CHAPTER VI

PRIVATISATION OF INDIAN PORTS

World over ports are passing through a phase of structural transformation-

Ports in India being no exception. Indian Ports are governed by the Indian Ports

Act, 1908 & Major Port Trusts Act, 1963 and function as autonomous bodies

under the Ministry of Shipping. Indian ports (12 Major Ports) are highly labour

intensive yet work at 105% of their capacity as compared to other modern

international ports which work at 55%-65% of the capacity.

Recognising the need to attract modern technology, introduce better

managerial practices, expeditious implementation of schemes and the huge

investment, the Government has decided to encourage private participation in

ports. The public-private endeavours in the port sector so far, have yielded

positive results.

Efforts should be made to synergise the strengths of the trading partners, in

order to improve the productivity and profitability of the port sector so that there is

a concomitant benefit to all the port users. This in turn will make the Indian

products more competitive internationally.

Current scenario

On the 5560 kms stretch of coastline, India has 12 Major Ports (including

Ennore Port, just inaugurated) and 148 Minor Ports (30 contributing to cargo

handling). The major Ports are literally bursting at seams. They handled 284.31

million tones of cargo in 2001-02 against the available capacity of 269.87 million

tonnes - a capacity utilization of 105.35%. Contrast this with the global scenario

where most ports operate at 55-56% capacity. This is against the backdrop of the

fact that most of the Indian Ports are highly labour intensive and work using

antiquated equipments. Besides, the ports have to make use of the available

(limited) financial resources to address their development/investment

requirements.

Privatisation - Raison D'etre

By virtue of being a vital infrastructure that is critical to the trade and

commerce, the Ports exert a powerful influence of the present standing and the

future progress of the economy. As at present and as the trends show, the demand

far surpasses the capacity. According to "Vision 2020" report by the RITES, the

traffic projection for year 2003 is 365 million tonnes and it will be 530 million

tonnes by 2007. This calls for a massive augmentation of the capacities to meet

the demand. The total requirement of funds during 9th Plan (upto March 2002) is

Rs.13,550 crores of which Rs. 6550 crores will come from budgetary support and

Rs.7000 crores from Private Sector Investment. The task is colossal and requires a

high magnitude of investment.

Initiatives

Recognising the need to attract new technology, introduce better

managerial practices, expeditious implementation of schemes and the huge

investment, the Government decided to encourage the participation of the Private

Sector in the Ports and accordingly in October 1996 issued policy guidelines. To

facilitate private investment, the Government of India has provided a number of

fiscal incentives also.

The areas that have been identified for Private Sector participation are:

> Construction/installation & operation of liquid bulk, break bulk, multipurpose

and special purpose berths;

> Container Terminals;

CFS, Tank Farms and Storage facilities;

> Cranage/Handling equipments;

> Leasing out existing assets;

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> Leasing in of Cargo Handling Equipment & Floating Crafts; and

> Captive Facilities for Port Based Industries.

Port Policy

Port Policies will have to be more proactive to the needs of the consumer:

> Port policies need to reflect and respond to the continuous changes in macro-

economic policies, in particular the move towards a more open Indian

economy.

> Ports should remain statutory bodies but evolve towards the "landlord" rather

than the service port.

> Operations should be organized within a system of integrated terminals, partly

owned, but fully run by qualified private operators capable and willing to

invest in superstructures and equipment, and organized on the principles of

unity of command and specialization.

> Financial managements and pricing policies should lead to transparent and

cost-based tariffs which optimize the use of resources and minimize cross sub-

sidizations;

> Public investment should be limited to the infrastructure needed to facilitate

growth and development;

> Private initiative in the provision, funding and operation of superstructure and

equipment should be encouraged.

Solicited Projects

A solicited project is identified and formulated by the Govt. with necessary

pre feasibility, feasibility, detailed studies for its essential viability and private

sector participation. Solicited projects undergo through analysis and integrated

into the country's overall infrastructure system and in the developmental plans.

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Unsolicited Projects

This is identified and proposed by a private sector promoter to the port for

an exclusive right to develop and operate the particular project/system for a

particular period. These are considered on exceptional basis for its need.

Different concepts

There are different schemes available under the privatisation concept. The

Govt. has preferred the BOT scheme in the infrastructure facilities such as port,

Roads, etc. This approach increases the risks associated with infrastructure project

to a level of acceptance to the private sector. It also assures that profits generated

are commensurate with the risks. In BOT concept a contractual agreement is

made where a private investor can finance, construct, operate and maintain the

port facility for a concession period after which the facility is transferred to the

port authority at no cost.

DIFFERENT SCHEMES OF PRIVATISATION:

Build - Operate- Transfer (BOT)

Provides private consortia with a concession to finance, build, operate and

maintain a facility. During the life of the concession, investors collect user fees to

cover the costs of construction, debt servicing and operations. At the end of the

concession the facility reverts back to a public authority.

Build-Own-Operate-Transfer (BOOT)

Same as BOT, after a negotiated period of time, the project is transferred to

the Government.

Build-Transfer-Lease-Operate (BTLD)

Government provides the right way on which the facilitates agreements

required by the concessionaire to pay a nominal rent of payment for the use of the

land.

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Service Contract

More narrowly focussed than a management contract is that a private

contractor performs a particular operating or maintenance function for a fee over a

specified period of time.

Besides adding credibility to the project, the BOT scheme can also lead to

significant cost economies accruing out of a more focussed private control and

economic interest in design, construction, technology, and operation of the project.

The continued involvement of the sponsors during the life of the concession also

implies a constant transfer of technology. A successful BOT project means that the

Government creates vital infrastructure without putting pressure on budgetary

funds, and has facility with better efficiency of operation. Unless all involved, work

in cohesion with proactive thinking, coordinating, cooperation, mutual trust and in a

continuous manner, the complex BOT concept cannot lead to success.

Success Links

Success factors for the port/Govt. to promote BOT projects are:

> The project must be financially sound, feasible and affordable.

> The country risks must be manageable

> There must be strong Govt. political support.

> The legal frame work must be stable.

> The administrative frame work must be efficient.

> The project must rank high on the host Govt. list of infrastructure projects.

> The bidding procedure must be fair and transparent.

BOT transaulations should be concludable within reasonable time and cost.

> The sponsors must be experienced and reliable.

> The sponsors must have financial strength.

> The construction contractor must have experience and resources.

> Project risks must be allocated rationally.

> The financial structure must provide the tender sufficient security.

> The public and private sectors should cooperate on win-win basis.

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Initiatives of Govt

The Govt. has understood that unless the incentives are provided there will

not be takers in cost intensive port privatisation projects. Hence the Govt. has

highlighted and liberalised the measures as under;

> Existing legal frame work permit private sector participation.

Port will regulate as per the Major Port Trust Act.

> An independent Tariff authority has been established to induce confidence to

the investor and have a level playing field.

> Tender with the transparent conditions shall be put on BOT basis.

> Proper feasibility report shall be made at the expenses of the port but

subsequently recovered from the successful tenderer,

> Evaluation is made transparent as per the criteria indicated in the Tender.

> Concession period is 30 years.

> Automatic approval of an Indian company with 74% foreign equity.

> Even upto 100% foreign equity shall be considered by the FIPB (Foreign

investment Promotion Board)

> Tax holiday for 5 years and tax concession for another 5 years within 12 years

for infrastructure project.

> Customs duties for imported equipments are drastically reduced.

> Subscription to debentures or equity of companies engaged in infrastructure

would qualify for income tax relief for the investor.

> Infrastructure development financing company (IDFC) has been set up for

financing infrastructure project.

> HUDCO also proposed to finance such projects.

> Model tender document has been prepared.

> Bankable agreement has also been prepared so that the entrepreneurs would be

able to raise funds.

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The special committee for infrastructure headed by the Prime Minister and

concerned Minister Paves the way for removing the bottlenecks, and ensure

smooth progress under BOT concept.

> Leasing out exiting assets of the port.

> Construction & creation of additional assets, such as;

a) Construction & operation of container terminals

b) Construction & operation of bulk, breakbulk, multipurpose & specialised

cargo berths.

c) Warehousing, container freight stations storage facilities, and tank farms.

d) Cranage & handling equipment.

e) Setting up of captive power plants.

Dry docking and ship repair facilities.

> Leasing of equipment for port handling and leasing of floating crafts from the

private sector.

> Pilotage.

> Captive facilities for port based industries including captive oil facilities and

SBMS.

Criteria

Some of the criteria to qualify as a Private Sector Partner are:

Experience of managing facility for similar cargo with average annual volume

for last 3 years equal to at least 50% of the proposed capacity of the

terminal/berth under bidding;

> A bout 20% of the net worth of the bidder should be at least equal to the 50%

of the estimated project cost; and

> Aggregate net accruals during the immediately preceding 3 years should at

least be equal to 50% of the estimated project cost.

Privatisation - Objectives

The generally accepted outlook towards the privatisation of the Ports is as a

means for increasing private enterprise participation in the operations of Major

Ports and it does not mean sale of Major Ports' land, which remains under public

ownership. The idea is to make use of private investment technology & modern

management concepts to increase port productivity and to modernize port facilities

and thereby to make cargo handling cost effective and thus in turn making Indian

trade & products globally competitive.

Assessing the true extent of privatisation in ports requires careful analysis

of distinct activities, roles and responsibilities that are now being undertaken by

the public entity to the private sector. Basically this involves three elements that

can be either collectively or individually be privatized, viz.,

a) The Regulatory Functions: These are the functions that are empowerments

by way of statute(s) and include activities like maintaining, etc. The Welfare

State notion under the ambit of which these functions are imposed on public

entities (ports), leave little or no room for these regulatory functions to be

transferred to the private sector. It would also incapacitate the public bodies to

the extent that while doing the public good, they will have to simultaneously

compete with other private agencies on an uneven plank.

b) The Land Resources: Ports are the proverbial "realtor" in the sense that they

hold a vast area of land. World over, ports hold maximum of estate, next only

to the municipalities. Land is a scarce resource and has to be put into the most

judicious use; more importantly for port related activities that add up to the

cargo and vessel traffic volumes at the ports. Special Economic Zones

involving some manufacturing/assembling that is export-import oriented would

fall under this category of activity.

c) The Port Operations: This is the most significant of the three elements under

analysis for private sector involvement. The traditional port operations involve

the handling of sea-borne cargo and passengers. It also includes under its

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ambit value added services such as warehousing, container freight stations,

storage, tankage, etc.

A right mix of these key elements will lead to a purposeful public-private

participation and derive mutually beneficial results. For instance, the private

sector can discharge the dominant role of service provider (operational) and the

public sector can back up the regulatory functions. Another option could be that

the land ownership rests with the public sector and the regulatory or operational

functions are the responsibilities of the private sector. A third scenario could be

that all the three elements are transferred to the private sector. Thus the public-

private synergy is in the right proportion and after a diligent analysis will aid in

shaping the economy in right perspective, port sector in particular.

Privatisation - Approach

Against this backdrop, the methods identified by government for attracting

private investment are:

a. Immediate steps

- Leasing of existing assets; and

- Joint venture between ports & private companies or consortia of private

companies.

The Major Ports have been quick to react to the Government policy to

invite private participation in leasing of existing assets. As on date, some of the

key projects in operation are:

> Jawaharlal Nehru Port Trust - Nava sheva International Container Terminal:

container Terminal being operated by MIs P&O.

> Kandla Port (KPT) - MIs GEEPEE: Leasing of berth for bulk & beak Bulk

Cargo handling.

> KPT-Essar Oil: Erection of SBM for handling Crude Oil & Products.

> KPT-IFFCO: Leasing of berth for handling fertilizer & raw material.

> Tuticorin Port - Port of Singapore: Licencing berth for container handling.

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> Chennai Port-Bengal Tiger Lines: Berth Reservation scheme for container

handling.

> Cochin Port Trust (C0PT)-FACT: Leasing of berth for handling fertiliser &

raw material.

> New Mangalore Port- Mangalore Refineries Limited: Setting up of crude oil

jetty (under construction).

> CoPT-P&O: Joint venture for setting up international transhipment terminal

(under evaluation).

Most of these projects have paid rich dividends to both the port and its strategic

partner.

FUTURE PLANS

Corporat isat ion

The singular most significant step taken by the government is towards

"Corporatisation" of the Ports. This involves carrying out two specific

amendments in the Major Port Trusts Act, 1963, viz., an enabling provision will

have to be introduced to denotify the Major Ports slated for Corporatisation from

the ambit of MPT Act, 1963 and the Union Government will have to introduce

amendments to Section 29 of MPT Act to facilitate the transfer of assets and

liabilities of Central Government from the Port Trust Board to the new corporate

entity. This amendment is aimed at giving legal sanctity to the transfer of assets

and liabilities of the Union Government back from the Board of Trustees to the

new company. February 1st 2001 will be remembered as a red-letter day in the

history of Port with the inauguration of Ennore Port-the first corporate port in

India. Corporatisation of the Jawaharlal Nehur Port (Navi Mumbai), New

Mangalore, Mormugao and Tuticorin Ports will be taken up in subsequent phases.

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Commercialisation

Historically worldwide success has come to ports that function as a private

enterprise or an autonomous government operated commercial style business

without political intervention. Some of the key issues that need to be addressed to

in this case are:

> Approach must be profitability oriented.

> Reorganisation of management & board for commercial operation.

> Reduce labour to workable level.

> Management training to learn how to operate a commercial enterprise.

> Evolve effective marketing strategy and develop business plan.

> Identify privatizable operations for efficiency.

> Develop a more commercially friendly pricing system.

Presently, studies are being conducted to evaluate the commercialisation

potentials of the Ports at Chennai & Mumbai. It is felt that much of the ills of the

present performance of the Ports can be cured if the ports focus towards

commercialising their operation instead of being a procedure ridden bureaucratic

set up. To operate a port as a commercial enterprise, a policy setting Board must

be comprised of persons who are commercially sound (bankers, engineers,

business managers, entrepreneurs, etc.) and this Board must be given full

functional autonomy.

Some of the suggested models for commercialisation for Indian ports are:

A. Spin off of select units (SO)

Selected non-core business units or social services of a port are sold or

contracted to private enterprise. This can include pilotage, tug operations, run

hospitals, etc.

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B. Build-Operate-Transfer (BOT)

Port allows a private company to construct and operate an enterprise on

port property. E.g. P.O. Terminal at JNPT, LNG facilities at Ennore Port, Pir Pau

Chemical berth at Mumbai Port.

C. Joint Venture (JV)

Contract where the port supplies existing facilities to a private operator and

the two share the profit or loss produced by the operator. Joint Venture have been

used where facilities are in place and mostly depreciated. The first project to

come under this scheme will be the Vallarpadam International Container Terminal

- J.V. between Cochin Port & P&O Ports.

D. Operating Concession (OC)

Port leases small unit to operate for a short period. This can be done in

cases where there are surplus storage facilities, for Container Freight Stations, etc.

Privatisation so far

So far 15 projects involving an investment of Rs. 4,376 crores and resulting

in capacity enhancement by 60.30 million tonnes have been approved by the

Government and are in different stages of implementation. In 9 cases, involving

an investment of Rs. 3,500 crores and capacity augmentation of 35.50 million

tonnes, bids are either under process or are likely to be invited shortly. In all, 24

projects involving and investment of Rs. 7, 876 crores and capacity addition of

95.20 million tonnes are on the anvil. Ennore Port, inaugurated on 1st February

2001 becomes the first corporatised Major Port in India. Another trends setting

project that of the Vallarpadam International Container Transhipment Terminal

the first Joint sector venture between a Major Port (Cochin Port) and a private

operator (P & 0 Ports), is nearing the final stages of approval by the Government.

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Privatisation of Tuticorin port

On the privatisation front the port handed over VIIth Berth to private

company MIs PSA SICAL Terminals limited on BOT Basis for the lease period of

30 years. PSA corporation, known as port of Singapore Authority till it was

corporatised in 1997, is one of the major foreign participants. The company has a

lot of international experience and has been the sole operation of the container

terminal at Singapore. It started its Tuticorin port operations in 3 rd December

1999, with the development and maintenance of the Container Terminal on a BOT

Basis. The PSA SICAL Company is the second Major Port project in India.

PSA Tuticorin container Terminal has the most modern equipment and

operating systems to deliver fast, flexible and reliable services to meet the

shipping industries needs and requirements. By calling at Tuticorin container

Terminal, shipping lines and shippers can also enjoy the high quality and value

added services that they have come to expect at PSA's terminals in Singapore and

world wide.

The company's main aim is

> Improve container handling facilities for India's southern region.

) Facilitate the development of India's growing trade market by providing

efficient, flexible and reliable terminal service.

> Help to promote smooth flow of trade in the region by meeting the shipping

and maritime industry's needs.

Modern Equipment & Comprehensive facilities provided in Tuticorin port

PSA SICALs Terminals Ltd has installed most modern equipments and

comprehensive facilities provided in the Tuticorin port. The following are the

facilities available in Tuticorin port.

> 2 ship - to shore quay cranes with 44m outreach to handle gearless vessels.

> 4 Rubber-Tyres Gantry cranes to Stack 5 - containers high.

> 900 ground slots

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> 84 reefer (refrigerated) points.

> 8 prime movers and chassis.

> Current weekly rail services by CONCOR linking Tuticorin to Mangalore and

Coimbatore more services expected.

> Windened and increased number of road lanes to the terminal

Advanced IT facilities

PSA has customised its innovative computer Integrated Terminal

operations system (CITOS) to efficiently integrate operations at Tuticorin

container Terminal.

a) On - line and real-time terminal management systems.

b) High & reliable operational efficiency in the handling of ships and containers.

c) Reliable monitoring of container movements.

d) EDI connectivity to Customers, Port Trust and Customs.

Growth of container Traffic in Tuticorin port

Tuticorin port had commenced handling of containers during 1979-80 with

a meagre Volume of 121 boxes. There was an appreciable growth of container

traffic in the subsequent years. During the year 1995-96, the port handled around

69,000 TEUs with the use of only conventional handling equipment.

As per UNCTAD norms, whenever the container traffic exceeds 50000

TEUs, a full fledged container terminal has to be established. Establishing a

container terminal was under consideration by the port and the port constructed

berth No: 7 for that purpose. However, establishing a container terminal with

modern equipments would cost around Rs. 90 crores and the ports did not have

that much money for executing the project.

In the meantime, the central Govt. Issued guidelines for privatisation of

port's facilities Based on the above guidelines, a proposal was sent to the Most for

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setting up a container terminal in Berth No: 7 through private participation and the

ministry's clearance was obtained during July 1996.

The construction of the container Berth No: 7 was completed in May, 1998

at a cost of Rs. 34.88 cores. The berth has length of 370 m and a draught of 10.7

in line vessels carrying up to 2000. TEUs are expected to call on this berth.

To equip the above berth and operate the same Licence had been awarded on BOT

basis to MIs. PSA SICAL corporations Ltd., Singapore for a period of 30 years in

July, 1998 The license had imported and installed two quay cranes and four RTG

cranes. This berth was commissioned as a full fledged container terminal on

December, 1999. These container terminals can handle 300000 TEUs in a year.

In the year 2001-02 the port had handled the record of 213509 TEUs. The

year-wise container traffic at Tuticorin port has shown in the Table 6.1. The

growth rate of the container traffic after privatisation more than 35% in the year

1999-2000 and 2001-02. In the year 1998-99 the port has handled only 99512

TEUs. But in the year 2001-02 the PSA SICAL Terminals Ltd had handled

213509 TEUs. The company can be expected to handle more than 300000 TEUs

in the year ended 2003. The port has maintained a growth rate of more than 30%

in container traffic and joined the second level ports in container handling in India.

Table 6.1

Pre-privatisation Post ATT

Year No. of TEUs Growth Rate No. of TEUs Growth RateHandled (%) Handled (%)

1992-93 35010 26.52

1993-94 48110 37.42

1994-95 57000 18.48

1995-96 68619 20.38

1996-97 88769 29.36

1997-98 102464 15.43

1998-99 99512 -2.88

1999-2000 97626 (upto 2.12.99) 38986 37.28

2000-01 156978 14.91

2001-02 213509 36.01

Source: Secondary data

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The all-round growth achieved indeed points to a rapid growth in the near

future. Tuticorin port has many industries in its vicinity. Major industries like

Southern Petrochemical industries corporation ltd, (SPIC) Sterlite copper smelter

ltd, Tuticorin Thermal power station (TTPS), DCW, Sahupuram. Chemplast,

cement factories and a number of textile mills, number of salt factories located

within the port premises and in the hinterland of Tuticorin port.

Besides the growing trends in industrial raw materials and traditional

general cargo Tuticorin port has attracted new items of general cargo like, timber

logs, granite stones fertilizers, copper concentrate, iron scrap etc. The outer

Harbour/satellite port study just concluded by MIs. CES, New Delhi in association

with Louis Berger of USA projects Tuticorin to be developed as a hut port for

containers. Tuticorin port can attract a part of the west bound container cargoes

and other container cargoes generated in the Southern states of India. Taking a

balanced view, Tuticorin can attract 20% of total Indian containers traffic.

The construction of cargo berth No: 8 in contamination of the berth No: 7 at

an estimated cast of Rs. 46.00 crores. The newly constructed 8th Berth with a

draught of maters was thrown open for traffic handling with effect from February

2002. This will increase the capacity of the port by 0.5 million tonnes. After

deepening to 10.70 mtrs the capacity will increase by another 1.00 million tones.

On completion, the berth will be offered for private participation on BOT basis.

Financial Impact of Tuticorin Port due to privatisation:

As per agreement between Tuticorin Port authorities and Ws PSA SICAL

container Ltd., the SICAL Ltd is paying royalty to the Tuticorin Port Trust for

using the Berth. In addition to the actual charges charged by the Port authorities,

the SICAL Ltd is paying Royalty amount. The Royalty amount for the 30 years is

shown in the Table 6.2.

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Table 6.2Minimum guaranteed traffic royalty rates and amount payable by

MIS. PSA SICAL Ltd.

Sr. No. ParticularsReference to Amount

Tender Clause

1. Initial Payment 56 (a) Rupees 45,000,000

2. Royalty Fees 5.6 (b & c) 4.9.2 Rupees 1,246,534,608

Period commencing Traffic guaranteeRate of

/

from date of award of from the seventhRoyalty Amount

license and at the end of berth in (TEU5)TEC (Rupees)

(Rupees)l st l2Months 0

2 d 12 Months 148,800 102 15,177,600

3 rd l2Months 188,800 133 25,110,400

4th 12 Months 228,000 174 39,672,000

5th 12 Months 268,000 230 61,640,000

6th 12 Months 300,000 306 91,800,000

7th 12 Months 300,000 410 123,000,000

8th 12 Months 300,000 554 166,200,000

9th 12 Months 300,000 748 224,400,000

10th 12 Months 300,000 1,010 303,000,000

11th 12 Months 300,000 1,313 393,900,000

12th 12 Months 300,000 1,641 492,300,000

13th 12 Months 300,000 1,969 590,700,000

14th 12 Months 300,000 2,264 679,200,000

15th 12 Months 300,000 2,490 747,000,000

16th 12 Months 300,000 2,615 784,500,000

17th 12 Months 300,000 2,746 823,800,000

18 1h 12 Months 300,000 21883 864,900,000

19th 12 Months 300,000 3,027 908,100,000

20th 12 Months 300,000' 3,178 953,400,000

2 I s' l2Months 300,000 3,337 1,001,100,000

22' 12 Months 300,000 3,504 1,051,200,000

23'd 12 Months 300,000 3,679 1,103,700,000

24th 12 Months 300,000 3,863 1,158,900,000

25th 12 Months 300,000 4,056 1,216,800,000

26th 12 Months 300,000 49259 1,277,700,000

27th 12 Months 300,000 4,472 193419600,000

28th 12 Months 3009000 49696 1,408,800,000

291h 12 Months 300,000 4,931 13,479,300,000

30th 12 Months 300,000 5,178 1,553,400,000

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Extra revenue to the Tuticorin Port Trust due to Privatisation

At the time of agreement between Tuticorin Port Trust, and Mis. PSA

SICAL Ltd, The SICAL Co Ltd had paid 450.00 lakhs as intial payment in using

7th Berth. Royalty amount received from the SICAL Ltd is additional income to

the port due to privatisation;

The royalty amounts received by the Tuticorin Port Trust are as follows

in lakhs

Year

1999-2000

2000-2001

2001 —2002

TEUsHANDLED

38986

156978

213509

Rate of RoyaltyPer TEUs

102

133

Amount received

160.12

283.97

In addition to the royalty amount received by the port Trust Interest for

initial amount is also additional revenues to the port authorities for every year.

The rate of interest for initial amount at present is 10% per annum. The interest

amount of Rs.45.00 lakhs per year is additional revenue to the port due to

privatisation.

PRIVATISATION IN OTHER SOUTH INDIAN MAJOR PORTS

Privatisation of Chennai port Trust

On the Privatisation front the Port handed over two berths in Jawahar Dock

to private companies with a view of attracting more traffic and to get a guaranteed

traffic volume. In container terminal, one of the berths is given to a private

company on a short-term lease of two years with a similar objective. The

container Terminal with 3 berths was given on a long lease for a period of 30 years

from November 2001.

With the commissioning of Ennore Port in 2001 the thermal coal meant for

Tamilnadu Electricity Board was shifted from Chennai Port. With the

commissioning of second stage at Ennore Port, all the other dusty cargoes will also

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move out to Ennore port. With these developments the Chennai Port will then be

handling mostly clean cargo such as containers and general cargo. With the

number of car manufacturing companies located around Chennai, potential exists

to attract the traffic of car exports and a trial shipment has already been carried out

with success.

The Govt. is also planning to make Chennai as the Hub Port for containers

on the East Coast, with the completion of extension of container terminal and

other modernisation plans in progress; the port is poised to become a unique Port

in the East to handle Ro/Ro traffic exclusively.

Privatisation plans at Chennai Port Trust

A consortium led by P & 0 ports, has won a 30-year concession to

privatize and development of the Chennai Container Terminal. The agreement

signed at Chennai on August 91h provides for the modernization of the current

terminal operations and development of Chennai a Major Hub port. The Indian

Government has already announced that Jawaharlal Nehur Port on west coast and

Chennai on the East coast will be developed as Hub Ports.

P & 0 Ports has taken over the Chennai Container Terminal on November

ninety days after the signing of a concession agreement of privatisation,

modernisation, operation and management of terminal. The Chennai container

terminal is already the second largest container port in India, accounting for

approximately 15 percent of the total volume. It is the only port on the East coast,

apart from Kolkata that is able to handle substantial container volumes.

The establishment of Chennai Port as a hub Port in the region will reduce

transhipment cost as well as transit time and will go a long way in helping

international trade. It will also result in considerable savings in foreign currency

for importers and exporters.

The Details regarding Private participants at Chennai Port Trust are as

follows:

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NameBerth Duratnj Original Date Extension_________

Handled Begin End Begin End

Bengal Tiger CTB - I 2 Yrs 18/01/95 17/01/97 18/01/97 17/01/98Line - oldExpress WestContainer Queyl&II

2yrs 18/01/95 18/01/97 25/12/97 01/04/98

LineACT JD-V 20 yrs 26/02/98 04/06/18

Arumaiduria Terminated onJD-I 20yrs 7/1/98

&Co 25/08/2001

Bengal Tiger CTB-I 2 yrs 17/09/99 17/09/01Line-NewChennaiContainer 30/11/20

CTB-III 30yrs 30/11/01Terminal 31

LimitedSource: Prepared from the data collected

Privatisation of Cochin Port Trust

Consistent with liberalization policy and 2 nd Generation regions of the

Government the Cochin Port has identified area for development which envisages

substantial investments from private sector. When developed, this would not only

aid in creation of infrastructure but also provide the state of art facilities for the

trade. Major development programme of Cochin Port Trust during 9th plan and

10th plan are proposed to be taken up are.

1. Establishment of a container Terminal at Vallarpadam under a Joint venture

with Cochin Port Trust and P & 0 Ports Ltd., Australia.

2. Construction of LNG terminal at Puthuvypeen

3. Development of Passenger Terminal

4. International Bunkering Terminal

5. Ship repair facilities at Cochin Port.

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Vallarpadam International Container Transhipment Terminal

Project to be implemented by the special purpose vehicle (SPV) unique just

in time in India a joint venture between Cochin Port Trust (26%) and a private

operator (74%). The project spread over 200 acres of land at Vallarpadam with

Berths measuring 2000 mts to accommodate 4 mainline and 3 Feeder vessels with

a draft facilities at Berth of 14 nits. The estimated project cost Rs.2000 crores in

two phases.

Phase 1(2000 - 2005) - Rs. 1000 crores.

Phase 11(2006-2015)— Rs. 1000 crores.

Privatisation of New Mangalore Port

On the privatisation front the Port handed over one berth to Mangalore

refineries Ltd for handling 4.6 million Tonnes crude of P.O.L. The total

investment is Rs.4 11.39 crores. The berth was constructed by the Port and funded

by Mangalore Refineries Ltd.

PRIVATISATION SCHEME IN OTHER PORTS IN INDIA

The success story in foreign ports tempted The India Major Ports also to

attempt and develop under privatisation. In India the Jawaharlal Nehru Port Trust

was the first port introduced privatisation schemes followed by Tuticorin and

Chennai Port Trusts. The following are the important key project operations in

other ports.

Jawaharlal Nehru Port Trust

Nava Sheva International container Terminal: Container Terminal being

operated by MIs. P&O Ports Ltd, Australia.

Kandla Port

M/s. - GEEPEE: Leasing of berth for bulk of Break Bulk Cargo handling.

KPT - Essar Oil: Erection of SBM for handling crue oil and products.

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Mormuguo Port Trust - The Port has leased two berths for coal handling on

privatisation.

Mumbai Port - Mumbai Port had invited two global tenders for leasing two

container berths and to give berth in India dock and another set for general cargo

equipping the berth's cost of Rs.2500 millions.

Development of Minor ports in India

The some of Minor Ports traffic has increased from 10% to 25% as the total

traffic handled at all Indian Ports. There is good scope for privatisation in this

sector too. Future projection indicates that it should grow to 100% provided that

the improvements are made in infrastructural facilities berths, dredging,

communications, traffic etc. Gujarat State has got a number of working minor

ports. They have recently commissioned private ports at Mundra, Pivavav &

Jamnagar etc. Similarly Maharastra is also taking the initiative. They had

awarded a port in Wadavan for nearly 20 berths under privatisation to P&O

Australia for development. Tamil Nadu Government is also taking the initiative

for developing the Colochel port with the help of Malaysian company. The state

Governments of Andra Pradesh, Karnataka, Orissa are also making serious efforts

to promote and develop existing minor ports and construction of additional ports

under privatisation.

Implications & Consequences of privatisation

At the outset, let it be understood in clear terms that "Privatisation" is not

the panacea for all ills. It is not the proverbial "magic wand" that will cure the

debilities that ail the Ports at the moment. The approach should be appreciated in

the context of the sincere efforts taken by Government in trying to bring about a

paradigm shift in the structure and management of the Ports by opening doors for

privatisation.

230.

Saddled by huge work force and other inherent problems, major Ports are

not able to attract more traffic or act as a commercial organization. Any effort for

public-private participation will be futile if not adequately backed appropriate

labour reforms. The diametrically opposed public-private labour philosophies

require to be harmonised; whereas the state seeks to maximize employment, the

private sector opts to work with restricted workforce.

Minor Ports have shown very encouraging signs of development during last

few years. There has been a steady increase in the percentage of traffic handled at

Minor Ports. From 9% (20.30 million tones) in 1995-96 it has nearly doubled to

17% (55.21%) in 1999-2000. Whereas this does offer promising investment

potentials. The objective should be to complement each other rather than to

compete with each other. As it is, with the squeezing hinterland, there is an

increasing competition among the Major Ports to gamer as much chunk of the

cake as possible. Thus investment in this sector without going into the intricacies

will only end up in a fiasco as witnessed in some other sector which have opened

up for private investment. This will affect the very existence of major and minor

ports. Taking advantage of liberalized regime, maritime states are also

contemplating development of the deep draft seaports without an overall master

plan for development of entire Indian coastline-this may act as a deterrent and

divert the investor's attention from Major Ports.

It is beyond doubt that the Public-Private participation, which will bring

with it professional management, functional autonomy and adequate financial

resources for development; will definitely give the much-needed fillip towards

making the Indian Ports more competitive and professional and gear them up to

face the challenges of globalisation. However, caution should not be thrown to

winds in the zest to grab the opportunities available. Many of the projects have

been non-starters simply because the investors did not make a correct assessment

of the market potentials.

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Private participation in the infrastructure development will definitely

reduce the demands on the public sector budget though this does not construe that

the state absolves its responsibilities entirely. The state will continue to retain at

least some degree of control.

On the whole, the privatisation of the Ports has become the need to the

hour, in order to remain competitive and to maintain a high and consistent

standard of service. The Government has taken positive steps towards this

direction and the Ports management and labour have attuned themselves to face

the exacting requirements of functioning as a professionally managed

organization.

In the ultimate analysis, the dependence of the economy on ports makes it

imperative that the Indian Ports discard it organizational clothing suited for

monopolistic environment.

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