PFI sees India taking big strides in port development

Mar 28, 2012, 4:59PM EST
Private investment to take a major role in port development

 The second conference of Port Finance International India held again at the same venue in Mumbai turned out to be a roaring success. The number of delegates attending and the sponsors lending support overshot their expectations. This has prompted the London based organization seriously considering setting up shop in India to cash in on the opportunities here and further expand their operations.

Starting off on a positive note at this year’s two-day conference, Capt BVJK Sharma, Joint Managing Director & CEO of JSW Infrastructure Ltd and Member of FICCI National Committee on Infrastructure, projected ‘India’s outlook & Scenario of India’s port sector’ touching upon the strong fundamentals that are certain to continue attracting heavy investments both from within India and abroad. He observed that India’s transformation is going to change the trade pattern not only in India but also in the neighboring countries including Singapore, Sri Lanka and Dubai.He stated, “Indian government has raised the share of private investment in major ports under the build operate and transfer model and has allowed 100% FDI. For Indian ports to serve as drivers of economic growth they need to be competitive.”

L. Radhakrishnan, Chairman of Jawaharlal Nehru Port concurred with his views stating, “Ports have generally catalyzed growth of countries’ economies.90% of India’s trade depends on shipping and hence this calls for cost effectiveness and efficiency. Private participation being permitted in the port sector, as it assures long time benefit, is proving to be an attraction to international players. Connectivity had failed to catch up with port development and that 80% of the JNPT cargo still moved by road and only about 20% by rail.”

Heralding the investment opportunities of this vast and expanding economy key industry speakers highlighted solutions required to ensure a regular flow of port finance across the country. Presentations on the “Challenges and Issues in Financing of ports in India” were made by Sushi Shyamal, and Abhaya Agarwal, Partners of Transaction Advisory Services of Ernst & Young, Rohit Chaturvedi, Head (Transport), CRISIL a subsidiary of A Standard & Poor, Milind Joshi, Senior Investment officer of International Finance Corporation.  

They stressed that private finance investment, accounts for 80% of recent port investments, helping to make up deficient public funds, with banks increasingly playing a lead role in finance deals.

It was pointed out that in the Maritime Agenda the government plans to finance 50% of the $1 trillion required to build infrastructure (8.4% of GDP) including port construction and rail and road connectivity to ports to meet projected supply and demand of 3 billion tonnes of goods by 2020. $60 billion of the $1 trillion is required for port finance investments, the Indian government says over the next five years.


Favorable finance factors such as 100% Foreign Direct Investment (FDI) and income tax breaks over ten years, have been undermined by India’s Tariff Authority of Major Ports (TAMP) whose actions have incensed port Chairmen and operators alike.
Itwas an arbitrary decision in March, when TAMP reduced handling tariffs at AP Moller Maersk box terminal at Cochin by 44% and at DP World’s facilities tariffs at JNPT by 27%. While port users are delighted with lower prices, tariffs at DP World’s Chennai had already dropped by 35% last summer, bringing the economic feasibility of operator business into doubt and fuelling concerns over delays to port investments. APM Terminals had asked for a 14% hike in tariffs.

TAMP’s decision follows delays to the opening of the Port of Singapore Authority’s (PSA) container terminal at JNPT port near Mumbai where revenue share under the concession agreement means the Union government will take an unusually high 51% of all income from the terminal business.That’s if the concession finally goes ahead- the concession has been six years in the making.

Usually the government settles for a 35% share of revenue at port terminals in India. PSA is waiting for the Union government to inform it over the rate of stamp duty it will need to pay. Only then will it decide whether to continue with the investment.

PSA’s dilemma illustrates industry concerns expressed at the conference over the slowness in administrative procedures including concession guidelines and rules, gestation period and environment clearances. India’s ports, run by regional authorities, and which are not subject to tariff regulation are expected to benefit from port finance investments in the coming years.

Consultants in attendance at PFI's India conference provided advice on how to estimate reliable costs and how due diligence practice can help to avoid unwarranted investments. It was also estimated that security costs can now account for as much as 10% of the costs of a green-field port project.

Delays to the approval of Governments’ Port Regulatory Authority (PRA) bill reflect much of the lack of political will from India’s coalition government to introduce reforms. All this is undermining India’s economic growth trajectory some delegates warned.

The PRA aims in part to establish a level playing field in terms of tariffs at both central and regional government-controlled ports - known as major and non-major ports. This has been two years in the making and has still not been implemented.

Speaking about his experience in setting up green field ports AtulKulkarni, Chief Executive Officer of Chowgule Ports & Infrastructure Pvt Ltd., gave some of the distinguishing advantages his port afforded. Based in Ratanagiri district on the South West coast of India and being built on build, own, operate, share and transfer basis the port is scheduled to be commissioned in a month’s time. He informed, “By taking on board the stakeholders including the landowners has helped the port to obtain all the necessary regulatory clearances quickly.”

Speaking on factors and risks which influence port funding in India Asit Sikdar, Vice President of SBI Capital provided some useful tips on the factors that should be taken into account and how these should be structured.

An interesting analysis was provided by Suren Vakil, Managing Director of BMT Consultant India. He explained the reasons for so many infrastructure projects exceeding the budget. These included poor vision, undue focus on details, unrealistic cost estimates, unrealistic time program, optimistic projections, mismanagement of environmental and social issues and failure to factor in proper cost estimates.

Rajeev Sinha, Director of Adani Ports & SEZ Ltd pointed out that out of 276 projects in major ports that had been planned by the government in the past five years only 82 projects had been taken up for construction out of which only 25 have been completed. Now the situation has developed wherein 630 million ton of capacity needs to be developed in the next five years. According to CAGR projection, India will need to build an additional 1715 million ton capacity in 2016-17 and 2260 million ton capacity by 2020.

 

 
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