PPP Model for Growth of India’s Port Sector

The gaining prominence of India as an attractive economic hub for trade and maritime activities has leveraged the need for world-class terminals, PPP projects, rising private investments, qualitative technologies and equipments to ensure efficiency of port operations, opines Rajiv Agarwal, Managing Director & CEO, Essar Ports, in conversation with Veena Kurup, Elets News Network (ENN).

Rajiv Agarwal,
Managing Director & CEO,
Essar Ports

While the growth in infrastructure sector has taken a hit recently, ports remain major drivers of the economy. Share with us your outlook over the sector’s prevalent scenario?
Ports, apart from being an economic business generating sector, are also a service industry, wherein the growth of the sector depends on the growth of the industry. The sector and government expected a much higher growth in the industry and accordingly forecasted that by 2020, the total cargo handled at Indian ports would go up to 2.5 billion tonnes. The capacity needed to handle such type of cargo will be around 3.3 billion tonnes. But, in the last 3-4 years period, despite a slowdown, the sector posts a decent growth. The lull in the sector’s growth is mainly due to the reduction in the exports of iron ore. A positive trend being witnessed is the increased inflow of coal and petroleum cargo. We are very optimistic about the opportunities ahead and expect the sector to expand this fiscal. However, there is scope for improvement in the port facilities and using advanced mechanized services.

Modernization of ports and port facilities is being upheld as a matter of prime importance today. Share with us your views on the need for modernization of ports?
India has emerged as one of the prime economic hubs for attracting investments and leveraging trade activities. The increasing trade and economic activities has increased the inflow of cargo to Indian ports. This has raised the requirement for accommodating large sized container vessels, which had further raised the demand for deeper drafts, good evacuation facilities and ability to accommodate large sized vessels. The use of advanced mechanized facilities can help reduce the turnaround time, operational efficiency and the transportation cost Transportation cost plays a vital role in the executing the export and import activities of the cargos. Use of advanced and minimal or maintenance free port equipments is another need of the hour.

ship2Do you see a technical gap between the technologies and port equipments available and utilized at the country’s port sector?
The new ports which are being developed are completely in line with the globally available facilities and technologies. However, few of the major ports in India still have old infrastructure facilities, which needs to be augmented and requires constant updating. Even the dredging facilities at the ports have a vast scope for improvement, because most Indian ports do not have very deep drafts. This hinders the accommodation of large vessels. Deeper drafts with better mechanized facilities help to accommodate large vehicles with more cargo in a shorter time span. This ultimately results in enhancing the trade and economic activities. The scenario has also raised the need and requirement for world-class terminals and well-established transportation connectivity at our ports.

What is Essar Port’s approach towards adopting and implementing mechanization?
All our ports are equipped with advanced technologies and efficient mechanized facilities. Our focus is always on making investments that can last for 30-40 years. The world is growing and going forward, the demand for larger tonnage ports is going to rise. We focus on ensuring deepest drafts in all our port terminals and providing effective maintenance. For dredging at Essar Ports, assistance from foreign companies is utilized for capital dredging, while Essar Ports does the maintenance dredging. Maintenance of drafts is of vital importance on ensuring effectiveness in the port operations.

Is maintenance a challenge in ensuring the effectiveness of deeper drafts at port terminals?
Maintenance is definitely a challenge at Riverine ports which has siltation. Such a situation requires continuous dredging. However, dredging is expensive. Furthermore, the equipment should be efficient and well suited for the specific requirement. Dredging, apart from employing advanced technologies and maintenance, is a tricky business. It involves a detailed study and planned approach over a long period. Factors like wave flows, current behavior and weather conditions are analyzed. Dredging as is an expensive business. We need companies that can offer and deliver advanced mechanisms.

How has the planned mechanized activities contributed towards the operations at Essar Ports?
Our strategy has been to maintain a very tight, focused operational approach. This planned approach has enabled Essar Ports to gain the best EBITDA margins in the industry, which has helped us in reaching critical mass. We believe in high level of mechanization at low cost and achieving the maximum operational time and capacity utilization. Our major aim is to execute projects as per the cargo inflows; we do not implement projects where we do not have cargos.
Mechanization contributes in managing the operating cost of the terminals. In ports as in service industry, managing operating cost – which is about 20-25 percent – is vital. We follow a planned approach while selecting and equipping our equipments. Cargo loading and unloading plays a crucial role in port operations, and mechanized facilities help in reducing turnaround time. We maintain a customer focused, tailor-made approach while selecting and deploying port technologies or equipments.

How do you see the government’s approach towards PPP initiatives in ports?
Public-private partnership (PPP) models are considered to be effective as they help in bringing a balanced developmental approach. They help in developing port operations and technologies in a planned manner, where participation from private players can assist governments in improving the operational efficiencies by enabling access to advanced technologies. However, a more proactive approach needs to be adopted by the government, especially in supporting the private players, in executing such projects.The cost of raw materials is rising, and the situation has become more complex due to the inflationary pressure. The government needs to encourage private players by increasing the flow of revenue to the sector, making it operation friendly etc. Absence of support from government will result in a one-sided developmental approach, which will result in India becoming less competitive globally.

Essar Ports had earlier outlined its plans for the current port capacity. Do you see the target achievable even now?
Also tell us about your expansion plans? Essar Ports is currently focused on completing its existing projects at Paradip and Vishakhapatnam. We are very hopeful of achieving our targets, and once completed, our projects will double our port capacity to about 180 million tonnes per annum (MTPA). We expect to achieve this target by 2016-17. We are planning to add 20-25 million tonnes to our port capacity by this fiscal.
Currently, Essar Port has projects for developing coal terminal at Paradip which has yet to be implemented though it was signed in 2009. At Vizag, we have the won concession for project implementation but some judicial cases have to be resolved. Apart from these, we have a project for coal terminal at Salaya in Gujarat. Though the project has been delayed because of clearances, we are hopeful of implementing it soon. We are optimistic of clearing our hurdles and achieving our desired target capacity soon.