The Hindu Business Line : Let competition in, full steam

The best way to deal with a dominant player — DP World — in an oligopoly is not by clipping its wings but by creating an effective competitive environment.

DP World has been in the news for its takeover of P&O Ports, and the brouhaha in the US, as it would come to control a clutch of American ports.

DP World's $ 6.8-billion bid for P&O Ports would have completed the global geographical chain for Dubai Ports Authority, filling the missing link to North America but for the objections raised by the Senators in the US citing national security.

To maintain the strong relations the UAE has with the US, DP World has decided to transfer the US operations of P&O Ports to a US entity.

Impact on Indian Ports

With the takeover of all P&O Ports facilities, in India DP World will operate three major terminals on the west coast: The India Gateway Terminal at Kochi, the Nhava Sheva International Container terminal at Jawaharlal Nehru Port, and the Mundra International Container terminal.

On the east coast, it will operate the Chennai Container Terminal, the Visakha Container Terminal and the one that might come up in Kulpi in West Bengal. Dubai Ports Authority has also been given security clearance to operate two container terminals in Kochi and Visakhapatnam. Will all this lead to a monopoly in Indian container terminal operations?

Dominant not monopolist

In 2005-2006, all the public and private terminals at major Indian ports handled a total of 4.61 million TEUs.

Add the throughput at the two private terminals at Mundra (2,39,969 TEUs) and Pipavav (87,938), the total container traffic handled at all ports comes to 4.93 million TEUs.

The five terminals under DP World together handled 2.53 million TEUs, which suggests that the UAE company, at best, would have a 51.3 per cent market share that willmake it a dominant container operator, but not a monopolist.

About 58 per cent of India's container traffic is handled at JN Port in New Mumbai where JN Port Container Terminal and NSICT (now under DP World) are significant operators handling 1.34 and 1.32 million TEUs respectively.

A third terminal, IGPCT under the Maersk-Concor consortium, has just started operation, which would suggest that there is effective intra-port competition for DP World at JN Port itself.

With the emergence of an offshore container terminal of the Mumbai Port Trust, the competitive environment is likely to be intense.

On the western coast, DP World's Mundra terminal will face competition from ABG Group, the operator at the Kandla Port.

By the time the Vallarpadam Container terminal in Kochi becomes fully operational, Vizhinjam in the southernmost part of Kerala, may be up, creating competition for Kochi.

The second container terminal coming up in Chennai, the new one planned for Ennore and the existing facility in Tuticorin will provide both intra- and inter-port competition to DP World's terminal in Chennai.

DP World's container terminal at Visakhapatnam and the one that may come up at Kulpi are unlikely to handle a significant volume of container traffic in the next three to five years and by that time new container terminal operators may come up at Kakinada and Gangavaram ports in Andhra Pradesh capable of providing competition.

Therefore, the market structure for container operations in India can be described as an oligopoly (where there is limited competition between a small set of producers or service providers) and not a monopoly.

Strategic initiatives

The best way to deal with a dominant player in an oligopoly is not by clipping its wings but by creating an effective competitive environment. The Government would be well advised to permit entry of the top five global container terminal operators on the east and west coast to create an environment for effective competition and to make the container services market contestable.

The government couldalso make use of a policy option to exclude DP World from competing in any other major port location to weaken its dominant power. It can also direct the JN Port authorities to reserve the fourth container terminal for an Indian terminal operator or a consortium so that Indian players can emerge as global terminal operators capable of competing not only for Indian ports but globally too.

(The author is a former Acting Chairman of the JN Port, Mumbai. Responses may be sent to drjospaul@rediffmail.com )