Making waves

Published : Apr 09, 2004 00:00 IST

The port sector has received a major boost with the thrust towards the privatisation of services and ownership, and this is particularly evident in the case of container service.

IN India, a country with a tradition of socialist planning, any privatisation programme has been viewed with scepticism. About a decade ago, when asked about the progress his port had made with regard to privatisation, the chairman of a port replied: "A lot. I've privatised catering and laundry services in the port's guest house as well as security management and transport operations." And he was all serious.

Over the years, however, the situation has changed vastly. The port sector has witnessed the privatisation of not only services but of ownership as well. At several ports, berths built by State-owned ports have been leased out to private parties, particularly for container handling - the NSICT (Nhava Sheva International Container Terminal) is operated by P&O (Pacific and Orient) Ports at the Jawaharlal Nehru Port Trust (JNPT), the Chennai Container Terminal Ltd. (CCTL) is run by P&O Ports at the Chennai port, PSA Corporation of Singapore runs a terminal at the Tuticorin Port Trust, and the Visakha Container Terminal Private Ltd is jointly developed by the United Liner Agencies and the Dubai Ports International at the Visakhapatnam port (The Maersk-Concor consortium, which is set to get the contract for development and operation of the third terminal at JNPT, will soon join the list).

Private firms have acquired on lease land at some ports and built berths - L&T at Haldia, ABG and Jindal at Goa, Sica's coal handling facility at Ennore (Chennai) and Gammon India's berths EQ8 and EQ9 in the Inner Harbour at Visakhapatnam. Also, some ports have been developed as greenfield projects by private firms (Mundra and Pipavav) in partnership with the State government agencies concerned. The Ennore port, developed by the Chennai Port Trust, was corporatised subsequently.

Yet, it will be too much to claim that privatisation has gathered pace in the sector. According to one report, of the 38 proposed privatisation projects, only 17 have been approved and committed. Of these, 10 reached the bidding stage, of which eight have been completed. However, it is interesting to note that the pace of containerisation has far exceeded that of that of privatisation. The containerisation of cargo business has been growing at an annual rate of 12.5 per cent. Apart from value-added items such as textiles, garments and leather goods, even low-value cargoes such as foodgrains and sugar, which had been moved by break-bulk ships, are now exported in containers. Alumina and aluminium ingots are transported in containers from Visakhapatnam and Paradip. This is because India today has world-class container terminals in the private sector. This has helped the state-owned ports to step up their levels of efficiency and productivity to become more competitive.

According to one estimate, the volume of traffic projected to be handled by major and minor ports together will steadily increase to 880 million tonnes in 2011-12, to 1,115 mt in 2016-17 and further to 1,373 mt in 2021-22. More important, the share of the minor ports (ports not governed by the provisions of the Major Port Trusts Act) will steadily rise from around 30 per cent to 60 per cent. Since the minor ports will be by and large owned and operated by the private sector, the bulk of capital investment for port development therefore has to come from the private sector. According to one estimate, by 2021-22 the port sector alone will require an estimated investment of Rs.100,000 crores.

There are several reasons why the privatisation of ports has progressed slowly. First, the policy-makers were not convinced that by shifting assets from government control to private ownership, economic efficiencies could be unleashed and, not incidentally, large sums of money could be raised for state coffers. The initial momentum could not be sustained. The slowdown was caused by various factors such as a weak capital market, growing investor scepticism and questions about what really constituted privatisation. The government policies in this regard took a long time to crystallise.

When the government finally unveiled its measures to attract private investment in the port sector, everyone sat up and took notice. While granting concessions appeared to be the preferred means to attract private participation, it was also felt that by laying down conditions without boundaries the government was embarking on what might be called unconstrained optimisation. As there is an element of risk in any venture and the government's policy is aimed at reducing the risk of the private partner, when the risk of one got reduced that of another (in this case the port trust) increased. While no one questioned the rationale of extending a certain margin of comfort to private entrepreneurs keen on investment in port projects, everyone was equally keen that such an extension also generated competition, yielding benefits for all concerned.

Two other issues that attracted attention were bifurcation of the port sector into major and minor ports and the appointment of a regulatory authority - the Tariff Authority for Major Ports (TAMP). Several experts feel that bifurcation should be abandoned in the larger national interest and that with market forces gaining momentum, the regulatory body would be rendered redundant. At present, of the 184 non-major ports, only 50 are functional.

However, certain measures announced by the government in recent years are expected to yield results. Following the recommendations of the World Bank, the Asian Development Bank and various expert groups, the government has initiated moves to professionalise port management. For example, earlier the posts of Chairman and Deputy Chairman were reserved for officers of the Indian Administrative Service. Not any more. The government has also restructured the boards of trustees of the major ports in order to introduce some amount of professionalism into the working of the port trusts. Another factor that used to militate against privatisation was the rigid rules and regulations. The government has now delegated a good deal of authority to the Chairman and the Board of Trustees. Major state-owned ports can now compete with private operators by charging reduced rates and by offering higher rebates and discounts than those approved by TAMP. The objective is to remove red-tapism. The private ports, because of their flexibility in operations, are in a better position to negotiate and therefore attract traffic. Port privatisation has become all the more important at a time when infrastructure bottlenecks have prevented several ports from reaching the targeted throughputs. Until November, seven out of the13 major ports failed to achieve the targeted throughputs.

The Rs.100,000-crore Sagar Mala project would perhaps bring about revolutionary changes in the country's port sector as for the first time an integrated view is being taken with regard to the development of port, shipping, coastal shipping, inland water transportation, dredging and even institution-building through the participation of universities and other institutions. The bulk of the amount for the project is proposed to be generated by way of private funding. There is a proposal to create national sea waterways on the lines of national highways and national inland waterways. Various State governments have started to identify projects suited for implementation under the Sagar Mala scheme.

But privatisation alone will not be enough. There is a need to take an integrated view of infrastructure development and a real need to invest heavily in rail and road facilities in order to facilitate easy evacuation of cargoes. While private participation in road projects has been allowed since the implementation of the National Highway Development Programme, private funding of rail projects is yet to make much headway.

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