4 min read.Updated: 07 Oct 2016, 01:16 AM ISTP. Manoj
Political considerations have no role to play in deciding the location of a new port, though it is often cited as one of the reasons for the bunching of ports
An existing port operator crying foul when new, competing ports are built in the vicinity is not uncommon in India’s ports sector.
The shipping ministry’s recent plea to the West Bengal government requesting the eastern state to reconsider its plan to set up a new port at Tajpur in the state’s East Midnapore district with private funds is the latest example of this.
The state government’s plan, according to the shipping ministry, would not only hurt the decades-old Haldia Dock Complex but also a proposed new port at Sagar Island in the state.
The port at Sagar Island will be controlled by the Indian government through a 74% equity ownership by its Kolkata Port Trust with the balance 26% stake held by the West Bengal government.
A couple of months ago, the same shipping ministry decided to go ahead with a new container trans-shipment port at Enayam near Colachel in Tamil Nadu. Enayam is hardly 36km from Vizhinjam, where the Kerala government is building a container trans-shipment port with private funds from Adani Ports and Special Economic Zone Ltd (APSEZ).
Vizhinjam itself is 225km from Vallarpadam in the Union government-owned Cochin Port where Dubai’s DP World Ltd has been running India’s first container trans-shipment terminal since 2011.
The shipping ministry had opposed the Vizhinjam project when the finance ministry was screening an application filed by the Kerala government seeking a so-called viability gap funding (VGF) for the new port, arguing that developing a “new trans-shipment port at Vizhinjam will result in both Vallarpadam and Vizhinjam fighting for the same cargo and thus making both ports unviable in the process".
A key question that lurks in the shipping ministry’s double standards is: what should be the ideal distance between two ports whereby the existing one can protect its investments and earn a reasonable return without the new port eating into its cargo?
India’s coastal states and the Union government have adopted different approaches to deal with this issue.
The reasoning is that building ports too close to each other would effectively disperse the cargo catchment area over multiple ports, reducing cargo and hurting viability of all.
The Andhra Pradesh government grants exclusive rights over 30km on either side of an existing port. In some cases, the exclusive right has been expanded by an additional 80km on one side to pre-empt potential port development by the state, centre or private entities to boost the viability of an operating port.
In Kerala, the state government has agreed not to set up competing ports within 100km of an existing port till it completes 15 years of operation. This clause, however, will become redundant/invalid if the average throughput (cargo volume) exceeds 90% of the existing capacity of the port in any year.
Any breach of this provision by the Kerala government will entitle an existing private port to get the contract period extended by three times in duration compared with the period between the commissioning or operation of the competing port and the 15th year of the existing port.
For instance, if the competing port is commissioned or operated on the 14th year of an existing port, the contract period shall be extended by three years.
At Union government ports, the rules on setting up competing facilities are entirely different. Here, the port authority agrees not to set up competing facilities (within a port) until the earlier of five years from the time the cargo handling project is constructed or the average annual volume of cargo handled at the facility reaches 75% of the project capacity for two consecutive years.
This clause, though, is being revised in the new model concession agreement for public-private partnership (PPP) projects whereby the port authority agrees not to set up competing facilities (within a port) until the earlier of three years from the completion of the cargo handling project or the average annual volume of cargo handled at the facility reaches 70% of the project capacity for two consecutive years. A concession agreement sets out the terms and conditions of a port contract.
If the shipping ministry’s reaction to West Bengal’s move to set up a new port is anything to go by, the response of private investors to this aspect can’t be anything different.
But, with the ambitious port-led development programme of the Narendra Modi government envisaging huge capacity expansion, reconciling the need for capacity build-up and protecting the huge investments in existing ports/facilities would be a tightrope walk for the central and the state governments.
There is a need to define the threshold distance limit between two ports at a pan-India level through better coordination among the centre and the states. Political considerations have no role to play in deciding the location of a new port, though it is often cited as one of the reasons for the bunching of ports. This will only spell disaster for a large number of agencies involved in the exercise, the least of which are private investors whom India is trying to woo.
P. Manoj looks at trends in the shipping industry.
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