India has back-tracked on the much talked about plan to convert 11 of the 12 ports owned by the central government into companies from the current trustee set-up in the wake of stiff resistance from workers’ unions.

This does not augur well for the so-called major ports which have been steadily losing market share to the new, modern private ports that are run as companies simply because they are not able to compete due to operational and management inflexibilities.

While the government took many decisions during its two years in power to help stir up interest in the maritime sector, the structural overhaul of major ports, a key aspect of port reform, has come a cropper.

At one point last year, it did appear that the government had won the battle of wits with the labour unions on undertaking a structural reform of the 11 ports by transforming them into companies.

Instead of directly corporatizing the 11 ports (the 12th port located at Ennore near Chennai is the only state-owned port functioning as a company under the Companies Act), India’s shipping ministry drafted a two-stage plan in November 2015 to achieve this objective. It sought to do this by writing a new law called the Major Port Authorities Act to administer, regulate and operate each of these ports which will have provisions to convert them into companies and even to sell shares.

“The port authority of each major port may change its structure and become a company, subject to prior approval of the central government and the passing of special resolution through its board in that behalf," according to Section 24 of the draft of the Major Port Authorities Act prepared by the shipping ministry on 6 November 2015.

“In the event of the conversion of the port authority to a company under Section 24, the board of that port authority may raise additional capital over and above the capital reserves and holdings of that port authority from any person resident in India by way of sale or disinvestment of the holdings in the port authority subject to prior approval of the central government as per the applicable disinvestment policy," according to Section 25 of the draft bill.

But following threats from the labour unions to paralyse port operations, the government had to revise the draft bill in March from which the above two sections were omitted.

The revised draft bill is being put up to the cabinet for approval ahead of its introduction in Parliament.

As per the initial draft, once the Major Port Authorities Act comes into force after ratification by Parliament, then the board of each of these major ports can convert themselves into companies at any time by a special resolution. The Act empowers the board of each of these ports to change to a company without the need to go back to Parliament. The boards will be empowered by the Parliament to do this by itself.

Many of the features of the draft Major Port Authorities Act have been borrowed from India’s Companies Act, with the necessary customization to cater to port management, operations and regulations.

The deletion of the clauses relating to the conversion to companies and disinvestment suggests that the government has lost the plot on altering the institutional structure of major ports, though it proposes to grant greater operational freedom to the boards of these port authorities. The major ports are presently run by a large board of trustees—in some cases, 19 members comprising representatives from disparate interest groups including port users, labour and trade associations, which make decision-making cumbersome.

Whereas, the board of each port authority will have nine members, including a chairman, three functional directors of the port, three independent members, one government nominee and one labour union representative.

As these ports are currently run as trusts with no equity structure, they don’t pay any dividend to the government unlike state-owned companies.

The government can now only hope to buy time till the stranglehold that workers’ unions have over these ports is loosened.

And, this is already happening. From a strength of about 100,000 a decade ago, the workforce at these 11 ports have declined to 37,000 partly because of a freeze on fresh recruitment as ports started mechanizing facilities which made large-scale hiring unnecessary. Secondly, new cargo-handling facilities are being set up through the public-private partnership (PPP) mode, whereby the private firm has the freedom to hire its own labour.

These ports have even started outsourcing the terminals/berths run by the port trusts to private firms in a bid to become landlord ports (a concept where the port authority owns the basic infrastructure, while cargo handling is outsourced to specialists).

Though these contracts typically have terms to hire some of the existing port labour that becomes redundant when such privatization takes place to placate labour unions, an ageing workforce and a recruitment freeze are expected to turn the tide in favour of the government a few years from now.

That’s when the government can harbour a realistic hope of corporatizing the major ports smoothly.

P. Manoj looks at trends in the shipping industry.