Dredging up government support

Jose Paul | Updated on February 25, 2021

To compete with Colombo Port, goverment support is crucial   -  Vibhu H

For cost-effective exports/imports, Govt must bear the cost of dredging and share maintenance charges at major ports

When the international container transshipment terminal at Cochin Port was inaugurated in February 2011, the operator of the Cochin box terminal at Vallarpadam — DP World — had envisaged handling a cargo volume of one million TEU (Twenty Foot Equivalent Units) in the first phase with a potential growth in traffic up to 4 million TEUs in the final stage.

Container traffic handled in 2019-20 reached 0.631 million TEUs short of the expectation of one million TEUs in the first stage. However, current trends and developments suggest that there is a significant surge in container volumes handled. DP World is understood to have approached the Cochin Port Trust and the Centre to get the approach channel deepened to bring in very large container ships drawing a draught of 16 metres as against the present permissible draught of 14.5 metres.

Cost of dredging

The approach channel to the major port in Cochin is about 13-km long and about 260-metre wide. The shipping channel has been dredged to a depth of 15.9 m to permit ships drawing a draught of 14.5 m to be accommodated alongside the berth.

When the approach channel was deepened in 2011 the cost incurred in capital dredging was about ₹350 crore. Based on the prevailing rates and cost escalations, the cost of deepening and marginally widening the approach channel may come to about ₹500 crore. This would be the cost of capital dredging, and the recurring cost on annual maintenance dredging after deepening is likely to be around ₹100 crore as the cost incurred by the Cochin Port on maintenance dredging in 2019-20 was ₹82 crore.

Benefits to the economy

A study for the US Army Corps of Engineers on the economic benefits in terms of total industrial production from channel dredging and land fill development in the ports of Los Angeles and Long Beach found that while the direct benefits were concentrated in the immediate area of the port, the indirect benefits were distributed across the country.

In a complex economy, it appears impossible to sort out the primary beneficiaries of port dredging with the result that levying a fee on any specific set of users, namely, the ship owners and shippers also seems to be inherently inequitable (US National Research Council, 1985).

The respectable solution thus appears to be for the national government to meet the cost of dredging and maintenance of access channel, navigational aids and communication as such services are of a “public goods” character and the beneficiaries seem to get distributed across the country in varying proportions.

One of the most comprehensive legislation dealing with cost sharing in capital dredging is the US Water Resources Reform and Development Act of 2014 by which the local port authority and the Federal Government share the cost in certain agreed proportions. The Federal share ranges from 40-80 per cent depending on the depth to be reached. In regard to maintenance dredging, the cost is borne entirely by the US Harbour Maintenance Trust Fund (HMTF) up to a depth of 50 feet and beyond 50 feet the incremental cost is shared by the port and HMTF on a 50:50 basis.

One principle that stands out and offers great practical applicability to developing countries is the rejection of the concept of full cost recovery from direct users/beneficiaries. This principle seems to have been widely accepted by Canada, Japan and most West European countries.

The largest break-bulk cargo port in Europe is Antwerp in Belgium, which is located about 50 km from the North Sea on the bank of the Scheldt river. The river passes through Dutch and Belgian territories and the respective national governments bear the cost of maintenance dredging of the entire approach channel. The largest container port in Europe is Rotterdam in the Netherlands, located about 40 km from the North Sea on the Rhine river and the cost of maintenance dredging of the approach channel is borne by the Dutch government. Hamburg, the largest container port in Germany situated about 60 km from the North Sea on the Elbe river — the entire cost of maintenance dredging is borne by the Federal Government.

In India, the Centre has been meeting the entire cost of maintenance dredging in the Hoogly river of Kolkata Port based on Bhattacharrya commission report. The Centre has been meeting 100 per cent of the maintenance dredging cost for over 60 years but has progressively reduced it to 70 per cent at present.

Apart from the economic logic involved in cost sharing of dredging in the approach channel of major ports, there is a compelling and strategic reason for the Centre to get actively involved in cost sharing of the approach channel dredging in the Cochin Port.

The total income of the Cochin Port in 2019-20 was ₹692 crore and the total expenditure was ₹671 crore with a net surplus of barely ₹21 crore. In such a situation, the Cochin Port will not be able to undertake this project of deepening the approach channel without the Centre’s support.

It is relevant to note that about 66 per cent of Indian cargo gets transshipped through Colombo. Indian ports on the whole handle only 25 per cent of the transshipment traffic resulting in $80- 100 per TEU higher cost to Indian exporters/importers. In the larger interest of promoting India’s exports and reducing the landed cost of imports and also to be able to compete effectively with Colombo, the Centre could bear the cost of capital dredging, which is a one-time investment, and also bear the maintenance cost on a 50:50 basis based on international practice.

This would enable the Cochin Port offer concessional tariff both to ship owners and shippers and to become successful as a container transshipment terminal.

The writer is former Acting Chairman of J N Port, Mumbai, former Chairman of Mormugao Port Trust and Adjunct Faculty of Indian Maritime University, Chennai

Published on February 25, 2021

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