Staying on course

At the Port of Mumbai. The port may have lost its standing in terms of cargo throughput, but the metropolis continues to house the headquarters of almost all the major shipping companies. - SHASHI ASHIWAL

While the Mumbai Port has taken up an expansion programme, the Maharashtra Maritime Board has initiated plans to develop minor ports in order to keep pace with the development of the shipping industry.

MUMBAI is regarded as the commercial capital of the country, but it was its port and the shipping community that actually put the island-city on the road to development. Today, the Port of Mumbai may have lost its standing as a major port in terms of cargo throughput, but the metropolis continues to house the headquarters of almost all the major shipping companies. Also, India's premier container port, the Jawaharlal Nehru Port Trust (JNPT), handles about 60 per cent of the country's container traffic.

In fact, Indian shipping companies like the state-owned Shipping Corporation of India (SCI), Great Eastern Shipping, Mercator Lines, Varun Shipping, Essar Shipping and Shreyasand SKS (Ship) Ltd, witnessed significant development in the last year. Not only did the freight market rule at an unprecedented high before it went through a moderate correction in the last six months, but the introduction of Tonnage Tax (TT) regime in April 2004 gave a boost to Indian tonnage.

The changeover in the tax regime from corporate tax increased the strength of the shipping fleet from 639 ships with a total 6.94 million GRT (gross registered tonnage) by an unprecedented 15.4 per cent in 2004-05, to 686 ships of 8.01 million GRT. In the next four months, the number of vessels went up to 699 to touch 8.07 million GRT, an increase of 1.13 million GRT since the introduction of TT.

Said a senior representative of the Indian National Ship-owners Association (INSA): "The fleet is expected to grow further, with about Rs.625 crores set aside by the shipping companies for ship acquisition under the mandatory provision of transfer to TT reserve. Together with the additional funds that can be leveraged against this by way of bank borrowings, the total commitment for acquisition of ships amounts to about Rs.2,500 crores at the normal mix of 75 per cent debt and 25 per cent equity."

In fact, the Ministry of Shipping has taken a hard stand to ensure that the shipping companies implement the clause that makes it mandatory for them to transfer 20 per cent of their profits to a reserve for ship acquisition. In terms of value addition to the nation's economy, the total incremental GVA (gross value added) from the shipping industry on account of the addition of 1.3 million GRT will result in a value addition of Rs.250 crores to the Indian economy. This is based on the finding of a recent study that with every addition of one GRT to the national tonnage, the GVA to the economy is Rs.2,211. India ranks 19th among countries with the largest cargo-carrying tonnage in terms of DWT. "The outlook for growth of the Indian fleet remains positive and it is expected that India will cross the 10-million GRT mark shortly to figure in the list of top 10 maritime nations," an official of the SCI said.

While 56.6 per cent of the Indian fleet comprises oil tankers, including Very Large Crude Carriers (VLCCs), dry bulk carriers constitute 29.6 per cent, liquefied petroleum gas (LPG) carriers 3 per cent and cellular container ships 1.5 per cent, the average age of the Indian fleet as on date is 17.3 years, as against the world average of 20 years.

There are, however, a few areas that need to be focussed. For one, the share of Indian ships in carrying the country's cargo remains an area of concern. From about 40 per cent in the late 1980s, it declined over the years and touched 15 per cent in 2002-03. While the total volume of India's trade has increased at the rate of 8 to 10 per cent every year, the tonnage has not been able to keep pace with it. In order to restore the earlier participation level of 40 per cent, India needs a national tonnage of 18 million GRT. "As per the age profile of the Indian fleet on January 1, 2005, 42 out of the 82 (51 per cent) dry cargo bulk carriers and 42 out of the 95 (44 per cent) oil tankers are over 20 years old. At current prices, the cost of replacement of these vessels alone would be over $2 billion by 2009," points out Yudhishtir Khatau, managing director of Varun Shipping and president of the INSA.

The industry is also concerned about certain taxation issues. Even as the industry was celebrating the introduction of TT, the 2005 Budget imposed new taxes in the form of fringe benefit tax (FBT) and service tax. The INSA feels that expenses incurred on crew travel and stay, which are substantial in the case of shipping companies and are necessary, should be treated as legitimate business expenses and hence exempted from FBT. It also feels that shipping must be removed from the ambit of service tax.

Despite some fluctuations in freight rates, the outlook for the shipping industry for the current financial year is positive, the INSA feels. First, there was an overall increase of 6.7 per cent in the global shipping trade from 6,133 million tonnes to 6,542 mt. While the tanker freight rates registered new highs as a result of a steep rise in world demand for oil, the dry bulk rates were driven by China's appetite for raw materials.

In order to keep pace with the development of the shipping industry, both the JNPT and the Mumbai Port Trust (MPT) have taken up an expansion programme. While the Maharashtra Maritime Board (MMB) has initiated plans to develop the minor port sector, the JNPT, which recently concluded the concession agreement with Maersk-Concor combine to develop a third container terminal, is already putting together plans to develop a fourth terminal. The MPT is also finalising the bids for development of an offshore container terminal.

With a coastline of 720 km, accounting for 10 per cent of the country's coastline, Maharashtra offers tremendous potential for the development of minor ports. The 48 minor ports in the State handle about 10 per cent of the total cargo handled by the minor ports in the country. There are 185 notified minor ports in the country.

The State's minor ports were controlled by the Central Customs until 1963, the State Public Works Department from 1963 to 1990, and the Water Transport Commissioner from 1990 to 1996. The MMB was constituted in 1996 and today it has 13 members, with an annual income of $6 million. What brightens the prospects for development of minor ports in the State is the hinterland that can generate significant cargoes. The distant hinterland includes Himachal Pradesh, Punjab, Harayana, Rajasthan, western Uttar Pradesh and Delhi on the northern side and Madhya Pradesh and Chhattisgarh on the east. The adjacent hinterland includes the industrial belt of Mumbai, Thane, Roha and parts of Maharashtra. While the cargoes from the distant hinterland are moved in containers, the adjacent hinterland can provide cargoes like iron ore, coal, bauxite and grain.

The board has pieced together a comprehensive port development policy that envisages development on BOOST (Build-Operate-Own-Share-Transfer) basis, with a concession period of 50 years and more than 90 per cent discount on wharfage. The equity participation by the government or the board will be up to 11 per cent and the road linkage to the nearest State highway will be partly funded by the State.

At present, the minor ports that have been taken up for development include Rewas with a 21-berth configuration and estimated investment of $960 million for handling 44.7 million tonnes of cargo. The second port that is being developed is at Dighi, 45 nautical miles south of Mumbai. Here the proposed investment is $131 million for a six-berth facility with a cargo handling capacity of 19 million tonnes.

The potential sites identified for minor port development are Wadhavan, located 60 nautical miles north of Mumbai, and Redi and Vijaydurg, 205 and 150 nautical miles respectively south of Mumbai. These ports will be handling a variety of cargoes, mostly dry bulk and liquid. "The proposed port of Wadhavan will handle containers from and to the northwestern region, while that at Redi will be handling cargoes like iron ore, bauxite, coal and finished products," the MMB official said.