Port Infrastructure: Issues and Challenges

Context:The Indian Ports Association (IPA) has appointed M/s Tech Mahindra as the Managed Service Provider for the five major ports at Mumbai ,Kolkata, Chennai, Deendayal Port  and Paradip Port Trust.

Ports in India- A snapshot

• There are 13 major ports in the country; 6 on the Eastern coast and 6 on the Western coast. Further there are about 200 non-major ports.
• The 12 major ports in the country have a combined total capacity of 1,065 million metric tonnes (MMT), while the capacity at non-major ports is roughly 700MMT

Note:

Port Blair was commissioned as a Major Port in 2010. However, the central government later decided to remove the tag because executing a big-size port at that location is not feasible due to lack of container traffic.

In 2016, the government approved the setting up of a major port at Enayam near Colachel in Tamil Nadu.

Ports’ Performance

• Capacity:Capacity at major ports grew to 1,065 MMT in FY17, implying a CAGR of 7.75 per cent since FY07
• Cargo Capacity: In FY17, cargo capacity in India is estimated to have increased to 2,493.1 MMT from 1,806.8 MMT in FY15.
• Cargo Traffic: In FY18, major ports in India handled 679.36 MMT of cargo traffic, showing a CAGR of 2.73 per cent during FY08-18.
• Turnaround Time: The average turnaround time of major ports improved to 3.44 days in FY17 from 4.01 days in FY15 (Turnaround time is the total time spent by a ship from entry into port till departure)
• During FY17 major and non-major ports handled total throughput of around 1,133.09 Million Tonnes (MT), an increase of 5.7 per cent from FY16.
• For the year 2016-17, the total merchandize trade in volume terms was 1,132.2 million tonnes, 5.5% growth over 2015- 16.

Data Source: IBEF and CARE Ratings

Regulatory Scenario of ports in India

• All Indian ports are regulated under the Indian Ports Act, 1908. This Act defines the jurisdiction of central and state governments over ports, and lays down general rules for safety of shipping and conservation of port facilities.

Major Ports:

• Major ports are under the jurisdiction of the Government of India and are governed by the Major Port Trusts Act 1963, except Ennore port, which is administered under the Companies Act 1956. The ports act as semi-autonomous bodies under the administrative wing of the Ministry of Shipping.

Minor Ports:

• Non-major ports come under the jurisdiction of the respective state Governments’ Maritime Boards (GMB).

Key Policy Developments:

The Major Ports Authorities Act, 2016:

The Act seeks to provide greater autonomy and flexibility to major ports.  It repeals the Major Port Trusts Act, 1963. The key features of the Bill include:

1. Under the 1963 Act, all major ports are managed by the respective Board of Port Trusts that have members appointed by the central government.  The Bill provides for the creation of a Board of Major Port Authority for each major port. The major functions of the Board of Major Port authority include:

• The Board can use its property, assets and funds as deemed fit for the development of the major port.
• Under the Bill, the Board or committees appointed by the Board will determine rates for assets and services available at the port. Under the 1963 Act, it was done by the Tariff Authority for Major Trusts
• Under the 1963 Act, the Board has to seek prior sanction of the central government to raise any loan.  Under the Bill, to meet its capital and working expenditure requirements, the Board may raise loans from any (i) Indian scheduled bank or financial institution, or (ii) any financial institution outside India that is compliant with all the laws.

2. The Bill provides for the central government to create an Adjudicatory Board. Functions include:

• certain functions being carried out by the Tariff Authority for Major Ports
• adjudicating on disputes or claims related to rights and obligations of major ports and PPP concessionaires
• reviewing stressed PPP projects,
• looking into complaints received from port users regarding port services.

Amendments to Model Concession Agreement (MCA):

1. Approved in 2008, MCA governs the functioning of Major Ports with respect to PPP projects
2. In January 2018, the government approved amendments in the Model Concession Agreement (MCA) to make the Port Projects more investor-friendly and make investment climate in the Port Sector more attractive. Key features include:

• Constitution of the Society for Affordable Redressal of Disputes – Ports (SAROD-PORTS) as dispute resolution mechanism.
• Providing exit route to developers by way of divesting their equity upto 100% after completion of 2 years from the Commercial Operation Date(COD).
• Under provision of additional land to the Concessionaire, land rent has been reduced from 200% to 120% of the applicable scale of rates for the proposed additional land.
• Payment of royalty for the ports on ‘per million tonne of cargo handled’ instead of percentage of gross revenue based on tariff determined by Tariff Authority for Major Ports (TAMP).
• “Actual Project Cost” replaced by “Total Project Cost”.
• Introduction of Complaint Portal for the use of port users.

Sagarmala Project:

The programme aims to modernize India’s ports so that port-led development can be augmented and coastlines can be developed to contribute in India’s growth. Major objectives of the project are:

Major components of the project include:

• Port Modernization & New Port Development
• Port Connectivity Enhancement
• Port-linked Industrialization
• Coastal Community Development

Project Unnati: It has been started by Government of India to identify the opportunity areas for improvement in the operations of major ports. Under the project, 116 initiatives were identified out of which 86 initiatives have been implemented (as of March 2018)

National Maritime Agenda, 2010-2020: The major objectives include:

1. Increasing capacity: To create a port capacity of around 3,200 MT to handle the expected traffic of about 2,500 MT by 2020
2. World-class Infrastructure: To implement full mechanisation of cargo handling and movement at ports, thereby bringing Indian ports on par with the best international ports in terms of performance and capacity
3. Strategically building Ports: To develop 2 major ports (1 each on East and West coast) to promote trade as well as 2 hub ports (1 each on the West coast and the East coast) – Mumbai (JNPT), Kochi, Chennai and Visakhapatnam
4. Port Regulator: To establish a port regulator for all ports in order to set, monitor and regulate service levels, technical and performance standards
5. Enhancing Participation of Private Sector: Implement Landlord port‘ concept to limit the role of ports to maintenance of channels and basic infrastructure while leaving the development, operation, management, of terminal and cargo handling facilities to the private sector

Green Initiatives:

As part of the Swachh Bharat Abhiyan, Green Agenda, new schemes have been formulated for providing financial assistance to Major Ports for green initiatives and also for building their capacity for combating oil pollution. The government plans to install almost 200 MW wind and solar power generation capacity by 2019 at the ports.

Introduction of Port Enterprise Business System

Recently, Tech Mahindra won the contract on a tender issued by the Indian Ports Association (IPA) to maintain an Enterprise Business System (EBS) to modernise and automate port processes for five central government-owned ports. The ports include: Kolkata Port Trust, Paradip Port Trust, Chennai Port Trust, Mumbai Port Trust and Deendayal Port Trust (formerly Kandla Port Trust).

Major expected benefits of EBS include:

• Improvement in India’s ranking in ease of doing business
• enabling faster request processing in delivery of services with better turnaround time,
• reduction in manual intervention
• reduction in overall transaction time and costs
• improve the efficiency of port operations

Prospects for ports in India:

Issues and Challenges with Indian Ports:

1. High turnaround times-Ports in India suffer from high turnaround times for ships. For example, in Singapore, average ship turnaround time is less than a day. However, in India, it is over two days. (Economic Times)
2. Port congestion:Port congestiondue, container volume,shortage of handling equipment and inefficient operations is a major concern. Example: In Nhava Sheva port
3. Sub-optimal Transport Modal Mix: Lack of requisite infrastructure for evacuation from major and non-major ports leads to sub-optimal transport modal mix
4. Limited Hinterland Linkages: There is inefficiency due to poor hinterland connectivity through rail, road, highways, coastal shipping and inland waterways. This in turn increases the cost of transportation and cargo movement
5. Lengthy inspection and scrutiny: Though customs operations in India are rapidly going paperless and converting to digital, inspections and scrutiny continue to be lengthy for cargo and other shipping operations.
6. Inadequate infrastructureand Technology Issues

• Lack of adequate berthing facility, number of berths, sufficient length for proper berthing of the vessels at the Non-Major Ports is another problem.
• Most Non-Major Ports do not have proper material handling equipment in place which could facilitate a quick turnaround
• Draft is also a major limitation in India as terminals and ports are unable to cater to vessels beyond Panamax (Draft over 13 meters) size that are increasingly dominating global trade
• Most Indian ports lack of equipment for handling large volume
• Further many ports also lack adequate navigational aids, facilities and IT systems

7. Issues with Regulations:

• The major problem with regulation is that major and non-major ports fall under different jurisdictions. Further, the regulatory framework is rigid.
• Cabotage laws in India continued to remain restrictive. Foreign-flagged vessels are not allowed to ship cargo from one Indian port to another as that remains a protected turf for domestic shippers

Land acquisition and environmental clearances are some specific challenges for non-major ports.

8. Issues with PPP Model:

• Most port PPPs impose strict limits on what private operators are allowed to do, usually in terms of the types of cargo they are allowed to handle.
• Until recently, Other problems were related to tariff regulation and absence of dispute resolution mechnaism

9. Discriminatory provisions for Indian vessels:

• Foreign vessels are exempt from duty on bunker fuel while Indian vessels have to pay this duty
• Seafarers aboard Indian flag vessels are subject to Indian income tax while those working aboard foreign vessels are not subject to this tax.

10. Environmental impact:

• During the operation of ports, spillage or leakages from the loading and unloading of cargo and pollution from oil spills are common due to poor adherence to environmental laws and standards.
• The water discharged during the cleaning of a ship and the discharge of ballast water is a threat to marine ecosystems
• Dredging causes environmental problems (increased sedimentation) affecting local productivity of the local waters and its fisheries.

11. Social impacts of Port Development:

• Most port projects and development results in displacement (such as Gangavaram Port in Andhra and Mundra in Gujarat).
• Besides displacement, the other important concern expressed by fishing communities is the restriction of access to fishing grounds around a port.

12. Manpower and Labour Issues:Lack of adequate training, falling manpower quality, opposition to reform are major issues
13. Unhealthy Competition:Analysists have cited the concerns over development of multiple ports in close vicinity handling similar cargo as it might lead to ports competing for the same cargo arrivals.

Major Committees and Recommendations:

1. Vijay Kelkar Commiitee on PPP:

With regards to ports, the committee recommended review of role and need of Tariff Authority for Major Ports (TAMP), review of MCA, quicker clearances, rationalized leases and stamp duties

2. Niti Aayog in its Three Year Acton Agenda (2017-2018), recommended the following:

• Increase competition through easing cabotage
• Increase the capacity of and eliminate discriminatory provisions for Indian vessels
• Explore creating deep-water ports or barges for ports with low drafts
• Facilitate minor/non-major port connectivity to hinterland areas

Way Forward:

1. Environmental clearances, Tariff norms, land acquisition etc. need to be standardized and implemented for the port sector so as to boost foreign investments
2. It is important to provide rail and road connectivity to major and minor ports in order to ensure seamless multimodal transport and improve efficiency
3. Priority should be given on expanding capacity and improving operational efficiency. Emphasis should be placed on installing advanced cargo handling processes, scalability in processes and mechanisation of port operations.
4. Technologies like big data and advanced GPS navigation systems should be optimally used for better functioning of ports
5. The regulatory regime should be made less complex and less rigid. Further, there should be vertical integration of all stakeholders (for example: environment, rail/road transport etc.) for holistic development of ports in India
6. Port modernisation and new port development, port connectivity enhancement, port-linked industrialisation and coastal communitydevelopment under the Sagarmala project has an immense scope for reduction in transportation and logistics costs and boosting export competitiveness