Dynamic role of govt must for ports development

Due to growing market size, increasing household consumption level, good GDP growth numbers promises excellent growth opportunities for Indian port sector. But, the sector is struggling hard for its survival due to various issues like poor infrastructure, government policies which require urgent attention of policymakers for further growth. “If India wants to become leader in global port sector, the government should play dynamic role for its development,” emphasises N N Kumar, Chairman, Jawaharlal Nehru Port Trust (JNPT).

Ports are catalyst for import export trade. Port infrastructure is critical for the economic growth of any country. It is the vital link in international trade. Despite having a coastline of 7,517 kms dotted with 13 major ports and 287 non-major ports, India’s share in world trade is merely one per cent. India’s total external trade is estimated to have grown to USD 793 billion in FY 13 implying a CAGR of 17.8 per cent since FY 06. Consistently rising energy demands in the country have benefitted Indian ports from increasing crude oil and coal imports.

The EXIM trade offers and provides lucrative opportunities for growth in India. In order to handle growing international trade and overcome capacity constraints, Union Ministry of Shipping‘s Maritime Agenda 2020 envisages to triple cargo handling capacity upto 3.2 billion tonne by 2020 at Indian ports. The plan envisages investments of funds worth approximately of Rs 3 trillion out of which investments in major ports will be Rs 1.3 trillion and non-major ports will be Rs 1.7 trillion.

For the current financial year, the government has also set a target to award 30 port projects enhancing capacity by 288 million tonnes with the investment of Rs 25,000 crore. Out of 30 projects, 22 port projects have already been awarded by the end of January 2014.

19 projects out of 30 will be developed through PPP route, 7 by captive or private and remaining will be developed by the ports own resources. At the end of the 12th Five Year Plan, Indian port traffic will amount to 943 million tonnes per annum for the major ports and 815 million tonnes per annum for the minor ports. N N Kumar, Chairman, Jawaharlal Nehru Port Trust (JNPT), elatedly says, “All this indicates that the port sector is going to mark great progress in near future.” Though the figures depict good scope for upward trajectory of Indian port sector, the port industry is plagued by burden of poor infrastructure, lack of transparency in decision making, financing projects, government policies and reforms & lack of level playing field for major and non-major ports.

Due to recessionary trends in economy, growth path for Indian shipping sector is not smooth ahead and this poses the biggest challenge for returns over the investments in Indian sector. Ban on iron ore mining has aggravated the concerns of the sector. Drastic reduction of throughput of Goa port aptly highlights the woes of the sector. While talking about initiative taken by policymakers to bring the sector on success curve, Kumar explains that though various government initiatives like reforms in TAMP, laws and policies in major ports are right steps, much more is needed to bring stability to this sector in the country.

Rohit Chaturvedi, Director, Transport, CRISIL Infrastructure Advisory, laments that there are some loopholes in relaxations given by the government in fixing tariffs to major ports. These gaps need to be placated. He recommends shift in role of TAMP (Tariff Authority for Major Ports) to a competition regulator. TAMP can also act as an appellate authority, which can deal with dispute resolution and grievances redressal for PPP operators.

Finance in port projects is one of the key issues, which needs to be addressed quickly. Limited financing avenues for port projects increase the cost of debt for the investor. Cost of fundraising depends upon the Risk-Return profile of the projects. Currently due to the limited financing avenues available to port projects, the cost of debt high side and simultaneously the PPP projects are also becoming riskier. Chaturvedi proposes that international debt can be serviced through the dollarised income of the port. Rupee loans can be easily re-financed through the ECB (External Commercial Borrowings) borrowings, which have smaller interest rates.

Last year, JNPT received poor response for tax free bonds, which they had floated for financing the projects. According to Kumar, presently there are finance institutions for development of infrastructure in general and there is no port specific financing body to take care of the development. The sector needs port specific entity or authority for finance.

Port connectivity is of the utmost importance for smooth movement of cargo, which is one of the factors deciding cost of goods in the global market. Due to poor hinterland connectivity, most of Indian ports are not able to make much progress despite having world class infrastructure.

Julian Michael Bevis, Senior Director, Group Relations (South Asia), AP Moller Maersk believes that ports can’t develop in isolation. Development of ports needs supporting infrastructure like hinterland connectivity, rail & road connectivity.

Lack of envisaged well planned program for port connectivity in Five Year Plan is the stumbling block in attracting investments in the sector. Kumar stresses upon that the government should develop automatic port connectivity plan embedded with Five Year Plan so that it will boost investments in the sector. The government’s initiative in facilitating basic infrastructure will also help to gain the confidence of investor. Reiterating JNPT Chairman’s opinion, Chaturvedi comments that government provided connectivity infrastructure will enhance project attractiveness from the perspective of private players and reduce uncertainty.

According to an independent economic analysis, India ranks 21st on investors list for making investments in the country. Physical infrastructure of port can not develop without legislative infrastructure which means all clearances like environment, security, acquisitions and rules for operation of port are mandatory so that the investor can get returns on his investments.

Bevis emphasises that policymakers need to take efforts for making the country more investor-friendly as India, being categorised as Mid Range Country on investors’ attractiveness, has huge potential due to promising economic environment, growing market size, increasing household consumption levels, and good long-term GDP growth rates.

While moving forward, he states that the government should support legislative infrastructure like congenial policies, rules and regulations for quick review & progress of projects in pipeline. “Ports infrastructure industry should satiate basic customer requirements like turnaround time, length of draft, productivity so that investors should be able to incur profits on investments,” elucidates Bevis.

Chaturvedi suggests that necessary clearances can be put in place through the respective port authorities as clearance delays increase the project risk and decrease investor confidence.

Lack of responsive mechanism for environment clearance or land acquisition has taken a toll on many port projects. In the past, due to long delays in clearance or land acquisition, global players have relinquished projects. Requisite clearances and delays also inflate the budget of investor. “If India wants to dominate the global ports industry, the policymakers should pay immediate attention for speedy clearances to attract investments in the sector,” shares Kumar. He further adds that though Indian ports are attractive proposition and indeed attracting substantial private investments, all stakeholders including the government are required to play more dynamic role to make this sector further attractive for domestic and international investors.