The Indian maritime sector is witnessing rapid expansion, with plans to increase port capacity to 10,000 million tonnes by 2047. This growth has increased the demand for dredging. However, despite the signing of new contracts, dredging projects continue to face execution delays and cost overruns. At a recent conference on “Dredging in India”, industry experts discussed the current sector landscape and challenges, company strategies and future plans. Edited excerpts…
What has been your experience in the dredging sector so far?
Harsharan Singh Dharni
Rock and Reef Dredging was established in 2006 with only one dredger and a vision to be engaged in capital dredging. Since then, the company has expanded significantly. It owns 10 dredgers at present, among other ancillary equipment.
Capital dredging is relatively more expensive than maintenance dredging. For this, geotechnical and soil investigations are crucial. Our company undertakes around 80 per cent of capital dredging while the remaining 20 per cent is part of maintenance dredging contracts.
Sanjeev Kumar
The dredging sector currently lacks proper manpower and training. A variety of machinery and equipment is required to execute projects effectively. A critical prerequisite is comprehensive soil investigation; without it, mobilising the right dredgers becomes challenging, resulting in increased costs. This ultimately leads to significant cost and time overruns.
Kaushik Nandi
Overall, ITD Cementation India has focused on the development of port infrastructure as a whole. Of the 10-12 projects that are currently being executed, around three include dredging in their scope of work.
Rajendra Ranjane
From my experience in the dredging industry, one key area of focus has been soil investigation for dredging projects. Although the cost of soil investigation in dredging typically accounts for 1-2 per cent of the total project cost, inadequate soil investigation data can increase project costs by 43-52 per cent. Given how significant this impact can be, comprehensive and accurate site data collection is crucial.
As per the British Standard 6349, 1991 code of practice, the geology of coastal areas is invariably complex. The apparent economic savings from inadequate ground investigations are often outweighed by the increased costs due to project disruptions caused by unforeseen ground conditions.
Ameya Pratap Singh
A new entrant in the market, Dharti Dredging currently has three orders from the Inland Waterways Authority of India. These projects include dredging operations at the Kalughat terminal and two packages between Digha in Bihar and Ghazipur in Uttar Pradesh, covering stretches that span around 250 km in total.
The company has also diversified its portfolio to include a dam desilting project in Kerala and a flood prevention initiative on the Kosi river in Bihar. Currently, the company is working to expand the scope of its dredging operations. For this, they are actively exploring inland dredging in flood prevention cases. Some contracts now cover desilting activities, with the option to sell the extracted sand, opening up a new revenue source. Research and development efforts are currently under way.
What are some of the challenges being faced?
Harsharan Singh Dharni
A key challenge is the extent to which a contractor is required to assume responsibility for every aspect of the contract. This includes using new technology, or even improving existing dredging equipment. Furthermore, in order to achieve success as a contractor, there is a need to deploy a variety of machinery and equipment, including backhoes, trailing suction hopper dredgers (TSHDs) and cutter suction dredgers.
Soil investigation is crucial. Its absence may delay project timelines and lead to cost escalations. If a dredger needs to be changed at the last minute, the contract may even be aborted. To avoid such situations, many contractors now hire project management consultants (PMCs) to conduct soil investigations.
Sanjeev Kumar
On the equipment front, technology advancements and the development of more efficient dredgers can reduce operational costs. However, domestic contractors frequently express concerns regarding the extended delivery timelines for spare parts and equipment.
The procurement of dredgers and spare parts from overseas is necessary due to the lack of indigenous manufacturing capabilities. Geopolitical issues may also hinder the supply chain and costs.
In addition, for Indian-owned dredgers, conducting business abroad is another challenge due to the ambiguity in procedures and timelines for getting the necessary permissions, such as guaranteed remittance waiver from the RBI, which is essential for exporting equipment while meeting project timelines.
Furthermore, it has been observed of late that dredging contractors are offering substantial discounts as high as 30-40 per cent, raising concerns about potential compromises on project quality and timelines. A proper technical and commercial evaluation must be conducted before awarding contracts.
Kaushik Nandi
The main contractors are often forced to bear the risks themselves, despite their lack of knowledge about specific dredging-related challenges, such as changes in soil conditions and environmental variations. When a main contractor appoints a subcontractor to conduct dredging operations, the risks are not borne by the subcontractor or the client; rather, the primary contractor is held accountable, as per the contractual agreement, even if it lacks specific technical expertise. This creates an uneven playing field.
Project timelines present another challenge. Dredging activities typically account for only 10-20 per cent of the total project cost. However, other construction activities cannot proceed until dredging is completed. This is particularly challenging as even large projects costing Rs 30 billion-Rs 40 billion have a tight completion timeline of two-and-a-half to three years. For these large-scale projects, international dredging companies are often required, as local dredging companies may lack the capacity for capital dredging of this scale. Bringing foreign dredging companies on board typically takes about three months due to security clearances and other statutory approvals, leading to more delays.
Furthermore, if the contract is awarded in February or March of a particular year, the onboarding of dredgers coincides with the onset of the monsoon season, which further delays progress. When setting project timelines, it is important to consider such constraints. Ideally, dredging for projects on the west coast should start in October and conclude by April, also to avoid sedimentation during the monsoon, which can result in further losses.
Rajendra Ranjane
From a contractor perspective, some of the key risks include cost and time overruns, financial losses, disputes and claims, substandard production, compromised quality, incomplete projects and diminished confidence in carrying out dredging operations. Other key uncertainties include unreliable data, inaccurate and unsafe designs, flawed methodologies, unsafe dredging operations and incomplete scope of work.
When soil investigation is not conducted thoroughly, the selection of suitable equipment becomes a problem. Major issues that may arise include inaccurate cost and production estimates, environmental adversities, pricing issues and statutory non-compliance.
Ameya Pratap Singh
The sector has witnessed a steady decline in estimates and price points for dredging rates per cubic metre. This downward trend is largely due to an influx of new competitors entering the market, despite a lack of growth in opportunities. This year has been somewhat of an exception, with an increase in new contracts, particularly including the Vadhavan port project.
The sector continues to grapple with an unfavourable risk-to-return ratio. Despite the recent influx of new contracts, the sector remains largely stagnant. A notable trend is the dominance of large international companies in securing major contracts, while domestic players are confined to smaller-scale projects.
What progress has been made in terms of contract standardisation?
Harsharan Singh Dharni
Many ports are implementing FIDIC contracts to reduce costs. However, increased siltation between project planning and execution can lead to cost escalations and require additional dredging. Furthermore, in some situations, the contract value is determined by PMCs. For capital dredging contracts, a fixed-price model may be suboptimal due to the variable costs associated with different strata encountered during dredging.
Sanjeev Kumar
In this context, one theory is that if contractors are engaged in the preliminary study phase, the project can yield better outcomes. For instance, in some Middle Eastern projects, partnerships between contractors during the conceptual stage yielded superior project performance. However, it is important to note that the feasibility of this approach depends on the scale of the project. While it is practicable for large-scale projects, the economic viability must be carefully evaluated for smaller-scale projects.
Kaushik Nandi
The majority of companies involved in capital dredging are international firms. These large companies often hesitate to enter into joint ventures with Indian companies and assume full responsibility for a project. Consequently, they are engaged as subcontractors, shifting various responsibilities to the main contractor.
This arrangement presents challenges to main contractors due to soil deviations, unacceptable payment terms, or delays in fund mobilisation. The potential for losing the entire contract and cash flow issues create a high-pressure operational environment for the main contractors. To alleviate the financial burden on contractors, the current practice of requiring contractors to manage soil or environmental changes without the client’s support should be reconsidered. Regarding the standardisation of contracts, it is important to acknowledge that each project presents a unique scope of work, risk profile and contractual framework.
The recently issued dredging guidelines aim to help contractors navigate these complexities. However, at present, their tangible benefits have yet to be fully realised.
Rajendra Ranjane
In terms of contract standardisation, the dredging guidelines issued in 2021 appear to be a great effort to streamline processes. However, these guidelines have not yet been fully implemented. The Sagar Samriddhi application is a welcome move, but has not achieved widespread adoption. For the past 10 years, there has not been much improvement in contracts. The incorporation of impractical and complex special conditions needs to be avoided while using the standard FIDIC contracts to ensure smoother and less complicated execution.
Ameya Pratap Singh
A key contractual issue is the differing perspectives on challenges faced during contract execution. For instance, under one contract, a variation was to be granted if rocks were encountered. However, the contractor and the employer did not agree on what constitutes a rock as opposed to hard strata. Hence, establishing clear definitions for such issues is imperative.
What are some of the key future focus areas? What are the key industry requirements?
Harsharan Singh Dharni
Current contracts often have impractical and complex conditions, which make compliance challenging. There is room for improvement in contract provisions to create more contractor-friendly terms.
Sanjeev Kumar
To address the issue of low participation in maintenance dredging operations, it is imperative to award long-term tenders with durations exceeding 15-20 years. For short-term contracts, contractors face challenges in generating adequate internal rates of return due to the high cost of procuring equipment and the uncertainty associated with securing bids.
Kaushik Nandi
Local equipment manufacturing may prove highly beneficial to the industry as the increased availability of dredging equipment and spares has the potential to significantly improve operational efficiency. Going forward, international companies should also consider having Indian flag dredgers to improve timelines for undertaking major dredging projects.
Rajendra Ranjane
In India, the soil investigation process, typically initiated by employers, often lacks involvement from PMCs, leading to suboptimal assessment of data and inferences and posing execution challenges.
To address this issue, experienced PMCs must be appointed for comprehensive soil investigations. Additionally, it would be beneficial to consolidate data from diverse investigative sources into a centralised repository to draw correlations and compatibility assessments between various data sets, enabling more informed decision-making processes.
Ameya Pratap Singh
If the market is categorised into various segments, the capex ratio for each project is different. The Indian market has struggled to penetrate the TSHD segment due to high maintenance and capital costs. Therefore, financing should be made available for contractors dealing with these types of contracts. Much of this challenge can be mitigated by focusing on local manufacturing.