FDI in Dredging and Port Construction Industry: Correlation with FDI
Prof Dr GYV Victor, Chartered Engineer (UK), Marine Arbitrator & Certified Dredge Master
Secretary General, Eastern Dredging Association (India)
Executive Director & Deputy Chief Executive Officer, Dharti Dredging and Infrastructure Limited, Hyderabad

By introducing 100 per cent Foreign Direct Investment (FDI) in the Dredging and the Port Construction Sector, there was a general notion that the big time foreign players will positively contribute to the developing of the Industry, however such notion was proved to be different from its concept. The article highlights the loopholes that hampered the industry in the past and some of the corrective measures for successfully forthcoming of FDI for the development of marine sector in the country.

The Dredging and Port Construction industry perspective depends on two factors namely - the Government initiatives and the Investor funding approach, although both may appear to be interlinked in reality it is not. As the former initiative is based on the Government Policies, Guidelines keeping in view the Government agenda and Political promises that were made to the citizens of the Nation, unlike the later which is based on the balanced revenue – cost model, wherein the investor will concentrate to have a higher revenue than the cost. Perhaps it is a notion that the investors are driven by Government initiatives, whereas the investors are driven by the demand and supply model to work in the hassle free environment.

Foreign Direct Investment [FDI] is a common concept that the industry is well aware, in early nineties when the globalisation followed the liberalisation formula, most of the developing countries including our country, Republic of India in a calculated careful approach opted for the Foreign Direct Investment and gradually increased the cap limit of the investment to 100 per cent FDI in the Dredging and the Port Construction Sector. By introducing FDI in the Dredging and the Port Construction Sector, there was a general notion that the big time foreign players will positively contribute to the developing Indian Dredging and Port Construction Industry, however such notion was proved to be different from its concept. The Indian Government swung into action to safeguard the budding Indian Dredging and Port Construction Industry that was at the verge of collapse due to the inequality in taxes regime, the vessel capability, equipment strength, manpower requirement and interpretation of the International format of contract documents. Such inequality resulted to be threat as the developing Indian industry is no way and/or close to match the international companies. To avoid such inequality, the Government of India took initiatives to protect the Indian contractors by introducing the Dredging Policy, Dredging Chartering Circulars and Guidelines, Dredging Guidelines, Pre Tender Guidelines and introduction of the Marine Tonnage Tax regime for the Indian Contractor. Notwithstanding the proactive measures undertaken by Government initiatives, the inequality can’t be bridged as the spectrum of equipments, the know-how of the dredging techniques coupled with the modernisation to keep abreast with the development of Science and Technology, the infusion of the sophisticated electronic gadget with continuous adoption of research and development of the international companies can’t be equated to the Indian Dredging and Port Construction industry.

It is evident from the past decade, most of the big volume soft material dredging works were awarded to the international contractors for their competitive prices and for availability of bigger dredgers with higher volume hopper capacity, inspite of the partial protection policy of the Indian companies, introduction of the Marine Tonnage Tax, Purchase Preference Scheme, the Indian Dredging and Port Construction Industry costing appears to be way above the cost of the international contractor. Dredging and Port Construction industry is a very specialised, highly capital intensive investment industry with very slow returns, the highly capital investment equipments requires specially trained seafarers to operate and navigate the dredgers, any downtime or waiting for the new assignment shall certainly make a black hole in the financial books of the contractor. Due to the Demand and Supply mechanism of the Dredging and Port Construction sector, not many investors including the Foreign investors are readily willing to invest in this sector due to the higher magnitude of known and unknown risks, such risk analysis if not conducted regularly for the operational project management of the Dredging and the Port Construction industry shall be the cause to result in the financial breakdown of the company leading to closure of the company. The lack of proper dredge repair complex or yard, availability of the essential spares, availability of the technical competent Engineers are a major setback to the Indian Dredging and Port Construction industry.

Although Dredging and the Port Construction industry is limited, it is imperative without the existence of the Dredging and the Port Construction industry - the Major, Non Major, Minor and other ports shall cease to exist as almost all the ports around the Indian coastline are either artificial ports and or semi artificial ports located at estuarial, riverine, direction of the sedimentation movement zone and or at the confluence zones, wherein dredging is mandatory for the safe navigation of the fully loads vessels in the port areas. If there exists shortage of the dredger capacity and also if the cost of dredging is high due to various other factors of the Indian Dredging and Port Construction industry, the Port may not be in a position to miss the opportunity and or create the plume without undertaking dredging campaign shall result in closure of the port and hence the Employers do exercise their option to invite Global tenders and shortlist the most competitive contractor. It is also an established fact that the international contractors usually deploy higher volume hopper capacity dredgers to be more economical and also to complete the project schedule ahead than planned with smaller capacity of hoppers. Although the international contractor incurs higher mobilisation and demobilisation cost, the early completion of the project is the major factor that contributes to their competitive cost factors with higher profit margins than the Indian contractor who participates with smaller capacity hopper dredgers.

In the light of the above, the pertinent question arises, to have a revisit to understand, are Indian Dredging and Port Construction sector liable for collapse in the wake of the wake of the above arguments placed. It is interesting although the international companies participate for the hard strata dredging ports, maintenance dredging projects, the competitive edge is displayed by the Indian Dredging and Port Construction Sector over their foreign counterparts. The competitive edge and the ruling over their foreign counterparts are mainly due to the long term expertise on the conventional mechanical dredging and the in-house solutions that are much cheaper than their counterparts who depend more on the scientific analysis rather than the ground realities. Inspite of the clear advantage, Indian Dredging and Ports Construction Sector lacks the commercial and legal acumen when compared with their international counterparts that always results in disputes and arbitration that could have otherwise solved by the formation of the mutual Dispute Resolution Board. Other Major sharp contrast between the international and the Indian contractors are the willingness to propose alternative cost effective options to the clients with conviction that may result in win – win situation for both the contractor and the client.

Nonetheless, the Government initiatives lack the coordinated effort to have a long term plan and long vision to sustain the growth of the Port sector. The long term plan or the vision that visualise the usage of the unpolluted means of cheaper transportation and development of the system had been neglected for various reasons. India being one of the most well connected country by rivers, most of these rivers are perennial rivers, the source for irrigation, drinking and at times lashes the fury of nature by flooding with undaunted phenomena due to encroaching of the river beds by urbanization and or due to illegal sand mining.

One of the great poets of Tamil who always strived for the unity of the nation prophesied that river of the north to be interlinked to the rivers of the South that was echoed by then People’s President of India. To develop and sustain the port industry, the development of three pillars i.e. the coastal navigation, the river/inland navigation, interlinking of the rivers are mandatory.

FDI vs FDI [Foreign Direct Investment vs First Develop India] is an apt slogan and mission to ponder upon, it is not too late to develop the three pillars of the port sector for faster evacuation of the goods sustaining our environment, eco systems based on cost effective mode of transportation. It is worthwhile to mention in the west and the developed countries that has almost protected policy for their entire coastline, Dredging and Port construction industry is successful due the development of the three pillars of the port sector that reduces the undue pressure on the roads and railways mode of transportation. On an average, Indian roads transport goods more than they transport the citizens of the country, increasing the wear and tear, congestion, pressure on the roads leading to chocking of most of the vital roadways.

Government initiatives need to be more focussed to develop the inland/river navigation by interlinking the perennial rivers by training them. Inland and/or river navigation to be interfaced with coastal shipping, thereby developing our coastal waterways. Coastal waterways to be infused hub/transhipment ports to have better coordinated evacuation of import cargo from the ports and or loading of the export cargo. The inland waterways, coastal shipping shall generate local employment, reduce the pressure on the rivers thereby reducing the flooding effects, the carbon emission shall be reduced, reducing the environmental impacts on the eco system and finally the cost effective safe mode of transportation shall reduce the pressure on the roadways and railways. Interlinking of rivers will not only boost the post sector prospects but shall also be a vital player for decreasing the flooding effect.

Notwithstanding above, it is interesting to note that any initiative first should address the creation of the resources already available, hence it is very pertinent that the age old dams of our country have to be desilted as from our records there are scantly information with regards to desilting of the dams, water catchment areas and reservoirs. Desilting of the water bodies shall increase the water holding capacity that shall increase the regulated water flow resulting in the increase in underwater table. However one should not fail to appreciate desilting of the water bodies is a herculean task and not easy as to dredge the navigational channels. Secondly training of the rivers is mandatory with proper embankments for regulated flow of the water and for inland navigation. Urbanisation and encroachment of the river view lands should be banned, mangroves plantation should be encouraged on the embankments.

Unless the above Government initiatives are undertaken to ‘First Develop India’ with long term planning and vision to have united nation by interlinking of rivers, desilting the water bodies for regulated flow, training of the rivers fro inland and river navigation to be interfaced to the coastal shipping, the Foreign Direct Investment from the investors shall not be forthcoming for the development of the marine sector.

References:
  1. Daily Shipping Times, Vol. LV No. 63 ( 2014, April 7)
  2. Joseph Fonseca, “Dry Bulk Trade comes out of the gloom” www.maritimeprofession.com (2014, Janauary 29)
  3. Hono. H. (2009) Bulk Shipping Business. Dry Bulk Transport. Nippon Yusen Kabushiki Kaisha Annual Report.30
  4. International Energy Outlook 2010. Highlights (2010, May 25). Retrieved from http://www.eia.doc.gov/aiaf/ieo/highlights.htmal
  5. Statistical Tables: World Bulk carrier market (2009) Shipping Statistics and Market Review Volume 53(4), 21.
  6. Stopford, M (2009) Maritime Economics (3rd ed.) New York: Routledge.
  7. Summary (2010, October), Shipping Insight, 5-6