Lauded as the country’s biggest programme for the maritime sector, Sagarmala is an ambitious national initiative aimed at bringing about a step change in India’s logistics sector performance by unlocking the potential of country’s 7,500 km long coastline and 14,500 km of potentially navigable waterways. The programme is touted to be a game-changer for the port sector due to its focus on port-led development.
India Infrastructure Research has tracked a total of 451 projects, involving a combined investment of over Rs 5.4 trillion, spread across various stages of implementation – announced, under bidding, awarded and under construction. Upon completion, these projects are expected to add a capacity of around 1,300 million tonnes per annum (mtpa). The programme has opened up immense opportunities for various stakeholders across the maritime chain.
Ambitious pipeline of projects
Launched in July 2015, the Sagarmala programme seeks to reduce logistics costs for export-import and domestic trade with minimal investments for infrastructure. The programme has four pillars – port modernisation and new port development, port connectivity, port-led industrialisation and coastal community development.
Under the port modernisation component, a study to benchmark the performance of major ports to comparable international ports was undertaken, and the recommendations of the study are being implemented. As of September 2020, of the 116 initiatives identified for implementation, 98 have been implemented so far.
With a view to eexecuting last-mile rail connectivity projects and internal rail projects of the major ports more effectively and efficiently, a special purpose vehicle (SPV), Indian Port Rail and Ropeway Corporation Limited (IPRCL) was incorporated under the administrative control of the Ministry of Ports, Shipping and Waterways. At present, 88 connectivity projects are being implemented by IPRCL.
According to India Infrastructure Research, as of February 2021, Sagarmala has 373 projects entailing an investment of over Rs 3.93 trillion under its ambit. Of the total investment, 52.41 per cent is envisaged for port connectivity, 24.58 per cent for port modernisation and development of new ports, 22.01 per cent for port-led industrialisation and around 1 per cent for coastal community development.
With respect to project funding, the central and state governments are expected to provide three-fourths of the total funds. In addition, new sources of financing such as dollar-denominated loans are being explored to meet the huge requirement.
Other than Sagarmala, private port operators have also been undertaking a plethora of capacity augmentation projects at their facilities to compete with the major ports. As per the tracked projects, as of February 2021, 60 projects, entailing an investment of over Rs 600 billion, are being planned or are under implementation. Meanwhile, new greenfield non-major ports have also been planned for implementation by the state maritime boards/authorities. About 18 such ports, worth around Rs 837 billion, are being taken up for implementation.
Stage-wise status of projects
In spite of the impetus given to the maritime sector, a significant portion of the project pipeline is still at the announced and bidding stages. As of February 2021, civil construction works on 302 projects worth over Rs 3.15 trillion are yet to commence. Once completed, these projects will add up to 718 mtpa of capacity at Indian ports.
The greenfield major port at Vadhavan is one of the key and capital-intensive projects in the pipeline. The project involves the development of an all-weather port at Vadhavan, 140 km north of Mumbai in Maharashtra, at an estimated cost of Rs 655.44 billion. The port will be developed as a landlord port. An SPV will be formed by the Jawaharlal Nehru Port Trust as the lead partner, with equity participation equal to or more than 50 per cent, to implement the project. In June 2021, the National Green Tribunal sought the report of the Central Pollution Control Board regarding the work status and environmental impact of the port, thereby stalling works on the project.
Development of a greenfield non-major port at Ramayapatnam is another capital-intensive project in the pipeline. In August 2021, the joint venture of Aurobindo Realty and Infrastructure Private Limited and Navayuga Engineering Company Limited signed a contract with the Andhra Pradesh government for the development of Ramayapatnam greenfield port. The contract value is Rs 26.346 billion.
Overall, among the tracked projects, 140 projects entailing an investment of Rs 1.97 trillion are under construction. Upon completion, these projects are expected to create over 337 mtpa of capacity. In terms of implementation mode 25 are being implemented in public-private partnership (PPP) mode, while the rest are being implemented either on an engineering, procurement and construction (EPC) basis or in non-PPP mode.
One of the key projects that is currently under construction is the Vizhinjam international container transshipment terminal (ICTT) project. According to the concession agreement signed on August 17, 2015, the ICTT project was slated to start commercial operations from December 2019, which was later pushed to August 2020. Adani Vizhinjam Port Private Limited (AVPPL), Adani Ports Special Economic Zone Limited’s unit developing the terminal, cited a number of reasons for the delay in construction work, including force majeure events such as Cyclone Ockhi in 2017, high waves, a National Green Tribunal order, the outbreak of the Covid-19 pandemic, and Cyclone Tauktae in May 2021. AVPPL had constructed about 850 metres of the 3.1 km long breakwaters. However, Cyclone Tauktae damaged the structure from 676 metres onwards. Following the arbitration process, the Kerala government acknowledged the aforementioned reasons and allowed a time extension to AVPPL. Accordingly, Vizhinjam port will now be operationalised by December 2023.
Another important port under construction is the liquefied natural gas (LNG) terminal at Chhara port. Estimated to add LNG capacity of 5 mtpa, the terminal is being developed in Gir-Somnath district of Gujarat at a cost of Rs 43 billion. In March 2021, Hindustan Petroleum Corporation Limited (HPCL) acquired the balance 50 per cent equity stake in HPCL Shapoorji Energy Private Limited, the SPV developing the terminal, from SP Ports Private Limited Company.
The road ahead
Going forward, the outlook for the Indian maritime sector is bright and opportunities for various stakeholders are abundant. The growing emphasis on modernisation, mechanisation and digitalisation; supportive policy measures; increased focus on the development of coastal economic zones; concerted efforts to address rail and road-port connectivity challenges; increased focus on improving private participation, among others bode well for the sector. The inland waterways segment also has a strong pipeline, with development work started on only 10 national waterways out of the 106 newly declared ones.
In sum, the sector offers considerable opportunities to EPC contractors, project developers, financiers, dredging contractors, construction material suppliers, consultants and survey firms, primarily on the back of the massive project pipeline. The emerging trend of deploying efficient equipment, replacing old equipment and automating port operations has created significant demand for new specialised equipment. Mechanisation and modernisation projects aimed at increasing efficiency and productivity levels present significant opportunities for technology providers and equipment suppliers.
While the Covid-19 pandemic did have a bearing on the already stressed maritime sector, the sector started witnessing green shoots of recovery from June 2020 onwards. The pace of recovery in the sector will remain contingent on the pace of recovery of domestic industrial activity and the global economy. Factors such as changes in the global supply chain pattern during the recovery phase will also have an impact on the cargo profile.