Sea change

Written by Shubhra Tandon | Updated: Sep 3 2014, 06:46am hrs
Indias port sector has remained the weakest link in the overall infrastructure development that the country has seen so far. Restrictive policy on tariff fixation at the countrys 12 major ports has primarily been the reason for private sector interest remaining low in the sector. This has not just hindered expansion of these ports, but also led to a severe fall in the market share of major ports, and capacity additions have been below targets.

The 11th Five-Year Plan, which ended in 2012, had envisaged an increase in the capacity of major ports to about 1,017 million tonnes, from 505 mt, by the end of 2011-12. This meant a capacity addition of 512 mt. However, at end of March 2013, the cargo handling capacity of major ports was only around 800 mt. This shows that capacity additions at major ports have been below target, Citi Research observes in an August 21 report.

Not just this, but the major ports of India are also losing out market share to the minor ports, where the tariffs are regulated by market forces, and they appear to be more efficiently run with a high level of mechanisation and new infrastructure. When the Tariff Authority for Major Ports (TAMP) was formed in 1996, major ports had close to 90% market share, which is said to have gone down to 57% now. If current trends continue (which is highly likely), soon more than 50% of Indias cargo will be through minor ports, says the Citi report.

Vishwas Udgirkar, senior director, Deloitte in India, said: Minor ports, which are more under state control, have developed well, be it in Gujarat, Karnataka, Kerala or Odisha. He says as these ports are not excessively regulated or constrained, they have seen good private sector participation over the years, while on the other hand major ports have suffered on account of legacy issues of labour troubles, old infrastructure and TAMP control over tariffs.

Like the road or energy sector in India, ports require a structural change. There is a requirement for a focused organisation that will push or aid the development of each of these ports. Also, there is a dire need to revisit the TAMP guidelines, which have proved unfavourable and restrictive in nature, Udgirkar said.

The way the tariff mechanism works is that the accumulated depreciation is knocked-off from the calculation of capital employed (CE), so the CE keeps declining with the passage of time pulling down absolute returns. Further the tariffs are adjusted downwards if an operator manages to achieve efficiencies and handle higher volumes.

According to industry experts, the TAMP guidelines were put in place with an objective to make tariffs attractive for port users and for efficiency gains. However, according to Citi, these regulations have led to sharp tariff cuts of up to 15-40% at different terminals. This phenomenon exemplifies the perverse impact of excessive and harsh regulation on the industry. Instead of incentivising efficiency, the regulations have ended up discouraging the same, it says.

However, with the new government in place, industry is hoping that some of these irregularities will be removed. The ministry of shipping has made a time-bound implementation plan for the sector. The proposals include making concessions for shipowners, appropriate legislative changes in rules in the Major Port Trusts Act to enable corporatisation, concession in TAMP duties and potentially in the cabotage arrangements.

Chris Hayman, chairman of Seatrade, recently said: These are very welcome initiatives from the new government and will undoubtedly spark new interest from international companies wanting to expand their business into Asia, and in particular to collaborate more closely with their Indian counterparts. Hopefully it will provide the catalyst for the next stage in Indias growth and strengthen the maritime industry going forward. Seatrade brings out publications in maritime and cruise sectors, organises conferences, exhibitions and the like.