Future looks good for Port companies

Starting 2010, the future may belong to the private sector in Indian ports, commented a senior Shipping Ministry bureaucrat five years ago. Things are going pretty much in the same direction as he predicted, contrary to many in the industry saying government-run major ports will continue to dominate the sector.



The private sector's share of cargo handling increased to 34 per cent in 2009-10, compared to 27 per cent a year ago and just 5 per cent nearly a decade ago. “We anticipate the private sector will handle nearly 50 per cent of Indian cargo in the next five years,” said an industry source.

“We cannot sit back and relax now. The private sector's role in ports is growing at an unprecedented pace,” observed a senior official of the Chennai Port Trust. His concern was that private ports such as Krishnapatnam and Gangavaram, in Andhra Pradesh, and Karaikal in Tamil Nadu will not only compete with one another for cargo but pose a formidable challenge to the government-run major ports of Visakhapatnam, Chennai, Tuticorin and Ennore. “We need to start building capacity at the earliest and have the latest mechanised cargo-handling equipment,” he said.

Mr K. Ravichandran, Senior Vice-President and Co-Head, Corporate Sector Ratings, ICRA, a research company, observed that the private sector would play a larger role in the Indian context, as is evident from its growing share in the cargo mix; its dominance in upcoming and proposed green-field ventures; its increasing presence at major ports through PPP (private-public-partnership) projects and its active participation in port support and logistics activities.

Successful ventures

Among the main private sector ports are the Mundra port (among the larger ports, by cargo volume) and Pipavav port — both in Gujarat. The green-field ports commissioned in the recent past (2008-09 and onwards) include Krishnapatnam and Gangavaram (in AP), Karaikal (in TN), and Jaigarh in Maharashtra. These ports commenced their first-phase operations and have lined up subsequent expansion phases with mega capacities.

Some of the green-field port ventures expected to be commissioned in the near term include the Dhamra port in Orissa; Adani (Petronet) Dahej's solid cargo port terminal in Gujarat; Dighi port in Maharashtra and Gopalpur port in Orissa.

At present, around 24 green-field port projects entailing a total investment of Rs 587 billion are planned for commissioning between 2016 and 2025. These would cumulatively add a capacity of 835 million tonnes, if the implementation progresses as planned, ICRA said in a recent paper on Indian ports.

Challenges remain

Encouraging trends are thus seen in private green-field port ventures but challenges remain. Post-liberalisation, a number of domestic players and foreign entities entered the Indian port sector, encouraged by the favourable business potential and the investment environment in some States.

On the credit perspective for port companies, Mr Ravichandran stated that, while the favourable demand-supply dynamics anticipated are expected to create a positive environment for growth and, in turn, favourably impact the business and financial risk profiles, certain challenges remain.

The most prominent is the ability to manage project risks besides regulatory risks and systemic issues in an evolving environment.

While success stories of private port ventures are encouraging, at the same time, ICRA observes that green-field port ventures in India are besieged by problems at various stages. These include problems faced in land acquisition and environmental clearances, resulting in cost and time over-runs, besides delays in connectivity projects involving road and rail networks.

Demand and Supply

Cargo traffic at Indian ports reported a compounded annual growth rate (CAGR) of 10 per cent from 579 million tonnes (mt) in 2005-06 to 846 mt in 2009-10, driven by the growth in GDP and in trading activity (exports and imports). Traffic flows posted a CAGR of 16 per cent between 2005-06 and 2009-10 at non-major ports and of 7 per cent at the major ports (the lower growth rate of the latter to be seen in the context of a larger base).

Fiscal 2008-09 proved weak for the port sector with cargo volumes growing a meagre 1 per cent because of the overall weak macro-economic environment, global recessionary conditions, and fall in trade activity and cargo movement.

While the major ports posted 2 per cent year-on-year (y-o-y) growth in 2008-09, cargo volumes at the non-major ports dipped 1 per cent y-o-y that year. However, in 2009-10, volume growth rebounded following a pick-up in economic activity and reported a 15 per cent y-o-y increase over 2008-09 with cargo volumes up by a substantial 41 per cent y-o-y at the non-major ports and by a 6 per cent y-o-y at the major ports. In 2009-10, major ports accounted for 66 per cent of the total cargo handled and the non-major ports for the rest 34 per cent.

Drivers of growth

The cargoes that are expected to drive growth include coal, containers crude oil and POL, fertilisers and steel products. The volume of iron ore, one of the major export items at present, will continue to be a function of policy and any restriction or ban on iron-ore fines or lumps (such as the recent one instituted by the Karnataka State government), could impact ports and terminals where the share of iron ore cargo is high in the overall cargo mix.

Traffic related to offshore exploration and production activities and the emerging trend of coastal shipping (for petroleum products and dry bulk cargo) would be other revenue contributors for ports.

According to the projections on cargo in the Eleventh Five-Year Plan (2007-2012), India's port traffic would cross the 1,000 mt mark by 2011-12 which, considering the recovery trend in cargo growth in 2009-10, appears plausible. However, on the supply side, constraints are likely to arise, considering the pace of implementation of projects under both Government and private initiatives, the ICRA report said.

via BL