India targets to increase its foreign trade (exports and imports) from less than $800 billion or 1.8% of world trade at present to $2,500 billion or 4% of global commerce by 2020. That inevitably requires the country?s total port capacity to multiply from some 1,200 million tonnes now to 3,300 million tonnes in another eight years, entailing investments of R2.9 lakh crore (R36,000 crore a year) so as to produce higher efficiency of cargo handling and other port services.
While the shipping ministry has endorsed these estimates in its Maritime Agenda 2010-2020, the commerce ministry and the apex exporters? body Federation of Indian Export Organisations (FIEO) have estimated the investments needed in the ports sector to be a staggering $137 billion by 2020. The expected surge in coal imports, automobile exports and a planned entry into the global foodgrain market would necessitate new capacities to handle bulk cargo, while LNG imports being proposed would require specialised port facilities.
These are, by any count, tall orders, and look more so given the huge slippages reported year after year when it comes to meeting capacity addition targets in the port sector. In the 11th Five-year Plan, the slippage in the major port sector, which accounts for two-thirds of the installed capacity but which is losing in traffic volume to the more competitive non-major (private) ports, was more than 50%.
The existing port capacity in India is a trifle more than the throughput, but the capacity-to-traffic ratio is less than the 1.3:1, the global norm for efficiency, leading to occasional (if not frequent) instances of congestion at many of our large ports. While this has already become a constraint to the country?s world trade, global shipping lines are adding new fleets of Triple E-class behemoths that carry 18,000 TEU containers which Indian ports are increasingly ill-equipped to receive. Former shipping secretary K Mohandas says: ?In a way, the reduced economic growth since 2008 has come as a blessing in disguise for Indian ports. Had India?s GDP continued to grow at the same level as the four years prior to the global economic crisis, then our ports would have found it immensely difficult to handle the traffic demand… Congestion would have been massive.?
All agree that the projected investments in the port sector should come predominantly from the private sector through the public-private partnership (PPP) model.
But the pace at which the PPP projects are awarded in the government sector (major ports) is dismal. For the virtual stoppage of project awards between 2008 and 2010, the delay in drafting the model concession agreement (MCA) and a bungling Tariff Authority for Major Ports were blamed. But the situation was not salvaged in subsequent years either, as is evident from the fact the authorities could award only a small fraction of the 23 port projects that were supposed to be given out in 2011-12.
The PPP model in the sector is hamstrung by a variety of problems: Port trusts’ inability to lease out land to private operators in time, delays in approvals from multiple agencies, rows over interpretations of the concession agreement, often leading to litigation, to name a few. Although 100% foreign direct investment is allowed in the sector, global tenders are still not the norm in the sector due to perceptions of security threat.
In the area of major ports (12 of them governed by the central government under the Major Port Trusts Act, 1963), the port trusts award projects on the basis of competitive bidding. The bidding norms are as follows: TAMP fixes the tariffs (the upper limit) for the relevant port services in consultation with the potential bidders and then the bidding takes place, with the revenue share as the variable. The bidder who pledges to share the highest proportion of revenue with the port authority wins the project. Investors, anxious to bag the projects, bid aggressively on the revenue share ? 40-50% in some cases ? which dents their ability to bring down tariffs. This inflates the costs of businesses, while the port trusts get the revenue, virtually sitting idle. A better model, feel analysts, would have been to treat the revenue share as a fixed component (say, at 20%) and tariff as the variable for bidding. This would have promoted the port operators to become more efficient.
PPP projects of major ports are held up due to the requirement of multiple clearances at various levels ? from the shipping ministry to the PPP appraisal committee and the Cabinet. A March 2011 government order that made Union Cabinet’s approval mandatory for leasing out of land by port trusts badly affected implementation of projects. There is now a consensus that this irritant must go, but a formal order repealing the 2011 decree is yet to be issued. The government, despite its ambitious targets to augment port capacities, often shoots itself in the foot. One example is a shipping ministry directive that a company operating a terminal for a particular commodity cannot be awarded another terminal for the same commodity at the same port. In fact, there was also a clause preventing a private firm from developing more than one terminal within a radius of 100 km for a particular commodity, which was removed later for being ?too restrictive?.
And, all too often, projects get entangled in court cases. The Rs 6,700-crore project for building a fourth terminal at Mumbai’s Jawaharlal Nehru Port won by a consortium of Port of Singapore Authority and ABG Ports is hanging fire owing to a dispute over who should pay the Rs 50-crore stamp duty to the state government ? the port trust or the concessionaire. ?Litigation is the main issue concerning the PPP model in ports today,? said a senior official with a major port, not wanting to be identified. “Normally, a model concession agreement is made by the government, but a wrong interpretation of that could create problems.” The Rs 3,700-crore project for building a new cargo handling facility at Chennai port was to be renegotiated by the port trust after the bidders quoted a very low rate (as revenue share).
Indian ports are among the costliest in the world adding, in good measure, to traders’ costs and burdening the economy. The turnaround time at our ports are high too, although the container handling efficiencies are comparable to global standards. The 12 major ports are no longer deemed (or functioning) as natural monopolies and are facing severe competition from private ports, some of them at par with major ports in terms of size and cargo handling ability.
Since the so-called non-major ports are governed by states, the growth in the sector is reliant on the policy adopted by the respective state government. Some states like Gujarat and Andhra Pradesh have created substantial port capacities in the private sector and this has increased competition in this sector (witness Adani’s Mundra port giving tough competition to Kandla major port and Krishnapatnam port taking away traffic from Visakhapatnam port). ?New ports have indeed helped in bringing down tariff and reducing the exporters’ freight,? says Ajay Sahai, director general and CEO at FIEO. Of course, there is the issue of lack of transparency in the allocation of projects to the private sector by state governments, with the bidding process being circumvented in many cases.
Even in the case of major ports, where the bidding systems are more transparent, there is a need for rationalisation by making the approval process quicker. The bidding criterion should be tariffs, rather than revenue share.
With inputs from Nikita Upadhyay in Mumbai
