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Bright future

NK Kurup | Updated on May 13, 2014

Leading light Mundra port in Gujarat

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With more operational freedom, pricing flexibility and quick expansions, private ports are outperforming their public sector counterparts, says NK Kurup

Eight years ago, Mundra Port, a private port in Gujarat, ranked below the 12 public sector ports, also known as Major Ports, in terms of the volume of cargo handled. Today, the Adani Group-run port has topped all of them and also displaced its neighbour Kandla as the country’s biggest port — a position that seaport had held for seven years in a row.

A greenfield port that began operations barely 15 years ago, Mundra handled 100 million tonnes (mt) of cargo last fiscal year. In sharp contrast, the Government-owned Kandla, which is more than 60 years old, ended the year with a seven per cent drop in volume at 87 mt. What’s more, Mundra became the first port in the country to handle 100 mt a year — equal to the combined throughput of four other Major Ports, Mormugao, New Mangalore, Kochi and Tuticorin.

R Ravichandran, an analyst with rating agency ICRA, says proximity to the northern hinterland, better connectivity, deep drafts, diversified cargo and, most importantly, long-term contracts with customers, fuelled Mundra’s growth.

Mundra’s achievement exposes the weaknesses of Major Ports and the failure of their bosses in Delhi to remedy things. Large private ports — now called Non-major ports — have been growing at a much faster rate than Major Ports in the past few years. In 2012-13, they grew by nine per cent to 390 mt. Figures for the last fiscal are yet to be released, but estimates put growth at over 10 per cent.

Against this, Major Ports have reported meagre growth of 1.7 per cent to 555 mt for the year ended March 2014, after two consecutive years of declining volumes.

Currently, Non-major ports account for more than 42 per cent of the total traffic handled by all the ports in the country. If the trend continues, it will not be too long before they overtake State-run ports.

In its recent report, the Rakesh Mohan Committee, which was tasked with formulating a National Transport Development Policy, estimated that by 2016-17, Non-major ports would be handling more bulk and liquid (petroleum and oil) cargo than Major Ports, though in total volume, the latter would retain its lead.

Rajiv Agarwal, MD and CEO of Essar Ports, a listed port company mainly handling captive cargo, says the share of Non-major ports in the overall traffic could exceed 50 per cent in the next two-three years.

Rapid growth

Most Non-major ports have come up in the last 10-15 years mainly in Gujarat, Andhra Pradesh and Tamil Nadu. These ports are built and operated by private parties, on land leased out by State governments. They operate under the States’ jurisdiction.

The Pipavav Port in Gujarat, which began operations in 1998, was among the first state-level public-private partnership (PPP) ports in the country.

Mundra, Hazira, Dahej and the Reliance captive port at Sikha have come up in the State subsequently.

Ports such as Kakinada, Gangavaram and Krishnapatnam in Andhra Pradesh, Dhamra in Odisha, Karaikal in Puducherry and Kattupalli in Tamil Nadu have added large capacity on the east coast.

The growth of Non-major ports is not an independent development. It is linked to the performance of Major Ports over the years. So a look at the way the latter have been operating may give a better perspective.

Ills of Major Ports

The 12 Major Ports are owned and run by the Centre. Except Ennore, which is incorporated as a company, all others are managed by boards of trustees. Bureaucrats head most of these ports. Usually they come on board for a term of two-three years just before retirement, with little time to do anything meaningful. And they have to seek Delhi’s nod for virtually everything that matters.

There are also private terminals at Major Ports, which came up after the privatisation of public sector ports through the PPP scheme. They are also governed by the same rules and regulations applicable to Major Ports.

Unlike Non-major ports, tariffs at Major Ports are fixed and regulated by the Tariff Authority for Major Ports (TAMP), set up in 1997 following the privatisation of Major Ports. Over time, disputes and litigation over reduction in tariff affected not only productivity at these terminals, but also their expansion plans.

Tardy progress

The pace of capacity expansion at Major Ports has been quite tardy. For example, it took more than a decade for Jawaharlal Nehru Port in Navi Mumbai, the largest container port in the country, to award the contract to build a 4 million TEU (twenty-foot equivalent units) container terminal. Construction of an offshore terminal at Mumbai Port has been stuck for the past two years due to various reasons.

At Major Ports, shippers (exporters and importers) have been getting a raw deal. While going for capacity expansion through the PPP route, the Government’s emphasis has been on revenue share rather than the benefits to port users, says SRL Narasimhan, Secretary, Western India shippers’ Association. (Under the PPP route, port terminals are awarded to the bidder offering the highest revenue share to the Government). Factors such as hinterland connectivity, faster and safer evacuation of cargo and tariff were taken for granted.

The best way to remove the inherent weaknesses of the Major Ports is to corporatise all of them, says Essar’s Agarwal. However, a decision taken by the Government to do the same a decade ago still remains on paper.

Unlike their larger counterparts, Non-major ports operate under a more liberal regime. ICRA’s Ravichandran says Non-major ports are able to attract more cargo as they “enjoy more operational freedom and pricing flexibility”. They fix tariffs based on the market situation. And they take decisions quickly and execute projects faster. They are seen as being more investor-friendly and attract more cargo.

Quick decisions

Here’s an example of how private ports take quick decisions: immediately after the Supreme Court banned iron ore mining in Karnataka and Goa in 2011, Krishnapatnam Port (a Non-major port) decided to convert its ore berth into a container terminal. In contrast, an ore berth at Ennore Port, developed at a cost of ₹500 crore with private equity, has been lying idle for the past two years. Its request for permission to handle coal was denied as there is another private terminal at the port handling the same cargo.

Deepak Tewari, head of Indian operations of Mediterranean Shipping Company, the world’s second largest container shipping line, says that in private ports shipping lines can easily negotiate the terms, including the rates. In Major Ports, though this is possible, the systemic rigidities make such normal business practices difficult.

Two other things that make private ports different are faster execution of projects and marketing and branding, which are virtually absent in public ports, says Tewari.

Jose Paul, former chairman of JNPT and an authority on port matters, says Non-major ports, compared to Major Ports, enjoy four distinct advantages: they are not governed by tariff regulation; do not carry historical baggage such as the dock labour system; their concession agreements are more flexible, and land acquisition for expansion is easier.

One of the major advantages of private ports is that they do not have the “structural rigidities” of Major Ports. Delayed decision making continues to be a major weakness of Major Ports, says CR Nambiar, a senior official with a leading shipping agent.

There is a perception that private ports attract more cargo only because their tariff is lower. This is not true; what matters is better facilities, service and faster delivery, says Raj Khalid, the Indian representative of Antwerp Port, the second largest port in Europe.

Delays in clearance of cargo are a major issue at State-run ports. Private ports are far more efficient even if they charge 10 or 15 per cent more, and exporters are happy with their service, says Amit Goyal, Vice-President, Federation of Indian Export Organisations. Like airports, the Government should look at going for full privatisation of ports, he argues.

Volume challenge

However, barring Mundra, other Non-major ports handle much lower volumes. The second largest Non-major port, Krishnapatnam, handled about 25 mt last year. (Essar Ports handle about 55 mt, but mostly captive cargo.)

Out of the 187 notified Non-major ports, only about 20 ports handle commercial cargo of a significant volume. Of these half a dozen handle more than 15 mt. The rest are jetties or fishing harbours that have the potential to develop as ports.

Some analysts believe Non-major ports growing at the cost of Major Ports. SS Kulkarni, Secretary, Indian Private Ports and Terminals Association, says that since the overall cargo has not been growing substantially in the last few years, it is evident that there is migration of cargo from Major Ports to Non-major ports. In 2012-13, Non-major ports grew 9 per cent in volume, but the combined throughput of all ports grew only a modest 2 per cent, he points out.

Nambiar says delays in decision making at JNPT would have caused a diversion of cargo to Gujarat’s ports in the past two years.

This view is supported by Navneet Kumar, an analyst with the Mumbai-based consultancy i-maritime. “Congestion at Major Ports would have helped volume growth of ports like Mundra,” he says. JNPT faced congestion due to labour problems at its private terminals last year.

However, NM Kumar, Chairman of JNPT, denies that there has been any diversion of cargo from the port. The port’s overall traffic fell only marginally in the last fiscal year, he says. One of the private terminals had to cut output following the reduction of tariffs by TAMP. The fact is that the port has been operating much above its installed capacity, he said.

It is not that everything is bad at all Major Ports. Raghunathan S, head of shipping at Tata Motors International, says public sector ports may take more time in clearing documents, but overall service at ports like Mumbai is fine. “We export vehicles through Mumbai, Mundra and Kolkata ports. For us Mumbai Port works out cheaper as it is the nearest port from our production facility in Pune. Also, we find the port authorities friendly due to our long-term relationship”.

The way forward

Primacy of private ports, whether at the cost of Major Ports or not, appears to be the way forward for the country’s port sector.

And what matters eventually is the benefit to the trade.

Today, more than 40 per cent of the India’s international cargo is still being transhipped through Colombo, Singapore and Dubai. While, New Delhi has been talking about developing a major transhipment hub, Sri Lanka expanded its hub with Chinese support, to take advantage of India’s international cargo.

The myopic vision of the policy makers has been the tragedy for the port sector.

As KM Sheth of Great Eastern Shipping, the country’s largest private shipping company, said in a recent interview: “Whether it is shipping or ports, the government has no business to be in business. They (Government) should focus on policy making and leave the business of running businesses to businessmen.”

Published on May 12, 2014

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