Expansion Course: Policy changes drive growth in the sector

Policy changes drive growth in the sector

Port traffic has witnessed fast-paced recovery from the pandemic and has been on an uptrend. A number of policies and reform measures have been introduced to attract greater private investments into the sector. The launch of the Gati Shakti initiative is expected to be a game changer for the maritime sector. Besides, the pandemic has paved the way for greater digitalisation of operations and the emergence of smart ports. Indian Infrastructure presents the views of leading experts on the progress in the port sector, recent initiatives and the future outlook…



What has been the progress in the ports sector in the past one year?

Rajiv Agarwal, Operating Partner,Infrastructure, Essar and Managing Director, Essar Ports

Rajiv Agarwal

The Indian port sector has been performing remarkably and keeping up with the re­qu­irements of the industry and trade. The year 2021-22 saw the sector handling 1,320 million metric tonnes (mmt) of traffic with a growth of more than 5.5 per cent. The handling has surpassed the 2019-20 levels and hence, we have surpassed the pre-Co­vid levels. In terms of share, major ports ha­ve handled about 54 per cent of cargo tra­ffic, while non-major ports handled about 46 per cent in 2020-21.

Devdatta Bose*, Marketing and Business Strategy Head (Ports and Maritime) Sector Specialist, Tata Consulting Engineers Limited

Devdatta Bose*

During 2021-22, both major and non-major ports in India handled about 720.29 million tonnes (mt) and 599 mt of cargo traffic, res­pectively. Non-major ports accounted for 45 per cent of the total cargo traffic, indicating a significant shift in traffic from major ports to non-major ports. The current cargo handling ca­pacity of ports (major and non-major) is 2,406 mtpa. As per the Sagarmala program­me, cargo traffic projections for ports are ex­pec­ted to be about 2,500 mtpa by 2025. Hen­ce, a roadmap has been prepared for increa­sing the capacity of Indian ports to more than 3,300 mtpa by 2025 to cater to the growing traffic. There are 206 port-modernisation pro­jects worth Rs 786.11 billion. Of these, 81 pro­jects worth Rs 24.11 billion have been com­pleted and 59 projects worth Rs 2.42 billion are being implemented.

What has been the impact of the key initiatives undertaken by the government?

Rajiv Agarwal

Port infrastructure investments, particularly, have a significant influence on a country’s GDP and competitiveness. The government has been playing a significant role in boosting the maritime sector and has taken several measures to promote the efficiency of ports through various policy initiatives. A few of the notable ones are:

  • The launch of the Maritime India Vision 2030 to accelerate growth of the Indian maritime se­c­tor over the next decade.
  •  The launch of the National Infrastructure Pi­pe­line to propel India to become a $5 trillion economy and towards “Atmanirbhar Bharat.”
  • Enacting the Major Ports Act, 2021, to en­ab­le flexibility, self-governance and swiftness in decision-making.
  • l Release of Tariff Guidelines, 2021 in December 2021, which enable tariff flexibility for new projects to be bid.
  • l Launching model concession agreement (MCA) 2021 for new port projects in major ports.
  • l Undertaking public-private partnership (PPP)  projects on existing assets, which will unlock value and boost efficiency.

PM Gati Shakti – the national masterplan for multimodal connectivity – has pa­v­­ed the way for the holistic development of infrastructure in India and will ensure lo­gis­tics and manufacturing ex­cellence. The­se efforts are likely to catalyse ra­pid transformation of India in becoming a global manufacturing hub.

“PM Gati Shakti has paved the way for holistic development of infrastructure in India and will ensure logistics and manufacturing excellence.” Rajiv Agarwal

Devdatta Bose*

The government has allowed foreign direct in­vestment (FDI) of up to 100 per cent under the automatic route for projects related to the construction and maintenance of ports and harbours. The government has also passed the Major Port Authorities Bill, 2022, which aims to decentralise decision-making and reinforce excellence in major ports’ governance. It has also initiated the National Maritime Develop­me­nt Programme, an initiative to develop the maritime sector, with a planned outlay of $11.8 billion. Further, the special economic zone policy is being revised and replaced by the proposed Development of Enterprises and Service Hubs Bill, 2022. The proposed bill aims to capitalise on global growth opportunities while de­veloping its own highly competitive manufacturing and service base. The present competitive manufacturing climate will undergo a paradigm shift. In order to make port projects more investor friendly and the investment climate in the major ports sector more attractive, a revis­ed MCA for PPP projects in major ports has been approved.

What are some of the key emerging trends in the area of digitalisation?

Rajiv Agarwal

The pandemic has changed and revolutionised the way industry operates. It has paved the way for smart and digital ports of the future with advancements such as hybrid working models, Automation, renewable energy, artificial intelligence, internet of things, drone technology, se­am­less connectivity, blockchain technology and much more. Vessel traffic management sy­s­tems with real-time information sharing and visibility are now becoming essentials of day-to-day activities.

We, at Essar, have been investing extensi­vely in developing and building state-of-the-art mechanised terminals that give our customers a competitive edge. Our terminals across India comprise state-of-the-art IT systems supplemented with vessel traffic system, ensuring round-the-clock availability and visibility. The firefighting and dust-suppression systems (including cold fog systems) not only minimise pollution but also ensure environment-friendly cargo handling, with a strong focus on environmental, social, and governance concerns. In­vestments are being undertaken in data analytics and systems, which will further improve operational efficiency.

What are the sector’s key challenges that remain unaddressed?

Rajiv Agarwal

The logistics sector has an indispensable role to play in nation-building. However, there are certain factors, that industry players need to work on, to stay ahead of competition such as in­c­reasing operational efficiency through me­cha­nisation of non-mechanised terminals, re­du­cing pre-berthing delays and improving turnaround time. Technology and digitalisation will play a key role in this.

There is also a need to develop deeper dra­ft at existing and new ports to accommodate larger-size vessels. Developing multimodal eva­cu­ation facilities at existing port terminal facilities, with a key focus on developing a comprehensive rail/road connectivity, is needed as it will reduce congestion considerably.

Additionally, the sector requires low-cost financing to fund projects in view of the slow cargo build-up and long gestation period. Simi­lar to low-cost financing for debt and equity th­at the government enjoys, funds and low-cost instruments should be opened for the private sector, in view of the need for private sector par­ticipation with the NIP, which is going to play a key role in the time to come.

The sector needs renewed interest of private players. It is the need of the hour that their challenges are looked at and existing PPP projects are supported and their concerns are ad­dressed. Tariff flexibility for old concessions in major ports (under different tariff regimes) is one area that private terminals are looking at. It will put old concessions on an equal footing with new concessions in major ports and non-major ports. Mechanisms are needed to en­able flexibility in long-term concessions to cope with the evolving market dynamics and other risks impacting projects and operations.

“To make port projects more investor friendly and the investment climate more attractive, a revised MCA
has been approved for PPP projects in major ports.” Devdatta Bose*

Devdatta Bose*

Some provisions need immediate focus from the bankability point of view and for making projects more attractive. If a concessionaire wants to finance a project through intercorporate loans, it will not be covered under the termination payment.

Similarly, adopting the royalty model again with an annual escalation by 100 per cent of the wholesale price index is going to hurt concessionaires badly, given the higher inflation ra­tes that the economy is experiencing at present. This must be reviewed and we can possibly go back to the revenue sharing model based on the net income rather than the gross income.

Besides, royalty payment is now linked to the minimum cargo guarantee (MCG) and the concessionaire will have to pay for its shortfall. In view of this, the requirement of paying for any shortfall was dispensed with in the earlier MCAs in the revenue sharing model. It is, the­re­fore, requested that payment for shortfall in the MGC may be reviewed. Further, the conce­ssio­naire is only able to mortgage/ple­dge/ hypo­thecate tho­se goods/assets that are not project assets.

By deducting the insurance cover, from the debt due, the compensation payable can be­co­me negative. The intention seems to be to de­duct the insurance claims admitted and paid, but the wording in the new MCA is not ref­lective of the same.

Further, the MCA may have a provision to appoint an independent consultant/engineer, to be jointly appointed and engaged every five years during the tenure of the PPP project, to review the conditions so that the benefits/risks can be shared by both the concessionaire and the concessioning authority during the tenure of the agreement. Thus, there is a need for an independent assessment to ascertain the payable amount.

What is the sector outlook for the next one to two years?

Rajiv Agarwal

Despite the dip in the total traffic handled in 2020-21, India’s port sector handled cargo in excess of 1,318 mmt in 2021-22, which is an all-time high for the industry. The growth has continued in 2022-23. There has also been an uptick at Essar Ports’ facilities this year.

India’s EXIM trade has witnessed a steady growth and continues to indicate an upward trend. With the current geopolitical situations and external factors such as Russia-Ukraine war, debt crisis of countries, high inflationary pr­e­ssures, risk of world currencies, etc., the In­­dian manufacturing and services sector is well poised to fill the growing gap, positioning India as the alternative and a region to depe­nd with stability and good infrastructure.

As India charts its way to a $5 trillion economy and more, with a focus on the manufacturing and services sectors, it is expected that there will be a huge demand for cost-effective logistics in the country. The Indian EXIM trade is bound to grow by leaps and bound in the current context. I believe this will need a three-pronged strategy, that is, effective utilisation of the existing infrastructure, multimodal evacuations with hinterland connectivity and a steady increase in capacities to facilitate the growing demands of the economy. Overall, it looks like the next few years will be a mix of opportunities and challenges.

Devdatta Bose*

The sector is going to witness competition bet­ween the cargo-contributing and non-cargo-contributing port operators. The operational efficiency of ports will be the differentiating factor that will attract a cargo shift.  Non-major po­rts are likely to handle equal or more traffic in the coming financial years. The PPP model for port infrastructure development will requ­ire a hu­ge capex, so new initial public offerings are ex­pe­cted in the ports and logistics sector.

The Ministry of Shipping may put a special focus on having dedicated berths for Indian tra­ns­shipment cargo in ports of neighbouring co­un­tries where deep water is available for calling mainline vessels. Indian transshipment loss is Rs 50 billion per year. Capacity addition at ma­jor ports is to be done based on traffic maturity with a clear window for non-conflicting activity. So, prior to calling of PPP projects, a thorough due diligence of the port and its hinterland is required. There is a need for maritime clusters for driving port traffic. Maritime clusters would offer the capability to develop an industrial belt closer to port premises and to leverage the logistics cost advantage. w

* Mr Devdatta Bose’s responses have been co-authored by SherinShihabudeen, Manager, Ports & Harbour, Tata Consulting Engineers Limited