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‘Need to Revamp Entire Port Policy’
- Vishwas Udgirkar, Senior Director, Deloitte
India port sector has been going through slow phase growth. While interacting with SMP World, Vishwas Udgirkar, Senior Director, Deloitte, feels that need to develop international transshipment hub on line of Colombo, Singapore to give an edge to international ports. He shares his views about opportunities and challenges faced by Indian major and non-major ports, pros and cons of revenue share model and many more. Excerpts:

Despite having a vast coastline, China, South Korea, Singapore, Sri Lanka are giving a stiff competition to Indian Ports. Please brief us on the factors leading to dismal growth of Indian ports?
India lacks an integrated approach for port sector development. There are government owned port trusts for managing major ports, where tariff is regulated, and there are non-major ports, where there is complete flexibility on tariff fixation. Significant bureaucratic hurdles and slow decision making have resulted into constrained development of ports in India. Indian ports need upgradation through enhanced storage areas, better inter-modal connectivity, increased draft and better port facilities. Lack of international hub at Indian ports is giving a run for its goods in global market. Capsize vessels are not able to call on Indian ports due to shallow draughts. So, we have to export/import cargo via international hubs like Colombo, Singapore etc. Underdeveloped coastal shipping and inland waterways is another issue in port sector in India.

Meanwhile other countries have realised their plans of developing international hubs, port based industrial cities, and transshipment terminals. For example, seven to eight years back Sri Lanka took initiatives and invested massively to develop Colombo port as transshipment hub, where containers come from various places in world and then transship to their destination places. Indian ports like Chennai, Tuticorin, Cochin etc compete among themselves. Instead of competing among them, there is a need to focus and develop one port having world-class infrastructure on the lines of Colombo port so that it will be able to give an edge to international ports illustrated here. Due to different ownerships of ports, we are not able to concentrate on one port, which can be developed as a massive port. Indian ports also have lower efficiency which leads to long turnaround time.

Sir, can you please appraise us about the opportunities and challenges in the Indian major and non-major port sectors?
Maritime Agenda 2020 envisages nearly tripling of the port capacity in India to 3.2 billion tonnes (bt) by adding capacity in existing ports and development of greenfield ports. This presents tremendous opportunities in the port sector. However, the trend till now in form of delays in project development award is not encouraging.

One of the foremost challenges for major ports is confusion over tariff regulation. There has been continuous dialogue and multiple revisions in the tariff regulation approach for major ports, however, the same has not led to positive results.

Another major challenge, affecting major as well as nonmajor ports, is lack of focus on developing inter-modal connectivity with hinterland. Inter-modal connectivity has significant impact on the port attractiveness and viability. We can already see results of better connectivity in form of performance of Mundra port, Pipavav port, JNPT etc. There are other challenges also in form of delays in environmental and security clearances, ban on iron-ore mining by Supreme Court, reduction in coal imports for power projects and general economic slowdown.

What are the pros and cons of revenue share model?
Revenue share in port sector is quoted as per cent of revenues. This ensures that the revenue shared with the port trust varies with the revenue amount, unlike highway sector wherein fixed revenue share amount is shared. However, such revenue share comes out of the tariff and thus it is debatable that should Government be asking for revenue share or should it seek reduced tariffs so that ports can be used to give impetus to overall economy. However, this requires a well-thought and robust contractual structure as unlike other transportation sectors like highways, airports etc., competition management is a crucial factor, because of significant overlap in port catchment areas and high propensity to shift amongst users. Furthermore, sometimes private players end up offering a large portion of revenue with the trusts just for getting award of the project and such unrealistic bids lead to failure of the project. Giving more flexibility to private firms in tariff fixation for major ports can give better certainty to private firms while bidding for the projects.

What can be the sustainable model?
An alternative model can be when the bid parameter is tariff i.e. bidder who quotes the lowest tariff for the best optimal services would get the opportunity to develop and operate port. While this can make our ports more competitive compared to international ports, there are certain pitfalls also. Such model would reduce flexibility of variation in tariffs over a period of time, depending on market conditions. Also, it can lead to unrealistic bids, which can hamper the project execution. Another option is to improve existing revenue sharing model. For improving revenue share model, autonomy should be given to private investors in major ports to fix tariffs. If the private sector is allowed such flexibility, it can lead to optimisation of operations and investments, lower tariff, as well as efficient and market oriented business planning.

Today, investors are facing a lot of problems like land acquisition, environment clearances, regulatory and bureaucratic hurdles for infrastructure development. Due to this, they are withdrawing from Indian markets. Do you see a silver lining in such a scenario?

That is the story across the entire infrastructure sector. Investors are facing a lot of challenges as world economy is showing recessionary trends and also investors’ perception relating to policies has gone down. Even setting up of a taskforce taking care of clearances at all projects hasn’t helped in boosting the investments in the sector. This coupled with confusion on aspects like tariff regulation of major ports, environment & security clearances, ban on mining, reduction in coal imports etc. is leading to general disinterest and cautious behavior. Next year India would be going for elections. After elections, there can be review of policies. This combined with positive economic indicators may lead to renewed interest and focus on port sector.

What are the factors which are hampering foreign investments in the port sector? What is the way forward?
In general, economic scenario and lack of policy impetus is affecting infrastructure sectors and port sector is not an exception. However, port sector also has certain sectorspecific issues, which are hampering foreign investments. Environment and security clearances take one to two years for any port project. Long delay in such clearances increases the cost of the project and as a result, financial viability of the project is affected. Another key concern is uncertainty and continued dissatisfaction relating to the tariff regulation policy for major ports. Furthermore, even when some port projects seem to be have good financial viability, factors like lack of hinterland intermodal connectivity create risks for investors. Recently, uncertainties and other issues relating to coal imports and mining ban in certain parts of India have also contributed towards reduced investor confidence in port sector in India.

To address various sector-specific issues, corporatisation of ports can give more teeth to operators to work more efficiently. Government has been trying for this many years. But, it has not been able to break any ice on this issue. One nodal organisation for developing ports infrastructure can help in comprehensive planning and faster execution of projects.

This organisation can chart out some plans and carry out some groundwork on general aspects like dredging capacity, inter-modal connectivity, clarity on tariff regulation, clearances etc. Piecemeal improvements here and there won’t help the port sector in long term. There is need to revamp the entire port sector policy.