What will Chennai Port Trust gain from buying Kamarajar Port?

P Manoj Mumbai | Updated on March 21, 2020

Kamarajar was originally designed as a satellite port to Chennai to handle dusty cargo such as coal and iron ore

The Government’s move to hand over full control of India’s only major port that is run as a company to a port trust is seen as a retrograde step.

But the move also implies that the Chennai Port Trust will have no longer have to be concerned about one of its competitors.

The Chennai Port Trust has always been looking at ways to check the onslaught on its operations from its rivals in the neighbourhood. These include public sector enterprises as well as private players.

In this fiscal, till February, Chennai has been one of the poor performing ports among the dozen owned by the Centre. “It is facing severe competition from Kattupalli and Krishnapatnam ports run by Adani Group. The hinterland that was exclusive to Chennai for many years is now being shared by five ports, eating into its volumes and hurting growth,” said a port industry consultant.

Despite the competition, Chennai held on to its volumes and even grew in FY19. But, this year, it has lost to the Krishnapatnam port. Till February, Chennai handled 43.175 million tonnes (mt), which is lower than the same period last year, and the situation is becoming more challenging.

“The cargo losing phase is happening now. Chennai is making efforts to stop the drain of cargo, particularly containers which account for 59 per cent of its volumes,” he said.

While Krishnapatnam and Kattupalli are private rivals, Kamarajar has emerged a public competitor.

The deal takes forward the consolidation of ports in Southern India after the Adani Group, which runs Kattupalli, purchased Krishnapatnam port in January. Adani also runs a container terminal in Kamarajar.

Acquisition to help Chennai ‘manage’ competition

Kamarajar was originally designed as a satellite port to Chennai to handle dusty cargo such as coal and iron ore and free Chennai, only 20 kms away, from such cargoes polluting the city.

It’s another story that it later diversified to cater to clean cargo including containers, pitting itself in direct competition with Chennai Port.

Yet, it would be an understatement to say that the 33 per cent stake held by Chennai in Kamarajar had become the proverbial ‘Knight in Shining Armour’ for the 135-year old port.

Kamarajar, a consistent profit-making company, has been declaring a dividend of 40 per cent during the last three years. Chennai received Rs 20 crore, Rs 61 crore and Rs 40 crore as dividend in FY17,18 and 19 from Kamarajar. If the dividend income is excluded, Chennai would have reported loss during FY17 and FY18. In FY19, even without the dividend income, it had reported a loss of Rs 136.21 crore.

The acquisition would give financially stressed Chennai - which is currently burdened with huge pension liabilities - dividend from Kamarajar on the entire 100 per cent stake.

But, more importantly, it would help Chennai “manage” competition by avoiding duplication of capacity creation.

“The deal will enable Chennai Port Trust and Kamarajar Port Ltd to evolve a clear policy on focus areas by devising optimum business strategy and defining dedicated cargo profile,” a government official said.

‘Kamarajar port - ideal choice to fulfill Budget 2020 announcement’

It is also expected to foster better human resource management between the two ports, thereby increasing the efficiency of both ports. Chennai has a staff strength of 3,957 to Kamarajar’s less than 100.

Port experts say that Kamarajar port would have been the ideal choice to fulfil a Union Budget 2020 announcement to “corporatise at least one major port and list it on the stock exchange”, potentially even facilitating its privatisation at a later stage. The onus of listing Kamarajar will now be on Chennai.

“Selling the Central Government’s only corporate port to a port trust, does not make any sense,” the consultant mentioned earlier said.

With the Government selling its G67 per cent stake, Kamarajar will cease to be a PSU and hence not subjected to the guidelines framed by the Department of Public Enterprises. Indications are that Kamarajar will continue to run as a company, fully owned by Chennai Port Trust, an autonomous body controlled by the Centre.

Kamarajar’s board will be reconstituted with officials only from Chennai, giving rise to concerns that the “culture of port trusts” may creep into its functioning, reducing it into a namesake corporate entity.

This board recast will also throw up a bureaucratic challenge. Sunil Paliwal, an Indian Administrative Officer (IAS), who is the chairman and managing director of Kamarajar Port, will have to report to P Raveendran, an Indian Railway Traffic Service (IRTS) officer, who is the Chairman of Chennai Port.

This may necessitate a re-designation of the CMD of Kamarajar as MD with the Chairman of Chennai Port Trust assuming the role of Chairman of the board.

Published on March 21, 2020

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