Foreign investors beset by labour, contract hardships at Indian ports

Foreign investors beset by labour, contract hardships at Indian ports

Mumbai: Foreign firms, such as DP World and PSA Corp., which have sunk millions of dollars into Indian container terminal operations at ports over the past couple of years, are upset that regulatory, tariff and labour issues are hurting their business.

Even so, an expanding market for handling container cargo in the world’s second fastest growing major economy is not holding them back from new Indian investments. India’s foreign trade has been clocking a growth of more than 16% a year. And, 95% of India’s foreign trade by volume and 70% by value moves by sea, giving business to firms such as DP World and PSA.

Indian ports currently handle some 6 million TEUs a year. The container cargo at Indian ports is expected to more than double to 12.5 million TEUs by 2011-12. A TEU is the standard size of a container and is a common measure of capacity in the container business.

DP World, the Dubai-government owned world’s fourth biggest port operator, which has invested $1.5 billion so far in five Indian container terminals located at Navi Mumbai, Chennai, Cochin, Vizag and Mundra, faces the threat of its Mundra contract being terminated. The reason: DP World did not take permission from the maritime regulator of Gujarat, which owns the Mundra port, before acquiring ownership of the container facility at the port as part of its acquisition of British port operator P&O Ports in 2006.

DP World is also beset by labour unrest at Cochin Port where it runs a container terminal since April 2005.

“This environment is far from conducive to do business and it is becoming an uphill task to retain the business that we have presently, let alone improving the business prospects," Ganesh Raj, senior vice-president and managing director India subcontinent, DP World, said in a 15 November letter to the Cochin Port chairman N. Ramachandran. “It is a complete nightmare. Every time we manage to swing a customer, Cochin goes on strike," he said.

DP World, which runs a terminal at India’s biggest container port, Jawharlal Nehru Port, had earlier hauled the tariff regulator for the Central government-owned ports, such as JN Port, to court after it cut the tariffs at its terminal last year. This was the second time that the regulator had cut the tariffs at the DP World-run terminal in less than three years. The decision of the Tariff Authority for Major Ports has since been stayed by the Bombay high court and a final verdict is awaited. The tariffs at all 12 Central government-owned ports are set by the tariff regulator.

“We are investing so much money in Indian ports, how are we going to get the retur-ns?" asks Raj. DP World has plans to invest a further $500 million in India at Vallarpadam in Kerala and at a greenfield facility at Kulpi in Bengal.

A similar situation is confronting PSA, the Singapore government-owned world’s second biggest container port operator, which runs a facility at the eastern coast port of Tuticorin. Last year, the tariff regulator cut tariffs at the Tuticorin terminal by more than half after PSA sought a hike of 30% on its tariffs. The Madras high court has since set aside the regulator’s decision to cut tariffs at Tuticorin and has asked the Union shipping ministry and the regulator to take a second look at the tariff revision exercise at the terminal.

Both DP World and PSA have argued that lower tariffs were hurting its revenues and profits. Besides, they said a policy decision of the shipping ministry in July 2003, much after they started operations, not to allow the annual revenue they were contractually mandated to pay the government as a cost item while setting tariffs, was making their operations commercially unviable. Though the government will soon announce new norms for tariff setting at major ports, it will be applicable only to new projects and not existing ones such as those run by DP World and PSA.

After DP World, PSA is the biggest foreign investor in Indian container port terminal projects. Apart from Tuticorn port, PSA is developing a new terminal at Chennai Port and at Hazira port in Gujarat which together will cost about Rs1,500 crore.

“We have done so much for the efficiency of Tuticorin terminal, but it has one of the lowest tariffs in the world," S.R. Ramakrishnan, managing director, PSA SICAL Terminals Ltd, claimed in an earlier interview.