Ports face rough seas as projects struggle to dock

Written by Arup Roychoudhury | Vaishnavi Bala | Mumbai/ New Delhi | Updated: Jul 31 2013, 15:46pm hrs
The capacity-to-throughput ratio at Indian ports needs to improve to handle rising foreign trade efficiently and public-private partnership (PPP) seems to be the best way to add to the port facilities.

The focus started to shift from the government sector to PPP when the 11th five-year Plan was conceived. But that promise has largely remained unfulfilled.

Between 2008 and 2010, there was a virtual stalemate in awarding new PPP projects in the major ports sector. Only a fraction of the targeted 23 projects were awarded in 2011-12.

Policymakers said the reason for the huge slippage was the delay in preparing the Model Concession Agreement. But things haven't really looked up after that problem was addressed.

In FY13, the shipping ministry awarded 13 PPP projects at a total cost of R2,274 crore, which is only about 20% of total amount that the ministry targeted for the year.

FE learnt that the ministry, which has set a target of awarding 30 PPP projects worth R30,000 crore in FY14, has given out only one project in the past three months. About 23 PPP projects, at a total cost of R16,793 crore, are up for bidding, according to shipping ministry data, while 19 projects at an outlay of R10,548 crore are currently under implementation in major ports.

Delays in project planning by the government, rigid tariff regulations at ports and slow environmental clearances have ensured that investor interest in the sector is subdued. Port trusts' failure to lease out land to private operators also hampered projects.

The PPP model in the major ports sector is important in augmenting port capacity in the country as roughly two-thirds of the over 1,200 million installed capacity is with this sector. PPP projects in the 13 major ports, as defined under the Major Ports Act and controlled by the Centre, are also hamstrung by a flaw in the bidding process.

Prior to the bidding, the tariff authority for major Ports (TAMP) fixes the tariff ceiling for the port services. The bidder who agrees to share the highest proportion of revenue with the port authority wins the project. In practise, investors promise a high proportion of the revenue even 50% in some cases constraining their ability to reduce tariffs and inflating the costs of port users.

Analysts have long said the bidding norms would be such that revenue share is a fixed component while tariffs are the variable for bidding. The current method of tariff fixation by TAMP lacks transparency and is irrational as is evident from the wide difference in tariffs for the same cargo among the terminals in the same port.

Union minister for shipping GK Vasan said earlier this month, We are looking at the shipping sector holistically to increase private participation. We are also identifying issues related to tariffs and hope to bring in more guidelines related to deregulation in some days.

While PPP projects in the major ports sector are not gathering momentum, the purely private projects in states such as Gujarat have increased their share in cargo handling to reduce tariffs and attract users of port services. No wonder there is a shift in traffic from major (government sector) ports to private ports.

Some of the biggest port projects that have been stalled include the Jawaharlal Nehru Port Trust's R 8,000-crore container terminal project, Chennai Port's R4,000-crore mega container terminal project and Kolkata Port's R1700-crore Haldia Dock II project.

In addition to inherent problems in the sector, companies such as Adani Ports and Special Economic Zone (APSEZ) and Gammon Infrastructure had been denied security clearances from the home ministry last year to bid for port projects.

The companies got the nod from the government only in May this year.

Project approvals are taking more time than required on the government's part, JNPT's former chairman L Radhakrishnan told FE. After a gap of ten years of not awarding projects, JNPT awarded a project to Dubai's DP World for developing a R600-crore container terminal last month.

JNPT, which is India largest container port, has seen delays in its R8,000-crore project due to various issues, ranging from tepid response from prospective bidders to constant changes in structure of the project. The project went for bidding for the first time in FY12 when a consortium of PSAs and India's ABG Group had emerged as the highest bidders. But JNPT could not award the contract as its trustees raised doubts over the performance of ABG at Kandla port in Gujarat where it was operating a terminal jointly with PSA.

The project kept getting stalled and has finally gone for bidding now, but JNPT has again pushed its bid submission deadline by a month on request from prospective bidders.

The cost for the fourth terminal has also gone up by R1,300 crore in the last fiscal due to delays, according to port authorities.

Analysts say that apart from low tariffs and revenues, dealing with the government and getting environmental clearances is also a major hurdle that private developers face.

Private players will only consider the economic value in investing in a project. The government has to be pro-active in granting clearances. It should provide better connectivity from the port and easier financing. It has to provide a single-window for clearances, Revati Kasture, industry research head at Care Ratings, told FE.

A private player gets about 16% return on investment from a port project from which the revenue is shared with the major port. And low revenue share has been a bone of contention with projects like the Chennai Port's R4,000-crore mega container terminal and Kolkata Port's R1,700-crore Haldia dock II.

For example, Kolkata Port invited private players to invest in Haldia dock II at a cost of R1,700 crore in May, 2011 but did not get any response. In the third attempt in May, the company received a bid from a consortium of Kolkata-based Concast Infratech and Hyundai Engineering Construction, but the revenue share was less than 1%.

The government has now also scrapped Chennai Port's mega container terminal project after three rounds of bidding.

The first round of bidding in 2011 and the subsequent ones did not get a revenue share quote of more than 10% in two rounds of bidding. APSEZ and Essar Ports were the bidders.

Our project will now have to restructured in a way that will interest private players' participation. Also, in Chennai Port, connectivity is an issue as the port is situated within the city limits making transportation difficult, said Chennai Port chairman Atulya Misra.

Some port projects get delayed because their cost structure is such that private players are not too interested in bidding, according to Ennore Port's chairman and MD MA Bhaskarachar.