5 min read.Updated: 26 Feb 2016, 12:44 AM ISTP. Manoj
Barely two months after work began on a new terminal at Vizhinjam, the second such facility after Vallarpadam, the shipping ministry said it will seek bids by March for a consultant for another one at Colachel in Tamil Nadu
India’s elusive bid to build a strong, alternative container trans-shipment terminal to help send and receive cargo shipped in steel containers without routing them through neighbouring hub ports such as Colombo, Singapore and Jebel Ali has now reached absurd levels.
Barely two months after work began on a new trans-shipment terminal at Vizhinjam near Thiruvananthapuram, the second such facility (the first one started operations from 2011 at Vallarpadam in the Union government-owned Cochin Port Trust) in Kerala, the shipping ministry said it will seek bids by March to hire a consultant for a planned container trans-shipment port at Colachel in Tamil Nadu.
Colachel and Vizhinjam are just 36km apart. Vizhinjam is 225 km from Vallarpadam. Vizhinjam has all the features that contribute to the making of a trans-shipment hub: a natural deep draft (depth) of 19 metres (Colombo has a depth of 16-18 metres and Vallarpadam has 14.5 metres) to dock mega ships.
It is in close proximity to global shipping routes involving only a marginal diversion of about 20-25 nautical miles, with a resultant reduction in bunker costs, and freedom to set rates. Still, the Vizhinjam project was sanctioned ₹ 1,635 crore (shared equally by the centre and the Kerala) as viability gap funding (VGF) to boost its viability. The question is not if Colachel needs VGF or not but how much it requires.
“Colachel is being promoted as a trans-shipment hub because of deep drought of 18.5 metres, compared with Vizhinjam in Kerala," the ministry said on 16 February.
The explanation that followed was even more bizarre.
“Vizhinjam was also mulled to be promoted as a trans-shipment hub to capture container business. Several international ports like Singapore and Jebel Ali have more than one trans-shipment hubs," the shipping ministry added, to justify its plan to have a new trans-shipment port at Colachel.
When Colachel becomes operational, all three trans-shipment ports will be located in and around the same region.
The same ministry had earlier opposed a request by Kerala seeking VGF from the centre for the Vizhinjam project.
The Vallarpadam trans-shipment terminal was intended to cut India’s dependence on neighbouring trans-shipment hubs to tranship its export-import (EXIM) containers.
About 2 million twenty-foot equivalent units or TEUs (standard size of a container) originating in and destined for India gets trans-shipped at Colombo port every year.
In the year to March 2015, the Vallarpadam terminal handled 366,376 TEUs, of which the trans-shipment EXIM containers (those shipped directly without routing through neighbouring hub ports) were only 17,000 TEUs. The facility has a capacity to load 1 million TEUs a year which can be expanded to 3 million TEUs. It is evident that Vallarpadam has not even caused a scratch on the back of Colombo.
The centre spent ₹ 1,700 crore to create infrastructure for developing Vallarpadam as a national trans-shipment hub. Terminal operator DP World Ltd invested ₹ 1,200 crore.
Cochin Port Trust is spending over ₹ 100 crore every year to maintain the depth apart from a host of concessions to make the Vallarpadam facility viable. Vallarpadam’s growth has been impeded by the global recession and procedural problems, including a delay in securing a waiver from the so-called cabotage law, which makes it mandatory to use Indian ships for transporting cargo between different ports along the country’s coast.
Most of the hurdles have now been eased. “However, a project of such magnitude needs to be given a rather liberal gestation period for achieving its full potential. It would not be prudent to promote a project (Vizhinjam), which on its own, is intrinsically unviable, without a significant cross-subsidy from the port estate activity and a huge VGF," the shipping ministry wrote in a communication to the finance ministry ahead of a meeting to scrutinize Kerala’s application for VGF for Vizhinjam project.
“As such, another container trans-shipment terminal at Vizhinjam with VGF from the government is not recommended. Scarce resources of the government like the VGF cannot be spent on a project which will basically eat into another project on which considerable government funds has already been spent. Setting up of a trans-shipment terminal at Vizhinjam will result in both Vallarpadam and Vizhinjam fighting for the same cargo and thus making both ports unviable in the process," the shipping ministry wrote in the communication reviewed by Mint.
Vizhinjam is being developed by Kerala in a public-private-partnership (PPP) model. Colachel is proposed to be developed as a Union government port also on a PPP model. The difference and similarity ends there, but the arguments put forth by the shipping ministry while opposing Vizhinjam holds true for Colachel as well, pointing to the double standards adopted by it.
Pon Radhakrishnan, deputy shipping minister, is a law-maker belonging to the Bharatiya Janata Party (BJP) elected from the Kanyakumari constituency in Tamil Nadu, where Colachel is located. Of the 39 lawmakers that Tamil Nadu sends to Parliament, Radhakrishnan is the only BJP representative from the state.
One highly optimistic view is India should aim for handling all the trans-shipment containers (including Indian trans-shipment containers) currently loaded by Colombo from within its shores. But will it work? Experience has shown Vallarpadam was bit of a wrong choice for locating a trans-shipment terminal. Not only does it lack the depth to accommodate large container ships, it needs 24/7 dredging just to maintain the depth at the current level of 14.5 metres. Besides, being run as a trust, the rates at Vallarpadam are regulated, which is a key factor in the trans-shipment business.
Dredging costs are typically priced into the vessel related charges that ships pay to call at a port. The high dredging costs make it difficult for Vallarpadam to compete with the port costs that Colombo offers shipping lines.
The port calling costs at Colombo is one-tenth of Vallarpadam. Colombo can give that level of port costs because it is a volume game. Colombo gets more ship calls in a week by offering much lower port costs. More ship calls means more money.
Indian trans-shipment terminals will have to slash port costs by half if they want to give Colombo a fight. For that, freedom/flexibility to set rates becomes critical. Cochin’s ability to offer rebates in port costs to shipping lines is limited.
What is intriguing about the Colachel announcement is the lack of a holistic study in planning a trans-shipment port/terminal. The Union government and states such as Kerala are pursuing their own separate agenda.
Setting up more trans-shipment terminals without addressing basic issues will be sheer waste of taxpayer money.
P. Manoj looks at trends in the shipping industry.
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