Capacity expansion — no smooth sailing for major ports worldwide

Major ports all over the world face a similar problem — how to attract more funds to augment capacity. Ports worldwide need to find $830 billion capital expenditure for infrastructure development by 2030, according to a report by the Organisation for Economic Cooperation & Development.

The initial report — a full version is to be published shortly — estimates that the maritime container volume could quadruple by 2030, with largest throughput rises in China, followed by India and the US.

The Paris-based OECD warns that today's infrastructure is not adequate to meet future needs. The existing facilities would not be able to handle even a 50 per cent increase, let alone doubling or tripling of traffic in 20 years. There is, therefore, no alternative to creation of additional capacity.

The report estimates that the capital expenditure will demand total annual investment of $33 billion until 2015, rising to $40 billion a year to 2030. Such levels of investment cannot be financed by traditional sources of public finance alone, says the OECD report.

This is all the more so because traditional sources of private capital, such as banks, have restricted credit since the global financial crisis may put further restrictions in coming years when new regulations such as Basel III take effect.

The report, therefore, suggests that infrastructure investors such as pension funds, insurance companies and mutual funds may be required to play a more active role in bridging the “infrastructure gap”.

INDIAN SITUATION

Taking the Indian situation, in addition to resources crunch, policy confusion hits port capacity expansion in our country, with the result, the Union Government's ambitious target to expand the country's port capacity by over 230 million tonnes by 2011-12 remains a pipedream. Fortunately, the Government is alive to the problem and the Planning Commission and Shipping Ministry are believed to have begun talks to modify the framework of the model concession agreement (MCA) to boost public-private partnerships in the port sector. Inquiries reveal that some minor changes have been proposed.

It might be noted that the model concession agreement for the port sector was finalised in 2009 and since then 13 projects were awarded in 2009-10 and nine in 2010-11. In 2011-12, the plan is to award as many as 24 projects to add port capacity of 232 million tonnes or so, entailing an investment of nearly Rs 17,000 crore.

Experts are of the view that even if the MCA is tweaked to attract more private investments to port projects, serious financing issues will have to be resolved. The interest rates at which the loans are sanctioned for approved projects are valid only for two years, with a re-set clause after that. This makes port projects, which normally take more than two years to complete, unattractive.

Finally, what causes concern is that port projects or developers of such projects would often get a credit rating for the first two years of the project.

This creates problems because not having a rating attracts penal interest of 1 per cent over and above the normal interest rate. A move, therefore, is afoot for waiver of the penal interest clause.

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