The MISSION CRITICAL for PORTS INFRA
The port infrastructure is a crucial part of the logistics chain for cargo transportation and exim trade and its development are critical for sustaining India's economic growth. The Indian port sector comprises 12 major ports and 205 non-major ports. While major ports are owned and managed by the Central Government, the non-major ports are under the state governments, although the port can be developed and managed by the private sector.
- Sai Krishna
VP & Sector Head, ICRA
The port infrastructure is a crucial part of the logistics chain for cargo transportation and exim trade and its development are critical for sustaining India's economic growth. The Indian port sector comprises 12 major ports and 205 non-major ports. While major ports are owned and managed by the Central Government, the non-major ports are under the state governments, although the port can be developed and managed by the private sector. The key cargo handled at Indian ports include petroleum, oil and lubricants (POL), which account for ~30-35% of the overall cargo, followed by coal, accounting for 20-25% and containers which contribute to 15-20% of the cargo handled. Other key cargo segments include iron ore, fertiliser, agri-products, project cargo etc.
Between FY2010 to FY2020, the non-major ports had higher cargo growth, leading to gains in market share from ~34% to 47%, with cargo volumes growing at a CAGR of 7.8% against a CAGR of 2.3% for major ports. The overall cargo volumes at Indian ports have grown at a CAGR of 4.5% during the period, increasing from 850 million tonne (MT) to 1,318 MT. The growth between FY2015 to FY2019 was higher in the range of 6-8%, except in FY2016. However, in FY2020 the growth moderated ~3% due to the economic slowdown and declined by 5% in FY2021 due to the adverse impact of the pandemic. In FY2022, however, there has been a sharp recovery with 6% volume growth to 1,319 MT and ~10% growth in Q1 FY2023. Among major ports - the Kandla, Paradip and JN ports account for ~45% cargo share, while the Gujarat Maritime Board (GMB) accounts for 65-70% of cargo in the non-major port segment. Non-major ports managed to gain market share due to better services and efficiency and having 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.
Sagarmala and port expansion
In 2015, the Sagarmala programme was envisaged for unlocking the potential of India's vast coastline and waterways. As part of the same, the national perspective plan was prepared in 2016 (NPP 2016), which talked about increasing the total port capacity to 3,300 MTPA by 2025.
This included adding 380-MTPA expansion at non-major ports and 466 MTPA from new ports. Apart from capacity expansion, the Sagarmala project also covered port modernisation, port connectivity enhancement, port-led industrialisation, coastal community development and coastal shipping and inland waterways, which are crucial to drive cargo growth.
While the capacity expansion targeted was based on expectations of growth in cargo volumes to ~1,650 MT by 2020 and ~2,500 MT by 2025, the actual cargo growth was moderate, with cargo volumes of only ~1,319 MT in FY2022. Similarly, the capacity additions between FY2016 and FY2021 have been moderate, with major ports capacity increasing to 1,535 MTPA from 965 MTPA (including 293 MTPA due to re-rating of capacity), whereas the non-major port capacity grew to 1,002 MTPA from 738 MTPA. The subdued capacity growth can be attributed to slower execution and failure of some of the planned greenfield/brownfield projects to take off due to various factors, including slow cargo growth. Considering the low-capacity utilisation of ~44% for major ports and 57% for non-major ports, there is adequate surplus capacity available at present and focus should also be on implementation of other projects which will improve port efficiency and drive cargo growth.
While under the Sagarmala programme, the total estimated cost of port modernisation and new port development is ~Rs 2.6 lakh crore, of which projects worth ~Rs 27,000 crore have been completed and projects worth Rs 37,000 crore are still under implementation. There are 15 new port projects under the Sagarmala plan. Further, 'in-principal approval' of the Union Cabinet has been obtained for setting up a major port at Vadhavan in Maharashtra at an estimated cost of Rs 65,544 crore.
The overall projects under Sagarmala are worth nearly Rs 5.54 lakh crore and will be implemented by 2035. Considering the issues witnessed in the first five years of Sagarmala, a Maritime India Vision 2030 (MIV 2030) was prepared in 2021. 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. 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 GoI over seven years), which will raise long-term funds in the domestic and international markets and lend it to the maritime sector at competitive rates. 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 of India. The role of the Tariff Authority for Major Ports (TAMP) for fixing the tariff has been done away with and 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.
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. 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 Governments and disputes with PPP partners.
Looking ahead
While ICRA expects the cargo growth of 6-8% per annum in the near term, 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, funding support from the Central and the State Governments, either through the proposed MDF or through budgetary allocations, would be a necessity.
While bank funding will be a major source, the ability of the sector 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. 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.
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