A Case for Private Participation
Ports are nodes for interchange amongst various modes of transport and a vital element in the logistics chain in maritime trade. In spite of the tremendous growth in roadways, railways and airways in recent times, Indian ports handle 95 per cent by volume and 70 per cent by value of India’s international trade, as per the Government of India’s 2014 National Transport Development Policy Committee’s Report.
Endowed with a 7000 km coastline, India has 13 major ports (12 under the Central Government jurisdiction and 1 private) and 187 notified minor/non-major ports (under the control of state government) and intermediate ports, spread across nine coastal states. Major ports come under the purview of the Major Port Trusts Act, 1963. Since maritime transport falls in the ‘concurrent list’ of the Constitution, both the centre and the state governments exercise control over ports. Currently, work has been initiated towards developing a few non-major ports, both established and new, under public-private partnership.
Ports play an important role in urbanisation, as cities and towns develop in the hinterland of ports, making use of maritime and inland trade to market and export manufactured products. Thus, port connectivity is critical for quick and effective movement of commodities to reach consumers from the source of production in the shortest possible time.
Port connectivity plays a significant role in trade, and hence the growth and prosperity of a nation. Connectivity to a port can be through all three modes—rail, road and inland waterways. To a limited extent, inland waterway connectivity exists in Kolkata, Mormugao and Kochi.
As far as rail and road connectivity are concerned, a Committee of Secretaries (CoS) has recommended that each major port should have minimum four lane road and double line rail connectivity within a fixed timeframe. Four lane road connectivity has already been achieved or is in an advanced stage of completion at Jawaharlal Nehru Prot Trust (JNPT), Paradip, Tuticorin, Kochi, New Mangalore, Kandla and Haldia. At Mumbai, Visakhapatnam, Chennai and Ennore, four laning is in progress. Kolkata is the only port where four lane connectivity has not been provided.
Overall, all major ports have reasonable road connectivity linking various highways. But special focus is needed on the reorganisation/overhauling of approach roads to the Mumbai and Kolkata ports and their linkage with the national highway network. The JNPT, Vishakapatnam, Tuticorin, Haldia, Chennai and Paradip are connected to double line rail tracks, whereas at Kandla and Cochin, connectivity work is in progress. Although Mumbai, Ennore and Kolkata ports are linked by double line rail tracks, the lines need doubling. New Mangalore and Mormugao are connected only to single line rail tracks. A serious effort is needed to improve hinterland connectivity, especially by rail.
Of the 200 non-major ports, 61 handle export-import cargo and the others are mainly fishing harbours. Even out of these 61, only six enjoy rail connectivity up to the port. Another eight to 10 need last mile connectivity. Even road connectivity is a serious bottleneck. This is an illustration of the necessity for integrated planning of port location along with rail and road investments. The existing projects and those in the pipeline will provide reasonable road connectivity to ports like Mundra, Hazira, Machilipatnam, Dighi and Jaygad. The others may have only skeletal kachcha (unpaved) road networks; they are not connected through two lane highway quality roads to the nearest national highway. As for rail connectivity, a few projects have been launched and are in the pipeline for Dehaj, Gangavaram, Dhamra, Mundra, Krishanapatnam, Rewas, Dighi and Jaygad (India Transport Report : Moving India to 2032, Planning Commission, 2014).
History of Indian Maritime Trade
From the time of the Indus Valley civilization, to the Cholas, Cheras and Pandyas, ships carried rich cargoes of silk, spices and textiles from Indian ports to Europe, southeast Asia, and China. The known world in ancient times was aware of the legendary ports of Muziris (the Indian Mushiri), Ophir (Sopara) and Poompuhar. During the Mughal period, Surat, Goa and Calicut continued to thrive as major ports.
With British rule the pattern of trade changed —exporting Indian raw materials and importing finished goods from Britain and other parts of Europe became the norm. It was only after Independence that an attempt was made to reverse the colonial pattern of trade by following a policy of import substitution and self reliance, though exports always lagged behind imports. Mainly oil, fertilisers and essential foodstuffs in years of crisis were imported whereas equipment and machinery, as well as other intermediate goods were subject to strict import licensing requirements. This saw Indian ports mainly handle bulk cargo.
With the New Economic Policy and economic reforms being introduced in India in 1991 and a gradual shift towards a more open economy, ports have become enormously important with India experiencing a phenomenal rise in international trade, along with a change in composition of India’s port traffic.
In 1989-90, the total cargo handled in million tonnes (MT) by all ports was only 158.43, while in 2013-14, it became as high as 972.46, which translates to a 6 fold increase. In comparison, the rise was just 4.22 times in the past 30 years (in 1960-61, it was 37.53 MT). There is also a swing from break bulk to liquid and dry bulk (due to industrial growth and declining domestic production of POL, both crude and product) along with a marked shift towards containerised cargo, in keeping with emerging trends in global trade.
The changes in economic policies have markedly affected port infrastructure. The shipping and cargo handling technologies are changing rapidly. Ships are getting bigger and hence, harbours need to be deepened and modernised. Containerised traffic is rising with growing industrial exports. While container traffic comprised 15.9 per cent of the total cargo from 2001-02 to 2006-07 in Indian ports, it rose to around 20 per cent in 2014-15 and is projected to be more than 23 per cent in 2015 as per Maritime Agenda 2010-2020 (the Maritime Agenda 2010-2020 is a perspective plan of the Ministry of Shipping, containing proposed policy measures based on expected future outcome and initiatives to be undertaken between 2010-11 and 2019-20). These changes have had a pronounced effect on the methodology and labour deployment at terminals. There is an urgent need for increased mechanisation, unitisation of cargo and computerisation, and a change in manning scales.
The Need of the Hour: Private Participation
The liberalisation and globalisation that have taken place over the last two and a half decades have necessitated bigger, better equipped modern ports in greater numbers. In addition to more ports, there is an urgent need for more sophisticated mechanised cargo handling system rather than the traditional labour intensive one to handle increased activities in the port sector. For this, it is essential that the workforce be better educated, well trained and more skilled. Besides, since ports are logistics and distributional platforms in the supply chain network, development of power, roads, ports, airways and railways and the transport sector as a whole to sustain the global competitiveness in trade is the need of the hour.
To achieve this, a huge investment is needed. This is why the Rakesh Mohan Committee on infrastructure reforms in the 1990s recommended introduction of private capital in this sector for its speedy development in keeping with the needs of the expanding economy. The recommendations were in keeping with the ground realities in the maritime sector.
Since Independence, very little investment had been made in the port sector until the ‘90s, leaving Indian ports hugely handicapped in capacity, infrastructure and operational efficiency. The voluminous amount of capital to finance the infrastructural needs of Indian ports being beyond the government, inviting private capital seemed the only way out. Thus, private capital was invited in 1996 to build up the port sector (Maritime Agenda 2010-2020).
Introduction of private capital was encouraged in improving dry docks, as also berth reservation and ship repairing facilities. Licensing procedures were also encouraged in stevedoring activities. Of the total INR 109449.91 crore worth of investment planned for major ports during the 2011-20 decade, INR 72,878.16 crore was earmarked for port development activities/projects like construction of berths, procurement of equipment road rail connectivity and other related projects to be undertaken by the private sector. Private players were exempted from corporate taxes in undertaking these activities, even as the National Maritime Development Board sought increased public-private participation in many other port related activities.
According to the Public-Private Partnership (PPP) Policy, 2011, there are primarily 10 PPP Engagement Models operational in the maritime states of Gujarat, Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu and at the Centre. These are BOT-Toll (Build, Operate, Transfer-Toll); BOOT (Build, Operate, Own, Transfer); Joint Venture (JV), Management Contract (MC), BOT (Build, Operate, Transfer), BOT-Annuity (Build, Operate, Transfer-Annuity ), DBFOT (Design Build Finance Operate Transfer), BOO (Build, Own, Operate), PPP (Public Private Partnership), BOOST (Build, Operate, Own, Share, Transfer), besides others.
The PPP process was initiated for Indian ports in 2000 , and took shape in 2007. The Model Concession Agreement (MCA) serves as a guideline for the privatisation process. Many major ports have their individual concession agreements according to the MCA, and modified them in keeping with their specific requirements.
This has seen many new ports being set up under PPP in recent times. The Krishnapatnam Port was set up under BOOST conceding basis for 50 years. Other Greenfield ports are being established in Gujarat and Maharashtra along the Delhi- Mumbai Industrial Corridor.
The PPP model is being particularly preferred for the expansion/upgradation of berths, installation of new and modern equipment, upgradation/ replacement of cargo handling equipment, mechanisation of cargo handling operations, upgradation and setting up of computer aided systems for automation of port operations, installation of Vessel Traffic Management System (VTMS) for smooth movement of vessels, and, implementation of web based port community system.
Port projects are awarded through the competitive bidding process on revenue sharing basis. Similarly introduction of high capacity mechanised equipment in the form of mobile harbour cranes/floating cranes, by private sector participation, with a view to utilising the latent capacity, as well as for augmenting cargo handling capacity is being encouraged to increase throughput and reduce costs.
Hub and Feeder Ports
Hub and feeder ports along coasts and transshipment terminals at strategic locations reduce the overall fleet costs by reducing feeder time at other ports, retaining transshipment revenue with India, enabling faster and cheaper movement of marine side traffic to and from hub ports, as pointed out by G Raghuram, and R Gangwar, in their 2007 paper, ‘Containerisation—Building Global Trade Competitiveness’, Indian Institute of Management, Ahmedabad.
The Indian Government plans to commission four hub ports, two on each coast. These ports will be commissioned in the existing public sector ports of Kochi, Chennai, JNPT and Visakhapatnam. JNPT has already invited private capital for further development. The Government also plans to develop two mega ports, one on each coast, to act as warehouses, as per the 1996 Infrastructure Development Report.
Cruise shipping is another major initiative that is being mooted in the Indian shipping sector to earn valuable foreign exchange from luxury tourism, as per the Government of India’s Maritime Agenda (2010-2020). However, this is still in its infancy, with a start having been made at the Kochi port.
Special Economic Zones (SEZs) are an important aspect related to port cities. SEZs are duty-free enclaves treated as foreign territory for trade operations. Import is license free here, and manufacturing and trading of services is undertaken in these industrial townships. The SEZ Act 2004 and SEZ Rules 2006 were modified in February 2006. A SEZ can be set up in the public, private or joint sector or by a state government. Similarly, zoning regulations in port cities can also help in promoting trade as these cities may have special zones for maritime activities, such as export industries, shipbuilding, or ship repairing.
The Indian maritime sector has played a vital role in Indian economic history through the ages. However, the colonial period and the subsequent decades after Independence saw little investment in the Indian maritime sector or the modernisation of ports. Liberalisation and consequent flowering of trade and growth has seen the government go on an overdrive to catch up with global trends. Large scale private capital has seen PPP models being used to set up mega ports, and modernising existing port facilities. This should go a long way in helping Indian maritime activity catch up with and compete in the international arena.