Views of Dilip Kumar Gupta

“SDCL’s business model involves long-term development-oriented equity investment”

At a recent conference organised by India Infrastructure, Dilip Kumar Gupta, managing director and director (projects), Sagarmala Development Company Limited (SDCL), discussed the investment requirements and financing model of the Sagarmala programme, the role of the private sector, the key milestones and the major issues and challenges. Excerpts…

Port modernisation entails capacity augmentation either through new ports or through efficiency improvement. The target is to increase capacity from 1.5 billion tonnes (bt) to 3 bt between 2016 and 2025. We have already created a capacity of 2.2 bt. Port-led industrialisation is one of the four pillars of the Sagarmala programme. One of the key objectives is to bring down the logistics costs for both export-import (exim) and domestic trade with minimal infrastructure investment by increasing the capacity and productivity of the existing ports as well as the development of new ports. The focus is also on lowering the logistics costs of bulk commodities by developing future industrial capacities near the coast through port-led industrialisation. The target is to double the share of domestic waterways, both inland and coastal, in the modal mix from 6 per cent currently to 12 per cent by 2025. Another key pillar involves the improvement of port connectivity by augmenting rail and road networks for faster cargo evacuation. It is also important to optimise the time and cost of exim container movement. Another key pillar, coastal community development entails the creation of jobs and bridging the skill gap in ports and the maritime sector as a whole.

Investment needs and financing plans

The Sagarmala programme aims to synchronise works being carried out by over 60 implementation agencies for coordinated port-led development.

As per the National Perspective Plan, the vision is to implement a total of 506 projects at a cost of about Rs 3.58 trillion. Of these, there are 212 projects valued at Rs 0.8 trillion under the port modernisation component, 200 projects worth Rs 1.49 trillion under the port connectivity component, 32 projects costing Rs 1.2 trillion under the port-led industrialisation component and 60 projects worth Rs 55 billion under the coastal community development component.

Of the 506 projects, 158 projects have been completed at a cost of Rs 832 billion. Further, 181 projects entailing an investment of Rs 2 trillion are under implementation and 167 projects entailing a cost of Rs 0.75 trillion are at various stages of development.

Most of the projects are planned to be implemented with private sector participation. A few projects are also being developed through grants from the Ministry of Ports, Shipping and Waterways (MoPSW).

SDCL was incorporated under the MoPSW to support the Sagarmala programme by providing residual funding by way of equity support through the special purpose vehicle (SPV) framework. SDCL plans to diversify its business model by including other modes of financing such as debt and financial leasing for floating assets (because it is difficult to get loans from banks on floating assets).

SDCL was incorporated on August 31, 2016 with the aim of assisting central, state, port-level and private sector SPVs with equity support for projects to be undertaken by them. The cabinet has approved an initial budgetary allocation of Rs 10 billion to SDCL. Our aim is to develop the projects and invite the private sector to participate in them, and if there is any shortage of equity then SDCL can play a role of providing equity up to a limit of 49 per cent. SDCL also provides a framework for ensuring integrated development of the Indian maritime sector, port infrastructure enhancement, efficient evacuation of cargo and new port development-related projects.

SDCL acts as an integrator for port-led development. Our mandate is to coordinate, take up equity and facilitate SPV formation. Such coordination can accelerate the pace of development and lead to holistic project execution.

The business model of SDCL involves long-term development-oriented equity investment. We are not in a hurry and want to go hand in hand with private players as our aim is to undertake more and more projects and not to earn money. We provide equity investment to cover up the shortfall and facilitate financial closure. As a facilitator for pre-development tasks, we provide support in undertaking project studies and detailed project reports, making financing arrangements, and facilitating approvals and clearances, and as an integrator among different agencies for holistic development.

In the past two and a half years, we have invested in five projects – two rail projects, two road projects and one port capacity augmentation project. One of the projects was to lay electrified double-line railway tracks between Krishnapatnam, Venkatachalam and Obulavaripalle, which has reduced the rail distance for trains coming from Guntakal division to Krishnapatnam by 72 km and reduced the turnaround time of railway rakes substantially.

India Ports Global Limited was established in January 2015 and later became a wholly owned subsidiary of SDCL. The investment in Chabahar port in Iran is the first overseas strategic venture for India. The Chabahar project gives India a sea-land access route into Afghanistan and Central Asia through Iran’s eastern borders, and we are looking forward to connecting to Europe through Iran as well.

With regard to SDCL’s diversification plans, we plan to work under a model similar to that of the Power Finance Corporation. This, however, is subject to government approvals. We aim to provide funds to the shipping sector at a very low rate of interest.

There are several issues and challenges that the programme is fraught with. One of the major issues is increasing the utilisation level of port infrastructure. Currently, only about

55 per cent of the capacity is being utilised. Attracting private participation is also a difficult task. Land acquisition is a big challenge as well, specifically for connectivity projects. Besides, project-related issues and challenges such as clearances/permissions add to the implementation woes.

Future targets

For rail connectivity, the target is to add around 7,000 km of railway lines by 2025-26. So far, 2,299 km of rail lines have already been added and 1,081 km of rail lines are expected to be completed in 2020-21. We are trying to complete 3,380 km by the end of this financial year. Similarly, under road connectivity projects, the target is to add 3,540 km of roads by 2024-25 and 376 km of roads are expected to be completed during 2020-21. Now, with both Bharatmala and Sagarmala being implemented, we will be able to achieve the target.

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