Stopping by at Galathea Bay

India's proposed transshipment port in the Andamans needs the right development model

It is paradoxical that India does not have its own meaningful international transshipment port, considering that it is poised to be the third-largest economy in the world with a 7,500 km long coastline and more than 200 ports. With approximately 95 per cent of the country’s trade by volume and 68 per cent by value moving through maritime transport, this rather embarrassing shortcoming in our maritime infrastructure has long been recognised.

To remedy this, we now have the proposition of setting up an International Container Transshipment Port (ICTP) as part of a mega-project at Galathea Bay in Great Nicobar Island in the Andamans. This location offers a natural depth of at least 20 metres and is only eight nautical miles away from the east-west international shipping route, which is used by 40 per cent of the world’s container trade.

This mega-project is centered around an ICTP of 16 million TEU (twenty-foot equivalent units) capacity supported by an international airport, a township, and a gas- and solar-based power plant. All this is estimated to cost ₹72,000 crore, with around ₹41,000 crore earmarked for the ICTP in phases, and will be operational by 2028.

Around 244 sq km, including 131 sq km of pristine forest land, is required to be vacated. Conservationists have outlined many threats to the ecology — including those to endangered fauna, the felling of 800,000 trees, and the impact on local tribes (Shompen and Nicobarese). However, a high-powered committee appointed by the National Green Tribunal to further scrutinise the environmental clearance is reportedly likely to soon give its all-clear to the proposed project, albeit with a bundle of ameliorating conditionalities.

But what exactly is “transshipment”, and why is it important for India to have its own significant ICTP?

Transshipment refers to transportation of cargo and containers moved from one vessel to another while in transit to the final destination. It occurs when there is no direct shipping-line connection between two ports. During transshipment, containers are unloaded at an intermediate port, reloaded on to a different vessel, and then sailed to the end destination. Transshipment typically requires less paperwork and bureaucracy as it is considered a “high-seas” operations.

Seventy five per cent of India’s transshipment cargo is handled at ports outside India. This not only means these foreign ports benefit from India’s trade, but also that foreign trade in India remains vulnerable to price escalations, congestion issues and inefficiencies. Moreover, there is the objective of reducing logistics costs from the present 14 per cent to about 9 per cent, in accordance with the National Logistics Policy.

The total volume of containers moving in and out of India (for exports as well as imports) is around 20 million TEUs in a year. Of this, around 3 million TEUs go through a transshipment process at one of the regional transshipment hubs, viz. Colombo, Singapore, Kelang (in Malaysia) and Dubai. Of this 3 million TEUs, around 1 million TEUs relate to traffic from India’s western coastline ports, and 2 million TEUs from the eastern ports. Plus there is another 1 million TEUs from Myanmar and Bangladesh. This traffic volume is the immediate addressable short-term target for the ICTP.

The difficulty of building a transshipment port from scratch is that standalone transshipment activity is not particularly remunerative — earning only about 30 per cent of the normal charges for boarding and evacuating a container at the origin or final destination. Then there is the absence of any hinterland cargo. So, even if this ICTP could achieve a fair share of the current available volume of 3 million TEUs per annum in its first decade of operations, and grow thereafter, it would still not support a cash-breakeven situation for a long time.

It is reliably learnt that the government expects the winning bidder to invest about ₹20,000 crore in phases. As seen, this entails a serious financial challenge. The chosen development model must be able to provide commercial returns as well as foster a larger developmental agenda in this geopolitically sensitive location. A three-part “development-cum-financing” model thus suggests itself. This would be a combination of viability gap (VG) funding, area development rights and public expenditure.

A 40 per cent VG entitlement on the phased investment estimate of ₹20,000 crore would lessen the capex burden by ₹8,000 crore. Peering into the future, it would be appropriate to envisage the Great Nicobar Island (housing the Galathea Bay port) evolving into a bustling port-city in the Bay of Bengal. Not only could it be a busy maritime hub but could also develop into a popular tourist destination with resorts, casinos, cruise terminals, and more. There could also be a substantial naval-defence presence. Thus, the winning bidder could also be given “development rights” to build and operate power plants (base-load & renewables), airport, township, housing and related social and recreational infrastructure. Finally, non-revenue earning capital expenditure in areas like breakwater, dredging, reclamation, roads and required public utilities could be made with public funding.

The recently concluded expression of interest process-management by the Ministry of Shipping witnessed participation by maritime developers and logistics operators from India like Essar Ports, JM Baxi Group, JSW Infrastructure, Rail Vikas Nigam , Container Corporation, and Adani Ports. Dutch dredging major Royal Boskalis Westminster is also said to be interested. Some other domestic and international investors are also examining the opportunity.

The strategic nature of the proposed Galathea Bay ICTP requires to be emphasised. It is at the critical crossroads of east-west trade and current geopolitical realities in this region need to be smartly managed by India. It would thus be quite natural for Indians to expect the ownership, development and operations to be vested in an Indian entity. To that extent, the appropriate structure of the bidding parameters has a national imperative exceeding the importance of commercial considerations alone.

Stopping by at the Galathea Bay should reflect India’s rising clout in this region.

The writer is an infrastructure expert. He is also the founder and managing trustee of The Infravision Foundation