ĎBeing Growth Market, India will Definitely Attract Investmentsí

Rajiv Agarwal
Managing Director and CEO Essar Ports
As port is part of infrastructure development, the sector is riddled with problems arising out of environment, security clearances and land acquisitions. These clearances as well as acquisitions take a lot of time. Time consuming process for land acquisitions and clearances swell the cost of project, says Rajiv Agarwal, Managing Director and CEO of Essar Ports in an exclusive interview with Supriya Oundhakar. Excerpts:

Despite having a vast coastline, China, South Korea, Singapore, Sri Lanka are giving a stiff competition to Indian Ports. Please brief us on the factors leading to dismal growth of Indian ports?
Yes. That is true. Indian Ports are not international hubs like many other countries such as Middle East, Sri Lanka, Singapore or Rotterdam. Our ports are lagging behind these international hubs in terms of container, liquid or on other fronts. These ports have not been competent enough to develop as international hubs on line of Colombo, Singapore or Rotterdam. But, Indian ports are self-sufficient in fulfilling the basic requirements of the country.

Some of the major issues, which are hampering the growth of Indian ports are shallow draughts, poor mechanization and rail road, and hinterland connectivity of port. These factors have led to congestion at ports, which has resulted in long waiting time for loading and unloading of cargo. It leads to long turnaround time for ships.

I think of late initiatives taken by Union Shipping Ministry for PPP projects for modernisation of ports may be a bit slow but definitely itís happening.

Today, investors are facing a lot of problems like land acquisition, environment clearances, regulatory and bureaucratic hurdles for infrastructure development. Due to this, they are not ready to go ahead with the projects. They are withdrawing from Indian markets. Do you see a silver lining in such a scenario?
Yes. I feel these raise a bottleneck. As port is part of infrastructure development, the sector is riddled with problems arising out of environment, security clearances and land acquisitions. These clearances as well as acquisitions take a lot of time. Time consuming process for land acquisitions and clearances swell the cost of project. Subsequently, there is decline in margins of the project. So, private players are not willing to take that risk.

But, I believe that India is a growing market. With the robust rise in demand, economy will revive and India will definitely attract good investments.

The performance of non major ports in cargo handling has been elevating since last few years. Major ports have been showing dismal performance. May we have your comments, please?
I read somewhere that major ports formed 90 per cent of the total capacity some ten years back. Today, they are about 55 per cent and in days to come probably they will reduce by 40 per cent. Major ports have lack of flexibility in meeting the needs of todayís competitive markets. They are not able to match todayís market conditions. In the current market scenario, any business requires a lot of flexibility in meeting the requirements of the clients.

Port is a small but integral part of logistics chain supply. So, the capability and capacity of ports should facilitate the overall efficiency of logistics chain supply. Portsí efficiency plays the key role in determining the overall logistics economy. Itís like a chain as the cargo transported to the port is either loaded or unloaded from a ship and then it moves to its next destination. Deeper draught allows handling of capsize vessel at a port. Proper mechanization of ports ensures smooth movement of cargo. Availability of resources for storage of cargo at port is also one of the factors steering the growth of ports. So, mechanization, deeper draught, turnaround time for a ship enhance port efficiency and capability. Somehow, the non-major ports have been flexible enough to achieve these requirements.

Major ports are controlled by union govt. So, they donít set their own tariff. It is decided by TAMP. So, it is very important that they work efficiently without interference of TAMP. Congenial policies and regulations are dampening the pace of modernisation at major ports.

Recently Union Shipping Ministry has given some sort of authority to major ports to fix their own market-linked tariffs. How will it help to boost foreign investments in the sector?
Well, itís a positive move. They have given some sort of flexibility. On the basis of reference tariff, major ports can fix the tariff up to a ceiling of 15 per cent above that. So, definitely it is a better step than what it was earlier. I think it will push investments in port sector.

PPP model for Gujarat ports under GMB has proved successful. How will it help other Indian ports to escalate performance vis-ŗ-vis Southeast Asian Ports?
Gujarat has an important position on the West Coast of India. Gujarat has a coastline of 1600 kms and being locationally advantaged, it has a very rich hinterland, which has ultimately helped to propel ports development. If you see in Northern Indian markets, Gujarat is the first state, which had ports even before Maharashtra. Due to GMBís proactive and integrated approach, the growth of ports in Gujarat has proliferated under public private partnership model. I think still there is more scope for betterment and definitely they will achieve it.

Please brief us on pros and cons of Revenue Sharing Model in PPP as some experts believe that huge percentage of revenue sharing with the government has led to cancellation of few port projects in the past?
Yes. Thatís true. Due to unrealistic, non-serious bids, some projects never see light of the day, which leads to delay in the whole process. As a result, the project is either shelved or being re-tendered. So, I agree that these high bids wonít help. And at the time of the implementation of the project if the investor realises that it is going to make losses, he neither gets funding of equity nor debt.

Now with deduced competition and more realistic people showing their interest I hope that this phenomenon may not exist further. Whenever the bid is going to open for any project, there is a lot of competition among bidders or developers just to grab the license. But as the industry matures, investors realise that just merely keeping the license wonít help to implement it. I hope in future we will have better bidding and more serious players coming in the sector.

What can be a sustainable model?
Well, itís a combination of various factors. First, while conceiving a project, all the pros and cons of a project should be considered properly. Success of a project depends upon proper estimation of investments, good potential in project and market. Second, allied infrastructure like deep draught, creation of breakwater, hinterland connectivity, and storage area improves the efficiency and capability of a port. Proper infrastructure in place and estimation of project go hand in hand. If the investor is ready to invest in any particular project and proper infrastructure is not developed at that port, then that project never takes off. Third, the quality of bids, bidders, and revenue they share with govt should be realistic.

It could be revenue share or license or combination. At the moment, I feel revenue share model is the sustainable model. But, there are some loopholes, which need to be addressed. While developing terminal or berth at a major port, tariff set up by TAMP is many times unrealistic, which removes the attractiveness of the project.

So, tariff fixation should be free from clutches of TAMP and developers should be given authority to fix their own tariff. I think forces of demand and supply should be the parameter in determination of tariff.

Last but not least is periodical review of revenue share model, because any project, which is conceived in a certain way, can never function with the same parameters for a long period. If the Govt has inflexible approach to change in conditions for productivity of the project, it will not sustain. So, the govt and concessional models should have integrated approach to work cohesively for further progress and development of the project.

As per a report, Essar Ports is in process of opening up to third party business. What are the challenges in getting the third party business? What is the share of the business from group companies? What are the companyís plans to boost third party business?
The biggest challenge we are facing sometimes is approval process with the port authorities. Our ports are getting enough business. The infrastructure developed at our ports is world-class with proper rail, road and hinterland connectivity. Essar ports is attracting a lot of customers. Sometimes, we are not able to handle their cargo for some reasons. But, I think in times to come we are gearing up to see that good portion of our business comes from third party in some of the new projects setting up at Paradip, Vizag, Salaya and Hazira etc.

At the moment, the share of the business from group companies is 98 per cent. We have recently won the right to develop three iron ore berths at Vishakhapatnam.

The project is an existing project, where modernisation has to be done. It has very large portion of third party which will come to our ports.

Please comment on the factors which have led to an outstanding performance of Essar Ports this Quarter Q1 FY14. What is the exact volume of cargo handled in this quarter?
Itís a combination of results like growth, which we have seen in our customersí volumes. We have shown the robust performance in terms of efficiency, turnaround time, and capability to deliver services at the cheapest possible cost.

4.08 million tonnes of cargo handled during the quarter as against 12.65 million tonnes of cargo handled during Q1 FY13 registering a growth of 11 per cent.

What changes would you like to see in Govt policy on port sector?
We feel that there is need to do a few things and one is of course that there should be a more relaxed regime on the tariff front of the major ports. Second, we are expecting that policy for captive ports should be announced. And these ports should be allowed to handle third party cargo so that whatever capacity they are creating is world-class. Third, the land policy and the flexibility of operations at major ports should be there so that decision making is faster and it helps in overall development of the port sector and also helps in success of PPP projects.

What are your plans to augment the port capacity and efficiency in the future?
We have plans to develop about 184 million tonnes of capacity at our ports and we have achieved about only 104 mmpta and by end of this FY we hope to create 127 mmpta. In the next two years, we hope to achieve our targeted capacity.