Sagarmala is touted as one of India’s biggest programmes for the development of the maritime sector in the country. It is an ambitious national initiative aimed at bringing about a major improvement in the ports and logistics sector performance by unlocking the advantages of the country’s 7,500 km long coastline and 14,500 km of potentially navigable waterways. The programme is expected to be a game changer for the port sector owing to its primary focus on port-led development. At the recent “Ports in India” conference organised by India Infrastructure, Dilip Kumar Gupta, Managing Director, 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…
Overview
The Sagarmala programme, launched in July 2015, aims to reduce logistics costs for export-import and domestic trade with minimal investments in infrastructure. The programme is targeting a potential logistics cost savings of Rs 350 billion-Rs 400 billion per annum by 2025. The reduction in logistic cost is envisaged by optimising cost and time of cargo movement from port to hinterland and vice versa and by enhancing the competitiveness of Indian Industries through Port Led Industrialisation. Sagarmala Programme has four pillars – Port modernisation and new Port development, Port connectivity, Port-led industrialisation and Coastal Community Development.
Under port modernisation projects, the focus is on capacity augmentation, development of new ports and efficiency improvement. Attention is also on reducing logistics costs for both export-import (EXIM) and domestic trade by increasing the capacities and productivity of existing ports with minimal infrastructure investment. Similarly, port connectivity projects focus on new road-rail connectivity, upgradation of roads and railways, coastal shipping and inland water transport, and logistics parks. The programme aims to enable faster cargo evacuation from ports by augmenting rail and road networks to enable ports to increase cargo throughput. Port-led industrialisation focuses on the development of industrial clusters and coastal economic zones while coastal community development focuses primarily on skill development, coastal tourism development and the development of fishing harbours. It aims to create jobs and bridge the skill gap in the ports and shipping sector. Under the Sagarmala programme, it is expected that the share of domestic waterways (including both inland and coastal) in the modal mix will be doubled from 6 per cent to 12 per cent by 2025.
Sagarmala Development Company Limited
SDCL was incorporated on August 31, 2016 under the Companies Act, 2013. It was formed with the objective of primarily developing and formulating projects emanating from the National Prospective Plan (NPP) and assisting special purpose vehicles (SPVs) set up by central ministries, state governments, state maritime boards, ports, etc. in project implementation. Further, it is to provide a funding window for residual projects that cannot be funded by any other means/mode. Residual projects mainly include important, pilot/path-breaking projects with a high economic internal rate of return but a low financial internal rate of return.
SDCL has further mandated to raises funds as debt/equity (as long-term capital), as per project requirements by leveraging resources provided by the Government of India, manage the Community Development Fund for providing grants to coastal community development projects considered under Sagarmala and is also responsible for preparing detailed master plans for coastal economic zones.
The company was formed with the initial authorised capital of Rs 10 billion. It is mandated to invest only through equity in project-specific SPVs for the development of infrastructure projects that fall under the four pillars of Sagarmala. SDCL can invest up to 49 per cent equity in the project SPVs and the balance has to be contributed by Central/ State Governments/ PSUs/Major Ports or other Government Agencies.
Investments and finances
As of January 2022, the company has invested in five projects with a total investment of Rs 5.42 billion. Of these, four are port connectivity projects and one is a new port development project. SDCL invested Rs 1.25 billion in Krishnapatnam Rail Company Limited (KRCL) and Rs 100 million in India Ports Global Limited (IPGL).
The company has also invested Rs 500 million in Calcutta Haldia Port Road Company Limited, Rs 200 million in Visakhapatnam Port Road Company Limited and Rs 3.37 billion in Haridaspur Paradip Railway Company Limited. Apart from this, nine projects are under active evaluation of being funded by SDCL.
Private sector participation
The private sector has so far played a crucial role in the development of the maritime sector. At present, most of the projects in the maritime sector are being implemented through private sector participation. Further, there is always a push from the government to provide an enabling and conducive investment environment to the private sector, by bringing in more transparency and enabling ease of doing business.
Various initiatives have been undertaken to increase private sector participation in the sector. The revised model concession agreement for public-private participation projects in major ports helps in providing flexibility to cater to the dynamic business environment. Meanwhile, the new dispute redressal institutional mechanism in the form of Society for Affordable Redressal of Disputes-Ports has been constituted jointly by the Indian Private Ports and Terminals Association and the Indian Ports Association. The mechanism will help resolve disputes in a fair and manner while saving a huge amount of legal expenditure and time.
Investment opportunity in the maritime sector
As part of the Maritime India Vision 2030, 963 initiatives have been identified for implementation across major ports with an estimated investment of Rs 6.78 trillion. Of this, a total of 208 initiatives with an estimated investment of Rs 444.25 billion have been completed. Further, 504 initiatives with an estimated investment of Rs 482.56 billion are under implementation.
Key challenges and the road ahead
There are several issues and challenges that the company is faced with. One of the key challenges that the company faces is single product offering, that is, financing of projects through only the SPV framework. Further, SPVs can only be formed with central/state government agencies, which further limits the scope of project implementation. Other issues include land acquisition for connectivity projects, which leads to cost and time overruns, and obtaining of clearances/permissions, which causes delays in project implementation.
