Tuesday, 15 January 2013

Headwinds threaten Indian port expansion

Port expansion plans in the county seem to be running into trouble in a little more than a year after the PPP model was rolled out. Amidst controversy, the award of the fourth container terminal at Jawaharlal Nehru Port (JNP) has been cancelled. The 1.5 million TEU and Rs 14,000 Ennore container terminal project has also run into headwinds, media reports warn, with the consortium that had won the contract backing out. Adding to these developments are concerns being raised over whether the new container terminal at Chennai is viable, given that a competing L&T built container terminal- at Katupalli near Ennore- is ready to be commissioned.

Singapore government owned Port Singapore Authority (PSA) had been awarded the Rs 6,700 crore JNP contract and London’s Erdene Capital were the successful bidders for Ennore. This was after the Bay of Bengal Container Terminal consortium was forced to pull out in October last year after it failed to finalise finances for the project.

Opinion remains divided on the financial models behind Ennore and Chennai. These port expansion plans were heralded as a game changer for Indian ports when they were announced. However, analysts now say that the profit sharing model- with massive percentage of revenue promised to the port by the bidders- is deeply flawed and makes these projects unviable; JNP had been offered 50 per cent and Ennore close to 40 by the successful bidders.

Some experts quoted in the Hindu Business Line feel that such projects, instead of being awarded on a maximum revenue-to-port basis, should be “awarded to the bidder who promises to charge the lowest tariff”. Others say that tariffs should be fixed, that India should not allow concessions to foreign entities and that faulty principles guiding the fixation of tariffs is really to blame, especially when they are applied for as long as the full 30 year life of such projects. Policy makers must realise that an over-regulated system drastically inhibits investment in ports and benefits neither consumers nor shipping lines, the Hindu warns.

Meanwhile, port officials at Ennore are putting on a brave face, saying that there is enough business for its container terminal even if the port has competing terminals- at Chennai and L&T Kattupalli- in the near vicinity. Chairman of Ennore Port M.A. Bhaskarchar says that containerised cargo is set to increase across the country, and therefore prospects for Ennore remain unchanged.

Industry observers warn, however, that there may well be medium term overcapacity issues, and analysts are closely watching developments at Chennai, where Essar Ports, the single bidder, has offered a low 5.25 per cent as revenue share to the port. It is believed that the port trust is re-examining this offer and seeking a higher revenue share agreement.

In the face of these developments, Ennore Port is rethinking its original plans for a 1 km long berth, which officials say may be now built in stages. With the global situation not conducive, we need to ascertain the viability of having a 1 km length berth,” a port official says.

No comments:

Post a Comment