India to build a second container transhipment facility4 min read . Updated: 12 Sep 2014, 12:39 AM IST
There is scepticism in the port industry because the first container transhipment facility has struggled to reach full potential
India’s tiny state of Kerala will soon have another international container transhipment terminal (ICTT) at Vizhinjam near Thiruvananthapuram to add to the one run by Dubai’s DP World Ltd at Cochin port, located a few nautical miles away.
There is scepticism in the port industry whether India can afford to locate two container transhipment facilities in the state located on the country’s western coast when the first one itself is struggling to realize its full potential despite several sops given by the government, particularly relating to cabotage relaxation and discount in vessel-related charges to wean away cargo from rival Colombo.
A container transhipment terminal acts like a hub, into which smaller feeder vessels bring cargo which then gets loaded onto larger ships. Larger vessels bring about economies of scale, and lower the cost of operations for shipping lines, which then translates into lower freight rates for exporters and importers.
Expectedly, India’s shipping ministry, which controls Cochin Port where DP World runs the ICTT, has reservations on the Vizhinjam project planned by the Kerala government on a public-private-partnership (PPP) model.
The implementation of Vizhinjam project has brightened this time (four previous attempts over a decade failed due to a variety of reasons). The Kerala government has posted the project for a so-called viability gap funding (VGF) from the Indian government to boost its viability and make it attractive to bidders. This would be the first instance of an Indian port project being considered for the VGF.
A project can secure as much as 20% of the capital costs as viability gap grants from the central government. The state government, which is implementing the project, can chip in with a matching 20% grant. The combined viability gap funding for the Vizhinjam project is estimated at ₹ 1,580 crore with the centre and the state government contributing ₹ 790 crore each. The bidder seeking the lowest grant will win the ₹ 6,500 crore project with a capacity to load 1 million twenty foot equivalent units, or TEUs, a year initially (can be scaled up to 2.5 million TEUs). A TEU is the standard size of a container and a common measure of capacity in the container business.
The Kerala government will also fund a ₹ 1,210 crore breakwater construction, ₹ 600 crore towards land acquisition and another ₹ 700 crore for laying a 12km-long rail line to the new port.
Vizhinjam has received the key environment and coastal regulation zone (CRZ) clearances from the ministry of environment and forests.
It has received an in-principle nod from one of the two panels set up by the government for screening and approving the VGF. It now has to get approval from one more committee as well as the signature of India’s finance minister Arun Jaitley to receive the grant.
In the initial days of operation of the ICTT in Cochin, the Kerala government had lobbied the centre to relax cabotage for allowing foreign-registered ships to haul container cargo between different Indian ports and offering discounts in vessel-related charges to help it function as a transhipment hub.
When developed, Vizhinjam would be competing with the Cochin ICTT because it would cater to the same cargo. After having invested huge public money ( ₹ 1,600 crore by the Indian government and another ₹ 1,600 crore by DP World), it needs to be considered whether it is prudent now to promote Vizhinjam port for transhipment by infusing a VGF component, according to the shipping ministry.
Also, given the unviable scenario even with discounts offered at ICTT Cochin at 85% of the ceiling rates set by the regulator and relaxation of cabotage law, whether the project at Vizhinjam would be viable is questionable, says the shipping ministry.
In the year to March 2014, the ICTT at Cochin loaded a paltry 351,000 TEUs of which the transhipment volume was less than 27,000 TEU’s. It has a capacity to load one million TEU’s a year.
But what critics miss out is that Vizhinjam will only cater to the transhipment market.
Vizhinjam is being developed to compete with Colombo because its basic infrastructure such as water depth and proximity to the main shipping lane is better than or similar to Colombo, which is the biggest transhipment facility in the region. About 2 million TEUs originating in and destined for India gets transhipped at Colombo every year.
Colombo and Vizhinjam are located in close proximity to international shipping routes involving only a marginal diversion of about 20-25 nautical miles. While Colombo has a water depth of 16-18 metres, Vizhinjam will have much deeper berths and an approach channel of up to 20m, capable of docking mega container ships.
Besides, for the first 10 years of its operations, the rates at Vizhinjam will be benchmarked to rates prevailing at other comparable Asian ports. After that, the private firm running the port will be free to set rates based on market forces.
By its very concept, a transhipment terminal or port is not dependent on its hinterland (cargo originating and destination points) for success. Vizhinjam is designed to win back India’s container cargo transhipped through neighbouring ports by offering superior infrastructure.
Both the transhipment facilities can co-exist. The beneficiaries would be India’s exporters and importers who can send and receive containers without transhipping them through neighbouring hub ports, thus saving on time and costs.