Bangalore: Soaring costs of dredging are not just pinching development projects at Indian ports, they are now threatening to hit the already high ship-calling costs.
Indian ports accumulate silt quickly and require dredging through the year to maintain depth in the channels and at the cargo handling berths. The ports also have to dredge to deepen the channels and berths so they can accommodate bigger vessels.
Currently, the big ships, because of depth restrictions at Indian ports, have to route their cargo through neighbouring ports, such as Colombo, Singapore and Dubai.
Costly proposition: An aerial view of containers being offloaded at Jawaharlal Nehru Port. The country’s biggest container handling port is awaiting clearance to deepen its channel so that bigger ships can call. (Photo: Ashesh Shah/Mint)
But, unlike in other maritime nations, none of these dredging costs are borne by the government. So, both state-owned and private ports recover the dredging costs from ships coming to load or unload cargo by levying what are known as ship-calling fees.
“It is (already) 50% more expensive to bring a vessel to Indian ports than to Jebel Ali in Dubai, Singapore and Colombo,” said Ganesh Raj, senior vice-president and managing director, sub-continent, at DP World, the world’s fourth-biggest container port operator owned by the Dubai government.
Currently, dredging costs about $2.5-3 per cu. m for maintenance and $5-6 per cu. m for capital dredging, according to an executive with the state-owned Dredging Corp. of India Ltd, or DCI, the country’s biggest dredging firm by fleet size and revenues. He did not want to be identified.
In an interesting development, dredging costs have been pushed up by a spurt in port expansion projects globally, as well as the offshore construction-related, land reclamation works in the Gulf region.
“The dredging costs are enormous. It has gone up by about 75% in the last two years,” said Philip Littlejohn, managing director of Gujarat Pipavav Port Ltd, which runs the private port in Gujarat. “This is really going to affect port development projects in India and elsewhere.”
Already, the Union government-owned Jawaharlal Nehru Port, India’s biggest container handling port at Navi Mumbai, is struggling to get the shipping ministry’s approval to deepen its channel to 14m from 12.5m to enable bigger container ships to call.
Dutch dredging firm Van Oord Dredging and Marine Contracting Co. NV, one of the world’s top dredging firms, had submitted the lowest quotation of Rs970 crore for the long-pending channel deepening contract in April last year. JN Port had estimated that the work would cost about Rs800 crore, though this projection was made before the market firmed up.
Van Oord has now written to JN Port seeking a correction to reflect the prevailing rupee-euro exchange rate whenever the contract is awarded, a company official said.
The shipping ministry estimates a cost of Rs55,401 crore to augment cargo handling facilities at the 12 major Union government-owned ports to 1,016 million tonnes (mt) by 2012, from 519 mt today. These include an investment of Rs6,304 crore to deepen the channel and berths over the next three-five years.
An additional Rs35,933 crore would be needed to build new ports outside the Union government’s control to handle 1,087mt of cargo by 2012 from 228mt now. The estimate includes more than Rs10,000 crore for dredging alone. “These estimates will have to be reworked now because of the rise in dredging costs,” said Littlejohn.
The spurt in expansion projects the world over has also led to a global shortage of cutter suction dredgers which, in turn, will further delay port development projects.
“The worldwide demand for dredging capacity surpasses supply by a very high percentage,” said Bert Groothuizen, marketing head at Van Oord. “It is difficult to secure dredging capacity as the available capacity is fully occupied,” he said during a recent visit to India.
Private firms setting up new ports are the worst hit as dredging costs typically account for about 30% of the total cost.
Reliance Industries Ltd, owned by billionaire Mukesh Ambani, is building the country’s biggest private port at Rewas, 10km south of the JN Port in Maharashtra. But, the rising dredging costs and shortage of dredgers have hit the company’s plan to float a global tender for a Rs1,800 crore dredging contract, the biggest ever in India.
To put it in perspective, dredging required for the Reliance port would be much bigger than dredging for the controversial Sethusamudram ship channel project, which involves creating a ship channel across the Palk Straits between India and Sri Lanka.
Experts have thrown up several suggestions to tackle the situation. In a report submitted last year, an inter-ministerial group headed by the then shipping secretary A.K. Mohapatra recommended the government bear the cost of dredging at its 12 major ports.
“This will ensure that Indian ports are competitive compared with neighbouring ports,” said Pipavav’s Littlejohn. India’s dredging market has been dominated by DCI and small private companies such as Jaisu Dredging and Shipping Ltd. But, these entities do not have adequate fleet to take up the growing dredging works in the country.
As a result, Dutch dredging firms such as Van Oord, Dredging International NV, Royal Boskalis Westminster NV and Jan De Nul NV have won dredging contracts in India. These four firms control a major chunk of the world dredging market that is estimated at $14 billion. “There is so much demand in the market, we do not have enough dredgers. There is need for capacity addition to meet demand,” said A. Krishna Rao, a general manager at DCI.
But, local firms are not able to buy new dredgers because most of the world’s dredger building facilities are full with orders till 2010.
“The time has come for India to start making dredgers,” said D.T. Joseph, India’s shipping secretary between June 2003 and December 2005. “India should encourage dredger makers to come to India. If we can make a commitment to market 20-25 dredgers, firms will come up with investments for making dredgers in India and not just assemble them here.”
IHC Holland Merwede BV, the world’s top dredging equipment maker, is looking to collaborate with Indian yards to build dredgers to overcome capacity constraints at its own facilities, a company official had told Mint earlier.
Port developers such as Chennai-based Marg Ltd which is developing the Karaikal port in Puducherry, have bought dredgers to meet their requirements.
Several local shipping and infrastructure companies too have acquired dredgers or are in the process of doing so. Mumbai-based Mercator Lines Ltd bought three trailer suction hopper dredgers and rented them out to DCI at day rates ranging from Rs22 lakh to Rs30 lakh. A trailer suction hopper dredger collects the material dredged by a cutter suction dredger and takes it to the deep sea or shore for dumping.
Essar Shipping Ports and Logistics Ltd has also purchased a trailer suction hopper dredger for its own use at Hazira port in Gujarat. Chennai-based logistics firm Sical Logistics Ltd has also acquired a cutter suction dredger. Bangalore-based Hindustan Infrastructure Projects and Engineering Pvt. Ltd, state-run Shipping Corp. of India Ltd and Gujarat Maritime Board, are also in the process of floating dredging ventures.