Indian Private Ports & Terminals Association is the premier association of private port and terminal operators of container and bulk terminals in India. Members of IPPTA, who are existing private operators, cumulatively represent an investment of more than Rs. 6,500 crore in the port sector. S.S. Kulkarni, in an email interaction with Sandeep Menezes, provides an extensive overview of the Indian ports and shipping industry.
There were reports recently about the new government looking at ‘corporatising’ India’s major ports to infuse professionalism in their operation and management?
BOT operators are facing several operational issues at the port level. The true meaning of PPP has yet not percolated to the lower echelons of port trusts. What is required are faster responses and accountability from the various departments in the ports. Trivial matters end up in costly arbitrations. It is hoped that with corporatisation decision-making would be quicker and put an end to “passing the buck” game.
The 13 major ports owned by the central government are wilting under competition from new private ports which, in the last five years, have been growing at three to five times.
In spite of the global meltdown of 2008, the Indian economy was doing well till about 2010, thereafter which the after effects started feeling. Traffic handling at major ports remained either stagnant or showed a negative growth for the past four years. However, it was seen that the non-major (private) ports during the same period not only bucked the trend but showed decent upward movement. One could therefore surmise that traffic diversion was taking place from the major ports to the non-major ports. These private ports with better connectivity, flexible tariffs and modern equipments quickly attracted the trade by offering faster turnarounds. With the port costs being less than 5 per cent of the total end-to-end logistics expense, ports reaching the goods to its destination fastest will always be preferred even at a slightly higher price.
What were the effects of deregulation of tariff on new projects in major ports last year? But the status of deregulation for existing projects still needs to be resolved.
In July 2013, the Ministry of Shipping announced a new set of tariff guidelines which were to be applicable for new BOT projects. These guidelines introduced partial tariff deregulation in the sense that the operator, depending upon the performance achieved, has a freedom to fix his tariff within +15 per cent of the reference tariff fixed by TAMP. Though a small one, this was a step in the right direction.
Since the notification of the new guidelines a dozen-odd projects have been announced. The response to these projects has been encouraging. Private investors who were shying away from port projects seem to be showing renewed interest in the development of Indian ports.
However, the old projects, under the earlier guidelines of 2005 and 2008, continue to suffer from the flaws in the respective guidelines. Migration of these terminals to the new guidelines is the need of the hour. Only then can some semblance be restored in the port sector. Only total tariff deregulation can bring about a level playing field and a healthy growth in the sector.
In 2013-14, the government earmarked $3.32 billion to 30 projects within the ports sector, more than triple the amount in the previous year. Besides funds, what more is needed on the policy front?
Right policies in terms of tariff setting, land allotment (additional storage space) and streamlining of operational issues are badly required. The other important aspect is the port connectivity, both landside as well as seaside. Once these are taken care of, the current all-India port capacity is more than sufficient to take care of the traffic requirement. Taking care of the needs of the present ports and terminals is more important than to simply augment port capacity.
Foreign investors have set up cargo terminals at major ports, but they, too, are weighed down by an unstable policy regime, mainly on pricing of port services. Do you have any suggestions to improve the scenario?
As IPPTA, we have always been stating the importance of a stable tariff policy which offers reasonable rate of return to the investor. Unfortunately, the last 15 years have been too long a learning period for the government’s port PPP programme. Timely corrective action is necessary. It’s yet not too late. Some of the ‘doable’ suggestions given by various bodies and recommendations of various government committees need to be implemented and thus prevent the drying up of foreign investment in the sector.
Most of the non-major ports boast of deeper drafts ranging from 18 to 20 metres while major ports are mostly less than 18 metres.
Dredging has been a neglected issue, rightly so, because of the enormous costs involved. But deeper drafts are a ‘necessary evil’ if larger ships which help achieve economies of scale has to be deployed. Major ports have to find a way for funding of their dredging programmes. It could be either in the form budgetary support from the government or PPP in dredging ventures. Shipyards also need to undertake R&D work to evolve large capacity ships which could move on lesser drafts.
How successful has IPPTA been in taking up issues with the government?
As mentioned earlier, the past decade has been a learning phase for both the government as well as Indian Private Ports & Terminals Association. Backed by the rich experience of its members who are global port operators many suggestions were offered by IPPTA to make the PPP programme in the port sector a success. Some of these were, indeed, considered by the government.
|IPPTA’s wish-list for the government|
* Industry in bad shape. However, problems are well known and understood by the ministry in terms of the tariff regulation, especially under the 2005 guidelines.
* Inter-ministerial committee under the Chairmanship of Member – Infrastructure, Planning Commission, was set up to examine migration of 2005 GL terminal operators to the 2013 GL. Unfortunately, the committee has not been able to complete its task.
* Moving all operators under the 2005 GL to the 2013 GL is needed. Therefore, the Ministry of Shipping needs to decide on the way ahead.
* Performance determined pricing as per 2013 Guidelines need to be introduced for all operators with immediate effect.
* Process for moving to market determined pricing regime should be introduced within the next one-two years by amending the Major Port Trust Act. TAMP should be a performance regulator.
* Port performance suffers due to insufficient hinterland connectivity.* Minimum six laning of connecting roads to ports and completion of DFC should be taken up on priority basis.* Connectivity between ports through inland waterways must be developed to reduce congestion on road and rail. This will also generate employment and an environment friendly measure.
* Transaction processes due to security, customs, etc., take lots of time and impede faster clearance and movement of goods – operators are willing to invest in technology for reducing processes related delays and need customs to accept international practices.
* Due to changing shipping economies, 16-18 metre draught essential at all major ports. Government should declare all port approach channels as national seaways and fund the dredging programme for which a port infrastructure cess could be collected.
|Policy framework for PPP projects
* Current MCA is one sided – it should be made equitable to both PPP partners. There is no relationship between risk and reward.* Should not be cast in stone – views of bidders should be considered during the bidding stage and changes should be allowed since each port project has unique challenges. Flexibility is needed in the system.* A 30-year period is a long time and changes do occur which can have a material impact on the agreements and fulfillment of responsibilities. A review mechanism should be allowed in the signed Concession Agreement for accommodating changes due to the changing economic, commercial and other factors that happen during the entire span of the agreement.
* A review mechanism is a demand across all PPP sectors.
|Coordination amongst various ministries
* There is a lack of coordination between various government agencies during both the construction period as well as operations due to which immense delays take place.* An interface is required between various central and state agencies like forest department, CBEC and railways to ensure smooth functioning of the port projects.* Such coordination will ensure that matters relating to connectivity, (under state government purview) and processes (like customs and excise) can be speedily addressed and solutions found.