At the recently concluded Maritime India Summit (MIS) in Mumbai, a high decibel pitch for aggressively developing the country’s port sector was accompanied by claims of firm commitments worth $12 billion and another $60 billion in the pipeline for projects in the sector.
Industry experts, though, are clearly of the view that any development related work in the ports sector is unlikely to succeed if viewed in isolation and that the approach necessarily has to be holistic and needs to be taken up in close coordination with the National Highways Authority of India (NHAI) and the Ministry of Railways, with the concerted aim of ensuring that the port is comprehensively connected to the hinterland.
At the launch of the summit last week, Prime Minister Narendra Modi was emphatic about the scale of the investment challenge. “Our vision is to increase port capacity from 1,400 million tonnes to 3,000 million tonnes by 2025. We want to mobilise an investment of Rs 1 lakh crore in the port sector to enable this growth.” While the country has around 7,500 km of coastline and there are 12 major ports and around 200 non-major ports, the government is aiming to add five new ports to meet the increasing demand of trade.
Coordination, though, is key to harnessing the potential of the country’s ports. “Along with the port expansion, there needs to be better connectivity with the hinterland and Sagarmala project should address the same. While several investments have been proposed and Memorandum of Understandings have been inked at the MIS, the Ministry of Shipping needs to create a strong investment facilitation team so that the investments hit the road sooner than later and the investors get the incentives being provided by the government. Also
the projects have to be structured in a way that it attracts financing from banks and other institutions,” said Adil Zaidi, partner Ernst & Young.
He however, added that this is probably the first time that the government has taken up the cause of the sector with such seriousness.
A holistic approach:
In the past, the sector missed on a comprehensive plan by the Ministry of Shipping and each port would simply work on its expansion on an ad hoc basis. This time the ministry has come out with a comprehensive strategy to deal with all the issues pertaining to the sector.
The Sagarmala project that was formally approved by the union cabinet on March 25, 2015 aims to promote port-led development and provide all the necessary infrastructure to transport goods to and from ports quickly and efficiently.
It also will promote port-based or port-proximate industrial and manufacturing clusters and the government has identified 27 potential coastal industrial clusters across three sectors which are- energy, materials and discrete manufacturing.
As part of the Sagarmala project, a National Perspective Plan (NPP) for the comprehensive development of India’s coastline and maritime sector is being developed and more than 150 projects have been already identified at an estimated investment of around $60 billion.
While a well-developed multimodal logistics system and hinterland connectivity is key for efficient evacuation of cargo and increasing the efficiency, it is something that is the need of the hour. According to a report of Indian Ports Association, road and rail accounted for 67 per cent of the modal mix at major ports in 2014-15 and thus they are critical in connecting industrial hubs of the country with ports.
Sensing the same, the government has embarked on a series of steps including the dedicated freight corridor by Indian Railways, highway construction across the country. The government has set up Indian Port Rail Corporation (IPRC) an SPV under the administrative control of the Ministry of Shipping that will execute the last mile connectivity.
IPRC has already started operations has prepared project report and project management consultancy for several major ports. The NHAI on the other hand had till November 30, 2015 completed about 380 km of port connectivity projects and another 80 km is under implementation.
According to a presentation by Ernst & Young at the MIS, while the cargo traffic at major ports and private ports is expected to rise significantly over the next 5-10 years, port projects involving investment of over $10 billion has been identified for award during the next five years. As on date 33 public private partnership projects having estimated cost of Rs 32000 crore and 280 MMT capacity are under implementation and 45 projects worth 184.15 Billion investment and 283.52 MMT capacities are under operation at major ports.
Among the challenges that come up on the financing front are unrealistic revenue projections, environment/pollution clearances for projects and high cost of fund.
The Centre has however opened investment gateway for foreign investors as it allowed 100 per cent FDI in port sector, where international players/ financial institutions can invest directly in growth opportunities in the Indian shipping sector. It has also extended a 10-year tax holiday to enterprises engaged in the business of developing, maintaining, and operating ports, inland waterways, and inland ports.
The report however points that in a bid to capitalise on the opportunities available to Indian maritime sector, the government should focus on the improvement of infrastructure and deployment of technology in maritime sector.
Although the government has been supporting the growth of the industry through various measures, the full benefit can’t be reaped due to the various issues in the first and last mile connectivity projects and thus it should extend the concession benefit to last mile connectivity projects to encourage more private sector investments.
Also, more focus is needed to link inland waterways to various ports to facilitate coastal shipping and enhance last mile connectivity.
Experts say that there is also a need to look into the issues specific to the major ports as minor ports have been slowly and steadily capturing the business of the major ports. Experts say that the tariff setting is a big issue for major ports and are calling for abolition of Tariff Authority for Major Ports (TAMP).
“It is very important that major ports have the flexibility on the pricing front as they lose out on business because TAMP decides on the tariff and the minor ports capture the business. The Ministry of Shipping is working on the same but nothing has been finalised yet,” said Zaidi.