Windfall for Ports, Industry Looses
India’s port sector has been one of the pillars of growth and prosperity and is usually seen as a catalyst to a growing economy.
The state of AP which is blessed with the second largest coastline in the country is often marketed as a port based economy and is surrounded by a lot of furor on port development and augmentation.
One of the crucial aspects of port development and growth has been the paramount participation of the private sector.
However in recent times there have been a number high profile exits by private sector companies from the port sector citing unviability and unsustainability as some of the top reasons.
The state of Andhra Pradesh with one major and 3 minor ports is often highlighted in the media as being one of the strongest port based states in the country and with the potential for newer ports to spring up.
Albeit good from a projection stand point many in the port sector have started to wonder if the state needs more ports at this juncture.
‘Today all the 4 ports in AP are operating at 55-60% capacity’ says a top insider of the port based economy stating that the government needs to first ensure full capacity utilization at existing ports than looking to allocate newer ports.
‘For any project to be viable you have to have 70% capacity utilization’ he says.
One sided PPPs
Another major point of contention has been the lackluster relationship of public private partnerships commonly known as PPP. One private port participant puts it tersely ‘The essence of the word partnership in PPP is totally missing’.
Industry observers point out that when BOT projects were initiated in 2008 majority of private players who bid were not from the port sector and had no operational experience. Although these players had experience in construction and engineering of projects they however lacked key operational port experience.
They bid aggressive numbers and did not get into the fine print of the agreement.
This coupled with falling volumes over the years has made matters worse wherein they had to bear prolonged losses or take a decision to close shop altogether.
One of the biggest reasons PPP have failed is because they are fundamentally flawed from a conceptualization standpoint. Big consultancy firms which get hired both by the government and private players unfortunately are to be blamed for this mess says Mr DK Manral former VGCB CEO for Vedanta and now heading a coveted port projects under the Sagarmala ambit.
Mr Manral says ‘Consultants lack domain knowledge. These consultants who are hired by the government to carry out DPR and feasibility studies are fundamentally responsible for portraying a picture that isn’t realistic. Majority of them have zero operational experience and come from non-port background’.
When the packaging itself is wrong the product is bound to be falsely advertised.
Chiding consultants for ‘window dressing of data’ he equally blames the government and private players for their lack of due diligence and allowing them to give out superfluous numbers.
Private players in some instances have bid more than 50% for revenue share with the government just to secure the contract while being oblivious to the fact that this might not be sustainable in the long run.
He advocates an approach used in American ports wherein he says bidding is not solely based on revenue share but a whole lot of other aspects such as:
Amount of employment to be created, total investment the private sector will bring in, all in all an understanding of their plans for holistically growing the port and not just relying on one factor i.e. the highest revenue share.
Mr Samba Siva Rao MD of Sravan shipping and President elect of AP Chambers of Commerce and Industry however disagrees ‘Countries like India have to be extremely transparent and careful while laying guidelines for winning bids. Often government is taken to court or his under the scanner when ambiguous guidelines are given for bidding he says.
Mr Rao opines that every bidder should know his financial limitations and not go overboard in lieu of securing a contract. He however does point out that the onus lies on the government to create ample common infrastructure facilities within the port area such as parking area, food courts, enough wash rooms for the workers etc. These are some of the basic needs that the port authorities should take cognizance of.
On the policy front he says that they favor the government. ‘All government rules are one sided’ quips Mr Rao. He calls for a level playing field for all and advocates a 200km radius within which no other port should be allowed to come up.
In fact in a recent panel chaired by Mr. Mukul Roy with 31 members it has come out stating that no new port within 100km vicinity of major ports should be allowed to come up.
With volumes plummeting Mr Rao says 3-4 ports end up fighting for the same cargo.
An aspect that most of them seem to be bullish on is the corporatization of ports which they believe would be a boon for faster decision making and decentralization of power.
In a recent study done jointly by FICCI and EY they have come out recommending a series of measures to revive PPPs. Among the measures suggested is keeping a check on aggressive bidding wherein it has stated ‘Aggressive bidding is a major cause of concern in PPP projects’. Some of the other FICCI-EY suggestions included better preparation of DPRs, revisiting the viability gap funding, need for independent regulator.