Mumbai: A new private port, billed as India’s deepest, coming up at Gangavaram in Andhra Pradesh will start operations in April next year and has already poached a top customer from the rival Union government-owned Vizag port which is just 15km away.
The move will boost the new port’s ability to win more customers even before it is fully operational.
Gangavaram Port Ltd, a special purpose company floated by D. Venkata Satyanarayana Raju, the former co-founder of India’s fourth largest IT services firm Satyam Computer Services Ltd, has already signed a deal with the state-owned Rashtriya Ispat Nigam Ltd that runs the 3 million tonne (mt) capacity Vizag Steel Plant.
“We have signed a memorandum of understanding with Vizag Steel Plant for their import/export requirements,” said Pranav Choudhary, vice- president (finance), Gangavaram Port Ltd. Officials at Vizag Steel confirmed the decision.
Vizag Steel currently imports about 4mt a year of coking coal, limestone, thermal coal and other such raw materials for its steel plant through the Vizag port. The imports will rise to more than 6mt a year after the steel plant doubles its capacity to 6.3mt by October 2009. Vizag Steel also exports about one lakh tonnes of finished steel products to Sri Lanka, Thailand, Taiwan, the UAE and the US through the Vizag port.
This cargo will shift from Vizag port to Gangavaram port, thus eroding the business of the top ranking Union government-owned port. Vizag port handles the highest volume of cargo among all the 12 government-run ports in India. In the 12 months to March 2007, it handled 56.39mt of cargo out of a total traffic of 463.84mt.
“Gangavaram would be next door neighbour to Vizag Steel. We will build conveyors to take the imported raw materials directly to the plant, thus avoiding dependence on railways for moving the cargo from the port to the plant. This will also help cut the extra time and costs involved in hauling the cargo by rail from port to the plant,” Choudhary said. Because of the high level of mechanization in cargo handling, the port will help customers cut handling costs.
Being a port owned by the state government, the private operator of Gangavaram port is free to fix its own tariffs without consulting a regulator, whereas the rates for the 12 government-owned ports including Vizag are set by the Tariff Authority for Major Ports.
Gangavaram port would thus be able to fix competitive rates to lure customers away from Vizag port.
The new port will have a depth of 21m (the deepest among any Indian ports) and will be capable of handling super capesize vessels of up to 200,000 tonnes, helping users such as Vizag Steel to save on ocean freight costs. Capesize vessels can carry much larger volumes of dry bulk commodities such as steel, iron ore and coal.
“At this depth, Vizag Steel can bring their cargoes on capesize bulk carriers and achieve economies of scale since larger quantities of cargo can be transported at a time. This will lead to cheaper freight costs,” says T.V. Shanbhag, adviser with Mumbai-based shipping company Mercator Lines Ltd.
Vizag Steel currently ships raw materials on handymax carriers (that can load up to 50,000 tonnes) because the depth at Vizag port cannot accommodate bigger vessels. The inner harbour of Vizag port where most of its cargo handling berths are located has a depth of 11m.
Vizag port plans to deepen the inner harbour to 14m to accommodate panamax carriers that can typically carry 73,000-75,000 tonnes of dry bulk commodities. Still, it would be nowhere near the new port in terms of depth.
Gangavaram port is being developed in three phases with a capacity to handle 100mt of cargo when fully operational. The 35mt capacity, phase one development comprises five berths, one each for handling coal and iron ore and three multi-purpose berths for handling other bulk and general cargo.
A consortium of 13 banks led by State Bank of India has lent Rs1,170 crore to Gangavaram Port Ltd for funding the phase one development.
D.V.S Raju, who was also founder-chairman of Hyderabad-based IT services firm VisualSoft Technologies Ltd, has roped in the Dubai-government owned port operator DP World to develop and operate the port for a 30-year period.
Fearing that the development of Gangavaram would harm the prospects of Vizag port, the Union shipping ministry had earlier proposed a joint venture between Vizag port and the private operator of Gangavaram port.
But this was rejected by the previous Andhra Pradesh government headed by N. Chandrababu Naidu.
Naidu’s Telugu Desam Party (TDP) was a key constituent of the then ruling National Democratic Alliance government at the Centre. The NDA government also agreed to transfer about 1,400 acres of land belonging to the state-owned Rashtriya Ispat Nigam Ltd for developing the new port.
Vizag is the industrial nerve centre of Andhra Pradesh and is regarded as the gateway for trade with China and the Asean region.