BANKING on POLICY PUSH

- Sai Krishna

Vice President & Sector Head ICRA Ltd

The cargo volumes at Indian ports had witnessed healthy growth in the current fiscal till Oct 2022, with YoY growth of ~10% driven by sharp recovery in coal and POL volumes. Coal cargo, which accounts for ~20-25% of overall cargo handled at Indian ports, had witnessed a decline during FY20 and FY21 and witnessed only subdued recovery in FY22, however, during 7m FY2023 the volumes witnessed sharp growth of 31%, which was driven by improved demand for thermal, coking and other coal segments. Petroleum, oil and lubricants (POL), which accounts for 30-35% of cargo handled, also witnessed ~9% growth during the period, after witnessing subdued growth in the past few years and decline in FY2021.

Apart from these key segments, other segments like food grains, sugar and project cargo also witnessed healthy growth. However, the container segment, which accounts for ~17-20% of cargo, had witnessed subdued growth in the current fiscal, after witnessing healthy growth in the last few years. The overall growth was, however, offset by moderation in segments like iron ore and fertilisers, due to factors like restriction on exports and high prices. While the sharp growth in segments like POL and coal was due to pent up demand, the growth in these segments is expected to be at more normalised level going forward and the overall cargo growth for FY2023 is expected to be in the range of 6-8%.

The overall growth trend was largely similar across major and non-major ports, with the share of non-major ports being at 45% in 7m FY2023. Among major ports - the Kandla, Paradip and JNPT ports account for ~42-45% cargo share, while the Gujarat Maritime Board accounts for 65-70% of cargo in the non-major port segment. Non-major ports managed to gain market share in the last decade due to better services and efficiency and flexibility in terms of pricing, based on market conditions. However, in recent years, with infrastructure and process improvements at the major ports and with the implementation of the Major Ports Act 2021, the competitiveness vis-à-vis non-major ports is expected to improve going forward.

The ports sector is also expected to witness significant capital expenditure over the next two decades as envisaged under the Sagarmala programme and subsequently, under the Maritime India Vision 2030 (MIV 2030). Under the MIV 2030, the projects planned over the next ten years include capacity additions at major ports of ~423 MTPA worth ~Rs 33,400 crore and three new mega port clusters of >300 MTPA capacity, including the Vadhavan Port and development of a trans-shipment hub in south India. The capacity expansion prioritisation at major ports will be based on the cargo potential and the current capacity utilisation levels. Apart from these, some of the other non-major ports which are planned or are under implementation include ports at Bhawanpadu, Machilipatnam, Ramayapatnam in Andhra Pradesh, the Subarnarekha Port in Odisha and the Tajpur Port in West Bengal.

The projects will be mainly implemented through the Public Private Partnership (PPP) mode. The major ports will transition to landlord port models and bring in more private sector participation to improve efficiency. To attract private capital and to make the major port sector more competitive, the Major Port Authorities Act, 2021 has been implemented, which aims to revamp the administration, in addition to control and manage the major ports. The role of the Tariff Authority for Major Ports (TAMP) for fixing the tariff has been done away with and the major ports are likely to be free to set their tariffs based on market forces, allowing PPP operators to also fix the tariffs based on market conditions, following notification by the Ports Authority.

While, bank funding will be a major source, the sector's ability to attract funds from infrastructure-focused international institutions, multilateral agencies and channelise long-term capital (like pension and insurance funds) into the port sector, will also be crucial to meet the funding requirements. The MIV 2030 also proposes to develop a Maritime Development Fund (MDF) to support the port and the maritime sector, with an estimated capital of Rs 25,000 crore (Rs 2,500 crore support from the Government of India over seven years). This will raise long-term funds in the domestic and international markets and lend it to the maritime sector at competitive rates.

In addition to the expected enhancement in port infrastructure, improvement in infrastructure related to logistics segment like CFS/ICD and container train operations will also complement the growth in the sector. Several port and port logistics players have been positioning themselves as integrated logistics companies with presence across multiple segments to be able to provide multimodal transportation solutions, as the same will improve their competitiveness and ability to attract customers. Moreover, as witnessed in recent years, the sector will also continue to witness some consolidation as stronger players may acquire standalone assets or projects where the sponsor has been facing financial issues.

While the medium to long term prospects for the ports sector remain favourable, there are several challenges to be addressed. The cargo growth at Indian ports is expected to be supported by the overall economic growth and growth in exim trade, increasing containerisation of cargo, and growth in coastal cargo movement. But, to sustain cargo growth at healthy levels in the medium to long term, other related projects like sufficient dredging, digitalisation of operations, improved connectivity, and port-led industrialisation with specific cargo-based clusters are to be implemented in a timely manner. Further, some of the cargo segments like thermal coal imports may witness moderation in the medium to long term. Moreover, any significant moderation in exim trade or economic growth due to global factors can have some adverse impact on the cargo growth trend.

On the project side, especially for greenfield projects, the issues include land acquisition roadblocks, environmental and CRZ clearances, protests from the local communities, cooperation between the state and the Central Government and disputes with PPP partners. Further, funding support from the Central and the state governments, either through the proposed MDF or through budgetary allocations, would be a necessity. As seen in the past, aggressive capacity expansion targets may not be achievable or lead to significant underutilisation if the key challenges are not addressed and cargo growth is less than expected.

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