New innings for the Indian ports sector

Dear reader,

India has a long coastline of over 7,500 km dotted with 190 ports accounting for 95% of India’s foreign trade. All avenues of port sector — operational, capacity and investments — have witnessed strong growth in the last decade. The PPP wave started in 1990s is now at its maximum force with global ports, shipping corporate and investors eyeing for a stake in the Indian ports sector to either balance their global ports portfolio or benefit from the India growth story.

There are about 46 projects with total investment of US$14 billion currently under execution at major and non-major ports. Over 83 with total investment outlay of US$30 billion are at the formulation stage offering opportunities for investment.

On the regulatory front, the concerned authorities are learning from their past experiences. Resultantly, the new legislations, reforms and policies have a wider scope and are ambitious in comparison to previous versions. These policies focus not only on the growth story of Indian ports sector but also on promoting India as a transshipment hub. Maritime Agenda 2010-20 —one such effort — is a guidebook for Port development in India upto 2020.

Unlike previous efforts such as National Maritime Development Plan (NMDP) — which are not so greatly successful due to execution challenges — the Maritime Agenda 2010-20 is witnessing an improved execution this time, an essential ingredient for any successful plan. However, we believe the execution of some of the large port development initiatives are not as yet at its optimal level and the PPP projects are experiencing delays. We believe that the next generation of legislations or reforms in Indian ports sector would be comprehensive to accelerate the implementation/ execution of projects.

The sector has and shall continue to witness increasing interest from Private Equity players as well as some of the large strategic players desiring to participate in the Indian Port story. Some of the Greenfield ports on the east and the west coast have been instrumental in changing the dynamics of the sector. They have set new benchmarks for infrastructure facilities and operational excellence.

This report lays down the overview of ports in India, the key drivers for development, the challenges that await the path of modernization, the global best practices and the recommendations to construct a robust ports sector in India.

We sincerely hope that you find this report insightful and useful. We would like to thank all stakeholders and industry players who have been closely associated with us for their participation in the formulation of the report.

Foreword

Ernst & Young

Sushi Shyamal Partner, Transaction Advisory Services Transportation Infrastructure and Construction Sector Leader, Ernst & Young India

Samir Kanabar, Tax Director and Sub-sector Leader - Ports & Shipping Ernst & Young India

Port Finance International

Dear reader,

India’s dynamic economy continues to rocket, opening new private investment opportunities. New infrastructure capacity at ports is now required to deal with projected demand of two billion tonnes of annual trade by 2020.

To ease congestion, boost exports and to counteract China’s trade predominance, India’s administration now wants port capacity to outstrip trade growth by 25%. India, a key tiger economy, wants to secure up to $20 billion in finance for new infrastructure, but it is also faced with the prospect of improving regulation and practices at existing ports.

The Indian administration is hatching new plans at state-run ports, which have fallen behind its booming private ports, but how will it attract regional and global operators? With new port plans under design, industry executives must be able to cast light on finance project solutions and mechanisms required to underpin private-public partnership initiatives.

The world’s eyes may be turned to India, and in particular on India’s ports, but there is still much uncertainty and nervousness around the proposed plans, and also over how best to approach this complex sector.

We’re pleased to co-present a report which will help answer some of these questions and will provide readers with a thorough understanding of the issues at stake. With just under 200 ports (major and minor) this report will seek to clarify and analyse some of the key trends and challenges and provide a guideline to the ways forward.

Cathy Hodge Director and Co-Founder Port Finance International

1 3Indian port sector: poised for growth

Regulatory reforms and initiatives

Development plan for the Indian port sector

2

Pg 6 Pg 32

Pg 18

India is fast becoming the global epicenter of economic growth and external trade as well as the second fastest growing economy in the world after China. The country’s marine sector is intricately linked with its economic activity and trade and has been a critical contributor to its competitive position in global trade.

5

Key trends in the Indian port sector

Challenges

Recommendations

4 6

Pg 50

Pg 42 Pg 60

Contents

New innings for the Indian ports sectorEngineering, Procurement and Construction (EPC): Driving growth efficiently6

Chapter 1Indian port sector: Poised for growthIndian port sector is ready to play a new inning supported by strong underlying fundamentals, regulatory reforms and privatization plans

Mor

e> Traffic handled at Indian ports

Commodity composition: traditionally dominated by petroleum, oil and lubricants

High utilization levels call for rapid capacity build-up

Key operational parameters

Development of high-quality port infrastructure critical for India

New innings for the Indian ports sector 7Engineering, Procurement and Construction (EPC): Driving growth efficiently

New innings for the Indian ports sectorNew innings for the Indian ports sector8

India is fast becoming the global epicenter of economic growth and external trade as well as the second fastest growing economy in the world after China. The country’s marine sector is intricately linked with its economic activity and trade and has been a critical contributor to its competitive position in global trade. India has an extensive coastline of more than 7,500 km and around 95% of the country’s external merchandize trade by volume, and 70% by value, is transported through maritime transport.

India has 13 major ports, Chennai, Cochin, Ennore, Jawaharlal Nehru PortTrust (JNPT), Kolkata (including Haldia), Kandla, Marmugao, Mumbai, New Mangalore Paradip, Tuticorin, Visakhapatnam and Port Blair, which are administered by the Ministry of Shipping (MoS) of the Central Government. All the major ports are governed by the Major Port Trusts Act of 1963, except the Ennore port, which is run by the provisions of the Companies Act, 1956. The country also has 176 notified non-major ports, which are under the jurisdiction of the state governments. However, only around 60 of these are operational.

The Tariff Authority for Major Ports (TAMP) is an independent authority that regulates all tariff, vessel- and cargo-related, as well as the lease rates of properties in major port trusts and the private operators located therein. The Draft Ports Regulatory Authority Bill 2011, which is currently under discussion, will provide for the establishment of regulatory authorities to regulate rates for the facilities and services provided at the ports and monitor their performance standards. The proposed Bill will not fix a specific tariff, but only lay down guidelines, and individual port authorities will work out their own tariff plans.

Exhibit1: Major ports in India

Kandla

MumbaiJNPT

Mormugao

New Mangalore

CochinTuticorin

Chennai

Port Blair

Ennore

Visakhapatnam

Paradip

Kolkata

Source: Ministry of shipping

New innings for the Indian ports sectorNew innings for the Indian ports sector 9

India’s port infrastructure constitutes 13 major ports and 176 non-major ports. Out of the non-major ports, only around 60 are operational and the rest are only fishing harbors. The country’s ports sector has witnessed strong growth over the past decade with total traffic handled by it increasing from nearly 300 million tonnes in FY01 to 883 million tonnes in FY11. The traffic-handling capacity of major ports increased at a CAGR of 7.3% during 2006–2011 to reach 645 million tonnes. During the same year, traffic handled at non-major ports grew at 8.6% y-o-y, largely due to the 12.4% y-o-y growth of Gujarat Maritime Board (GMB) ports. In this period, most major ports operated at more than 90% capacity, thereby exerting pressure on the country’s limited infrastructure. This necessitated the speedy development of non-major ports.

In the past few years, non-major ports have witnessed faster growth in cargo handling than major ports due to the capacity constraints at most major ports. Therefore, the share of non-major ports in maritime traffic handled has gradually increased from 28.5% in FY07 to 35.5% in FY11.

Exhibit 2: Total traffic handled at Indian ports, FY07–FY11, in million tonnes

463.8519.3 530.5 560.7 570.0

185.0201.1 207.8

288.8 314.6

0

200

400

600

800

1000

FY07 FY08 FY09 FY10 FY11

Major ports Non-major ports

Sources: India Infrastructure, August 2011

Traffic handled at Indian ports


Major portsBetween FY07 and FY11, traffic handled at major ports in India grew at a CAGR of 5.3%. However, after witnessing a strong growth of 5.7% in FY10, it grew at only 1.7% in major ports in FY11 due to uncertain global economic conditions, driven by the European debt crisis and slower than expected recovery of the US.

In FY11, the traffic handled at major Indian ports reached 570 million tonnes, which was well below the FY11 target of 598.2 million tonnes. NMPT, Tuticorin and JNPT achieved the highest y-o-y growth of 11.3%, 8.2% and 5.8%, respectively.

Non-major portsBetween FY07 and FY11, traffic handled at non-major ports grew at a healthy CAGR of 14.0%. The share of non-major ports in traffic handled has gradually increased from 28.5% in FY07 to 35.5% in FY11, primarily driven by the 12.4% y-o-y growth of Gujarat Maritime Board (GMB) ports between 2006 and 2011, which handled the spill-over cargo due to the congestion at major ports such as JNPT, Mumbai Port and Kandla Port. In FY11, GMB ports accounted for around 74.0% of the total traffic handled at non-major ports and 26.1% of the total cargo handled at all Indian ports.

Exhibit 3: Traffic handling at major ports, by port, in million tonnes

Port FY11 target FY11 actual Y-o-y growth (In %) FY12 target

Kandla 85.0 81.8 3.0 83.0

Visakhapatnam 70.0 68.0 3.9 67.0

Chennai 65.5 61.5 0.6 65.5

JNPT 62.0 64.3 5.8 65.0

Paradip 63.0 56.0 -1.7 63.0

Mumbai 58.0 54.6 0.0 58.0

Mormugao 50.0 50.0 0.3 52.5

Haldia 34.5 34.9 4.5 37.0

NMPT 38.7 31.6 11.3 34.0

Tuticorin 25.1 25.7 8.2 26.0

Cochin 19.1 17.9 2.5 22.0

Kolkata 14.1 12.5 -3.9 14.1

Ennore 13.2 11.0 2.9 13.5

Total 598.2 569.9 1.7 600.6

Sources: Ministry of Shipping and Indian Port Association

Exhibit 4: Traffic handled at GMB ports, FY07-FY11, in million tonnes

Source: Gujarat Maritime Board

132 148 153206 231



Commodity composition: traditionally dominated by petroleum, oil and lubricants Major ports In April–December 2011, petroleum, oil and lubricants (POLs) dominated the traffic mix at major ports with a 32% share, followed by containers, coal and iron-ore. Through FY11 and FY12 (April–December 2011), major ports witnessed a decline in their iron-ore handling due to a ban on its export by the Supreme Court of India (SBI). Coal, on other hand, witnessed increased imports due to the slow growth of domestic coal production.

Exhibit 5: Traffic handled at major ports, by commodity, FY10-FY12

175.4

101.1

71.4

99.9

17.6

95.1

180.2

114

73

87.2

19.9

95.2

132

89.9

57.2

47.8

15.8

74.3

0 50 100 150 200

POLs

Containers

Coal

Iron ore

Fertilizers

Other cargo

April - December FY12 FY11 FY10

Sources: Ministry of Shipping; India Infrastructure, August 2011

Between FY07 and FY11, container traffic at major ports grew at a CAGR of 11.6%. Its share in the total traffic increased from 15.8% in FY07 to 20.0% in FY11. It grew sharply in FY11 and is expected to increase further due to India’s first International Container Transshipment Terminal (ICTT) becoming operational at Vallarpadam in Kochi.

Exhibit 6: Container traffic and share in total traffic, FY07-FY11

73.492.3 93.1 101.1 114.0

15.817.8 17.5 18.0

20.0

0

10

20

0

40

80

120


Share in total traffic (%)

Traffic (million tonnes)

Container traffic Share in total traffic



Non-major portsAt non-major ports also POL dominates the cargo mix accounting for more than 40% of the total cargo handled.

Exhibit 7: Traffic handled at non-major ports by commodity, FY10-FY12

Year Traffic handles (million tonnes)

POL and its products

Iron ore Building material

Coal Fertilizers and fertilizer raw material

Others Total

2009-10 137.7 48.8 13.1 41.3 9.5 38.5 288.9

2010-11 153.5 42.5 14.1 58.5 11.0 35.0 314.6

2011-12* 77.8 13.8 9.9 35.9 8.5 20.5 166.4

*April-September 2011

Source: Update on Indian port sector, Ministry of Shipping

Exhibit 8: Key commodities driving cargo traffic growth

The opening of the ICTT at Cochin port, new container capacity being added at some non-major ports such as Kattupalli, Ennore and Karaikal and the expected growth in commodities being containerized currently is likely to result in increased growth of container traffic in the next 5–10 years. It registered a growth of 8.7% in 1H12.ICTT is currently facing issues due to the Cabotage Law, which does not allow international container vessels without Indian flags to engage in coastal trading in Indian waters. Container traffic is expected to see further growth once the ICTT secures a Cabotage waiver.

Cont

aine

rs

India is among the top five iron ore-exporting countries in the world. However, iron ore exports registered a negative growth of 12.3% due to a mining ban in Karnatka, which is one of the highest iron ore- producing states in the country, and the Orissa Government banning export of iron ore extracted in the state through the Gangavaram and Kakinada ports in Andhra Pradesh. Although the ban has been lifted in Karnataka, abolition of the Orissa Government's ban can give a major boost to growth of cargo in India.

Iron

ore

Import of thermal coal is expected to witness continued growth in the country due to its positive outlook and significant investments planned in the power sector (including the development of ultra- mega power projects). Coal cargo traffic recorded an increase of 20.0% in 1Q12 and a modest growth of 5.1% in 2Q12.

Petroleum has traditionally been the top cargo- generating commodity in India. Crude oil and POLs can be expected to significantly contribute to the overall cargo in view of the expansion being undertaken at existing refineries and the number of new refineries being planned in the country.

Coal

POL

Key cargo items

driving growth

Source: “Update on Indian port sector,” Ministry of Shipping


High utilization levels call for rapid capacity build-upMajor portsThe traffic-handling capacity of major ports has increased at a CAGR of 6.3% from 504.7 million tonnes in FY07 to 645 million tonnes in FY11. During this period, most ports operated at a capacity of more than 90%, thereby exerting considerable pressure on the country’s limited infrastructure.

In FY11, capacity grew by 4.5%, but an uncertain global economic scenario and lower than expected off-take of commodities such as coal and iron-ore by Indian companies has lowered capacity utilization to 88.4%.

Exhibit 9: Major ports, capacity and utilization, FY07–FY11


504.7 532.1 574.8 617.0 645.0

91.9

97.6

92.3

93.588.4

80

90

100

350

430

510

590

670


Utilization (%)Capacity (million tonnes)

Capacity Utilization


Non-major portsThe cargo-handling capacity of non-major ports stood at 375 million tonnes in March 2011 as compared to 346 million tonnes the previous year. Non-major ports handled 314.6 million tonnes of cargo in FY11 with capacity utilization of 83.4%

The traffic-handling capacity of GMB ports has increased at a CAGR of 11.2% from 198 million tonnes in FY08 to 273 million tonnes in FY11. Capacity growth of 11.9% y-o-y, coupled with a growth in cargo traffic of 12.4%, has resulted in capacity utilization at GMB ports being maintained at 84.7%.

Exhibit 10: GMB ports, capacity and utilization, FY08–FY11

Source: India Infrastructure, April-June 2011


198.0 235.0 244.0 273.0

74.765.1

84.484.7

50

75

100

150

200

250

300

FY08 FY09 FY10 FY11

Utilization (%)

Capacity (million tonnes)

Key operational parametersThe productivity of ports is indicated by their average pre-berthing and turnaround time as well as the average output per ship berth-day at them. These indicators vary widely between major ports. Since such ports operate at close to their maximum capacity, pre-berthing waiting hours are substantially high at them. Consequently, their turnaround time has also increased steadily due to their inefficiency in terms of time and their limited use of IT to streamline their operations.

On the other hand, the average output per ship berth per day has increased, since Indian ports have begun increasing their available draft to handle large ships.


Exhibit 11: Key operational performance indicators of major ports

Major port Main commodities handled

Average pre-berthing time at port (in hours)

Average turnaround time at port (in days)

Average output per ship berth-day (in tonnes)

FY10 FY11 FY12* FY10 FY11 FY12* FY10 FY11 FY12*

Kolkata POLs, iron ore and containers

5.8 3.4 0.9 3.3 3.0 3.1 2,273 2,641 2,765

Haldia POLs, iron ore and coal

33.4 27.6 15.2 3.7 3.5 2.7 6,243 6,486 6,691

Paradip POLs, iron ore and coal

1.3 2.5 1.2 2.8 2.8 2.7 13,853 14,243 15,509

Visakhapatnam POLs, iron ore and coal

19.0 2.3 2.5 3.2 2.4 2.4 10,470 10,336 10,581

Ennore Coal and iron ore 0.4 0.01 0 0.1 0.1 0.1 21,565 17,684 27,172

Chennai Containers, POLs and iron ore

1.0 1.0 0.9 2.0 2.1 2.2 11,847 11,271 10,701

Tuticorin Containers, coal and fertilizers

9.6 9.4 19.0 3.0 3.2 3.8 6,505 6,511 6,409

Cochin POLs and containers

2.4 4.6 4.7 1.8 2.0 1.6 10,829 11,752 15,709

New Mangalore POLs, iron ore and coal

0.7 0.7 1.0 1.9 1.8 1.9 13,895 14,205 13,548

Mormugao POLs, iron ore and coal

19.9 14.2 12.9 2.4 2.3 2.4 18,618 17,314 16,045

JNPT Containers and POLs

6.5 13.7 9.6 1.3 1.7 1.5 25,627 24,849 25,782

Mumbai POLs and coal 7.2 7.7 8.1 2.8 2.8 3.0 7,125 7,374 7,519

Kandla POLs and fertilizers

22.8 36.2 51.4 2.9 3.6 4.4 13,372 13,842 13,619

Average at major ports

10.0 9.5 9.8 2.4 2.4 2.5 12,478.6 12,192.9 13,234.6

*April-December 2011 Source: Ministry of Shipping; India Infrastructure, August 2011

Exhibit 12: Quay crane productivity and vessel rate comparison

Port Quay crane productivity (no. of moves/hour) Vessel rate (no. of containers unloaded/hours)

JNPT 20 40 (2 quay crane per vessel)

Port of Rotterdam 25 70 (2 quay crane per vessel)

PSA Singapore port 25-30 100 (4 quay crane per vessel)

Source: “Consolidated Port Development Plan Vol. 1,” Ministry of Shipping


India is emerging as a low-cost manufacturing hub and has a significant manufacturing presence in several sectors, including automotives, auto components, textiles, agriculture, engineering, aerospace and defense. A large number of multinational companies are moving their manufacturing bases to the country to tap the domestic demand and make India a sourcing hub for their global requirements. Despite record growth rates, the merchandise trade intensity of the country’s GDP is still below 30%, which indicates that there is still significant untapped potential for trade growth. Consequently, the demand for its ports and trade infrastructure will continue to mount as trade diversifies and grows, making a compelling case for rapid and efficient expansion of the country’s port infrastructure. Therefore, development of India’s ports and trade-related infrastructure is critical for sustaining the accelerated growth of its economy.

Although the sector witnessed a significant growth in cargo traffic, an optimum level of operations has not been achieved due to constraints related to capacity, inefficient handling

of cargo, low productivity, inadequate draft and inadequate connectivity with other modes of transportation and the hinterland.

The average capacity utilization witnessed at major ports has been above 90% in four out of the past five years, with some ports such as Mumbai port operating at utilization levels of above 100%. However, a large number of berths at some ports are not equipped with dedicated and efficient cargo-handling facilities, which has resulted in low productivity and increased turnaround time. The future generation of large vessels will require a draught of 13 to 15.5m, whereas several Indian ports cannot handle vessels that have a draft requirement of more than 12.5 m. This has forced large vessels to dock at other ports. Other issues faced by Indian ports relate to high cost structures, different tariff-setting frameworks for major and non-major ports, port security, land acquisition and environmental clearances.

In the past few years, the Government has taken several initiatives to increase its investments, especially private ones, to develop new ports, augment existing facilities, mechanize ports, and improve

connectivity and logistics to meet the challenges emerging from the increasing growth in trade. It has also recognized the importance of privatization to heighten competition in the ports sector, to increase productivity and efficiency in the segment. Furthermore, it has allowed FDI of up to 100% under the automatic route and 100% income tax exemption for a period of 10 years for investment in the port sector. However, to move toward free competition, private players seek a mechanism through which tariff on cargo-handling and port services at major ports will be determined by the market forces of demand and supply instead of through the current mechanism in which tariff guidelines are set by the regulatory authorities.

In another significant policy initiative, the Government has released a vision document, Maritime Agenda 2010–2020, with an investment plan that is focused on improvement of port infrastructure and development of capacity.

These regulatory initiatives will be discussed in more detail in the next chapter.

Development of high-quality port infrastructure critical for India

New innings for the Indian ports sectorNew innings for the Indian ports sector18 Engineering, Procurement and Construction (EPC): Driving growth efficiently18

Chapter 2Regulatory reforms and initiativesThe new legislation and reforms are more comprehensive this time. In future, we expect reforms accelerating the implementation/execution of port projects.

Mor

e> The National Maritime Development

Programme

Maritime agenda 2010-2020

Investment plan

Ports Regulatory Authority Bill 2011

Other policy reforms and initiatives

Tax environment and reforms

New innings for the Indian ports sectorNew innings for the Indian ports sector 19Engineering, Procurement and Construction (EPC): Driving growth efficiently


The National Maritime Development Programme The Government launched the National Maritime Development Programme (NMDP) in 2005, with a total proposed investment of US$20.9 billion (INR1,003 billion), covering 387 projects that were to be implemented by FY12. Encompassing ports, inland water transportation (IWT) and shipping projects, the program is aimed at increasing capacity and private sector participation, and thereby, improving the quality of services provided by and the efficiency of Indian ports and the country’s shipping sector.

For major ports, 276 projects were identified with an anticipated investment of INR558 billion from April 2005 to March 2012. These projects are expected to increase the total capacity of major ports to 800 million tonnes by the end of FY12. Out of the total investment envisaged, INR36.1 billion was expected through budgetary support, INR137.7 billion from each port’s internal revenues, INR345.1 billion from the private sector and INR39.2 billion from other sources, including the Ministry of Railways and the National Highway Authority of India (NHAI). Projects were categorized under five broad development heads:

• Projects related to port development (construction of jetties and berths)

• Procurement, replacement or upgrading of port equipment

• Deepening of channels to improve draught

• Projects related to port connectivity

• Other related schemes

In major ports, 276 projects were undertaken under the NMDP to cover the entire range of activities.

Category Number of projects

Construction/up gradation of berths 76

Equipment up gradation/ modernization schemes 52

Deepening of channels and berths 25

Rail-road connectivity 45

Other related schemes for creation of backup facilities 78

Source: Maritime Agenda 2010-2020

As of 31 March 2010, only 50 projects (less than 20% of what was planned) were completed at a cost of INR57 billion. NMDP’s failure to achieve set goals was primarily due to poor planning and execution, which resulted in significant delays. Among the most prominent factors were delays in obtaining approvals from the Ministry, in clearance from the Ministry of Environment and Forests as well as State pollution Control Boards, and in tendering and contract procedures.

Exhibit 13: Category of projects planned under NMDP


In January 2011, the Ministry of Shipping introduced its perspective plan for the next 10 years. Maritime Agenda 2010–2020 replaces the current NMDP, which was launched in 2005 and was to end in March 2012. Both the programs focus on the development of port infrastructure with the significant involvement of the private sector. The Maritime Agenda 2010–2020 will build on the momentum generated by the NMDP in the port sector and expects to take total port capacity to around 3,200 million tonnes to handle around 2,500 million tonnes of cargo by 2020, in line with the anticipated growth.

A total of 352 projects have been identified for implementation at major ports under the Maritime Agenda 2010–2020. The maximum number of projects (around 31%) out of the total number relates to construction or reconstruction of berths and jetties. Some of the key projects include the fourth container terminal and 330 meter extension of the container berth at JNPT, the iron ore terminal at Mormogao port, the coal-handling facility and container terminal at New Mangalore port, and the mega container terminal, dry port and multi-model logistics hub at Chennai port.

Exhibit 14: Details of port projects planned under Maritime Agenda 2010–2020

Projects Phase-I (2010-12) Phase-II (2012-17) Phase-III (2017-20) Total

Major ports (million tonnes)

Deepening of channels, berths 6.2 (13) 2.0 (17) 0.0 (10) 8.2 (40)

Construction/reconstruction of berths/jetties 267.9 (51) 326.7 (48) 111.7 (16) 706.3 (115)

Procurement of equipments 33.7 (35) 7.6 (240) 0.0 (13) 41.3 (72)

Rail/road connectivity works 0.0 (7) 0.0 (120) 0.0 (70) 0.0 (26)

Other works 7.4 (35) 3.9 (45) 0.0 (19) 11.3 (99)

Total 315.2 (141) 340.2 (146) 111.7 (65) 767.1 (352)

Non-major ports (million tonnes)

Deepening of channels, berths 0.0 0.0 0.0 0.0

Construction/reconstruction of berths/jetties 240.1 680.3 372.6 1,293.1

Procurement of equipments 0.0 0.0 0.5 0.5

Rail/road connectivity works 0.0 0.0 0.0 0.0

Other works 0.0 0.0 0.0 1,293.6

Total 240.1 680.3 373.1 1.293.6

Grand total 555.3 1,020.6 484.8 2,060.7* Figure in parenthesis show the number of projects in the respective categories Source: India Infrastructure, June 2011

Exhibit 15: Ports capacity and traffic projections, FY11–FY20, in million tonnes

Source: Maritime Agenda 2010-2020


1,020 1,240 1,4741,794

2,0842,350

2,592 2,761 2,912 3,130

8841,032 1,189 1,391

1,607 1,814 2,019 2,190 2,326 2,495

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

Maritime agenda 2010–2020

Maritime agenda 2010–2020 launched to bring Indian ports at par with international ones in terms of performance and capacity


Traffic growth scenarioOverall port traffic in the country is expected to grow at a CAGR of 12.2% from 884 million tonnes in FY11 to 2,495 million tonnes in FY20. The traffic at non-major ports is expected to grow at a faster CAGR of 16.9% during FY11–20 from 314 million tonnes to 1,280 million tonnes. As compared to this, the traffic at major ports is expected to grow at a CAGR of 8.8% from 570 million tonnes to 1,215 million tonnes during this period. The share of non-major ports in overall port traffic is anticipated to increase to 51% by 2020 from 36% in FY11.

Container and coal traffic is projected to grow at a CAGR of 16% and 15%, respectively, during FY11–20. At major ports, POLs and container freight are expected to account for 50% of the total traffic in FY20. At non-major POLs, container and coal freight is projected to account for more than 60% of the total traffic in FY20.

Exhibit 16: Total port traffic, by port category, in %

Source: Maritime agenda 2010-2020

Major ports Non-major ports

65% 61% 57% 53% 51% 51% 51% 50% 49% 49%

36% 39% 43% 47% 49% 49% 49% 50% 51% 51%



Exhibit 17: Port traffic, by commodity and port category, in %, FY20


25.8

16.1

9.6

27.1

21.4

Non-major ports

POLs Containers Iron ore Coal Other cargo

27.1

23.011.3

18.4

3.4

16.8

Major PortsCapacity growth scenarioThe overall port capacity in the country is expected to grow at a CAGR of 13.3% from 1,020 million tonnes in FY11 to 3,130 million tonnes in FY20. The capacity at non-major ports is projected to expand at a faster CAGR of 18% during FY11–20 from 375 million tonnes to 1,670 million tonnes. As compared to this, the capacity at major ports is expected to grow at a CAGR of 9.5% during this period, from 645 million tonnes to 1,460 million tonnes. The share of non-major ports in port capacity is anticipated to increase from 36.8% in FY11 to 53.4% by 2020.

Exhibit 18: Ports capacity and growth, by port category, FY11–FY20


0.0%

8.0%

16.0%

24.0%

32.0%

40.0%

0

400

800

1,200

1,600


Y-o-Y growthCapacity (million tonnes)

Capacity (major) Capacity (non-major)

y-o-y growth (major) y-o-y growth (non-major)


Investment planIn the case of major ports, the Government plans to invest INR1,094.5 billion for an incremental capacity of 767 million tonnes. Out of this, the private sector is expected to contribute more than 66%, and the rest will be funded by budgetary support for the Central plan as well as internal and extra budgetary resources. The Government has identified a total of 352 major port projects, with construction or reconstruction of berths and jetties accounting for one-third of the total projects.

Kandla port will continue to be the largest major port in the country, with a capacity of 194.4 million tonnes by FY20, followed by Paradip (with 157.5 million tonnes, Visakhapatnam (with 148.7 million tonnes), JNPT (with 142.2 million tonnes) and Chennai (with 140.3 million tonnes). The investment projected at these ports under the Maritime Agenda is as follows:

S. no Port Phase I Phase II Phase III

No. of projects

Outlay (INR billion)

No. of projects


No. of projects


1. Kandla 11 39.7 14 147.5 3 13.1

2. Paradip 11 22.5 6 19.8 4 3.8

3. Visakhapatnam 27 33.7 19 64.6 10 41.0

4. JNPT 12 94.6 10 118.5 1 0.2

5. Chennai 9 52.2 13 42.3 7 11.2


Exhibit 20: Major ports development projects, by category

Category Number of projects Internal funding (INR billion)

Private sector funding (INR billion)

Construction/reconstruction of berths and jetties

115 117.5 429.6

Equipments procurement 72 32.1 17.3

Deepening of channels and berths

40 85.9 -

Rail-road connectivity 26 31.8 17.9

Other works 99 98.3 264.0


Exhibit 19: Development plan for key major ports


In the case of non-major ports, the Government plans to invest INR1,679.3 billion for an incremental capacity of 1,294 million tonnes. Out of this, the private sector is expected to contribute 96% of the fund requirements (INR1,613.3 billion), while the rest will be provided by the state governments.

Gujarat is expected to continue leading the non-major port segment, with a 44% share (INR742 billion) in planned investments over the next 10 years. Maharashtra, Orissa and Andhra Pradesh are also expected to receive funding of more than INR200 billion each to develop their non-major ports over the next decade.

Exhibit 21: Non-major ports development projects, by state

State Capacity addition (million tonnes) Internal funding (INR billion) Private sector funding (INR billion)

Gujarat 620.9 16.7 725.7

Orissa 199.2 24.6 212.8

Andhra Pradesh 195.2 - 335.4

Maharashtra 155.1 19.7 184.5

Karnataka 51.0 3.0 67.6

Tamil Nadu 50.5 - 69.3

Kerala 20.1 - 18.1Source: Maritime agenda 2010-2020


Priority areasMaritime Agenda 2010–2020 has identified the following priority areas to meet the

infrastructure needs of and tackle the challenges faced by India’s port sector:

Increase in port capacity (of 3,130 million tons) to handle 2,495 million tons of trafficEnhancement of port performance to bring it at par with world-class international ports

Establishment of India as a key hub for sea freight movementsDevelopment of a seamless policy framework to attract private sector funds

Targets

Priority areas

• Major ports to have a minimum draft of 14 meters and hub ports of 17 meters

• Full mechanization of cargo-handling• Development of adequate storage• Strengthening Dredging Corporation of• India through acquisition of dredgers• Focus on inter-modal connectivity• Development of two hub ports — one each

on the west and east coasts — Mumbai (JNPT), Kochi, Chennai and Visakhapatnam

• Development of two new major ports• Encouraging major ports to set up ship

repair and maintenance hubs• Action taken on Sethusamudram Canal

Project, based on the Supreme Court’s orders

• Integration of Port Community system (PCS) with all stakeholders

• Implementation of PCS at non-major ports• Introduction of modern security systems• Maintenance of security of Single Point

Moorings (SPMs)• Review of safety systems in the ports• Implementation of Vessel Traffic

Management System (VTMS) for smooth movement of vessels

• Establishment of Automatic Identifications System (AIS) network along coasts

• Completion of the Vessel Traffic Service (VTS) in the Gulf of Kutch

• Establishment of the Real Time Kinematic (RTK)

• Drive toward green ports• Designation of Emission Control Areas

(ECAs) for specific parts of India’s coastal waters

• Designation of Particularly Sensitive Sea Areas

• Port biological baseline survey and risk assessment of nine major ports

• Marine disaster and oil pollution response mechanism

• Use of non-conventional sources of energy for lighthouses and aids to navigation

• Promotion of building of green ships• Simplification of the environment clearance

process proposed for port projects

• Corporatization of major ports• Transformation of major ports to landlord

ports• Periodic review of PPP processes and

documents• Implementation of new land policy for major

ports• Initiation of policy to prevent monopoly in

major ports• Implementation of new policy for captive

berths in major ports• Establishment of a Port Regulator at all the

ports to set up, monitor and regulate services and technical and performance standards

• Initiation of review and simplification of tariff-fixing mechanism at major ports

• Simplification of environment clearance process for port projects

• Shifting of transshipment of Indian containers from foreign to Indian ports

• Establishment of Indian Ports Global (a special- purpose vehicle for making investments in ports)

Enhancement of capacity

Technology initiatives Environmental sustainability

Policy initiatives


The Ministry of Shipping (MoS) plans to overhaul the law on the structure of port tariff. The proposed regulatory structure envisages a single regulator, the Major Ports Regulatory Authority (MPRA), for major ports and ports under the jurisdiction of state governments. The proposed MPRA will replace the Tariff Authority of Major Ports (TAMP), once the Bill (which is at the discussion stage currently) is implemented.

Among the issues that ought to engage the MPRA’s attention:

• Inconsistency in the tariff scenarios in which major and non-major ports operate

• Inconsistency among major port terminals operating under various tariff guidelines

• Investor uncertainty engendered by frequent changes in the rules, sometimes with retrospective effect

Key highlights of MPRA:• The MPRA will be responsible for formulating guidelines, principles, as well as

the approach and methodology for setting rates for the facilities and services provided at port terminals, including those run by private operators.

• The Bill also mandates that all the maritime states set up a separate port regulatory authority to oversee non-major ports. Failing to abide by this regulation will bring such ports under the purview of the regulatory authority of major ports. However, a state regulator will have the liberty of setting rates, although these will need to comply with the common guidelines issued by MPRA.

• The Central and state regulatory authorities are required to form a three-member team each, which should include a chairman. Port authorities and private operators operating facilities with handling capacity of less than 5 million tonnes of cargo a year are to be kept outside the purview of these regulatory authorities.

• The regulator is also entrusted with the power to take action (including imposition of fines) against port operators for the violation of regulations. The Bill provides for the establishment of an appellate tribunal, which is to be known as the Port Regulatory Authority Appellate Tribunal, to adjudicate disputes between two or more service providers or service providers and consumers. Its rulings can only be challenged in the Supreme Court.

On the other hand, the present regulator, TAMP, only covers major ports, except the Mumbai, Kandla, Haldia, Visakhaptnam and Chennai ports, which are centrally controlled. The maritime states such as Maharashtra, Gujarat, Goa, Orissa, Andhra Pradesh, Tamil Nadu, Karnataka, Kerala and West Bengal have the freedom to set their own tariffs.

With the opening up of several new ports and due to increasing privatization, major ports have been rapidly losing their market share. This Bill focuses on providing a uniform platform for government-owned major ports as well as state-controlled ports in the country by giving them the flexibility to fix their own tariffs. The new law will encourage major ports to secure investments in order to provide enhanced services and reduce the turnaround time for ships. It also aims to ensure speedy dispute resolution at non-major ports and help in improving monitoring of contracts awarded.

Ports Regulatory Authority Bill 2011 Proposed

implementation of Ports Regulatory Authority Bill 2011 to provide a level playing field for major and non-major ports


Captive port policyThe MoS has recently unveiled a captive port policy, which aims to provide a level playing field to private companies with their public sector competitors. Under the provisions of this policy, the Government will allot captive berths at major ports to private companies, and enable them to utilize these facilities exclusively for their own goods. It is expected that captive berths will result in reduced berthing and turnaround time and ships will not have to wait indefinite periods to berth.

According to the policy, port-based industries that are permitted to set up captive facilities will have to invest funds to construct, maintain, manage and repair such facilities for a maximum period of 30 years. Captive users will be responsible for deepening and maintaining the water depth at a terminal.

The entity setting up a captive facility will have to handle the minimum guaranteed cargo (70% of the optimum capacity of a project) every year, pay lease rent on land and share its revenue with a government-owned port, based on the rates set by the TAMP.

Port connectivity by railCapacity creation and mechanization of ports have been the priority areas for the port sector to improve performance in recent times. The performance of ports can also be significantly enhanced by improving connectivity and supporting infrastructure to them. Keeping this in mind, the Government has passed some regulations relating to minimum required connectivity to ports. This includes at the minimum that four-lane road and double-line rail connectivity is available for major ports.

Land policy for major ports, 2010All the major ports in India have a combined land asset of more than 250,000 acres, out of which 20% is not in use currently and can be leased out. Globally, ports use the land at their disposal for industrial purposes, which enhance their sustainability by providing captive cargo. They generally utilize their land for port-related activities as their first priority, which makes it extremely important for them to monitor their land use to ensure its optimum utilization. The same principal forms the cornerstone of formulation and implementation of land policy for major ports.

Other policy reforms and initiatives


Salient points of the new policy:

• Every major port is to have a land-use plan that is approved by its respective board.

• Allotment of land in a custom-bound area may be on a license or medium-term lease basis for activities that are directly related to port operations or for those that are not directly related to these, but help port activities, sea trade and security-related activities. Allotment should be in accordance with approved SOR or rates approved by a competent authority.

• Ports can set up common user infrastructure and recover charges from users of the facilities on a monthly or per unit basis.

• Land licenses outside a custom-bound area may be for up to a 30-year period or up to 99 years with the approval of the MoS for port related as well as non-port-related activities, with a preference for port-related ones.

• Land should normally be leased through a competitive bidding process and the reserve price of such plots should be normally 6% of the market value of the plot, in accordance with the “ready reckoner” published by the state government or the rates obtained in recent tenders for comparable land or SORs prescribed by TAMP. However, Port Trust Boards are empowered to reduce the rates in specific cases, depending on the circumstances. The reasons need to be recorded in writing.

• Land can be allotted on a nomination basis to government departments, Central and State Public Sector Undertakings or private parties, in accordance with Scale of Rate (SOR) or rates approved by the competent authority with due justification.

• Land can be leased upfront by a port only with the approval of its board of trustees. This implies that there is a one-time consideration amount for the lease period and a nominal lease rent that is to be collected every year during the lease period.

• Specific procedures for renewal of a lease have to be followed. The port should consider renewing a lease only if it does not require the land for its own use and the renewal is consistent with its land-use plan.

Policy on Public Private Partnership projectsPublic Private partnership (PPP) projects were introduced in the Indian port sector in the late 1990s to access private capital for large-scale capital expenditure in order to increase port capacity, and improve the operating efficiency and performance standards of major ports. To encourage flow of foreign capital, the Government has allowed up to 100% FDI under the automatic route for construction and maintenance of ports and harbors.

Going forward, PPP is expected to be the preferred mode for development of port terminals and other commercially viable activities in major ports in the country. Standardization of Request for Quotation (RFQ), Request for Proposal (RFP) and Model Concession Agreement (MCA) and formulation of guidelines for fixing upfront tariffs have made the PPP process transparent and given confidence to investors.


Other key regulatory initiatives• The Government is actively implementing electronic data interchange (EDI)

at Indian ports with its centralized web-based port community system (PCS) initiative under its “e-Trade” project.

• In July 2010, it announced its plans to install radiation monitoring portals (RMPs) in all major Indian ports by 2012. At present, customs, which is empowered to check import-export cargo, visually examines imported steel junk. However, RMPs will only help to prevent smuggling of radioactive hazardous material.

• In May 2010, the MoS approved the establishment of the Indian Maritime Casualty Investigation Cell in view of the recent growth in marine traffic, which resulted in the rising incidence of shipping causalities and consequent loss of lives and ships as well as marine pollution.

• The cell will be in line with the Code of International Standards and Recommended Practices for Safety Investigations into a Marine Casualties or Marine Incident, which the International Maritime Organization implemented in 1 January 2010.

Tax environment and reformsDirect taxThe Government is currently offering a special tax incentive for investment in the port sector by providing a 10 year tax holiday to enterprises engaged in developing, operating and/or maintaining ports, inland waterways and inland ports. Accordingly, the entire profit earned from such businesses is allowed as deduction for a period of 10 consecutive assessment years out of 15 years commencing from the year in which the enterprise started the specific business. Minimum Alternate Tax is levied additionally in cases where the income computed on normal provisions is less than the specified percentage (currently 18.5% plus applicable surcharge and education cess) of “book profit.”

The Government proposes to introduce the Direct Tax Code, 2010 (DTC) to mark a new era in the Indian tax scenario after more than 50 years of the current Income Tax laws. The DTC is the Government’s attempt to simplify and rationalize existing tax laws, rates and exemptions and make them more equitable. It is expected to replace the current Income Tax Act, 1961 and was supposed to be effective from 1 April 2012. However, this deadline has been postponed and the Government will notify the date from which it will be effective.

The DTC is meant to provide direct incentive for investment. Accordingly, the Government proposes to replace profit-linked tax incentives with investment-linked ones to encourage additional investments in the port sector. Therefore, the taxpayer


will be first allowed to recover all capital (excluding that on land, goodwill and financial instruments) and revenue expenditure and will be liable to tax on profits made thereafter. Accordingly, under investment-linked incentives, there will be no tax liability till the time investment costs are recovered. Therefore, the period spent in recovering such expenditure will be regarded as a tax holiday.

Furthermore, in the case of a taxpayer already claiming a tax holiday (profit-linked) for a period of 10 years under the current Income Tax Act, and if this tax holiday has not expired on the date of DTC becoming effective, the profit-linked incentives available under the current Income Tax law will continue to be eligible for the taxpayer under the DTC for the unexpired period. However, eligibility for profit linked tax incentives under DTC for the unexpired period in such a case is subject to the following conditions:

• The method of computation of profits for the unexpired period of tax holiday will be according to the provisions of the DTC. Furthermore, capital expenditure and pre-commencement expenses will not be allowed as deduction while computing the profits of the specified business.

• The unexpired period of tax holiday will not include a period for which this tax holiday is not allowed under the current tax laws.

Indirect tax• Service tax

Service tax was introduced on port services in 2001. This service category covered a number of services provided within a port by any person authorized by a port or airport. In the Union Budget 2010, the scope of port services was expanded by removing the pre-condition of specific authorization from the port or airport authority for levy of Service tax. Furthermore, the definition of port services was amended to clarify that all services provided entirely within a port were be classified as port services.

In view of this amendment, all services provided within a port are liable to Service tax under the service category of port services. Moreover, services that are otherwise exempt from Service tax or are not covered under the Service tax law could now attract Service tax as port services if these are provided within the port.

• CENVAT credit

Custom and excise duties paid on input used for construction of ports is not likely to be eligible for CENVAT credit on account of specific exclusion of the definition of “inputs” with effect from 1 April 2011 for cement, angles, channels and other items used for construction of factory sheds and buildings or laying the foundation or making structures for support of capital goods. Ongoing litigation continues for claiming CENVAT credit on steel and cement used to construct ports prior to 1 April 2011.


Chapter 3Development plan for the Indian port sectorIn the last decade, private participation has gained substantial traction and its role is expected to strengthen further in the future.

Mor

e>

Development plan for major ports

Development plan for non-major ports


In the last decade, private participation has gained substantial traction and its role is expected to strengthen further in the future. According to Maritime Agenda 2010 –2020, an investment of INR1,094 billion will be required in major ports in three phases by 2020, out of which 66% (INR729 billion) is expected to be contributed by the private sector. In non-major ports, it is projected that the private sector will make 96% of the total investment of INR1,679 billion to create additional capacity worth 1,294 million tonnes by 2020.

The preferred route for private sector participation is by open competitive bidding through one of the following structures:

Landlord model Joint venture model Private service model

The Government builds all the infrastructure, which is financed by public funds, and then leases it to aprivate concessionaire who invests in and operates the terminal.

The Government acquires a minority stake in a JV entity and a private party a majority stake and management control. The JV undertakes construction and operation of the port.

The Government grants an all-inclusive concession to a private party to build and operate aport. It may provide additional support through grants or loans to the private entity.

Exhibit 22: Types of privatization model

Development plan for major portsTill September 2011, a total of 30 PPP projects, entailing a total investment of over INR95 billion, had been completed and was in operation at major Indian ports. These projects have added 205 million tonnes of capacity. The prominent ones among these include the Nhava Sheva Container Terminal at JNPT (commissioned in 1999), the third container terminal at JNPT (commissioned in 2006), the second container terminal at Chennai port (commissioned in 2009), the recently commissioned facilities (2011), including an iron ore and a coal terminal, at Ennore and ICTT at Cochin, Vallarpadam.


S no. Name of project Capacity (MMTPA) Project cost (INR billion)

Structure Date of completion

JNPT Container terminal, NSICT BPCL Jetty Third container terminal

13.2 5.5

15.6

7.5 2.0 9.0

BOT BOT BOT

Apr-99 2-Feb 6-Oct

Kandla Fifth Oil Jetty Oil jetty awarded to M/S IOCL Container freight station Oil Jetty related facilities at Vadinar (ESSAR) Container Terminal (Phase 1 & 2)

2 2 3

12 7.2

0.2 0.2 0.4 7.5 4.5

Captive Captive Captive Captive BOOT

Apr-98 1-Mar 4-Feb 6-Dec 7-Mar

Paradip Captive Fertilizer Berth Captive Fertilizer Berth Construction of SPM captive berth Mechanization of cargo handling Project-1 Mechanization of cargo handling Project-2 Mechanization of Central Quay-3 Berth

4 4

10 2 2 2

0.2 0.3 5.0 0.4 0.3 0.4

Captive Captive Captive Tendering Tendering Tendering

Aug-95 Aug-99 8-Dec 9-Apr 9-Apr 10-Mar

Mormugao Multipurpose Berth No. 12 Multipurpose Berth no. 4A Mechanization at HDC berth No. 2 Mechanization at HDC berth No. 8

0.5 3 4 4

0.3 1.5 0.8 0.8

BOT BOT BOT BOT

1-Jan 3-Dec 10-Sep 10-Sep

Chennai Container terminal at Chennai Development of 2nd container terminal

6 9.6

0.1* 5.0

BOT BOT

7-Mar 9-Sep

Cochin Crude Oil handling facility ICTT at Cochin Vallarpadam

13.5 36

7.0 21.2

Captive BOT

7-Dec 11-Feb

Ennore Marine Liquid Terminal at Ennore Development of Iron ore terminal Development of Coal terminal for users other than TNEB

3 12

8

2.5 4.8#

4.0

BOT BOT BOT

9-Jan 11-Feb 11-Feb

Vishakapatnam Container Terminal, outer harbor Multipurpose Berth - EQ-8 & EQ-9

1.6 6

1.1 2.0

BOT BOT

3-Jun 4-Jul

Mormugao Bulk Cargo Berth No. 5A & 6A 5 2.5 BOT 4-Jun

New Mangalore Construction of captive Jetty for handling coal

3 2.3 Captive 11-Sep

Tuticorin Container Terminal (Berth No. 7) 5 1.0 BOT Dec-99


Exhibit 23: Operational private sector/captive port projects at major ports


Another 18 projects entailing an investment of over INR128 billion are ongoing at various stages at major ports which are expected to add 105 million tonnes in capacity.

Port Name of the project Capacity Project cost (INR million)

Status

Ennore Construction of container terminal 18 MTPA 14,070 Expected to be completed by FY14

Mumbai Construction of two new off-shore container berths and development of container terminal berth

0.8 MTEUs 14,610 Agreement signed with ICPTL and expected to be completed by December 2012

Kandla Construction of 13 to 16th cargo berth

8 MMTPA 7,555 13th Berth - WIP, 14th Berth - RFQ invited, 15th Berth - LoA issued to IMC, 16 Berth - LoA issued to PSL

Development of dry-bulk terminal 14.1 MT 10,600 Awaiting security clearance, environment and CRZ clearance received

Setting up of SPM and allied facilities 12 MT 6,285 Concession agreement to be signed with successful bidder by April 2012

Construction of barge jetty 2 MT 277 Award of concession given to IKBLL

Barge Handling facilities at Bunder Basin

3 MT 1,096 RFQ re-invited concession agreement to be signed with successful bidder by April 2012

Development of oil jetty to handle liquid cargo and ship-bunkering terminal

3 MT 2,765 EOI evaluation completed; feasibility report, RFQ and TAMP proposal under approval; RFQ to be invited shortly

Mormugao Development of Berth 7 as second coal handling terminal

4.61 MT 406 Physical progress of overall project 21.6% and financial progress 27.8%

Cochin Development & Operation of ICTT at Vallarpadam

12.5 MT 21,180 Phase I of the ICTT Project commissioned on 11th February 2011

Set up LNG re-gasification terminal 5MT 415 Petronet LNG will commission it by end of 2012

New Mangalore Construction of coal jetty 3 MTPA 2,300 Udupi Power Corporation ltd will complete the construction shortly

Setting up of mechanized iron-ore handling facilities at berth 14 by SICAL Logistics Limited

3 MTPA 2,960 Delayed due to ban on measurement of Iron ore by State Government

Tuticorin Construction of North cargo berth 7 MTPA 375 Berth construction commenced on 15 January 2010

Chennai Mega container terminal 36,860 Received offer and being valued

Vishakapatnam Construction of WQ 6 berth in inner harbor for multi cargo berth

Vishakapatnam 1,145 Expected to be completed by June 2013

Construction of EQ- 10 berth in inner harbour for handling Liquid Cargoes & Chemicals

Mechanized coal-handling facilities at general-cum-bulk cargo berth in outer Harbour

1.85

5.38

554

4,441

Expected to be completed by April 2013

Expected to be completed by October 2012


Exhibit 24: Ongoing private sector/captive port projects at major ports


Around 33 projects, with a proposed outlay of INR165 billion, are currently being formulated at various major ports. This is expected to add over 552 million tonnes in capacity.

Port Name of project Capacity (MT)

Project cost (INR million)

Status

Paradip Development of Deep Draught Iron Ore berth Development of Deep Draught Coal Berth

10.0

10.0

5,914

4,790

Concession agreement signed in July 2009

Concession agreement signed in November 2009

Development of Multi-Purpose berths to handle clean cargo including containers

5.0 3,873 Letter of award issued in July 2010 to Consortium of Sterlite Leighton; consortium in process of forming SPV after which concession agreement to be signed; project expected to be completed by December 2014

Ennore Construction of LNG Terminal 2.5 2,700 IOCL preparing DPR

JNPT Fourth container terminal Development of standalone container-handling facility

2.8

10.0

41,000

6,000

Likely date of completion of the phase 1 September 2014

Bids to be received shortly

Mumbai Development of berth from 10 to 12 at Indira Dock as conventional cargo terminal New cruise terminal near Gateway of India

na

na

300

18,600

Not received any offer yet

Evaluation of location satisfying security requirements

Kandla Barge handling facilities at Khori Creek Construction of T shape jetty Setting up of barge jetty at Tuna on captive use basis Construction of barge jetty at Tuna on BOT basis Strengthening of oil jetty 1 and 2 to handle 13/14 meter draught vessels Development of port- based multi-product SEZ

4.0

14.0

1.5

6.0

1.6

na

1,000

15,000

220

2,553

154

10,950

Under planning stage Scheme to spill over to Thirteenth Five Year Plan — at planning stage Shree Renuka Sugars’ submission of application, which is being evaluated Feasibility Report, RFQ and TAMP proposal under approval Detailed estimate under preparation. In-principle approval from MoS for formation of SPV and concurrence of state government awaited; KPT’s appointment of NIO, Mumbai to carry out EIA studies

New Mangalore Development of container terminal na 2,697 No bid received for project, which is under review

Exhibit 25: Private sector/captive port projects under formulation stage at major ports


Vishakapatnam Installation of mechanical unloading facilities for fertilizers at EQ-7 berth in inner harbor

Development of EQ-1 berth by replacing existing EQ1 berth and part of EQ2 berth in inner harbor to handle steam coal

Development of EQ-1A berth on south side of EQ-1 berth in inner harbor to handle thermal and steam coal

Installation of mechanized iron ore handling facilities at WQ-1 berth in inner harbor on DBFOT basis

Development of WQ-7 berth including mechanized facilities in inner harbor for handling import other dry bulk cargo

Development of WQ-8 berth including mechanized facilities in inner harbor for handling export other dry/break and import general cargo

Development of SBM facility for crude oil (HPCL)

3.6

6.4

7.4

9.0

5.1

na

8.0

2,176

3,232

3,134

2,752

2,009

na

9,000

RFP issued on 31.12.2010; awaiting security clearance; price bids to be opened on receipt of security clearance Concession agreement signed in August 2011; recommendation by EAC for issue of amendment; environmental clearance to be received Environmental clearance to be received; concession agreement to be signed shortly Upfront tariff approved in December 2011; security clearance received and proposal sent to Ministry in February 2011; PPPAC meeting to be fixed by Ministry RFQ opened in August 2011; upfront tarrif approved and proposal sent for security clearance in June 2011; SFC memo, DCA, RFP, TEFR sent to Ministry in July 2011 EOI issued in August 2011 MoU entered with HPCL in March 2008 on allotment of land; facility commissioned in February 2011

Mormugao Development of Iron Ore export terminal at the waterfront west of existing breakwater Development of mechanized coal import terminal at berth No.11

7.2

400.0

7,210

4,250

Cabinet Committee on Infrastructure clearance awaited PPPAC memo sent to MoS; TAMP notified upfront tariffs; 13 parties shortlisted, subject to security clearance

Cochin Setting up of an International Bunkering Terminal. Setting up of an International Cruise Terminal at Cochin Port

5.0

na

950

3,750

RFP document issued in February 2011, due date of submission October 2011 Project being reconsidered

Chennai Development of Ro-Ro cum multi-purpose berth and multi level car park at Bharathi Dock

na 1,000 0

Finalization of DPR appointment of TA under process

Tuticorin Conversion of berth No. 8 as container terminal Construction of One Number of Shallow Draught Berth Development of North Cargo Berth – II Upgrading of mechanical handling equipment in berth 1 to 6 and berth 9

7.2

2.0

7.0

11.9

3,122

654

3,322

801

Awaiting Ministry’s approval on restriction of monopoly policy decision; likely commission period December 2011 RFQ opened on June 2010; likely commission period September 2012 On receipt of Ministry’s approval for security clearance, RFP to be issued to shortlisted bidders; likely commission period July 2012 Commissioning delayed

Haldia Construction of a riverine jetty north of 3rd Oil Jetty Construction of a riverine jetty south of the 2nd Oil Jetty

3.8

1.5

995

471

RFQ issued in February 2010

Feasibility studies undertaken; RFQ to be issued



Development plan for non-major portsNon-major ports have grown more rapidly than major ones in the past five years. In the future, they are expected to attract a larger share of traffic, given capacity constraints and project-implementation delays at major ports.

Non-major ports are being developed under the jurisdiction of the state maritime boards (SMBs), which have been aggressively making private investments in the former. State governments have formulated and implemented attractive policies for greenfield port development as well as for port-based activities including ship building and repair.

At present, around 28 port projects, with an investment of over INR487 billion, are in progress at various SMBs ports. These projects, when completed, are expected to add around 375 million tonnes in capacity.

State Name of project Port Capacity (MT)


Status

Gujarat Development of coal terminal Navy jetty Establishment of SBM by Cairn Energy Second SBM and crude oil terminal Solid cargo terminal Coal jetty by Essar Dahej port development Bulk cargo terminal Expansion of LNG handling facilities Cement jetty Cement jetty

Mundra Porbandar Bhogat Mundra Dahej Salaya Dahej Hazira Dahej Akrimoli Kharo creek

15.0 1.0 7.0 9.0 8.0 5.0

14.0 15.0

3.0 4.0 3.0

20,000 500

10,000 9,000 6,000

10,000 12,000 10,000

4,500 610

1,400

Scheduled to be completed by end of FY12 Construction in progress Construction in progress Construction in progress Construction completed Construction in progress Construction in progress Construction in progress Work is in progress Construction in progress Construction in progress

Maharashtra Development of all-weather and multipurpose port Development of all-weather and multipurpose port Development of all-weather and multipurpose port Development of all-weather and multipurpose port with ship-repairing facility Development of all -weather and multipurpose port Development of all-weather and multipurpose port

Rajpuri (Dighi) Thal, Rewas-Aware Jaigad, Dhamankhol Bay Jaigad, Lavgan-Bay Redi Vijaydurg

30.0

50.0

50.0

1.2

5.2

7.5

35,000

52,000

29,000

7,000

44,000

10,000

To be started shortly

Pre-construction activities in progress

Partially commissioned

To be started shortly

Land acquisition is in progress

Project report under scruitny

Tamil Nadu Establishment of captive port by L&T Shipbuilding Ltd. Establishment of captive port by Nagarjuna Oil Corporation Ltd. Captive port owned by Chemplast Sanmar

Kattupalli Thiruchopuram Karaikal

Ship- building

9.3 0.1

33,750 3,840

300

To be started shortly Construction in progress Commercial operations commenced in September 2007 and functioning

Andhra Pradesh

Development of 6th berth Machilipatnam port

Kakinada Machilipatnam

2.5 31.0

600 50,740

Construction in progress Construction will start shortly

Diu Modern dry dock for ship-repair yard Malala NA 250 Delayed as party asked for arbitrator

Orissa Expansion, development and operation Gopalpur port Development of port

Gopalpur Astaranga

10.0

60.0

11,500

85,000

To be started in November 2013 Concession agreement concluded, land allotment, DPR preparation is in progress

Puducherry Development of port Development of port

Karaikal Puducherry

6.6 27.0

4,170 27,850

Phase 1 operational and construction for Phase 2 in progress Awaiting environmental clearance

Kerala Development of port Ponnani 7,630 Work awarded to Malabar Pvt. Ltd. and the concession agreement signed in September 2011

Source: Ministry of Shipping

Exhibit 26: Ongoing private sector/captive port projects at non-major ports


Around 50 projects, entailing an investment of INR1, 200 billion, are currently being planned by the private sector along with the Government. These are expected to add over 300 million tonnes in capacity.

Name of project Port Capacity (MT)


Status

Gujarat

Expansion of UTCL jetty at Kovaya Private terminals at Bhogat by USEL Private jetty by Ruchi Infrastructure Ro-Ro jetty Port terminal facilities Expansion of cement terminals Greenfield port development LNG terminal by SWAN LNG terminal Development of port by L&T Multipurpose terminal SPM by ONGC Cement jetty SPM by RIL Cement jetty Multipurpose jetty by RIL Expansion of coal jetty and phase 2 dredging Development of south basin initial two container berths Greenfield port development Greenfield port development Greenfield port development Greenfield port development Greenfield port development

Pipavav Bhogat Bedi Dahej Bagasara Jakhau Chhara Pipavav Mundra Kacchigadh Navlakhi Magdalla Kharo and Kori creek Magdalla Magdalla Sikka Pipavav Mundra Mahuva Nargol Vansiborsi Khambhat Dholera

5 10

2 1 5 1 8 8 5 5 5 4 5 4 4 3

15 5

15 3

10 8 3

10

2,500 20,000

150 1,000

500 4,500

12,000 15,000 30,000 20,000

3,000 4,000 3,500 3,000 1,000

20,000 6,500

50,000 4,250

17,500 17,730

1,200 10,000

Awaiting environmental clearance Awaiting environmental clearance Construction to start soon Tenders for construction of terminal is being finalized EIA initiated, tenders for PQ in progress Awaiting environmental clearance DPR approved, environment clearance at advanced stage DPR submitted, commercial terms with GPPL under discussion Environmental clearance received Land identified; DPR in progress DPR approved; applied for extension of validity of environment clearance Awaiting environmental clearance DPR to be prepared Detailed engineering is in progress Under government approval Detailed engineering is in progress Detailed implementation plan and DPR for phase 2 to be submitted Work is in progress DPR under progress Project awarded to Cargo Movers & Port of Israel Consultant is engaged for fresh PFR Location shifting is in progress Location shifting is in progress

Tamil Nadu

Captive port facility by Udangudi Power Corporation Captive port facility by NSL Power Ltd. Captive port facility by Indian Gas Ltd. Captive port facility by NTPC Captive port facility by Goodearth Shipbuilding Captive port facility by Sindya power Generting Co. Private Ltd Captiv ship repair facility by Marg Swarnabhoomi Port Private Ltd. Captive port facility by PEL Power Ltd Captive port facility by Coastal Tamil Nadu Power Captive port facility by M/s. Cuddalore Powergen Corporation Ltd Captive port facility by IL&FS Ltd Captive port facility by Empee Power and Infrastructure Private Ltd Captive port facility by Tridem port and Power and Infrastructure Captive port facility by M/s. Chettinad Power Corporation

Thoothukudi Nagapattinam Thoothukudi Marakkanam Cuddalore Nagapattinam Kancheepuram Nagapattinam Kancheepuram Cuddalore Parangipettai Nagapattinam Nagapattinam Nagapattinam Thoothukudi Nagapattinam Thoothukudi Marakkanam Cuddalore Nagapattinam Kancheepuram Nagapattinam Kancheepuram Cuddalore Parangipettai Nagapattinam Nagapattinam Nagapattinam

6

5,5

6.5

13

Ship-building

3

Ship repair

facility

4

13

4

13

4

6.5

3.5

90,830

70,040

18,000

100,000

140,000

50,000

6,000

50,000

160,000

50,000

12,600

50,000

6,000

75,000

Project report being prepared Project report submitted Port has been notified. Initial construction in place In-principal approval accorded; reports awaited Port been notified; financial closure yet to be achieved In-principle approved accorded; financial closure yet to be achieved Port been notified; coastal land allotted Port notified; studies are being conducted Detailed project report submitted; port limits yet to be assessed Land acquisition under progress. Port been notified: consent of TNPCB received In-principle approval provided; financial closure yet to be achieved Port been notified; clearance from Ministry of environment and forests awaited In-principle approval received; declaration of port limits under consideration of the Government

Exhibit 27: Private sector/captive port projects under formulation stage at non-major ports


Karnataka

Second stage development of modern sea ports at Karwar Development of modern sea-port New Haldipur port Development of Honnavar anchorage port Development of Manki port near Honnavar

Karwar Tadri Haldipur Honnavar Manki

5

34.25

18

2

1

8,000

30,000

19,000

1,670

460

REQ-over; RFP pending with Government IDD-nominated KSIIDC nodal agency; preparation of DPR in progress DPR in progress by MEL Bangalore Design layouts, etc., prepared by M/s L&T Ramboll, Chennai sent to M/s CWPRS Pune for opinion Manki port yet to be notified as a port

Kerala

Development of Kollam port Development of Alappuzha marina & cargo Development of port Development of port

Kollam Alappuzha Beypore Azhikal

na na na na

400 3,851 1,635 4,630

Awaiting approval of DFR and RFP from Government Expression of interest invited. Awaiting the Government’s decision Awaiting the Government’s decision.

Others

Seventh berth at Kakinada deep water port Additional rly lines up to fifth berth at Kakinada Deep Water port Construction of jetty (length 169.5 mts) at Panaji Chudamani

Kakinada, Andhra Pradesh Kakinada, Andhra Pradesh Panaji, Goa Orissa

2.5

na

14.5

10

600

80

85

na

Yet to commence

Feasibility report completed

Construction work to start soon

MoU signed in October 2009

Growth of PPP marred by policy-related impediments The progress of PPP projects in India’s port sector has been slower than expected due to various policy-related impediments at the pre- and post-award stages. At the pre-award stage, lack of clarity on the bidding framework, qualification criteria and concession terms delayed the projects. These issues have now been resolved by the finalization of model documents by the Government.

At the bidding stage, the process has been protracted due to slow bureaucratic procedures at most major ports.

At the post-award stage, projects have been delayed, generally because of the time taken to obtain environmental and other statutory clearances. After being commissioned, BOT terminals have faced operational problems due to their high dependence on the Port Trust for common facilities such as capital dredging, pilotage and vessel movement, which have adversely impacted their efficiency and competitiveness. Additionally, the tariff-fixing methodology under the TAMP has had a negative impact on the profitability and returns of PPP project developers due to several factors. These include the lengthy process of fixing tariffs and reviewing them, anomalies in the tariff-setting mechanism (e.g., not allowing total pass-through of revenue share), low rate of increase in tariff allowed because of indexation to inflation and uncertainty on whether operators will be allowed a tariff increase if their investment was higher than originally envisaged (because of changes in the scope of projects, etc.). Going forward, the success of the PPP framework in the port sector hinges on the way these issues are addressed.


Chapter 4Key trends in the Indian port sector

After witnessing deceleration in traffic due to the economic slowdown, India’s port sector is currently well on its path to recovery.

Mor

e> Developments in the world

economy and merchandise trade to drive growth in the sector

Non-major ports leading growth

Containerization expected to rise

Business conglomerates wanting to enter port sector

International port operators increasing their presence in India

Some other trends in the sector


After witnessing deceleration in traffic due to the economic slowdown, India’s port sector is currently well on its path to recovery. Most ports are witnessing a significant increase in traffic, driven by the steady recovery of the country’s foreign trade. Its merchandise exports increased by 37.5% y-o-y to reach US$246 billion in 2010–11, as compared to a target of US$200 billion. Indian ports are expected to handle around 1,040 million tonnes of cargo by the end of FY12. However, due to delays in capacity addition, the substantial demand-supply mismatch is likely to extend beyond the current decade and is bound to attract the interest of the investment community.

With a new Model Concession Agreement (MCA) in place, PPP projects in ports are likely to receive a boost in the country. Private developers will now be responsible for maintaining productivity standards. Furthermore, with notable steps, such as the implementation of the Port Community System (PCS) at major ports, Indian ports are taking strides in the right direction to provide value-added services and facilitate trade.

Developments in the world economy and merchandise trade to drive growth in the sectorThe world economic recovery is set to continue, although at a slower pace, with global output expected to have risen by 4% in 2011 after growing at more than 5% in 2010. The recovery continues to be driven by emerging and developing markets, which were expected to grow by more than 6% in 2011. The volume of world merchandise trade reflected this economic growth trend, with an impressive 14% growth, with seaborne trade growing by 7% to reach 8.4 billion tonnes in 2010.

• Increasing share of developing countries in global trade: Developing economies continued to drive the global recovery with the rebound being led by large emerging economies such as China, India and Brazil. Robust growth in these countries, combined with their deep economic integration and intensified intraregional trade, has powered their expansion in world merchandise trade. The share of developing countries in global trade increased from around 33% to more than 40% between 2008 and 2010.

• Intra-Asian trade boom to drive growth of shipping sector: Steady growth in intra-Asian trade is expected to have a positive impact on container shipping traffic to Indian ports, with Sino-Indian bilateral trade proving to be a major driver.


Exhibit 28: Growth in India's seaborne traffic vis-a-vis growth in select parameters

12.2 11.9

2.8

14.3

4.0

9.4 9.3 6.8 8.08.5

5.25.4 2.8

-0.7

5.18.8 7.5

2.8

-12.0

14.1

6.1

3.8 2.15.0

7.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

2006-07 2007-08 2008-09 2009-10 2010-11

Indian seaborne cargo India GDP World output

World trade volume world seaborne cargo

Source: “Update on Indian port sector,” MoS

Non-major ports leading growth• During the first four years (2007–2011) of the Eleventh Five Year Plan, traffic at

non-major ports increased at an annual average growth rate of close to 14.0%. The share of traffic handled at such ports increased from 28% in 2006–07 to 35% in 2010–11, increasing to 36% during the first half of 2011–12. The growth in cargo handled at non-major ports has been facilitated by sustained growth at such ports, located in Maharashtra and Gujarat, aided by a substantial increase in cargo traffic of coal, building material and fertilizers. The growth in traffic at non-major ports has helped to alleviate the congestion at major ports.

Containerization expected to rise• Containerization in India, which is at 68%, is expected to see significant growth,

since the current level is well below international levels of around 80%. Phase-I of ICTT, with a handling capacity of 1 million TEUs, was commissioned in February 2011. It will further drive the growth of container traffic in the country. Phase-II, with an additional capacity of 2 million TEUs, is expected to be commissioned by 2017.


Business conglomerates wanting to enter port sector• Growth in cargo traffic, coupled with capacity constraints, has created a

huge demand for additional port infrastructure, encouraging private sector participation in the sector. The Government envisages an investment of INR800 billion made by the private sector in ports during the Twelfth Five Year Plan (2012–2017). Several business conglomerates have already entered the sector, including the Adani Group, the Essar Group, Sical Logistics, Tata Steel and Larson & Toubro.

• Many other Indian business groups are contemplating the feasibility of entering the sector due to the key role played by ports in the development of allied industries such as power, steel, fertilizers, engineering goods, and mining and metals. The bulk of new investments are being made in greenfield development at non-major ports, which are governed by the state governments. In the future, non-major ports are expected to attract a larger share of traffic, given capacity constraints and project-implementation delays at major ports.

• Some business groups entering the port sector include Cargo Motors Pvt. Ltd., which is developing Nargol port; the Welspun Group, which is developing Vizhingham port and the Shapoorji Pallonji Group, which is developing Chhara port. Jindal Steel and Power Ltd. (JSPL) also plans to enter the port sector by acquiring a 60% stake in Gopalpur Ports Ltd. in Orissa.

M&A and PE deals involving domestic private players Indian ports have witnessed the relatively low participation of domestic players in the M&A as well as the PE space. Reliance Logistics acquired a majority stake in Rewas port in 2006 and Gammon infrastructure minority stakes at Visakhapatnam port and the Indira Gandhi Terminal at Mumbai port. In the PE space, Gujarat’s Pipavav port was the first to attract PE investments (amounting to US$28.5 million) from IDFC PE in 2005. Moreover, this equity is invested in the form of convertible instruments, wherein conversion is linked to performance.

Date Target Acquirer Deal value (US$ million)

Stake acquired (%)

M&A deals

January 2012

Gopalpur Ports Ltd.

Jindal Steel and Power Ltd

NA 60.0

August 2011

Vanpic Ports Pvt. Ltd.

Navayuga group NA 40.0

December 2009

Indira Container Terminal, Mumbai

Gammon Infrastructure Projects

NA 24.0

July 2008 Vizag Seaport Pvt. Ltd.

Gammon Infrastructure

11.0 31.5

September 2006

Rewas Port Reliance Logistics Investment, Jai Corp.

NA 51.0

PE deals

September 2011

Karaikal port Ascent Capital 40.0 NA

March 2010

Karaikal Port IDFC 33.0 NA

April 2005 Gujarat Pipavav IDFC 29.0 15.0

Source: Thomson OneBanker; Mergermarket; “JSPL to buy 60% stake in Gopalpur Ports,” Livemint.com, 31 January 2012; “Prasad sells 40% stake in Vanpic to Navayuga,” Business Standard, 5 August 2011

Exhibit 29: M&A and PE deals involving domestic private players


International port operators increasing their presence in India• Between April 2000 to November 2011, the port sector attracted FDI of

US$1,635 million, which was more than 5% of the total FDI in the infrastructure sector during this period. In September 2011, JNPT awarded an INR67 billion project to a consortium of PSA and ABG ports to build the fourth container terminal at the port, making this the largest FDI in the port sector till date.

• International companies have formed alliances with local players to bid for projects, attracted by opportunities in India’s ports sector. Furthermore, standardization of bidding documents, which define minimum net worth requirements as a part of the Request for Qualification (RfQ), have induced smaller players to tie-up with international ones to qualify in the first round of bidding and also to leverage the experience of the latter.

Exhibit 30: Foreign players in India’s port sector

Year Facility Foreign player (Indian partner)

1997 JNPT: second terminal P&O Ports*, Australia

2001 Chennai: first container terminal P&O Ports*, Australia

2003 Mundra port: container terminal P&O Ports*, Australia

2003 Visakhapatnam port: Visakha Container Terminal (VCT) DP World, Dubai

2004 ICTT at Cochin port and development of Kulpi port in West Bengal Dubai Port World, UAE

2004 JNPT: Third terminal, Pipavav port developer, 27 million tonnes container handling capacity at Dhamra port

Maersk, Denmark (Container Corporation of India)

2005 Container terminal at Kandla port Voltri Terminals, Italy (ABG)

2006 1.2 million TEUs container terminal at Mumbai port Dragados, Spain (Gammon India)

2007 Chennai: second container terminal (currently operates four container terminals-Chennai international terminal, PSA ABG Kandla container terminal, Tuticorin container terminal and PSA ABG Kolkata container terminal)

PSA International Pte Limited, Singapore (Sical Logistics Limited)

2009 Paradip: iron ore berth Noble Group, Hong Kong (Gammon India, MMTC)

2009 Vishakhapatnam: cargo berth and Paradip: multi-purpose clean cargo Leighton Contractors, Australia (Sterlite Industries Ltd)

2010 Ennore: container terminal Grup Maritim TCB SL, Spain; Obrascon Huarte Lain SA, Spain (Lanco Infratech Ltd.)

2011 1.2 million TEUs capacity container terminal at Kattupalli terminal near Chennai

International Container Terminal Services (ICTS), the Philippines (Larsen & Toubro)

2011 JNPT: fourth terminal PSA and ABG consortium

* P&O was acquired by DP World and the two terminals are now part of DPW’s portfolio. Source: Ministry of Shipping 13, 14 and 15; “Singapore Port, ABG to build JNPT terminal,” DNA, 29 August 2011


Exhibit 31: M&A and PE deals involving foreign players

Date Target Acquirer Deal value (US$ million) Stake acquired (%)

M&A deals

July 2011 Gujarat Pipavav Port Ltd. AP Moller AS 32.9 14.0

July 2009 ABG LDA Bulk Handling Louis Dreyfus Armateurs 19.0 49.0

May 2008 ABG Kandla Container Terminal PSA India 60.0 49.0

February 2008 ABG Kolkata Container Terminal PSA India 38.0 49.0

PE dealsDecember 2010 JSW Infrastructure Ltd. Eton Park Capital 125.0 10.0

June 2010 Ennore Container Terminal. Eredene Capital PLC 34.65 22.0

September 2008 Gangavaram Port Ltd. Warburg Pincus India Pvt. Ltd. 35.0 30.0

November 2007 Mundra Port and Special Economic Zone Ltd.

GIC Special Investments Pte Ltd. , 3i Group Plc

100.00 NA

February 2009 Krishnapatnam Port Co. Ltd. 3i India Infrastructure Fund 161.0 NA

Sources: Thomson OneBanker; Mergermarket; “JSW Infra to sell 10% equity stake to Eton Park for $125 million,” The Economic Times, 15 December 2010

Some prominent global port players, such as P&O of Australia, PSA of Singapore, DP World of Dubai, ICTS of the Philippines, Voltri Terminals of Italy and AP Moller Maersk ofDenmark, have entered India’s port sector. Collaboration with these players provides Indian companies with access to cutting-age technology, equipment and port management practices and enables foreign companies to participate in the fast-growing Indian market. This is expected to lead to a quantum leap in capital formation in the country’s ports sector.

In the PE space, 3i and GIC co-invested US$100 million in MPSEZL in 2006, and subsequently, 3i invested US$161 million in Krishnapatnam Port for a minority stake in 2009. This is the largest-ever PE investment in the Indian ports sector. Going forward, ports are expected to provide PE investors with significant investment opportunities, given the continuous rise of overall traffic at Indian ports and the Government’s strong focus on various port-development projects and policies.


Some other trends in the sectorMore than 66% of the planned investments under the Maritime Agenda 2020 are expected to be contributed by the private sector. Perceiving the enormity of the task at hand, domestic corporate organizations have begun re-organizing their business models so that these are more conducive for obtaining financing through JVs, SPVs, etc. Various modes of finance are now available for projects, including Viability Gap Funding (VGF), PPP, Initial Public Offer (IPO) and Private Equity (PE) investments. Furthermore, the Government is encouraging corporatization of ports and the landlord model by bringing in transparency, efficiency and profitability in the process to make investment in the port sector attractive for the private sector.

• Corporatization of ports: This involves changing the status of major ports from port trusts to port companies with a limited liability, and getting registered as a corporate body in order to function more efficiently. Ennore Port is the first major port to be corporatized and corporatization of JNPT Port is under progress at present. Corporatization of ports is expected to result in significant advantages pertaining to transparency, flexibility, easy acquisition of immovable property, corporate planning practices (financial risk management, yearly business plan, performance measurement and cost-benefit analysis) and human resource development planning.

• PPPs: The Government has been encouraging private sector participation in port development since 1996. It has given a further boost to the sector with policy initiatives such as 100% FDI under the automatic route for port development projects and 100% Income tax exemption for a period of 10 years.

• VGF: PPP projects, which are characterized by long gestation periods and low returns, are supported by the VGF scheme on the basis of their economic value and public importance. The scheme provides financial support in the form of grants (up to 20% of the total project cost) — one time or deferred — for infrastructure projects undertaken through the PPP mode with a view to make them commercially viable, e.g., the Welspun Group has bid for Vizhingham port for which the Kerala Government will provide a grant of INR4.8 billion over a period of 16 years.

• Infrastructure bonds: In Budget 2011, the Government provided for the issue of tax-free infrastructure bonds worth INR300 billion, out of which INR50 billion is reserved for the ports sector. The JNPT and Ennore ports are awaiting the Government’s approval to raise funds for development projects through these bonds to enable them to raise finance at low interest rates.

New innings for the Indian ports sectorEngineering, Procurement and Construction (EPC): Driving growth efficiently50

Chapter 5ChallengesIt is imperative for an industry to be governed by a favorable regulatory policy to realize its full potential, since generally, most of the challenges facing it are regulatory in nature.

Mor

e> Regulatory issues holding up port projects

Infrastructure capacity limitations

Operational challenges

New innings for the Indian ports sector 51Engineering, Procurement and Construction (EPC): Driving growth efficiently

New innings for the Indian ports sector

India’s ports sector has witnessed growth — operational, capacity enhancement and investment- related — at an accelerating pace in the past two decades. However, there are still certain challenges that threaten the growth of the industry and must be countered to ensure smooth operations and attract investments into the sector. The various challenges faced in the industry can be classified into three broad categories, which, in order of importance, are regulatory, infrastructure and operational.

Exhibit 32: Major challenges

• Long gestation period• Environment policy• New regulatory policy

• Capacity limitation• Poor road network within ports• Inadequate cargo-handling equipment/machinery• Poor hinterland connectivity

• Inadequate navigational aids and facilities• Inadequate IT implementation• Labor-related challenges• Insufficient dredging capacity

Regulatory

Infrastructure

Operational

New innings for the Indian ports sector 53

Regulatory issues holding up port projectsIt is imperative for an industry to be governed by a favorable regulatory policy to realize its full potential, since generally, most of the challenges facing it are regulatory in nature. The Government has taken significant steps to improve regulatory policies related to the ports sector, but policy-making is a continuous process and the following are certain areas that require urgent attention.

Long gestation period in setting up of new port project The time lag in setting up greenfield ports and the slowness of the Government in awarding such projects are among the major challenges facing the port sector. The delay in development of ports also affects other infrastructure sectors, especially power. It is estimated that to develop a port by adopting the PPP mode, around five years are required to obtain all clearances (including environment clearance) from the Government and different ministries before financial closure can be achieved and construction started. It takes another three to four years for a port to become operational. Therefore, from the point of its conception to its commissioning, a port takes around 8–10 years till it becomes operational. Furthermore, the length of time taken is a risk factor, since the project may be cancelled during this period due to various factors.

Exhibit 33: Port project process in PPP mode (8 to 10 year process)

Selecting consultants

Preparing re-feasibility report to identify location and cargo traffic potential

Letter of intent issued

Prepare detailed project report alongwith environment impact assessment

Financial closure Commissioning

ConstructionConducting study covering various aspects

The bidding process• Expression of interest• Request for qualification• Request for proposals

Various approvals obtained from central and state governments

Preparation of detailed project report with environment impact assessment

Source: EY analysis


The Government launched the National Maritime Development Programme (NMDP) in 2005, which envisaged an investment of INR558 billion, covering 276 projects in the port sector by FY12. As of 31 March 2010, only 50 projects were completed at a cost of INR57 billion and 74 were under progress, envisaging an investment of INR185 billion. Looking at past experience, the target specified by the Ministry of Shipping in its Maritime Agenda 2010–2020, scaling up annual port capacity to more than 3,000 tonnes by 2020 appears difficult, unless the Government brings in reforms to expedite development of ports.

Environmental clearance At present, India has a complex and long environment clearance mechanism that delays port projects significantly. Many projects are put on hold due to environmental concerns, especially because of Coastal Regulation Zone (CRZ) rules. To set up a port, there is no single-window clearance and the project has to undergo various processes at the state and Central levels to obtain environmental clearance.

Some new policies that may affect development of ports Possibility of new Land Acquisition Bill posing challenge to development of ports The new Land acquisition and Rehabilitation & Resettlement Bill (LARR) is expected to replace the 117-year-old archaic Land Acquisition Bill of 1894, which was put in force by the British. The main focus of this Bill is integration of “Relief & Rehabilitation” (R&R) with land acquisition and to minimize the Government’s role in the land-acquisition process.

Land acquisition is critical for a progressive economy such as India’s, where infrastructure development, expansion of industries and building homes for the growing urban population is the key to maintaining the country’s growth. Its land acquisition policy, along with facilitating acquisition of much needed land for economic growth, should also give due importance to reasonable compensation being made to landowners.

While the old Bill was skewed in favor of the land acquirer, the new one has been formulated with a focus on compensating landowners. However, several corporate bodies believe that the new Bill is biased in favor of landowners and may adversely impact the growth of the country’s economy.

Although the new Bill has many conditions, which may make land acquisition more expensive and difficult than earlier, a defined land-compensation plan may reduce litigation and delays due to unclear titles, forceful acquisition and pending compensation claims for large infrastructure projects. If the timeline, approval process and litigation risk is minimized, projects will be completed on time and this will benefit the industry at the macro level.


Exhibit 34: Key highlights of the new Land Acquisition Bill

Key issues Proposed land bill

Compensation In rural areas, compensation will be four times the market value of the land (based on the sale deeds of similar land transactions in the last three years) and twice that of land in urban areas. For private players, R&R will only be invoked on acquisition of land equal to or more than 100 acres in rural areas and equal to or more than 50 acres in urban areas.

Size of land for implementation of R&R package

This will only be applicable when private parties acquire 100 or more acres of land in rural areas and 50 and more acres in urban areas.

R&R entitlements (for landowners)

These include subsistence allowance of INR3,000 per month per family for 12 months, an annuity of INR2,000 paid per month to each family for 20 years, with an appropriate index for inflation, or INR500,000 or employment to one member of every family.

In the event a house is lost by an owner, a constructed house of a plinth area of 150 sq. mts. in rural areas and/or 50 sq mts plinth area in urban areas is to be provided.

If the land is acquired for urbanization, 20% of the developed land is to be reserved and offered to the landowners in proportion to the land acquired from them at a price equal to the cost of the acquisition and that of development

It includes a one-time resettlement of INR50,000. On every transfer of land within 10 years of the date of acquisition, 20% of the appreciated value is to be shared with the original owner whose land has been acquired .

Limitations on land usage and acquisition

Acquisition of multi-crop irrigated land is restricted.

Change in usage after award of the land is not permitted.

Land is to be returned to the landowner if unused within five years for the purpose stated during the acquisition.

Consent of 80% of the families being affected by the acquisition is required, even when the Government is acquiring land.

Timelines Compensation is to be given within a period of three months from the date of the award.

Monetary R&R benefits are to be provided within six months.

Displacements should only take place after R&R settlements are completed.

Source: The draft national land acquisition and rehabilitation & resettlement bill, 2011

The draft Port Regulatory Authority Bill 2011 The draft Port Regulatory Authority Bill, 2011, inter alia, seeks to bring tariffs and the performance of non-major ports under regulatory purview, and these proposals, if accepted, could have an adverse impact on the business and financial risk profiles of non-major ports that have hitherto enjoyed high pricing flexibility and operational freedom.


Infrastructure capacity limitations The port sector is a major engine of growth for a global economy, and therefore, it is essential for India to focus on developing a robust port infrastructure to help it boost its trade and growth prospects.

Between FY07 and FY11, the cargo-handling capacity of major Indian ports grew at a CAGR of 6.3% to reach 645 million tonnes, while traffic at major ports grew at a CAGR of 5.3% to 570 million tonnes during the period. However, despite large-scale capacity expansion in recent times, most major ports are operating at more than 90% of their capacity, which is far higher than the global average of 70%. High utilization, coupled with limited IT implementation, affects the efficiency of ports in terms of a higher dwell period and turnaround time. The average turnaround time at major Indian ports is over 100 hours: turnaround times at Singapore and Hong Kong are less than 24 hours. While the total cargo handled is within their overall capacity, Indian ports can handle more than their designed capacity for some important streams of cargo.

Inadequate road network within portsRoads within most ports are narrow and are not designed to handle the traffic and load they currently handle. This results in traffic congestion, which, leads to delays in feeding and evacuation of cargo, thereby lowering the productivity of vessels. Moreover, Indian ports do not plan routes for optimization of existing road networks with suitably located weighbridges.

Inadequate cargo-handling equipment/machineryThe bulk of cargo-handling equipment at Indian ports was commissioned a long time ago and has outlived its designed lifespan. Cargo-handling equipment/machinery, including container spreaders, special gears for handling wood pulp, newsprint and logs, are inadequate to fulfill the requirements of modern vessels arriving at Indian ports. Furthermore, the quantity and quality of container-handling equipment, including quay gantry cranes, rubber-tired gantry cranes, rail-mounted gantry cranes, top-lift trucks and reach stackers, are inadequate for handling the growing traffic at Indian ports. Moreover, the limited capacity of wharf cranes and grabs hampers dry bulk cargo-handling productivity and equipment at ports frequently break down. Most ports follow reactive maintenance procedures instead of preventive maintenance ones. Furthermore, long response times, unavailability of spares, dependence on proprietary parts and cumbersome purchase procedures result in substantial equipment downtime.


Poor hinterland connectivity Aggregation and evacuation of cargo at Indian ports is inefficient due to poor hinterland connectivity through rail, road, express highways, coastal shipping and inland waterways. Furthermore, lack of expressway connectivity between ports and industrial groups has made hinterland transportation slow and inefficient. Congestion on approach roads to ports or terminals delays the arrival of export cargo and evacuation of import cargo. The share of coastal shipping and IWT in total inland cargo transport is limited to 7% and 1%, respectively. Structural development of these transport modes could help to substantially normalize volumes of bulk cargo transported via road and rail networks.

Distribution containers and containerized cargo are highly concentrated, with most containers bound for Delhi and north India being routed through the Mumbai/JNPT Port complex. This route is already one of the busiest domestic freight arteries in the country. Average truck speed in India is around 30 kmph against the global average of 60 kmph and there are long queues of trucks at most inter-state border points. However, with new container terminals being developed in Gujarat as well as dedicated rail connections to and from the ports of Mundra and Pipapav, this situation is changing gradually.

Operational challengesWith a sound regulatory policy and infrastructure in place, the port sector requires an adequate support system to operate smoothly. An unfit or inadequate support system leads to inefficiency and reduces the effective capacity of ports. Some important issues are discussed below, and it is expected that addressing these can lighten utilization and improve the performance of ports to a large extent.

Inadequate navigational aids and facilitiesMost ports in the country lack state-of-the-art navigational aids for ships. Except Mumbai, major ports are not equipped with the latest Vessel Traffic Management System (VTMS), which is used for regular berthing or de-berthing of ships. While most ports currently have an adequate number of marine craft, e.g., tugs, launches and marine crew/pilots, to handle vessel traffic, these may not be able to meet increased vessel traffic needs in the future. Therefore, it is imperative to replace existing vessels with sophisticated and modern marine craft and augment fleet strength to meet the projected growth in traffic.


Inadequate IT implementationOperations and resources at ports cannot function efficiently in the absence of an enterprise resource planning (ERP) system. Consequently, some resources (machinery and/or human resources) are extensively used, while others are idle and wait for availability of other resources. Systems and procedures at Indian ports are complex and unable to facilitate e-environment transactions. Moreover, processes are characterized by cumbersome physical data verification, modifications, and artificial checks and balances, which frequently lead to delays in completion of business transactions. The process of filing directions, calculation of port changes, anomalies in classification of cargo and procedures for refund are some of the issues that need to be addressed. Furthermore, the overlapping roles of various departments compel various stakeholders to file documents with the different departments at ports and customs as well as with other stakeholders.

Labor-related challengesIndian ports suffer due to frequent labor strikes, malpractices, inefficiency and low labor productivity. Most major ports are overstaffed with unskilled and untrained labor. In addition, labor costs are as high as 40–60% of the total expenditure on them.

Insufficient dredging capacity Dredging plays an important part in augmenting the capacities of existing ports and development of new ones. However, most ports in India continue to face the problem of inadequate dredging, since there is limited availability of dredging facilities in the country. Without proper dredging facilities, it is difficult for ports to accommodate and navigate long vessels, which are an important requirement for modern and efficient ports. To achieve this, ports are required to undertake capital and maintenance dredging in the channel regularly.

in India, dredging is usually carried out by the Dredging Corporation of India (DCI), which conducts 80% of maintenance dredging and 10–15% of capital dredging. The DCI owns and operates 10 trailing suction hopper dredgers, ranging in capacity between 3,450 meter cube and 7,400 meter cube; three Cutter section dredgers; two survey launches and one Backhoe.

Considering the significant gap between the demand for dredging services and the small fleet currently available with domestic companies, capital and maintenance dredging rates have increased in the past five years by 70–80% and 22–35%, respectively.

Rising dredging rates have rendered capital and maintenance dredging exceedingly expensive. This adversely affects development and maintenance of ports in India. As such, there is a need to augment the country’s dredger fleet size. Furthermore, high dredging rates have led to an increase in port tariffs, which has reduced the global competitiveness of Indian ports.

Apart from shortage of adequate dredging capacity, India has less than 100 professionals who have the ability to navigate dredgers. According to government estimates, the industry needs at least 1,000 specialized professionals to operate dredgers along the country’s coast in the next three to four years.


Exhibit 35: Dredging requirements of major ports, state ports and fishing harbors, FY08–FY12, million cu m

Year Major ports State ports Fisheries harbors

Capital Maintenance Capital Maintenance Capital Maintenance

FY08 123.45 61.02 101.22 3.3 3.64 0.75

FY09 93.62 61.91 52.89 3.25 3.48 0.22

FY10E 45.55 79.61 79.39 3.96 0.23 0.22

FY11E 25.81 89.01 71.51 10.3 0.17 0.32

FY12E 9.85 88.51 55.5 10.75 0.15 0.82

Total 298.28 380.06 359.51 31.56 7.67 2.33

Source: National Maritime Development Programme (NMDP)

Exhibit 36: Comparison of Indian ports with Rotterdam Ports on certain efficiency parameters

Parameters Indian ports Rotterdam Ports

Evacuation/Aggregation of cargo

Cargo is mainly transported by road and rail.

Most of the bulk cargo and container movement through barges accounts for 50-60% of transportation because of excellent inland water networking. Intermodal connectivity by rail or road is seamless.

Level of mechanization

The extent of mechanization is less in major Indian ports.

The level of mechanization is very high with the latest technologies applied in all spheres.

Location of port-based industries

Most manufacturing companies are located away from ports.

Most manufacturing units are located within a port. Therefore, evacuation is fast.

Availability of storage space

Land is scarce in ports. Hence, evacuation has to take place.

As so much of land is available at the Rotterdam Port, the longer cargo lies inside the terminal, the higher the revenue earned by the terminal operator.

Availability of resources

Dedicated terminals have only a few berths.

There is no concept of pre-berthing detention as berths wait for ships and have long quay lengths.

Information exchange

EDI implementation is partial. There is too much human interface and manual exchange of documents.

Total EDI networking is complete, and hence, there is no physical movement of paper from any place. Human intervention is almost nil. All payments are made electronically.

Custom’s regulation for cargo clearance

All customs formalities have to be completed in the port /CFS.

Under European Union Customs formalities, customs clearance need not take place at a port, but can be done outside its premises.

Work process Work flow is manual and partly computerized; ERP is envisaged for implementation

The entire processing is computerized and enterprise resource planning software was implemented years back.

Source: The Secretariat for the Committee on Infrastructure, Planning Commission, Government of India


Chapter 6RecommendationsIn today’s fast changing world, it is highly desirable to take proactive measures to gain a competitive edge, especially in the case of ports, since the sector is highly vulnerable to global competition, as compared to other infrastructure sub-sectors.

Mor

e> Policy reforms

Upgrading infrastructure at Indian ports to open blocked capacity

Emphasis on containerization

Setting up of ultra mega ports (UMPs) with integrated industrial, residential and transportation hubs

Developing facilities to unlock tourism potential

Human resource development (HRD) and retention


India’s port sector is currently facing several complex issues that not only defy simplistic solutions but also call for innovative solutions that may not be easy to implement.

In today’s fast changing world, it is highly desirable to take proactive measures to gain a competitive edge, especially in the case of ports, since the sector is highly vulnerable to global competition, as compared to other infrastructure sub-sectors. Therefore, there is a continuous need for all stakeholders in the port sector to undertake or appoint consultants for comprehensive studies on the industry. This will help in identification of issues, trends and opportunities at an early stage.

The following are some best practices that Indian ports can incorporate to increase their efficiency and competitiveness:

Policy reformsThere is an urgent need for policy reforms to expedite the development of the port sector in India. These include:

A. An integrated transport policy for seamless connectivity with other modes of transportPort connectivity is not separate but an integral part of port development and should be accorded equal importance with the latter. Additionally, connectivity should be properly distributed among roads, railways and inland waterways. Poor and in-efficient connectivity can lead to a decrease in effective port capacity and result in deterioration of available infrastructure. There is a need for an integrated transport policy or an institutional mechanism promoting inter-sector co-ordination (roads, railways and shipping), which should seek to develop rapid aggregation or evacuation of cargo driven by seamless connectivity with other modes of transport, an efficient rail/road network and large-scale utilization of inland waterways. Some steps that require urgent attention:

• Construction of dedicated freight corridor projects (railways and roads), particularly the Delhi-Mumbai corridor because it accounts for the largest share of India’s port traffic

• Development of coastal shipping and inland waterways, which may help to reduce the pressure on roads and railways and increase hinterland coverage


B. Simplification/Elimination of complex and cumbersome procedures, policies and practicesThe Singapore and Rotterdam ports have rationalized their customs procedures, which emphasize the speed of clearance of goods to reduce delays in delivery to overseas and local customers.

Overregulation leads to delays in port-development activities. Furthermore, guidelines on areas such as licensing, environment, conservation, safety, quality of services, dispute resolution and container freight station (CFS) development can be revaluated and simplified.

C. Need to improve environmental clearance mechanism Obtaining environmental clearance is one of the major causes of delays in fructification of projects. Currently, a port developer has to undergo different processes at the state and Central levels to obtain environmental clearance. To reduce and streamline the gestation period, clear guidelines and a broad policy for ports needs to be prepared by the Government. This could reduce significant time in the time taken to develop ports.

Upgrading infrastructure at Indian ports to open blocked capacityConsolidation of the global liner industry is giving rise to construction and deployment of large vessels. As vessels become larger, their route-scheduling becomes even more critical and needs to focus on optimization of the overall voyage time. Therefore, an important determinant of the choice of a port for a large liner is the time it is at the port as a proportion of the overall time it spends on its voyage. Typically, a vessel spends around 20% of its voyage time at a port. Therefore, it is imperative for Indian ports to achieve enhanced efficiency in their cargo-handling. They need to attract large vessels by providing them with suitable infrastructure and services to compete with key transshipment hubs in the region, including Singapore and Dubai. In addition, a port with sound connectivity to the hinterland, aligned with other forms of transport such as road, rail and in-land waterways, attracts shippers.

Some measures that should be taken immediately:

A. Improving draft level at Indian portsThe draught available at world-class international ports ensures that neither the size of vessels nor the nature of the cargo is a constraining factor. These ports tend to follow the norm that resources should wait for service vessels, rather than the other way around.


Ports need to develop their capacity to receive bigger ships, for which capital dredging is required to achieve the desired level of draft, and dredging is required to maintain that level. Generally, dredging in channels, both capital as well as maintenance, is undertaken by the government through budgetary support globally. Financial support for dredging is imperative for reducing port charges. Channels leading to major ports could be declared as national or state channels. If considered necessary, every port can be asked to make a specific dredging contribution to the Government (in proportion of the quantum of traffic handled by the port).

B. Upgrading material-handling equipmentAs compared to their peers, the level of mechanization at Indian ports is limited and much of the cargo is handled by conventional means. Mechanization varies from port to port and many of of them are dependent on ships’ gears to handle cargo. Equipment at Indian ports is also outdated, have poor productivity and a high downtime. Some recommendations to improve mechanization at Indian ports:

• Every multipurpose cargo berth should have at least two back-up shore cranes (quay shore cranes) or harbor mobile cranes with a minimum capacity of 30 tonnes and above (35 tonnes for containers), with the ability to fit grabs and spreaders for containers. Harbor mobile cranes are versatile in character, and therefore, can be optimally utilized for multi-commodity handling.

• The codal life of all equipment should be only 10 years as compared to 20 years at present.

The port gates at the PSA Singapore port have a highly automated system in place that facilitates the flow of cargo. At the Port of Rotterdam, a container terminal is fully automated and extensively uses IT, especially robotics.

C. Upgrading IT infrastructureIndian ports should begin working on optimizing their business process flow and facilitating exchange of electronic information among stakeholders by using the latest IT processes, including the Port Community System (PCS). The ports at Rotterdam and Singapore are able to plan for vessels and cargo 72 hours in advance through electronic exchange of information between shipping lines, haulers, freight forwarders, shippers and government agencies. Their berth, ship planning, yard-planning and resource allocation systems and flow-through gates are conducted electronically.

The PCS run by M/s Port Infolink at Rotterdam port and M/s Portnet at the PSA Singapore port facilitates integration of information exchanged among stakeholders. Both these ports have seen a significant improvement in their competitive positions in terms of value for money, throughput time, capacity, operational costs, service levels, customer focus and security.


PCSThe PCS is intended to integrate electronic flow of information and function as a centralized hub for all Indian ports and their stakeholders, including customs, shipping lines/agents, surveyors, stevedores, banks, container freight stations (CFS), customs house agents and the Container Corporation of India (CONCOR)/railways through a common interface.

Initially, 12 major ports have been identified that are to be connected electronically via the PCS. This is expected to reduce the transaction costs of ports by 10% and empower them to join the league of international, technologically advanced e-ports. Implementation of PCS has been envisaged in the following three phases:

• The first phase consists of 33 messages, including vessel- and container-related ones between ports, shipping agents, shipping/container lines, container freight station and customs house agents.

• The second phase comprises 17 messages that pertain to transport, cargo and finance-related transactions and e-payments. Three additional stakeholders, CONCOR; the railways, private carriers and stevedores, and banks will be covered in this phase.

• The third phase includes around 43 messages pertaining to customs and other regulatory agencies, the Port Health Organization (PHO), the Mercantile Marine Department (MMD)} and related messages.

• Steps have already been initiated for implementation of centralized web-based PCS at all major ports to reap the maximum benefits from EDI and move toward a paperless regime. Moreover, modules such as Vessel, Container, Cargo, Transport, Finance, e-payment and MMD have been made LIVE and testing of Port- Customs interface messages is in progress.

• As ofJuly 2010, major ports were exchanging around 500,000 messages every month. Similar steps have been taken to implement PCS at non-major ports now. Furthermore, ports such as Mundra, Pipavav, Gangavaram and Dehaj have been showing an interest in implementing PCS and have taken concrete step to integrate their operations with PCS.


Emphasis on containerizationThe container segment has been witnessing significant growth, more so in developing countries where levels of containerization are low. It is expected that growth in container volumes will outstrip other cargo in the near future. Therefore, in line with this projection, the bulk of infrastructure development across the world, including in India, is focused on handling containers.

The share of container traffic in India’s total port traffic has been rising, but total container throughput is still substantially low as compared to transshipment hubs in Singapore and Dubai. Hence, Indian ports urgently need to ramp up their container-handling infrastructure and equipment to attract large container vessels to them.

Setting up of ultra mega ports (UMPs) with integrated industrial, residential and transportation hubsThe Government should encourage setting up of UMPs on similar lines to the structure of the power and steel industries. UMPs would include several integrated hubs, e.g., industrial, residential, infrastructure and other hubs nearby, thereby enabling projects to be sustainable. The Rotterdam port only occupies 60% of its industrial complex, while the remaining 40% accommodates various industries; the PSA Singapore port complements various industries that have established themselves next to the facility.

As a short-term measure, existing ports can be converted into UMPs and should be developed accordingly in the future.

Developing facilities to unlock tourism potentialIndia is a major tourist destination worldwide and has attractive potential for “cruise tourism”. However, cruise tourism is still at its nascent stage in the country, although the Government has taken active steps to promote it. However, for it to become world class, as in the case of Singapore, Dubai and several western European and Caribbean countries, the Indian Government needs to formulate a comprehensive policy and make adequate arrangements in terms of state-of-the-art facilities including up-to-date passenger terminals, baggage screening, custom clearance, immigration and tourism-related ancillaries, backed by effective publicity.


Human resource development (HRD) and retentionManpower availability and retention is a big challenge in the port sector. According to the Maritime Agenda 2020, the global demand for marine staff is expected to rise from 1.15 million at present to 1.6 million by 2020. Similarly, it is projected that around 660,000 officers and 720,000 ratings will be required within this period — a 20% rise from current levels.

Sea-training berths are in short supply, which makes the task of training the required number of qualified personnel difficult. Currently, sea-training berths on Indian ships are not mapped and it is not possible to either accurately estimate the total existing or potential training accommodation available or verify the claims of training institutes. There is therefore an urgent need to address this issue. The following are some suggested action points to achieve this:

a. Creating an efficient and transparent mechanism for shipping companies and training institutes to trade in training slots

b. Collaborating with foreign universities for personnel to attend courses relating to the maritime sector

c. Establishing more campuses of the Indian Maritime University (IMU) and opening more institutes that will impart education and training in specialized sectors such as dredging

Indian crew members are subject to Income tax if their tenure on a vessel is less than 183 days. This is not the case in foreign countries and forces Indian maritime personnel to opt for foreign ports and ships. This exodus of skilled and experienced seamen has an adverse effect on maintenance of cargo and vessels and impacts the overall efficiency of a fleet. The following are measures that would help to retain maritime human resources:

d. Multiplicity of taxes needs to be abolished.

e. Employees at major ports should be entitled to productivity-linked rewards on the basis of the performance of individual port trusts.

f. Indian shipping companies need to match their compensation packages with those of international companies.

g. Training needs to be imparted on a continuous basis in areas where ports face manpower shortage, e.g., in personnel who are specialized crane and vessel traffic service (VTS) operators.


References“Investment under NMDP,” Ministry of Shipping, 27 July 2010, via Press Information Bureau – Government of India

“Report No. 3 of 2009-10,” Comptroller and Auditor General of India

“Major on-going projects,” Paradip Port Trust website, http://www.paradipport.gov.in/Major_ongoing_proj.pdf, accessed 23 February.

“Future plans,” Tuticorin Port Trust website, http://www.tuticorinport.gov.in/futu.htm, accessed 23 February 2012.

“India’s 2010/11 exports surge to record growth,” The Financial Express, 3 May 2011, via Factiva, © 2011, The Financial Express.

“International Container Transshipment Project,” 8 August 2011, PIB website, http://pib.nic.in/newsite/AdvSearch.aspx

“Mid-term appraisal: Eleventh Five Year Plan (2007–2012),” Planning commission website

“JSPL to buy 60% stake in Gopalpur Ports,” Mint, 1 February 2012, © 2011. Contify.com

“Fact sheet on FDI,” April 2011, Department of Industrial Policy and Promotion website, http://dipp.nic.in/fdi_statistics/india_FDI_April2011.pdf, accessed 13 February 2012.

“JNPT awards Rs 67bln port project to PSA consortium,” India Public Sector News, 27 September 2011, © 2011. Contify.com

“Model Concession Agreement for private sector projects in major ports,” Ministry of Shipping website, www.shipping.gov.in/writereaddata/linkimages/mca896116248.pdf, accessed February 2012.

“Consolidated Port Development Plan Vol 1,” Ministry of Shipping website, www.shipping.gov.in/writereaddata/linkimages/Volume12208061264.pdf , accessed February 2012.

“Private Sector Participation in Ports through Joint Ventures and Foreign Collaborations,” Ministry of Shipping website, www.shipping.gov.in/writereaddata/linkimages/invjvc9431413309.pdf , accessed February 2012.


“About us, Status,” Gangavaram Port website, www.gangavaram.com/aboutproject/abt_prj.asp , accessed February 2012.

“About us, Corporate,” Krishnapatnam Port website, www.krishnapatnam.com/corporate_profile.html , accessed February 2012.

“Ports expansion in 12th plan period may run into troubled waters,” Indian Express, 5 September 2011, via Factiva, © 2011 Indian Express Online Media Pvt. Ltd; “PPP in ports: Time to Resolve Issues,” Maritime Gateways, 26 July 2011, via Factiva, © 2011 Gateway Media Pvt Ltd; ”Environmental issues: A DAMOCLES SWORD OVER GREENFIELD PORT PROJECTS,” Indian ports and infrastructure review, 1 May 2011, via Factiva, © 2011 Saket Projects Ltd.

“Investment under NMDP,” Ministry of Shipping, 27 July 2010, via Press Information Bureau – Government of India.

“Maritime agenda : 2010-2020”, Ministry of Shipping — Government of India — website, http://shipping.nic.in/showfile.php?lid=261, January 2011.

Infra-RE Insights, Ernst & Young, January 2012.

The draft national land acquisition and rehabilitation & resettlement bill, 2011.

“Indian port sector: Uncertainty hangs over implementation,” MoneyControl, 27 September 2011, via Factiva, © 2011 www.moneycontrol.com

“Infrastructural Enablers: Too Less, Too Late,” Maritime Gateway, 9 November 2011, via Factiva, © 2011 Gateway Media Pvt Ltd;

“Infrastructural Enablers: Too Less, Too Late,” Maritime Gateway, 9 November 2011, via Factiva, © 2011 Gateway Media Pvt Ltd; Data and Statistics : Capacity at major ports, December 2011, Crisil Research.

Maritime agenda : 2010-2020, Ministry of Shipping – Government of India, January 2011; Transfer pricing study – Dredging industry – FY11, Ernst & Young, 2011.

“India’s 2010/11 exports surge to record growth,” The Financial Express, 3 May 2011, via Factiva, © 2011, The Financial Express.

“International Container Transhipment Project,” 8 August 2011, PIB website, http://pib.nic.in/newsite/AdvSearch.aspx

The Secretariat for the Committee on Infrastructure, Planning Commission, Government of India.


Notes

Ajit Krishnan

Tax Partner and Leader-Infrastructure and Real Estate

Kuljit Singh

Partner and Leader, Transaction Advisory Services-Infrastructure Practice

Sushi V Shyamal

Partner, Transaction Advisory Services

Transportation Infrastructure and Construction Sector Leader

Samir Kanabar

Tax Director

Sub- Sector Leader – Ports and Shipping

Sushi V Shyamal

Partner, Transaction Advisory Services

Transportation Infrastructure and Construction Sector Leader

Samir Kanabar

Tax Director

Sub- Sector Leader – Ports and Shipping

Ernst & Young leadership team

Authors

For more information, visit www.ey.com/India

Connect with us

Assurance, Tax, Transactions, Advisory A comprehensive range of high-quality services to help you navigate your next phase of growth

Read more on www.ey.com/India/Services

Our services

Centers of excellence for key sectors Our sector practices ensure our work with you is tuned in to the realities of your industry

Read about our sector knowledge at ey.com/India/industries

Sector focus

Easy access to our knowledge publications. Any time.

http://webcast.ey.com/thoughtcenter/

Webcasts and podcasts

www.ey.com/subscription-form

Follow us @EY_India Join the Business network from Ernst & Young

Stay connected

For more information, visit www.ey.com/India

Connect with us

Assurance, Tax, Transactions, Advisory A comprehensive range of high-quality services to help you navigate your next phase of growth

Read more on www.ey.com/India/Services

Our services

Centers of excellence for key sectors Our sector practices ensure our work with you is tuned in to the realities of your industry

Read about our sector knowledge at ey.com/India/industries

Sector focus

Easy access to our knowledge publications. Any time.

http://webcast.ey.com/thoughtcenter/

Webcasts and podcasts

www.ey.com/subscription-form

Follow us @EY_India Join the Business network from Ernst & Young

Stay connected

Port Finance International provides news and information for the international port finance and investment markets. A platform and a community for senior industry experts to review the market and the challenges and opportunities associated with developing, financing and managing port expansion plans and major investments, it also provides a forum for the market to receive and exchange information.

The online news board is supported by high-level networking and informative Port Finance conferences and training programmes in key global ports, which cover key topics, issues and trends currently facing the port investment and finance markets globally.

For more information on how your company may benefit from working with Port Finance International please contact [email protected]

About Port Finance International

OfficesHead Office : 2nd Floor | 8 Baltic Street East | London - EC1Y 0UP | UNITED KINGDOM | Tel: +44 20 7253 2700Fax: +44 20 7251 9179www.portfinanceinternational.com

About Ernst & YoungErnst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 152,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com.

Artwork by DK

Our officesAhmedabad2nd floor, Shivalik IshaanNear. C.N Vidhyalaya Ambawadi, Ahmedabad-380015 Tel: +91 79 6608 3800Fax: +91 79 6608 3900

Bangaluru12th & 13th floor “U B City” Canberra Block No.24, Vittal Mallya Road Bangaluru-560 001 Tel: +91 80 4027 5000 +91 80 6727 5000Fax: +91 80 2210 6000 (12th floor)Fax: +91 80 2224 0695 (13th floor)

Chandigarh1st Floor SCO: 166-167Sector 9-C, Madhya MargChandigarh-160 009 Tel: +91 172 671 7800Fax: +91 172 671 7888

ChennaiTidel Park, 6th & 7th Floor A Block (Module 601,701-702)No.4, Rajiv Gandhi Salai Taramani Chennai-600113Tel: +91 44 6654 8100Fax: +91 44 2254 0120

Hyderabad Oval Office 18, iLabs Centre,Hitech City, Madhapur,Hyderabad - 500081Tel: +91 40 6736 2000Fax: +91 40 6736 2200

Kochi9th Floor “ABAD Nucleus”NH-49, Maradu PO, Kochi - 682 304 Tel: +91 484 3044000Fax: +91 484 2705393

Kolkata22, Camac Street 3rd Floor, Block C” Kolkata-700 016 Tel: +91-33-6615 3400 Fax: +91-33-2281 7750

Mumbai 6th Floor Express Towers Nariman Point Mumbai-400021 Tel: +91-22-6192 0000 Fax: +91-22- 6192 2000

14th Floor, The Ruby29 Senapati Bapat MargDadar (west)Mumbai-400 028, IndiaTel: +91 22 6192 0000Fax: +91 22 6192 10005th Floor Block B-2, Nirlon Knowledge ParkOff. Western Express HighwayGoregaon (E)Mumbai-400 063, IndiaTel: +91-22-6192 0000 Fax: +91-22- 6192 3000

NCRGolf View Corporate Tower – BNear DLF Golf Course, Sector 42Gurgaon–122 002Tel: +91 124 464 4000Fax: +91 124 464 40506th floor, HT House18-20 Kasturba Gandhi MargNew Delhi-110 001Tel: +91 11 4363 3000Fax: +91 11 4363 3200

4th & 5th Floor, Plot No 2B,Tower 2, Sector 126,NOIDA-201 304Gautam Budh Nagar, U.P. IndiaTel: +91 120 671 7000Fax: +91 120 671 7171

PuneC—401, 4th floorPanchshil Tech ParkYerwada (Near Don Bosco School)Pune-411 006Tel: +91 20 6603 6000Fax: +91 20 6601 5900

Ernst & Young Pvt. Ltd.Assurance | Tax | Transactions | Advisory

About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 152,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com

Ernst & Young Pvt. Ltd. is one of the Indian client serving member firms of EYGM Limited. For more information about our organization, please visit. www.ey.com/in

Ernst & Young Pvt. Ltd. is a company registered under the Companies Act, 1956 having its registered office at 22 Camac Street, 3rd Floor, Block C, Kolkata - 700016

© 2012 Ernst & Young Pvt. Ltd. Published in India.

All Rights Reserved.

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

EYINXXXX-0XX New innings for the Indian ports sector

New innings for the Indian ports sector

Documents

Transcript of New innings for the Indian ports sector