low efficiency, high costs
All this has perceptibly hit the sector, as capacity constraints have a direct bearing on efficiency, then impacting the transaction cost of shipping lines. For instance, Kandla Port, with the largest capacity of 91.2 mtpa, is the least efficient among all the major ports in terms of average turnaround time for a ship, 6.42 days in 2011-12 compared to 5.9 days the previous year. For the 12 major ports, the average turnaround time is 4.6 days; for Singapore port, it is less than a day.
"Each day's delay adds 0.5 per cent to the cost of carrying cargo. If there is a delay of 10 days, we are overpriced by five per cent. In commodities, the margins are two to three per cent and in such a scenario, exporters are major sufferers," said Ajay Sahai, director-general, Federation of Indian Export Organisations.
Project hurdles
Many projects are stuck for reasons beyond the shipping ministry's control. Several companies, including Adani Ports, Gammon Infra, Lanco and Punj Lloyd, have been denied security clearances for various projects. An instance is the Rs 3,600-crore Mega Container Terminal at Chennai, awarded to Adani Ports. While the shipping ministry is pushing for these with the home ministry, private sector companies note that the delay is leading to escalation of their costs, diluting the plans and blocking capacity enhancement.
"Security clearances have stymied so many projects. If you are so concerned about security, then put more mitigative measures, conditions, in the contract, instead of holding up a project," said Subhrarabinda Birabar, head of the ports sector at Gammon India. The company has been denied security clearance for port projects in Tamil Nadu. It has also been struggling to get security approval for installation of cranes by Shanghai Zhenhua Port Machinery Co Ltd at the Indira Gandhi Container Terminal in Mumbai Port, with an estimated cost of Rs 1,000 crore.
The long-drawn procedure for awarding projects is itself an issue. Getting approvals from other ministries and then getting past the PPP Appraisal Committee and then the cabinet is a tardy process. The only reprieve was when, in keeping with the norms for the roads sector, it was decided by the Cabinet Committee on Infrastructure that the shipping ministry could award projects less than Rs 500 crore on its own. However, says a senior shipping ministry official, "Port projects cost much more than that. Anything in the range of less than Rs 500 crore will not lead to any significant capacity addition."
Other issues
Besides the layers of approvals, industry analysts feel the 'highest revenue share wins' model for awarding projects has a flaw, as it makes the private sector shoulder all the risk. "There is an imbalance between risks and returns in the current PPP model. The government should not focus on making profits but in creating infrastructure," said Hemanth Bhattbhatt, senior director, Deloitte India.
The private sector's long-standing grouse has been the existence of the Tariff Authority on Major Ports (TAMP). The absence of any such regulator for the 180 non-major ports makes it difficult for the major ports to have a level playing field, they contend. Taking cognizance of this sentiment, the government is working towards making TAMP just an appellate body.
There is also the slowing economy, with a reduced GDP growth projection of five per cent this year. Last year was the first time in a decade when major ports saw a decline in traffic volumes handled. Between April and December, major ports handled 405.2 mt in 2012, as against 418.2 mt for the corresponding period in 2011. The total capacity of major ports was estimated at 696.5 mtpa as on March 2012. The shipping ministry has set a target of achieving a capacity of 3.000 mt by 2020.
"Containerisation of cargo has not taken place as expected. Supply of infrastructure is more than the demand, due to reduced trade in the economy. So, companies are not finding it lucrative to build more berths, terminals, etc," said Atulya Mishra, chairman, Chennai Port Trust.
In June 2011, when the Prime Minister set the port achievement targets, he said it was ambitious. The shipping ministry is now only trying to get within shouting distance of the target but, so far, even this looks unlikely. There's an effort once more to push big-ticket projects, with JNPT's fourth container terminal again in the spotlight. Hopefully, this time it will find more committed suitors.