A holistic development model is required to push the sluggish growth in the ports sector.
Looking at the bigger picture, from coal for power & steel plants to crude oil for refineries, ports provide a gateway for the majority of Indian trade. In FY14, traffic at Indian ports stood at 972 million tonnes (MT). The total cargo handled at major ports grew from 546 MT in FY13 to 555 MT in FY 14 - a marginal increase of 2 per cent. This growth was due to the significant increase in coal traffic volumes (+20 per cent, 105 MT from 87 MT) and marginally higher volumes of POL (+1 per cent, 187 MT from 186 MT). However, decrease in volumes of containers (-4 per cent, 115 MT from 120 MT), Iron Ore (-9 per cent, 25 MT from 27 MT) and FRM (-7 per cent, 14 MT from 15 MT) curtailed growth rate. On a positive note during the first half of FY 15, the cargo throughput at major ports has registered a 4.6 per cent growth over the corresponding period of the previous year. Moreover, both iron ore and containers, whose volumes declined during FY 14, have registered positive growth during this period. On the other hand, non-major ports have continued to show faster growth, averaging a CAGR of 12 per cent over the last ten years, and now accounting for almost 43 per cent of the port traffic in India.
Mundra & Sikka port in Gujarat account for almost 50 per cent of this volume, while Dahej, Krishnapatnam, Gangavaram and Kakinada are other key ports handling another 20 per cent of the total non-major port traffic volumes.
Capacity augmentation to drive significant investments
The current capacity utilisation of Indian ports stands at about 70 per cent. The utilisation level of major ports is above 90 per cent. Typically, for efficient port operations, capacity utilisation levels of about 70 per cent are the global norm. The major ports of India are already well above this norm, and with the growing traffic profile the current capacity of non-major ports too will not be sufficient to meet future demand.
As per the 12th Plan and maritime agenda, the capacity required at Indian ports is estimated to double by 2017 and reach around 3000 MTPA by 2020. To achieve these targets, the Ministry of Shipping envisages investment of around Rs 1,80,000 crore over the period of the 12th Five-Year Plan. The investment is to be focused towards greenfield developments in non-major ports and brownfield expansions at major ports. Various major port trusts and State maritime boards are trying to augment capacity via enabling private participation. One of the most proactive States, Gujarat, has selected 10 greenfield sites for development of new ports as ¨All weather Deep Water Direct Berthing Ports¨. Amongst 10 ports, 6 ports are to be developed through private investment and remaining four ports in the joint sector. Similarly, Andhra Pradesh had prepared a perspective developmental plan, for development of its ports with a view to enhance cargo handling capacity at its non-major ports to around 173 MT by 2020. The same robust view was resonated in the 2014-15 budget, where it was highlighted that this year the country will get 16 new port projects with a focus on hinterland connectivity. Activity is slightly picking up in the port sector with one of the marquee projects, JNPT 4th container terminal being awarded to PSA. More recently, other key investment initiatives like the foundation-stone laying of the Rs 4,000 crore port-based multi-product SEZ and the Rs 1,900 crore Port Connectivity Highway Project at JNPT and environmental & CRZ clearance Adani Ports & SEZ (APSEZ), for SEZ at Mundra port showcase the government´s focus on port-based development.
Speedy execution is the need of the hour
Around Rs 57,000 crore worth of projects are in various stages of construction. While new projects are announced, efforts need to be made to ensure timely completion of such projects. Over the past two to three years, many port projects have been deferred due to delays in clearances, land acquisition issues, etc. Further, in the past few years owing to the global slowdown, some projects were stuck for want of private players´ interest. In the 2014-15 budget, the government has acknowledged these issues and announced a few measures to fast track PPP projects. A separate body is proposed to be set up by the government under the name ´3P India´ to support mainstream PPP projects. Need for efficient contracting and quick dispute resolution mechanism too was highlighted by the Finance Minister in his budget speech. In addition to expediting clearances, a few other aspects also need to be addressed in order to attract investments in the ports sector:
Creation of support infrastructure
Delays on land side logistics owing to capacity constraints in rail/ road movement is a key concern for many major ports like JNPT, Mumbai and Chennai.
Hinterland connectivity is one area which is expected to receive importance alongside development of port side capacity. As per the investment plan, around 25 per cent of the allocation towards major ports is for augmentation of road/rail connectivity.
In August 2014, the Ministry of Shipping proposed setting up a special purpose vehicle for all major ports to provide last-mile rail connectivity. A specialised body which looks at port connectivity projects would be a welcome step; however, MoS & Indian Railways would need to work out details to ensure timely clearance and approval process for such priority projects.
Non-availability/delays in planning of rail infra¡structure is also a key concern for non-major ports. Ports like Jaigad, Hazira, etc., have had to start operations without rail connectivity. Again, in-principle approval has been granted for building rail connectivity to the ports of Jaigarh, Dighi, Rewas, Hazira, Tuna, Dholera and Astranga under Participative Model Policy of the Indian Railways; however, expediting clearance process for the same would be a key lever in the success of these ports. The Inland Water Transport (IWT) network in the country is still in a nascent stage. Of the total waterway network of around 14,400 km, only around 2,700 km has been developed by IWAI. Currently IWT has a modal share of less than 1 per cent in the overall transport pie of the country.
The last budget also focused on development of inland waterways via a project on the river Ganga called ´Jal Marg Vikas´ (National Waterways-I). The project is planned to be developed between Allahabad and Haldia, covering a distance of 1,620 km, enabling commercial navigation of at least 1,500 tonne-capacity vessels. The project is planned to be completed by 2020 and the DPR preparation process is currently under preparation.
De-regulation of Major ports
As part of the 2014-15 budget, the Minister announced the amendment of the Major Port Trusts Act to redefine role of TAMP & deregulate tariff fixation in major ports. Role of TAMP and issues related to tariff regulations have been questioned by the industry, with many believ¡ing that the present system penalises performance and efficiency.
The government has taken cognisance of this fact and a Bill targeting deregulation is planned to be tabled in July 2015.
The port sector requires significant investments across segments like upgradation and construction of berths, improvement of basic infrastructure such as maintaining draft, improving last-mile connectivity and replacement of equipment over a period of time. Over the 11th Five-Year Plan, the private sector has been the largest contributor (in form of PPP) to sources of funds for the port sector followed by internal resources available with the ports. Government grants are provided only in special cases depending on the financial situation of the port, for maintenance of critical basic infrastructure such as breakwater and channel depth.
Of the Rs 2.3 trillion investment required for capacity augmentation of the port sector, almost 78 per cent is planned to come via private investments.
However, to ensure private sector participation, issues related to financing of port projects need to be resolved. The chart highlights some of the key challenges in port sector financing.
After a sluggish two to three years, the Indian port sector is showing a more promising growth potential. A slew of investments have been planned in order to develop this sector and address the capacity constraint issues. However, on-ground execution of these invest¡ments is only possible if a holistic view of investor oriented regulatory regime, focused port sector financing measures, expedition of clearances, and allied infrastruc¡ture development is developed.
This article has been authored by Dhruv Gadh, Manager-Capital Projects and Infrastructure, PwC India & Manish Sharma, Partner - Capital Projects and Infrastructure, PwC India.