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The port company meant to deliver India's strategic objectives abroad

India Ports Global Limited will be operating ports in Iran, Myanmar, and Bangladesh; it will quickly need an equity base

chabahar port
Subhomoy Bhattacharjee New Delhi
6 min read Last Updated : May 28 2024 | 7:48 PM IST
India Ports Global Limited (IPGL) was three years old in 2018 when the United States (US) imposed sanctions on Iran and plunged the company into a crisis. The state-owned company was set up as a joint venture equity enterprise between the Jawaharlal Port Trust and Deendayal Port Trust in a 60:40 ratio.

The Mumbai-headquartered company has been in the news recently: First, when Iran and India again signed a lease for Chabahar port, then when it got approval to become the operator for Sittwe port in Myanmar, and then for Mongla in Bangladesh. IPGL is now on course to become, like ONGVC Videsh in the oil and gas sector, India’s key enterprise abroad in ports and shipping.

IPGL was created as soon as Iran agreed to hand over the operation of two terminals at Chabahar to India. The Indian company and Aria Banader Iranian Port signed the deal in 2016 to run container and multi-purpose terminals at Shahid Beheshti and Chabahar Port Phase-I. Nitin Gadkari, who was then minister of ports, shipping and waterways (MOPSW), envisaged that instead of asking one or more government-run ports, a new enterprise was needed. He got the approval of the union cabinet for the formation of IPGL to develop and manage the Chabahar Port Development project.


IPGL’s birth

As Chabahar was India’s first overseas port project with strategic objectives, there was a need to allow IPGL to function as a board-managed company. Gadkari’s team obtained from the Cabinet secretariat exemptions from guidelines meant for public sector companies. It was a bold move but was coming to naught due to US sanctions on Iran.

MOPSW had to consider if IPGL, a special purpose vehicle (SPV) ring-fenced from the standard public sector scrutiny, needed to be closed down.

In late 2018, the Ministry of External Affairs advised MOPSW that there was a need to insulate the two Iranian ports from US sanctions.

After back and forth, it was decided that IPGL’s entire equity shares of Rs 10 crore in the two ports would be purchased by Sagarmala Development Company Ltd, another public sector company under the administrative control of MOPSW. The transfer was made on November 29, 2018, but it converted IPGL into a usual central government-run public sector enterprise. It became a subsidiary of SDCL and was stripped of its SPV status.

The move saved IPGL but it effectively had no chance of building overseas ports for India elsewhere. About the same time MOPSW was using IPGL to develop an interest in the Payra port in Bangladesh where Indian and Chinese companies were competing.

This made IPGL’s commercial interests symmetric with the development of Chabahar port, which was to provide India access to Afghanistan bypassing Pakistan. Chabahar is an opportunity for Iran too: It is a deep sea port, unlike Bandar Abbas in the Gulf of Hormuz.

On December 23, 2018, IPGL opened an office at Chabahar and began operations in the presence of representatives from India, Afghanistan, and Iran. The company began operating two terminals at the port, including one for containers. An important outcome was the finalisation of a protocol to harmonise transit, roads, customs and consular matters between the three nations. The protocol included allowing cargo movement at Chabahar using the Transports Internationaux Routiers Convention (TIR), a United Nations creation. It was Chabahar that prompted India to become the 71st member of TIR and make its domestic provisions on customs and transit match international norms defined in TIR.

In Europe, the seamless movement of goods between national borders in the 20th century owed much to TIR. Asia, with its large geographies and newly independent countries, could not recognise such norms. This made international trade over land quite difficult. So TIR made sense. Iran also agreed to commission a study with India to determine the measures needed to make the land route from Shahid Behesti port to Afghanistan economically attractive.

In February 2019, India received its first consignment from the Chabahar port: Five containers containing 22 tonnes of pulses.

IPGL and Aria Banader Iranian Port had signed on a deal in 2016 to run a container and multi-purpose terminals at Shahid Beheshti — Chabahar Port Phase-I. The expected capital investment for the project was initially expected to be $85.21 million and was ramped up to $500 million. India expected to generate an annual revenue expenditure of $22.95 million on the project on a 10-year lease. In volume terms, it translated into a minimum handling of 30,000 twenty-foot equivalent unit (TEUs) by the third year of port operations. The volume was expected to eventually reach 250,000 TEUs. Those are still far-off numbers even in 2024.

One difficulty was Iran insisting that India should provide it a euro-denominated bank guarantee to underwrite a commitment to generate a minimum business at the port. But the US sanctions meant India had to shelve plans to buy port infrastructure for Chabahar, from foreign or domestic companies. Contracts signed with Finnish crane manufacturer Cargotec OYJ Private Limited for 14 rubber-tyred gantry cranes valued at about $18 million did not come through. The equipment instead came from Iran.

Relations did not improve elsewhere. While Iran approved the integration of Chabahar port with a Free Zone operating in the area, it cut Indian interest through OVL in developing a gas field in Farzad.


Beyond Chabahar

The experience of negotiating through sanctions will help IPGL. Myanmar too is under sanctions so getting equipment and finance to run the Sittwe project could be an equal challenge. The other challenges of running a port include container and bulk cargo handling and warehousing, IPGL officials said they will be able to execute and later farm out to experienced operators. 

IPGL has issued advertisements to recruit top management people. This includes employing a Chief Finance Officer on contract for three years. Other posts are also being filled at a rapid clip.

As a senior official from the ministry said they have decided that IPGL will henceforth be the preferred option for steering India’s port forays abroad. Once IPGL takes over as the operator for the project at Mongla, it will have to decide which companies will be roped in. The Bangladesh project was awarded to a private company Egis India Consulting Engineers last year for $9.6 million before the decision on IPGL was made. The project has a short lead time till the end of 2024 which will almost certainly have to be recalibrated.

Sunil Mukundan, managing director of IPGL, did not respond to a request to respond to this story.

The critical ask in this question is the raising of finance. IPGL has hardly any equity base. This will have to be shored up fast and only then will the company be able to create leverage to undertake the cost of building projects.

While the company will have to approach the domestic markets, the smell of sanctions around two of its projects is a tough challenge, reckon government officials. Banks and other financial institutions will observe how IPGL ring fences its requirements. These are things that MOPSW officials are aware of. But no one has a clear answer as of now.

Topics :Indian EconomyChabahar projectTrade exports

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