3 min read.Updated: 04 Jul 2014, 01:18 AM ISTP. Manoj
Shipping minister Nitin Gadkari's plan involves building cruise terminals, a floating hotel, a ferris wheel on lines of London Eye, and marinas and jetties to promote water transport in Mumbai
With 1,875 acres (750 hectares), state-owned Mumbai port is the largest land owner in Mumbai—India’s financial capital. But it earns a paltry ₹ 200 crore a year from letting out 700 acres for commercial use, including those for port-related activities. By Mumbai real estate standards, this is peanuts. The once-formidable port has not been able to realize the full value of its land because of uncertainties over the duration of lease periods.
During the past few years, the port has been loading cargo in the region of 50 million tonnes-plus, earning about ₹ 1,400-1,500 crore a year and has been reporting operating profits.
In the year to March, the port loaded 59 million tonnes of cargo. More than 60% of this came from handling petroleum, oil and lubricants.
However, a larger contribution to superannuation funds, in addition to actual pension payouts given the huge past pension liabilities, has taken a toll on its balance sheet. The port has been reporting losses for the past three years.
The port has about 38,000 pensioners and nearly 12,000 employees. According to the latest actuarial valuation, the port’s annual pension payout works out to about ₹ 9,000 crore. Out of this, the port manages to fund about ₹ 6,000 crore from its internal resources, leaving a gap of ₹ 3,000 crore.
There has been no new leasing of land during the last 30 years, though about 500 properties have come back into the port’s possession following litigation and expiry of the lease period.
So it comes as no surprise that Nitin Gadkari, the new shipping minister, has proposed a plan to monetize 1,800 acres of prime land owned by the port.
Gadkari, a Mumbaikar, knows the political and financial landscape of the city closely to realize what a gold mine that the port controls is sitting on. For years, Mumbai port authorities have been seeking the government’s permission to let out more tracts of land, which was not forthcoming.
Gadkari’s plan involves building cruise terminals, new waterways projects, a 500-room floating hotel, three-four floating restaurants, a ferris wheel on the lines of the London Eye, and marinas and jetties to promote water transport in Mumbai.
To take the plan forward, a committee headed by Rani Jadhav, a former chairperson of the Mumbai port and also a former chairperson of India’s port tariff regulatory body, has been tasked with suggesting ways to monetize the land. The panel has been asked to submit its report within three months.
What will come in handy for the new National Democratic Alliance (NDA) government led by Narendra Modi is the land policy for state-owned ports such as Mumbai which was framed by the previous United Progressive Alliance (UPA) government led by Manmohan Singh towards the end of its second five-year term.
According to this land policy, port land can be leased to private firms for as long as 99 years with prior government approval, a factor that will help the port realize full market value of the land as it removes the uncertainties associated with frequent lease renewals. The ownership of the land, though, will continue to be with the port.
The land policy allows leasing land for activities directly related to port operations or for those which are not directly port-related but aid port activities and sea trade.
Globally, land owned by ports has been leveraged for optimizing cargo volumes and increasing revenue of ports. It is an established practice globally for ports to allot land for carrying out economic activity, including establishing industry to ensure captive cargo to the port, thereby enhancing the sustainability of that port.
Port lands have also been used to set up special economic zones aimed at encouraging industrial development in and around the port. Ports are generally expected to utilize their land, with port-related activities being given the first priority and activities incidental to the port being treated as secondary in nature.
In India, land owned by state-owned ports have largely remained idle. More so Mumbai, which has the largest land parcel among the 12 ports owned by the central government.
If Gadkari succeeds in his plan, then revenue from real estate will outstrip revenue from cargo-handling activities at Mumbai port. The port reckons that it can easily earn more than ₹ 1,000 crore a year from leasing land for commercial purposes.
Mumbai port does not have much scope to grow because of difficulties in bringing and evacuating cargo to and from the port located in the heart of the bustling city. Exporters and importers tend to prefer ports that can evacuate cargo faster, resulting in savings in time and costs.
Pollution concerns in a city already affected by heavy vehicular pollution will also curtail the port’s growth prospects.
P. Manoj looks at trends in the shipping industry.
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