Stiffening Competition

Issues, expectations and recommendations of private operators

Over the past few years, the Indian port sector has seen a number of positive developments – greater private participation, port modernisation and the promotion of ease of doing business. Progress was noted in the completion as well as award of several key capacity augmentation projects at ports, the introduction of key policy and regulatory measures, and the inauguration of new terminals. Despite the recent progress, the sector still faces several challenges that need to be tackled in a time-bound manner for ensuring sector growth.

Competition-driven technological improvements

There has been a surge in competition between the major and non-major ports in recent years. The port sector is gradually moving away from the earlier monopolistic market model to a more competitive one. In the present scenario, a port needs to perform well in terms of efficiency parameters or else stand to lose its traffic share to competing ports located nearby. Growing competition has necessitated that ports focus on improving efficiency and productivity through modernisation and upgradation of their facilities. This is evident from the increasing technology penetration in recent years. Installation of container scanners and radio frequency identification-based systems for gate automation, use of optical sensors and high resolution cameras, substitution of diesel rubber-tyred gantries (RTGs) with electronic RTGs and automation of issuance of delivery orders are some of the initiatives being taken by the ports.

Operators’ issues, concerns and recommendations

Recently, in January 2019, the Ministry of Shipping released revised draft tariff guidelines for private terminal operators (at the major ports) disadvantaged by the complicated revenue sharing model that the government had applied to concession contracts awarded in the initial stages of port privatisation (from 1997 to 2009). The authorities have proposed allowing a 16 per cent return on gross fixed assets, similar to the price determination method for terminals governed by the 2013 rules. However, no new concession agreement has been signed under these revised guidelines till date. Operators feel that the move has not affected the existing players. In their opinion, these guidelines would have had a greater impact if they had been made applicable to both major and non-major ports.

In the near future, it is going to be extremely difficult for port operators to undertake greenfield projects, on account of the fact that obtaining environmental clearances and acquiring land still remain difficult. Private operators are required to obtain permits and clearances from a number of central and state government agencies. Therefore, capacity enhancement at the existing ports is an easier option for operators. However, the level of investment, managerial capabilities and skills required for this poses a great challenge for the port authorities.

Financing is another major issue facing the port sector. In order to improve the existing infrastructure, huge investments are required. This highlights the need to explore cheaper sources of funds. Also, as the majority of the players involved in port projects are foreign exchange earners, there is a possibility of financing some of these projects through dollar-denominated bonds.

Despite the recent increase in technological penetration, the port sector is still at early stages of digitalisation. A combination of blockchain, artificial intelligence, internet of things, machine learning and data mining can help in making the journey of a ship or a truck more secure and efficient by allowing seamless interaction between various players in the logistics ecosystem.

Poor rail and road connectivity of major ports with industries is another major challenge, as this leads to time and cost overruns. Over-capacity utilisation is another key issue facing the container shipping segment and ports and could put pressure on the margins of terminal operators. Another major concern is the shrinking public-private partnership appetite for the sector on account of high cost of capital, lack of clarity in contracts, higher risk of inadequate returns, and inadequate last-mile connectivity.

Conclusion

The key to increasing cargo handling lies in efficient handling (loading) and efficient dispatching (unloading) of cargo. This efficiency can be achieved through modernisation and mechanisation as well as through setting up of adequate support infrastructure. Going forward, there is a need to provide low-cost financing options (for increasing private participation), encourage refinancing of existing assets and transfer of assets, reduce rigidity of project parameters and undertake proper project structuring. While policy support is a step in the right direction, more budgetary support will hold the key for effective implementation of projects. w

Based on a panel discussion among Rajiv Agarwal, Managing Director and Chief Executive Officer, Essar Ports; Cyril C. George, Deputy Chairman, Port of Chennai; and Pranav Choudhary, Chief Executive Officer, Hazira Port, Adani Ports and Special Economic Zone, at a recent India Infrastructure conference

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