‘It is Right Time to Corporatise Ports’

N N Kumar,
Chairman, JNPT
The Indian Port sector is grappled with severe capacity constraint, poor hinterland connectivity, tariff setting restrictions, shallow draughts etc. While having exclusive interaction with SMP World, JNPT Chairman N N Kumar, feels that there is an urgent need to restructure the port sector in order to improve efficiencies and augment capacities.

Can you please detail us about the growth of Indian Port sector? And also appraise us about the opportunities and challenges faced by the sector in the country?
Port traffic in India has increased at CAGR of 8.1 per cent to reach 938 million tonnes with an average utilisation of ~90 per cent as compared to the international average of 70 percent.

The main issues faced by ports include the severe capacity deficit leading to congestion, restricted draught, level of containerisation, custom procedures and insufficient connectivity to their hinterlands. The Maritime Agenda proposes an investment of Rs 1,280 billion in 424 projects in major ports and Rs 1,680 billion in non-major ports by 2020. It is proposed that more than 80 per cent of the investment in major ports will be made by the private sector.

This is 96 per cent in the case of non-major ports — a very ambitious target, given the experience of PPP projects in port sector.

Some of the key challenges facing PPP projects include environmental clearances, slow bureaucratic procedures at most major ports in pre-tendering and post-award stage, e.g., delays in dredging, lengthy tariff-fixing process and poor connectivity to the hinterland. Tariff setting is another major issue, which limits private sector investments in the sector.

Despite having a vast coastline of 7,517 kms, the progress of Indian port sector has been much below the expectations as compared to China, Korea, Sri Lanka etc. Please comment.
Yes. Inspite of our vast coastline, the progress of Indian port sector is way behind. Ports have to be provided with excellent infrastructure facilities. By developing large number of efficient ports in India, our country can become the largest international hub to deliver goods from West to the East and vice-versa.

The main factors that have led to inefficiency of the sector are:
  • Most major ports were originally designed to handle specific categories of cargo, which have declined in time while other types of cargoes gained importance. The ports have not been able to adjust to the categories of cargo which grew the most. There are, thus, several berths for traditional cargo, which are underutilised, and only a few for new cargo, which are over-utilised.
  • Over staffing at Indian ports remains rampant and productivity indicators in respect of cargo and equipment handling continue to be poor.
  • Documentary procedures relating to cargo handling such as customs clearance requirements are unduly complicated and time consuming.
  • Port access facilities and arrangements for moving inbound and outbound cargo are inadequate and unsatisfactory.
  • Average draughts available at major ports are much below the international standards and therefore they are not able to handle bigger size vessels.
Inter-port and intra-port competition, which has been conducive to substantial productivity increases in other countries is absent in India due to poor inland connectivity and a policy regime that has protected domestic ports against competitive pressures.

The consequences of these various shortcomings for the Indian economy are severe. Few large liner ships are willing to call on Indian ports as they cannot afford to accept the long waiting time. Indian container cargo is transshipped in Colombo, Dubai or Singapore resulting in additional costs and transit times. Ports are no longer mere modal interfaces between surface transport and sea transport. They are now logistics and distribution platforms in the supply chain network. International trade has now become transport intensive and time sensitive and Indian ports clearly are not yet ready for this changing environment. There is, therefore, an urgent need to restructure the port sector in order to improve efficiency and reduce costs.

JNPT has recently signed Concession Agreement with Nhava Sheva Gateway Terminal, a subsidiary of Dubai Ports World to develop standalone container terminal at JNPT. Sir, how will it help Indian Ports and Logistics sector?
The new container would add 8, 00,000 TEUs (twenty foot equivalent units) of container capacity. As the extension would become operational at a time where demand already exceeds supply of port infrastructure, it is expected that the berth would reach its full capacity within a period of three years and help ease congestion at JNPT.

Privately operated non-major ports are giving a tough competition to the Central-Govt controlled major ports. Please comment and how will corporatisation of major ports boost Indian port and logistics sector?
The better performance of non-major ports continues to be driven by their more diversified cargo streams, superior operating efficiency and infrastructure enabling diversion of cargo from congested major ports, and presence of captive cargo streams. Going forward as well this trend of non-major ports outpacing major ports in terms of cargo growth is expected to continue in the Indian port sector.

The government is keen to increase efficiency of major ports to thrive in a competitive economy, especially when private ports are coming up close to the federal ones and making money through exim activity. It is necessary, that major ports are also prepared fully in terms of organisation, financial self-sufficiency and efficiency to face the competition. Since a port is not really a social entity, but more or less a commercial venture and an infrastructure service provider, which has to function on a profit-making basis, the time is right to convert ports into corporate structures.

No new project has taken off at JNPT in the last ten years after Gateway Terminals project. Why?
In infrastructure projects like ports, advance action and prospective planning is required considering the fact that there are many bottlenecks in clearances and the procedure of tendering is cumbersome. 4th container terminal project of JNPT was delayed due to litigation on application of Monopoly Policy and subsequently concession agreement could not be signed with PSA due to the Port’s refusal to agree to their proposal for change in the composition of consortium after award of work. Now, we have adopted the strategy to plan projects very much in advance and lose no time to go for bids, etc, so despite the above mentioned risks and long drawn out procedures capacity creation will be well ahead of demand. JNPT is presently trying to create this flow in the strategic planning so that at no time in future should we find ourselves with inadequate capacity and to ensure that we follow the international norms of 60-70 per cent capacity utilisation in order to be able to cater to sudden increase (even seasonally) in import/export of cargo.

Developed countries recognise coastal shipping as an important part of the overall transport network due to its more energy efficiency and eco-friendly nature. What are the challenges faced by Coastal Shipping in India?
12 of India’s 26 states are covered by the sea coast, spreading across 7,517 kms and about 200 small harbours. Despite a strong platform, the government has so far failed to transform coastal shipping into a lucrative business opportunity in India. Most cargo that can be transported via costal shipments are still being transported in traditional modes like rail and road. Coastal Shipping, as a complimentary mode of transport is not only an economic necessity but also a valuable asset in times of emergency. Government is now making serious efforts for growth of coastal shipping. Coastal shipping in India faces the following challenges:
  • Lack of infrastructure: It is one of the biggest obstacles faced in coastal shipping industry. The government has failed to develop infrastructure that is expected to make shipment easy and efficient. Infrastructure involves electricity, road network and overall area development which supplement the use of this route.
  • Lack of lucrative government schemes: Unlike other channels of transportation, the government has not made any efforts to benefit coastal shipping users financially. Companies using coastal shipments until now had to face harsh and impartial taxes like no exemption from Income tax, customs duty on bunkers, landing fees, etc.
  • Slow and cumbersome process at customs: The shipment process is extremely slow and laborious compared to other modes of transport, which are much faster. Companies are unwilling to waste precious time in adhering to these processes.
What are your expectations from Govt policy on ports?
A fresh attempt to liberalise/improve regulation in the sector is expected. The acts of Parliament relating to this sector are under scrutiny for changes required with the times. Improvements in port regulation and capacity will have to be expedited through inter-ministerial initiatives; else the ambitious capacity increase envisaged by the Maritime Agenda 2020 may not be achieved.

Union Minister of Shipping G K Vasan launched Maritime Agenda 2020, which included creation of port capacity of about 3200 MMT to handle the expected traffic of about 2500 MMT by 2020. What will be JNPT’s role in achieving the target? Can PPP model help to achieve the expected capacity?
JN Port is set to become a mult-purpose port from a predominantly container port. M/s Howe has been engaged after global tendering to add 75 to 100 million tonnes per annum capacity by way of multi-purpose berths, converting JN Port into a global multi-purpose port from a container port.

Additional liquid cargo berths of 30 million tonnes per annum capacity have been designed by M/s L&T Ramboll, which are expected to be bid out by the end of this year. A state-of-the-art mega container capacity expansion involving terminals of capacity totaling 10 million TEUs per annum is under design by M/s URS Scott Wilson and is expected to be ready for global PPP bidding in 2014.

All these are expected to increase the current capacity of JN Port from 65 million tonnes per annum to around 320 million tonnes by the end of the decade. This is in line with the overall tripling of capacity by all ports in India envisaged in the Maritime Agenda 2020 of the Ministry of Shipping.