The scope for dredging in India is vast. Opportunities for this segment are available in the development and maintenance of existing major ports, building new ports, offshore resource exploration, in upcoming national waterways (NWs) and demand from the navy.
During 2012-17, the demand for capital and maintenance dredging is estimated to be about 63 million cubic metres (mcm) and 530 mcm respectively. An estimated demand of about 100 mcm at minor ports during the same period provides additional opportunity for dredging. Moreover, the modal shift of cargo towards inland and coastal waterways offers bright prospects for sustainable economic prosperity in the segment. The government’s Make in India initiative has attracted a lot of interest as well, given the huge scope in the dredger building industry.
The dredging industry in India is gradually picking up, with a positive demand forecast for the segment. The government’s new Foreign Trade Policy, 2015-2020 provides incentives under two schemes – the Merchandise Exports from India Scheme and the Service Export from India Scheme – to encourage the export of manufactured goods and services from India. As one of the businesses listed under these schemes, the maritime industry can claim a reward of 5 per cent free on board shipment or foreign exchange realised by way of leasing assets, undertaking foreign projects or selling ships and equipment made in India. Under these two schemes, businesses can acquire a privileged status (star rating) and have trade transactions facilitated in order to reduce transaction costs and time.
The overall demand for dredging is estimated by individual ports and sent to the Ministry of Shipping (MoS). Further, proposals for the setting up of new ports are approved by the central or state governments. The MoS analyses the demand for dredging and the proposals for developing new ports and then allocates funds in phases during each financial year. However, the targeted dredging level achieved has fallen significantly below the projected demand. This is mainly due to delays or failures at the project implementation stage, financial and environmental constraints, lack of engineering studies to assess the quantum and type of dredging required, and poor response from bidders to undertake the work.
Current dredging demand in India
India has a vast coastline of over 7,500 km along the east and west coasts. It has 13 major ports in the public sector, 10 in the private sector and 187 minor ports under various maritime boards and state governments.
The demand drivers for dredging are the requirement for deeper draught at ports, construction of new ports, land reclamation, emerging trends like deployment of ultra-mega-size vessels, consistent maintenance and capital dredging at existing ports, inland transport and water linking projects, trenching works for laying pipelines in offshore projects, promotion of tourism, and beach nourishment.
Dredging Corporation of India (DCI) controls about 60 per cent of the maintenance dredging market in India. DCI and Mercator Limited have a large fleet of trailer suction hopper dredgers (TSHDs) as well as other dredgers, while Van Oord India and International Seaport Dredging Private Limited operate with one TSHD each in India. European companies bring their dredgers into the country on a project requirement basis.
While 593 mcm of dredging is being projected for 2016-17 alone, there is a huge backlog of capital dredging requirement projected under the Twelfth Plan (2012-17), that did not materialise due to various reasons, and is now anticipated to be taken up in the near future. This will further increase the demand for capital dredging and once this is completed, maintenance dredging volumes will also increase.
Key trends and opportunities
Capital dredging at ports
With the government’s thrust on improving and modernising port infrastructure, most major ports are gearing up for deepening their channels and harbours to have an 18 metre depth at least, so as to bring in bigger vessels. Also, work is shortly expected to begin on two new major ports sanctioned by the central government in West Bengal and Andhra Pradesh. Further, there are plans to construct private ports at Machilipatnam and Nizampatnam in Andhra Pradesh and Astaranga in Odisha. These projects are likely to generate a huge demand for capital dredging in the coming years.
Dredging in the coastal shipping segment
With 14 maritime states and 137 rivers, India has a total river length of about 28,500 km. Of this, around 13,000 km (about 45 per cent) is navigable. At present, India utilises only 4,500 km for inland transportation via five national waterways (NWs) which are maintained by the Inland Waterways Authority of India. Another waterway, NW-6 (121 km), has been proposed along the Lakhipur-Banga stretch of the Barak river in Assam.
To further exploit water transport (as it is the cheapest mode of transport) and to reduce the burden on the already choked road and rail networks, the government has launched the ambitious Sagar Mala initiative, which envisages 150 projects for port augmentation, entailing an investment of Rs 1 trillion. As about 20 per cent of this port development cost would be for dredging, an estimated Rs 200 billion market is likely to be created for inland dredging in the next three-four years. Further, the government has sanctioned Rs 50 billion for cleaning the Ganga river, of which about Rs 10 billion is expected to be the cost of dredging.
Competition and challenges in the dredging market
Under the government’s dredging policy, there is no specific protection for Indian dredging companies other than the right of first refusal. Under the policy, an Indian dredging company (with a dredger under the Indian flag) will be given the opportunity to match the lowest price offered by a foreign company provided the Indian dredging company rate is within 10 per cent of the lowest price offered by the foreign player.
A recent trend in the capital and maintenance dredging market indicates “dumping” of rates by domestic and foreign companies. The primary reason for this is that companies prefer to keep their dredgers engaged even at low rates rather than keep them idle. The other reasons for the drop in rates are lower demand from sluggish markets in the neighbouring countries of the Middle East and reduced costs due to a drop in fuel oil prices. However, this trend is likely to be short-lived. Both competition and pricing are likely to undergo a change when the ratio of demand to supply changes in the near future.
The future cost of dredging will also depend on changes in fuel oil prices, as this comprises about 40 per cent of the cost.
Another big challenge in the dredging industry is the lack of geotechnical data for taking up capital dredging projects. While inviting tenders for such projects, port developers often fail to carry out proper soil investigations and provide incomplete data to dredging contractors, resulting in inaccurate assumptions and thus execution failures.
Another issue being faced by Indian dredging companies is the dependence on foreign suppliers for dredge spares. This results in extended lead time for the supply of spare parts as well as expenditures in foreign currency.
Technology improvement and skill development
Dredging technology across the world is undergoing rapid changes. To keep pace with advancements in technology, it is necessary to be aware of global trends. Towards this end, the government has plans to set up an exclusive dredge training institute to impart training to the dredging cadre in order to facilitate skill development. Further, keeping in view the shortage of yards for repairing dredgers in India, the government has proposed the creation of a dredging harbour, which will have an exclusive dredge repair yard with research and development facilities.
The central government has entrusted the job of creating the dredging harbour and dredge training institute to DCI. The latter has already identified a waterfront on the sea coast near Antarvedi village in the East Godavari district of Andhra Pradesh; the state government has allotted the waterfront and the land required for creation of the above facilities to DCI. The process for selection of a reputed consulting agency for the preparation of a detailed project report has already been initiated.
Streamlining the tendering process for dredging contracts
One of the challenges being faced in the dredging industry is the management of contracts by major ports. Until recently, most major ports invited tenders for capital dredging projects without undertaking proper geotechnical and soil investigations, resulting in incorrect assessment of soil data by dredging contractors, leading to a failure in execution and subsequent disputes with the port authorities. Further, each port followed different contract conditions, making the contractor’s job more difficult.
Keeping the above difficulties in view, the government has constituted a high-level committee of experts to examine the issue and formulate standard guidelines for inviting tenders for dredging projects to be implemented by major ports. The standard document providing these guidelines has been approved by the MoS and circulated among all major ports. Once implemented, these guidelines will, to a large extent, help in reducing difficulties and disputes while inviting tenders and during execution of projects.
Indigenisation of dredge design and spares
The government has entrusted the job of studying the future prospects for dredging and the indigenisation of dredger design to the Indian Maritime University (IMU). Further, DCI (during the Maritime India Summit 2016) has signed an MoU with BEML Limited for design and supply of certain dredge spares in line with the government’s initiative for indigenisation, so as to enable Indian dredging companies save repair time and reduce their foreign exchange exposure.
With the central government initiatives for modernisation of ports, construction of new ports and interlinking rivers for water transport under the Sagar Mala project as well as implementing projects for skill development in the dredging industry, there is likely to be all-round growth and development in this industry in the near future.