Challenges and opportunities in the port sector in India
July 2013 | SPECIAL REPORT: Infrastructure & project finance
Financier Worldwide Magazine
India has a coastline of more than 7500 kilometres that is serviced by 13 major ports and 187 notified minor and intermediate ports. Between April and November 2012, ports in India handled 623.05 metric tonnes of cargo, according to a recent study. This reflects an increase of only 2.81 percent from the previous year.
As compared with other ports across the world, the numbers are not encouraging. In the past few years, the government has taken several initiatives to increase its investments by developing new ports, augmenting existing facilities, mechanising ports and improving connectivity and logistics. Despite these government initiatives, India’s port sector has not been comparable with other ports internationally. Several challenges faced by this sector have proved to be disadvantageous to the growth of this sector. Port projects by their very nature have long gestation periods and therefore the developers have difficulty in accessing financing from banks and financial institutions. Lack of easy financing options for port projects is also caused by delays in obtaining government approvals, environmental clearances, as well as compliance with coastal regulations.
Private participation in this sector has been extremely cautious. The financial viability of port projects is a major deterrent for private developers as well as financiers. Greenfield port projects are usually in remote locations and considerable government level support is required to create basic infrastructure for site access. The developers of port projects often need to address the supply of manpower and their housing and infrastructure for habitation. Most of the major ports are overstaffed with unskilled and untrained labour and the development of such ports may suffer due to frequent labour strikes, inefficiency and low labour productivity. State agencies often fail to meet expected timelines for the development of access infrastructure, thereby making the developed port virtually unusable.
Existing ports in India tend to be government owned and controlled. These ports were set up many years ago and need to be upgraded at considerable cost. There have been indications that the design of existing ports is inadequate to meet the current requirements for quick turnaround and handling of increased volumes, causing delays in the feeding and evacuation of cargo and consequently lowering the efficiency and productivity of vessels. Some ports are not designed to cater to large or ultra large vessels, which have to be parked at a distance and cargo fed or evacuated through smaller vessels.
Some of the challenges faced in respect of existing ports include inadequate road networks within the port area, inadequate cargo-handling equipment and machinery, inefficiency due to poor hinterland connectivity through rail, road, highways, coastal shipping and inland waterways, inadequate navigational aids, facilities and IT systems, insufficient dredging capacity, lack of technical expertise and a lack of equipment for handling large volumes. The turnaround time at ports in India therefore remains abysmal.
The government has adopted measures for developing the port sector, which include the introduction of the Maritime Agenda aimed at bringing Indian ports on par with international ports in terms of performance and capacity. Around 352 ports have been identified to be implemented as major ports, and it is expected that the total port capacity will be increased to 3200 million tonnes to handle 2500 million tonnes of cargo by 2020.
The issue of port tariffs has been a cause of concern in the past. To address this issue, the government proposes to set up a single regulator – the Major Ports Regulatory Authority – which will be responsible for formulating guidelines, principles, approach and methodology for setting rates for facilities and services provided at port terminals. This single regulator will be set up once the Ports Regulatory Authority Bill, 2011 is implemented. The Bill also focuses on providing a uniform platform for government owned major ports, as well as state-controlled ports in the country, by giving them the flexibility to fix their own tariffs.
The government has introduced the captive port policy under which the government will allow captive berths at major ports for private companies, to enable them to utilise these facilities exclusively for their own goods. Public-private partnership (PPP) projects that were introduced in the Indian port sector in the late 1990s are expected to be the preferred mode for developing port terminals and other commercially viable activities in the country’s major ports.
In order to encourage investment opportunities in the port sector, the government is presently offering a special tax incentive for investments through a 10 year tax holiday to enterprises that engage in developing, operating or maintaining ports, inland waterways and inland ports. Foreign capital inflow has been permitted by the government through 100 percent FDI under the automatic route for the construction and maintenance of ports and harbours. While the government has introduced several policy measures designed to encourage growth in the port sector, certain policy reforms are needed to accelerate the development of India’s port sector. Such reforms should be aimed at upgrading infrastructure at Indian ports, implementing new land policy for major ports, establishing a port regulator at all ports to monitor and regulate services and technical and performance standards, simplifying the environmental clearance process for port projects, establishing a special purpose vehicle for making investments in ports, developing major new ports, and so on.
The country’s marine sector is intricately linked to economic trade activity. The demand for its ports and trade infrastructure will continue to mount as trade diversifies and grows, making a compelling case for the rapid and efficient expansion of India’s port sector.
Munish Sharma is a partner at Dua Associates. He can be contacted on +91 981 015 8101 or by email: firstname.lastname@example.org.
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