PPP in Ports Sector in ndia

Sambhav Ahuja 10P107

Harsh Maru 10P018
lnLroducLlon
W lndla has an exLenslve coasLllne of 7317 km excludlng Lhe Andaman
nlcobar lslands
W lndlan porLs handle around 93 of Lhe LoLal volume of counLry's Lrade and
abouL 70 ln Lerms of value
,arkeL Cvervlew
orLs
,a[or orLs
1here are 13
ma[or porLs ln
lndla
Chennal
Cochln
Lnnore
!awaharlal
nehru
kolkaLa
(lncludlng
Paldla)
kandla
,armugao
,umbal new
,angalore
aradlp
1uLlcorlnand
vlsakhapaLna
m As of 1
!une 2010
orL 8lalr has
been declared
a ma[or porL
1he easLern
coasL has slx
porLs and Lhe
wesLern coasL
seven porLs
,a[or porLs
are under Lhe
[urlsdlcLlon of
Lhe
CovernmenL
of lndla and
are governed
by Lhe ,a[or
orL 1rusLs
AcL of 1963
Cne
excepLlon ls
LnnoreorL
whlch ls
admlnlsLered
by Lhe
provlslons of
Lhe
Companles
AcL 1936
ln 2009
2010 Lhe
LoLal cargo
handllng
capaclLy of
Lhe ma[or
porLs was
3993 mllllon
Lonnes per
annum
(,1A)
non ,a[or orLs
lndla has
abouL 200
nonma[or
porLs of
whlch one
Lhlrd are
operaLlonal
nonma[or
porLs come
under Lhe
[urlsdlcLlon of
Lhe respecLlve
sLaLe
governmenLs'
marlLlme
boards
(C,8s)
ln 2009
2010 C,8
porLs
accounLed for
abouL 798
per cenL of
Lhe Lrafflc
handled aL
nonma[or
porLs and 23
per cenL of
Lhe LoLal
cargo handled
aL all lndlan
porLs
nonma[or
porLs are
expecLed Lo
lncrease Lhelr
capaclLy Lo
more Lhan
600 ,1A
1he share of
nonma[or
porLs ln Lrafflc
handled by
Lhem has
gradually
lncreased
from 268 per
cenL ln 2003
06 Lo 313 per
cenL ln 2009
2010
lndlan orLs Cargo composlLlon
W ln Lerms of cargo composlLlon
peLroleumolllubrlcanLs (CL) ls
Lhe domlnanL commodlLy carrled
Lhrough ma[or porLs lL accounLed
for 3234 of Lhe LoLal cargo ln
200708
W ConLalner cargo was Lhe nexL
largesL commodlLy ln Lhe mlx
accounLlng for 1773 closely
followed by lron ore aL 1772
W ln Lerms of cargo composlLlon
peLroleumolllubrlcanLs (CL) ls
Lhe domlnanL commodlLy carrled
Lhrough ma[or porLs lL accounLed
for 3234 of Lhe LoLal cargo ln
200708
W ConLalner cargo was Lhe nexL
largesL commodlLy ln Lhe mlx
accounLlng for 1773 closely
followed by lron ore aL 1772
erformance efflclency
W 1oLal cargo Lrafflc aL lndlan porLs (ma[or and
nonma[or) lncreased aL a compound annual
growLh raLe (CAC8) of 91 per cenL from
3787 ,1A ln 200306 Lo 8449 ,1A ln
20092010 drlven by subsLanLlal growLh ln
Lhe counLry's lnLernaLlonal Lrade
W 1he producLlvlLy of porLs ln Lerms of Average
Shlp 1urn Around (AS1A) and Average Shlp
8erLh CuLpuL (AS8C) has lmproved ln recenL
years
W 1he AS1A has decreased from 81 days ln
199091 Lo 39 days ln 200708 1he average
AS8C lncreased from 9743 Lonnes ln 200607
Lo 10076 Lonnes ln 200708
W Powever Lhls ls far behlnd Lhe global sLandard
whlch serlously undermlnes Lhe
compeLlLlveness of lndlan orLs
key layers
lndusLry lnfrasLrucLure SLaLewlse
ulsLrlbuLlon
ollcy 8egulaLory lramework
1he CovernmenL has allowed lul of
up Lo 100 under Lhe auLomaLlc
rouLe for consLrucLlon and
malnLenance of porLs and harbours
lL has offered a 10year Lax hollday
Lo enLerprlses engaged ln Lhe
buslness of developlng malnLalnlng
and operaLlng porLs lnland
waLerways and lnland porLs
1he CovernmenL has allowed non
ma[or porLs Lo deLermlne Lhelr own
Larlffs as opposed Lo regulaLlon of
Larlffs aL ma[or porLs by Lhe 1arlff
AuLhorlLy for ,a[or orLs (1A,)
1he CovernmenL has also
formulaLed Lhe n,u Lo faclllLaLe
prlvaLe lnvesLmenL lmprove servlce
quallLy and promoLe
compeLlLlveness ln Lhe secLor
A model concesslon agreemenL
(,CA) has also been flnallsedLo
brlng Lransparency and unlformlLy Lo
Lhe conLracLual agreemenLs ma[or
porLs wlll enLer wlLh selecLed
bldders for pro[ecLs under Lhe bulld
operaLe and Lransfer (8C1) model
1he ,oS has passed a regulaLlon Lo
prevenL Lhe monopoly of prlvaLe
players Accordlng Lo Lhe rullng an
exlsLlng prlvaLe operaLor aL a porL
cannoL bld for Lhe nexL Lermlnal Lo
handle Lhe same klnd of cargo aL Lhe
same porL
lnvesLmenLs opporLunlLles
1here are Lhree subsecLors whlch offer wlde opporLunlLles for
lnvesLors
W Ma[or orts 1hls refers Lo new Lermlnals added Lo Lhe exlsLlng 12
ma[or porLs whlch ls a very aLLracLlve proposlLlon AvallablllLy of
adequaLe space may be a consLralnL
W M|nor orts ,lnor porL pro[ecL slzes are hlgher slnce Lhese are
Creenfleld pro[ecLs LhaL requlre caplLal dredglng as well as
developmenL of onshore lnfrasLrucLure
SLraLeglc locaLlon and operaLlonal efflclency are golng Lo be crlLlcal
facLors
W onnect|v|ty pro[ects SLrucLural demand sLemmlng from porLs
beneflL boLh rall and road connecLlvlLy pro[ecLs
1here are Lhree subsecLors whlch offer wlde opporLunlLles for
lnvesLors
W Ma[or orts 1hls refers Lo new Lermlnals added Lo Lhe exlsLlng 12
ma[or porLs whlch ls a very aLLracLlve proposlLlon AvallablllLy of
adequaLe space may be a consLralnL
W M|nor orts ,lnor porL pro[ecL slzes are hlgher slnce Lhese are
Creenfleld pro[ecLs LhaL requlre caplLal dredglng as well as
developmenL of onshore lnfrasLrucLure
SLraLeglc locaLlon and operaLlonal efflclency are golng Lo be crlLlcal
facLors
W onnect|v|ty pro[ects SLrucLural demand sLemmlng from porLs
beneflL boLh rall and road connecLlvlLy pro[ecLs
rlvaLes secLor opporLunlLles
- Leaslng ouL of exlsLlng porL asseLs creaLlng of addlLlonal
asseLs
- ConsLrucLlon or operaLlon of conLalner Lermlnals break
bulk mulLlpurpose and speclallsed cargo berLhs
- Warehouslng conLalner frelghL sLaLlons SLorage faclllLles
and Lank farms
- Cranage and handllng equlpmenL
- SeLLlng up capLlve power planLs
- ury docklng and shlp repalr frallLles
- Leaslng of equlpmenL and floaLlng crafL from Lhe prlvaLe
secLor
- CapLlve faclllLles for porL based lndusLrles
rlvaLe secLor
parLlclpaLlon has
been allowed ln a
varleLy of porLs
servlces whlch
lncludes consLrucLlon
and operaLlon of
Lermlnals/berLhs
warehouslng/sLorage
faclllLy dry docklng
and shlp repalr
faclllLles
CurrenL Scenarlo
W 1he secLor wlLnessed lul of uS$ 16
bllllon beLween Aprll 2000 and AugusL
2010
W As on 1 AugusL 2010 24 prlvaLe secLor
pro[ecLs were operaLlonal ln Lhe
counLry (wlLh a capaclLy of 1407 ,1A
belng added) whlle 16 pro[ecLs wlLh
an lnvesLmenL of uS$ 22 bllllon
(ln81037 bllllon) were belng
lmplemenLed (capaclLy expecLed Lo be
added ls 1311 ,1A)
W 1he porLs secLor aLLracLed L
lnvesLmenLs worLh uS$ 383 mllllon
beLween !anuary 2003 and !uly 2010
lrameworks/lnlLlaLlves
1arlff AuLhorlLy for ,a[or orLs (1A,) evolved and lmplemenLed guldellnes
for upfronL Larlff seLLlng for pro[ecLs aL ma[or porLs
- ln prev|ous reg|mes ce|||ng tar|ffs were revlsed from Llme Lo Llme based on Lermlnal
performance Lhe new guldellnes flx celllng Larlffs rlghL aL Lhe beglnnlng of Lhe bld process
and Lhese are provlded wlLh Lhe bld documenLs
app||cab|e to a|| ma[or ports pro[ects awarded after Ieb 2008 wh||e
ex|st|ng cont|nue to fo||ow prev|ous reg|me
SLandard norms are
prescrlbed for deLermlnlng
Lhe lnvesLmenL and
operaLlonal efflclency of
Lhe pro[ecL
1argeL revenue ls Lhen
calculaLed as Lhe sum of
operaLlng cosL
depreclaLlon and an
allowable reLurn on caplLal
employed
1argeL revenue ls Lhen
caLegorlzed lnLo revenue
from varlous servlces based
on esLlmaLed demand for
each servlce
1hese celllng Larlffs are
lndexed Lo Wl and
escalaLed year on year
Lhereby removlng Lhe
effecLs of varylng demand
on Larlffs
N
e
w

k
e
g
|
m
e
Caps ln Lhe new 8eglme
- 1he LarlffseLLlng meLhodology lgnores cosL of any relnvesLmenL LhaL ls underLaken by Lhe operaLor
- ,lghL prevenL Lhe operaLor from earnlng Lhe deslred 8CC employed ln Lhe perlod when such lnvesLmenL ls lncurred
LsLlmaLlon of CaplLal CosL
- a flxed 16 8CCL used for seLLlng celllng 1arlffs whlch doesn'L lncorporaLe any caplLal sLrucLure assumpLlons and hence
removes all flnanclng lncenLlves for Lhe promoLers
LsLlmaLlon of CosL of CaplLal/8eLurn on CaplLal Lmployed
- 1axes are lgnored and depreclaLlon meLhod used for Larlff deLermlnaLlon ls amblguous
1axes and uepreclaLlon
- Whlle Lhe 1arlff guldellnes reckon 70 of capaclLy as LhroughpuL Lhey do noL expllclLly speclfy Lhe valldlLy of 1arlffs Lo Lhls
LhroughpuL and don'L provlde subsldles or offseLs Lo compensaLe for any unexpecLed volaLlllLy ln Lrafflc
- operaLor ls noL rewarded for any operaLlonal efflclencles or lmprovemenL ln servlce quallLy parameLers llke speed of
evacuaLlon eLc
uemand varlaLlons and operaLlng efflclencles
- dlsconnecL ln Lhe provlslons of Lhe ,CA and 1A, guldellnes
- Change ln Law provlslon excludes 1arlff changes exLreme when for eg Laxes are changed
Concurrence wlLh Lhe Concesslon AgreemenL rovlslons
- CurrenLly Lhree Larlff reglmes effecLlve (leb 1998 ,arch 2003 and leb 2008)
- AffecLs Lhe ablllLy of even 1ermlnals ln lmmedlaLe nelghbourhood Lo compeLe wlLh each oLher
- Cne Lermlnal may have a decllnlng celllngLarlff(operaLlng on depreclaLed asseLs) and oLher an escalaLlng celllngLarlff
proflle under Lhe new reglme prlclng uncerLalnLles
- ,lnor orLs ln Lhe vlclnlLy of ma[or porLs wlLh huge capaclLles escape Larlff regulaLlons compleLely as enLlLles ouLslde 1A,
purvlew
ulsparlLy and ,ulLlLude of 1arlff 8eglmes
Way lorward
1arlff
,eLhodology
1he gaps ln Lhe new
8eglme seL by 1A,
need Lo be removed
1arlff 8egulaLlon
beyond 1A,
!urlsdlcLlon of 1arlff
AuLhorlLy for ,a[or
orLs (1A,) ls
resLrlcLed Lo Lhe levy for
servlces rendered by
ma[or porLs or
operaLors auLhorlzed by
Lhem
SulLable and a
regulaLory framework
Lo address lssues
speclflc Lo Lhe porLs
such as navlgaLlonal
securlLy and
conservancy ln porLs
safeLy occupaLlonal
healLh dlsasLer
managemenL and
polluLlon conLrol
measures would also
need Lo be gulded by a
naLlonal auLhorlLy
Lncourage
'Landlord orL'
,odel
lnvlLe rlvaLe secLor
Lo seL up and
operaLe commerclal
faclllLles and porL
auLhorlLles Lo
conLlnue Lo own Lhe
land and baslc
lnfrasLrucLure asseLs
as well as dlscharge
Lhelr regulaLory
funcLlons
Wlll decrease Lhe
lnvesLmenL cosLs for
porL operaLors
1ermlnal handllng
charges could Lhen be
lowered for porL users
!v rouLe
Where a parLlcular
servlce does noL
generaLe a sufflclenL
sLream of revenue
and ls Lhus nonvlable
for LoLal prlvaLlzaLlon
Lhe [olnL venLure
rouLe for aLLracLlng
prlvaLe lnvesLmenL
and managemenL
experLlse should be
encouraged
;uesLlons for ulscusslons
W 1he Average Shlp 1urn Around (AS1A) and
Average Shlp 8erLh CuLpuL (AS8C) of lndlan
porLs has lmproved ln recenL years buL Lhey
sLlll lag Lhe global sLandard Pow can Lhe
compeLlLlveness of lndlan orLs be furLher
enhanced?
W WhaL lmprovemenLs are requlred ln Lhe Larlff
meLhodology?
W ls Lhe 'Landlord orL' ,odel LffecLlve?