Rajiv Agarwal, who has 26 years of experience in industries like retail, business process outsourcing, telecom, and shipping and logistics etc., has been associated with Essar Group since 1997 and was executive director of Essar Shipping Ltd from 1998 to 2002. As managing director of Essar Ports, he is spearheading the company’s expansion plan from 88 million tpa to 158 million tpa over the next two years. An interview by Renu Rajaram.
How is the current dip in growth affecting the shipping industry? What is the impact on Essar Ports’ business?
The current downturn in the shipping industry has not impacted the port sector. Traffic at ports is growing at a healthy rate; during FY12 port traffic increased by 5 per cent to 929 million tonnes. The shipping industry is mainly impacted by oversupply of vessels.
Essar Ports’ traffic increased by 9 per cent to 43.2 million tonnes in FY12, from 39.5 million tonnes in FY11. During the first quarter of the current fiscal year, Essar Ports’ traffic increased by 13 per cent to 12.65 million tonnes compared to 11.20 million tonnes in the corresponding quarter of the last fiscal.
How can the government improve the situation?
We expect some positive steps by government in policymaking, capacity expansion and improvement of port connectivity. We also expect some positive steps by government for speedy implementation of projects, increasing the availability of funds for financing of the projects, and reduction of the cost of the debt. We have presented to the government, through different forums, on the steps to be taken for the growth of the sector.
Essar Ports is operating two terminals at Hazira and Vadinar. Could you elaborate on your business in the past few months?
Essar Ports develops and operates ports and terminals for handling liquid, dry bulk, break bulk and general cargo, with an existing aggregate capacity of 88 million tpa across two facilities located at Vadinar and Hazira in Gujarat.
During FY12, Essar Ports handled 43.2 million tonnes of cargo, registering an increase of 9 per cent from 39.5 million tonnes of cargo handling in FY11. During the first quarter of FY13, Essar Ports handled 12.65 million tonnes of cargo, registering an increase of 13 per cent from the corresponding quarter of last year, while major ports in India handled 138 million tonnes of cargo, registering a decline of 5 per cent from the corresponding quarter of last year.
During FY12, the terminal at Hazira handled 3.58 million tonnes of cargo, registering an increase of 28 per cent from the corresponding quarter of last year, while the terminal at Vadinar handled 9.07 million tonnes of cargo, registering an increase of 8 per cent from the corresponding quarter of last year.
Essar ports recently demerged from Essar shipping. Please tell us on the developments and plans post the demerger?
The demerger was completed in 2011 when Essar Shipping Ports and Logistics Ltd was split into two, Essar Ports Ltd and Essar Shipping Ltd. This was done as both the verticals had attained sizeable scale, and were going to be seeing further growth which required focused management attention. Also, the fact that investors and lenders look at the two industries differently, and thus the demerger helped bringing about value creation.
Essar Ports started off with Vadinar Oil Terminal with 46 million tpa of capacity. Since then, the capacity has increased to 88 million tpa (12 million tpa expansion commissioned at Vadinar, and 30 million tpa capacities at Hazira). The revenues of the company have also seen phenomenal growth, with a CAGR of 62 per cent over the past two years; revenue has increased from Rs.427 crore in FY10 to Rs.1,131 crore in FY12.
Tell us about the capacity of your ports and how much is being utilised at present.
The aggregate capacity of Essar Ports is 88 million tpa and counting as the company is adding new facilities to its portfolio. Essar Ports achieved cargo handling of 12.65 million tonnes during Q1 FY12 against 11.20 million tonnes in Q1 FY12, registering an increase of 13 per cent. Port capacity utilisation is increasing continuously; it has increased from 50 per cent in FY12 to 57 per cent in Q1 FY13.
Capacity is expected to be increased to 158 million tpa by 2014 and capacity utilisation is expected to reach 75 per cent by 2015.
What are your upcoming expansion plans?
We are in the process of increasing our aggregate capacity by 70 million tpa to 158 million tpa by 2014 with expansion projects at Hazira, a new port at Salaya in Gujarat, and two terminals at Paradip in Odisha. The ports expansion projects have been undertaken, in part, to accommodate the increase in traffic expected to arise from plant expansions planned to be carried out by the company’s affiliated customers, and in part to support the increase in business from non-affiliated customers being targeted by the company.
Could you elaborate on the Salaya project?
We are in the process of setting up 20-million tonne capacity all weather deep draft terminal at Salaya, Gujarat, for handling bulk cargo. The jetty is located in the Salaya Harbour, which is naturally protected by two islands, Kalubhar Tapu and Dhani Be.
The terminal will have a 385m berth with 14m draft and can handle minicape vessels (1,05,000 DWT). It will have facilities to import as well as export dry bulk cargo like coal, bauxite etc. It will be the deepest terminal in the region and will reduce the logistics cost of its consumer by direct berthing of up to minicape vessels.
Can you talk about your deep draft coal berth project at Paradip. The project is expected to add 14 million tpa to 18 million tpa of third-party cargo volumes to Essar Ports?
Essar Ports is developing two terminals at Paradip Port – mechanisation of existing terminal at CQ- 3 berth for handling export cargo of iron ore, coal etc., and development of new terminal for import of coal. Export terminal for handling iron ore and coal will be commissioned in Q2 FY13 while terminal for import of coal will be commissioned in 2014.
Development, operation and maintenance of the deep draft terminal for import of coal for a 30- year period on BOT basis has been awarded to Essar Ports Ltd by Paradip Port Trust. It will be an all-weather deep draft terminal capable of handling capesize vessels. Terminal will handle imported coking coal and thermal coal and it will be fully mechanized terminal which will reduce the logistic cost of the coal importers. Major customers will be integrated steel plants who will import coking coal and power plants who will import thermal coal.
We look forward to start construction activities at the earliest and target commissioning in 24 months’ time. This will add significantly to our third-party volumes.
What are the key achievements of Hazira and Vadinar ports?
Oil terminal at Vadinar is one of the deepest natural draft terminals in India. It is an integrated oil terminal with one SPM, two product berths, storage tanks, and rail and road gantries. SPM is capable of berthing VLCC vessels (325,000 DWT) and two product berths are capable of berthing Aframax vessels (100,000 DWT).
It has handled 31.2 million ton cargo in FY12 and 9.07 million ton cargo in first quarter of FY13. It can unload VLCC vessels in two days and has received several awards for its exemplary performance in the field of health safety and environments, such as,
- Awarded the Sword of Honour and 5 star rating by the British Safety Council for health and safety
- Gold Award for Occupational Health & Safety from The Royal Society for Prevention of Accidents (RoSPA), UK.
Recently, the terminal handled 1,000th vessels at its product jetty.
Hazira terminal started operation in May 2010 and in its second year of operation it handled 12 million tonnes of cargo. It is capable of direct berthing of minicape vessels (105,000 DWT) and partially loaded capesize vessels. It is highly mechanized terminal with a discharge rate of 80,000 tonnes per day. Recently, the terminal was awarded GreenTech Safety Silver Award 2012 for outstanding achievement in safety management
Recently, Essar Ports announced a strategic alliance with Port of Antwerp with an investment of Rs.175 crore.
Essar Ports has entered into a long-term strategic alliance with Port of Antwerp International which is the international investing arm of Antwerp Port Authority. PAI has made an investment of about Rs.175 crore in Essar Ports through global depository receipts. The partnership is for technical assistance for port planning, process improvement, and quality and productivity improvement. There will also be assistance for the growth of port traffic.
The investment is long-term and strategic in nature, focusing on commercial relationship between the two companies and mutually enhancing productivity, skill set and performance.