Shipping Background Paper

National Conference on Ports and Shipping 2011 Background paper
August 2011
Contents
Foreword from FICCI Foreword from Deloitte PART I: Policy reforms and initiatives for developing world-class Ports Ports: An Overview Policies & Regulations Draft Ports Bill 2011 Draft Ports Regulatory Authority Bill, 2011 Draft Captive Port Policy, 2011 Land Policy for Major Ports, 2010 PPP in Ports Demand-Supply scenario of Ports Corporatization of Ports Financing Port Projects Information Technology in Ports PART II: Indian Shipping Industry: Progress, Issues and the Way Forward Introduction Shipbuilding subsidy Manpower shortage in the shipping industry how to tackle it Shipbreaking - Green initiatives, current developments Taxation in Shipping Maritime Security Coastal Shipping New Policy & Issues PART III: Port Connectivity Introduction Current Port Connectivity Scenario Inland Waterways Connectivity Bibliography & References Contact Deloitte Offices in India
4 5 6 7 10 12 17 18 20 22 26 28 30 33 36 37 38 40 41 42 43 45 49 50 51 58 66 67 68
Foreword from FICCI
Mr Ramu S Deora Chairman All India Shippers Council (AISC)
Mr Hemant Kanoria Chairman FICCI National Committee on Infrastructure
Indian Ports and Shipping sector is going through a significant transformation. It is becoming increasingly competitive, which raises both threats and opportunities for the sector. There are various challenges faced due to rising traffic and constraints on infrastructure front. The challenges also throw open several opportunities including those for investment. To discuss some of the critical issues Federation of Indian Chambers of Commerce & Industry (FICCI) and All India Shippers Council (AISC) are jointly organizing the National Conference on Ports & Shipping in Mumbai. The conference will also focus on procedural bottlenecks & other stumbling blocks in port infrastructure development, and brainstorm strategy options to overcome many of the major problems. As Knowledge Partner for the event, Deloitte Touche Tohmatsu India Pvt Ltd has prepared a comprehensive Background Paper covering a large number of important areas. The report has been prepared through detailed analysis of the critical factors influencing the sector in India. We take this opportunity to thank them for their efforts. At the conference, the speakers, resource persons and delegates would debate and discuss a wide range of topics pertaining to the ports & shipping sector. I hope you would enjoy reading this report and of course, your suggestions and feedback are welcome.
Foreword from Deloitte
The economic progress of India depends significantly on the value addition its trade, commerce and industry delivers in the international marketplace. The extent of success in this regard depends on the attractiveness and competitiveness of its products in the global arena. This competitiveness is in turn a function of the cost and quality of its products and services. Transporting and delivering goods in timely, cost effective and convenient manner is an essential dimension of such global trade. Since 90% of Indias trade (by volume) happens through water transport, ports and shipping companies end up being extremely critical nodes of the supply chain. Consequently their availability, efficiency, and capability have a major impact on the competitiveness of Indias products in the global markets. Given such far-reaching impact that the ports and shipping industry has on our economic progress, it is of paramount importance to have it operate as a vibrant and healthy service industry catering to our manufacturing sector. This requires a judiciously balanced pro-development regulation of the sector. In the last few years the Ministry of Shipping has introduced several policies and legislation in this regard. These policies would have a direct bearing on the ports and the shipping industry and it is hence imperative for the stakeholders in this industry to assess the implications of these policies and strategize taking the best advantage of them. The Captive Port Policy, the Land Policy for Major Ports, the Ports Bill, Port Regulatory Authority Bill and Coastal Shipping Policy are some very pertinent documents meriting review and reaction. This knowledge paper discusses these and many other similar aspects to set the tone for the FICCIs national Conference on Ports & Shipping 2011. The various sections provide a very high level overview of these developments and identify several issues requiring deliberation and debate as Food for Thought. Obviously this is not a comprehensive listing of all issues and is only intended to serve the purpose of prompting a discussion on these developments at the conference. I am sure participants will find the Knowledge Paper very helpful in obtaining a quick appreciation of these important documents and facilitate an interactive participation at the conference. I will be happy to receive any feedback readers might want to offer. Best regards,
Hemant B. Bhattbhatt Senior Director Deloitte Touche Tohmatsu India Pvt. Ltd.
Part I: Policy reforms and initiatives for developing world-class Ports
Ports: An Overview
Introduction Ports provide an interface between the ocean transport and land-based transport. They represent a promising sector for India, given the countrys 7500-km long coastline, robust economic growth, abundant raw material, cost-competitive workforce and a strategic location on the trade map. Indias port infrastructure constitutes of 13 major ports and 187 non-major ports. Of the non-major ports, only about 48 are operational; while the rest are only fishing harbours. The 13 major ports are administered by the Central Government through the Ministry of Shipping, and non-major ports are under respective state governments. The state wise numbers of ports are given hereunder: Major and Non major ports across the 11 Indian Coastal States and Indian Islands West Coast of India Gujarat (41 ports) Maharashtra (55 Ports) Goa (6 ports) Daman & Diu (2 ports) Karnataka (11 ports) Kerala (14 ports) Lakshadweep Islands (10 ports) Total (139 ports) East Coast of India Tamil Nadu (18 Ports) Pondicherry (1 port) Andhra Pradesh (13 Ports) Orissa (3 ports) West Bengal (2 port) Andaman & Nicobar Islands (24 ports) Total (61 ports)
Performance On an average, port traffic grew at ~ 7.66 per cent between 2005-06 & 2010-11. More specifically, nonmajor ports registered a double-digit growth at 13.55 per cent as against 5.37% per cent growth in traffic at major ports. POL, iron ore, and coal constitute a major chunk of traffic at both major and non-major ports. India's Port Sector growth (in Mn. tons) (in Mn. tons) traffic growth India's Port Sector trafc
1000.00 800.00 600.00 150.12 400.00 200.00 0.00 2005-06 2007-08 2009-10 2010-11 423.57 519.31 561.09 569.90 206.38 288.80 300.00
Major ports Source: Indian Ports Association (IPA), Deloitte Analysis Non-major ports
Gujarat has emerged as the leading state in cargo handling. While Kandla port in Gujarat accounted for the highest share (~14 per cent) in major port traffic, non-major ports under the Gujarat Maritime Board collectively boasted the maximum minor port traffic (~71 per cent). This can be attributed to its proximity to the northern hinterland, pro-business government and a dynamic business community. Key issues in major ports Although the sector witnessed significant growth in cargo traffic, it has still not been able to optimize operations owing to technical and institutional constraints as under Capacity constraint As per the latest statistics (2009-10), around 8 of the 12 major ports are operating at more than optimum range of 70-75 per cent utilisation. Further, four of these, namely, Vizag, Tuticorin, Mormugao, & Mumbai ports are experiencing more than 100 per cent utilization. Correspondingly, the average capacity utilization at non-major ports was ~ 77 per cent in 2009-10. This sets the background and imperative for faster development of port projects to ensure smooth flow of traded goods & growth of EXIM trade. Inefficient cargo handling & low productivity A study placed in the Parliament in Feb 2010 by
Source: Deloitte Analysis, Indian Ports Association.

Andaman & Nicobar Islands, 24 West Bengal, 2 Orissa, 3 Andhra Pradesh, 13 Gujarat, 41
Pondicherry, 1
Tamil Nadu, 18 Maharashtra, 55 Lakshadweep Islands, 10
Kerala, 14 Karnataka, 11 Daman & Diu, 2 Source: Deloitte Analysis, Indian Ports Association
Goa, 6
Source: Deloitte Analysis, Indian Ports Association.
the Comptroller and Auditor General of India (CAG) highlighted that cargo handling services at ports were inefficient. A predominant number of berths did not have the dedicated facilities necessary for the quick handling of cargo. Around 55 per cent of the equipment available at all ports, except at the Jawaharlal Nehru Port Trust (JNPT), were running beyond their rated economic lives, resulting in low utilization.
Capacity Utilization at major ports
Inadequate drafts & poor connectivity with other modes Future shipping trends point towards larger vessels with a minimum of 6000-8000 TEUs and a few vessels with 12000-14000 TEUs. These future generation vessels would require drafts between 13 to 15.5 m. Due to current draft restrictions, several Indian ports are unable to handle larger vessels typically with more than 9.5 m and 12.5 m draft. This could lead to shipping
100.00 90.00 80.00 70.00

Million Tonnes
140
120
100
% Capacity Utilization
60.00 50.00 40.00 30.00 20.00 10.00 0.00

Kolkata Haldia Paradip Vizag Ennore Chennai Tuticorin Cochin NMPT MPT MBPT JNPT Kandla
80
60
40
20
0 13.05 33.25 57.01 65.50 10.70 61.06 23.79 17.43 35.53 48.85 54.54 60.75 79.52 20.40 46.70 76.50 62.27 16.00 71.32 23.72 30.37 44.20 37.05 49.70 64.00 85.80 64 71 75 105 67 86 100 57 80 132 110 95 93
Trafc Capacity Utilization (%)
Source: Indian Ports Association (IPA), Deloitte Analysis
Consequently, wide variations were observed in efficiency among the 12 major ports. The average pre-berthing time on port account varies between 0.4 hours and 23 hours. The average turnaround time also varies between two to five days. In contrast, the turnaround time at globally competing ports like Singapore or Hong Kong is between four and six hours
lines / large shippers moving to other ports. Therefore, there is a need to firm up dredging plans and also improve productivity through removal of constraints like inadequate infrastructure, absence of seamless connectivity with other modes, etc
Cumbersome institutional arrangements & other issues Institutional and regulatory arrangements need to be reviewed to ensure speedy development of ports. Similarly, the procedure regarding environmental clearances needs to be rationalized. Other issues facing Indian ports relate to high cost structures, different tariff setting frameworks for major & non-major ports, port security, land acquisition, etc. Ministry of Shipping is taking various steps to address the aforementioned problems. It has been quite active during the recent few years in promoting the development of Ports, Shipping and Logistics sector in India. From time to time it has issued various documents and contributed research in the field of maritime development. The recently published Maritime Agenda 2020 is one such important document. It is a perspective plan of the Ministry for this decade which shall act as a roadmap for the Government agencies for development of maritime sector in India.Maritime Agenda 2010-2020 replaces the current $30-billion National Maritime Development Program, which was launched in 2007 and slated to end in March 2012. A brief summary of the Maritime Agenda summarizing the goals to be achieved by year 2020 is detailed below: Create Port capacity of 3200 M.T. for handling about 2500 M.T. of cargo (This would necessitate an investment of about Rs 3 lakhs crores) Improve Port performance on par with the best in the world Increase tonnage under the Indian flag as well as under Indian control (This would need an investment of about 1.20 lakh crores) Increase Coastal shipping and facilitate hassle-free multimodal transport Increase Indias share in global ship building to 5% Promote use of the inland waterways for cargo movement Increase the strength of Indian seafarers to 9% of the global strength by 2015 and sustain above this level Policy on cargo support Policy on liner co-operatives Establishment of a freight exchange
Creation of an Ombudsman/Tribunals for shipping matters Forming an independent marine casualty cell Establishing a P & I (Protection & Indemnity) club in India Opening of a second register Review of TRANSCHART Study of taxation systems Introduction of passenger ferry services between India and neighbouring countries SCI to have ambitious vessel acquisition plans and increase container handling capacity Promotion of building of Green ships Grant of Infrastructure status to the Shipbuilding industry Developing cruise shipping and promote river cruises Creation of a Shipping sectoral Innovation council Establishing a National Maritime Museum Enactment of the Shipping Trade Practices Act Bilateral maritime agreements with selected countries / regions for mutual benefit Establishing State Maritime Boards in all States Besides the above, the union government has plans to incorporate a new single regulatory body, the Major Ports Regulatory Authority (MPRA), which would not only fix tariffs but also perform the role of a regulator. A bill has been prepared titled the Draft Port Regulatory Authority Bill, 2011 for the creation of this authority. Proposed MPRA will have under its jurisdiction, the power to regulate rates and monitor the performance standards of port facilities and services. A synopsis of the bill has been presented in the section related to policies in this background paper. Another initiative being undertaken by Ministry of Shipping is establishing maritime boards for various states. States like Goa, Orissa, Kerala, Karnataka, and Andhra Pradesh have shown interest in creating Maritime Boards for their respective states which would enable faster decision making, faster implementation of developmental projects and promote the respective states as destinations for maritime investment.
Policies & Regulations
The Ministry of Shipping and Directorate General of Shipping revise various rules / regulations meant for the promotion of the industry on a regular basis, in accordance with the international standards. One of the functions of the Ministry of Shipping is to address the issues arising in the port sector and to facilitate the maritime development. Accordingly, various policies and Acts / policies applicable to the Indian Maritime Industry
Acts are brought into existence to regulate the players in the respective fields and protect the users of the facilities from unfair trade practices. The table below provides a glimpse of the several acts / policies applicable to the Indian Maritime Industry:
Enactment relating to ports and port charges. Provides for rules for the safety of shipping and conservation of ports. Indian Ports Act, 1908 NOTE: This Act and the Major Ports Trust Act, 1963 are proposed to be merged into a single Act. The opinions of the industry have been called upon the Draft Bill for the formulation of such an Act. The Act makes provision for the constitution of port authorities for certain major ports in India and to vest the administration, control and management of such ports in such authorities and for matters connected therewith. Ensures efficient maintenance of Indian mercantile marine. It also covers registration of Indian ships and control of pollution from ships and off-shore platforms. The Act also provides for the establishment and development of National Shipping Board and Shipping Development Fund. An Act to provide for certain matters relating to the territorial waters, continental shelf, exclusive economic zone and other maritime zones of India.
Major Ports Trust Act, 1963
Merchant Shipping Act, 1958
Maritime Zones Act, 1976 GMB (prevention of fire and accidents for safety of workers and protection of environment during shipbreaking activities) Regulation, 2000 Guidelines for ship breaking activities by Central Pollution Control Board
Makes regulations for safety and welfare of workers during cutting operation in ship-breaking yards and environmental measures to be taken during ship breaking activities.
Aims at minimizing the pollution impact of ship breaking activities by fixing responsibility for several authorities of state government and ship breaking association.
Cruise Shipping Policy
Established with the prime objective of boosting cruise shipping in India. Some other areas under mandate consist strengthening of inter-sectoral linkages, consolidating existing ports of call and exploring other ports and suitable anchoring sites on the Indian coast etc.
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Policy for preventing private sector monopoly in Major Ports August, 2010
Ensures healthy competition and smooth award of the projects for capacity augmentation at the Major Ports under Section 111 of the Major Port Trusts Act, 1963 so as to avoid private sector monopoly in the Major Ports. The primary guideline of the policy is given hereunder If there is only one private terminal/berth operator in a port for a specific cargo, the operator of that berth or his associates shall not be allowed to bid for the next terminal/berth for handling the same cargo in the same port
Cabotage Law
Cabotage Law in India is under the Merchant Shipping Act (section 4070 which bars foreign vessels from carrying cargo between Indian ports; exceptions are made if no suitable Indian vessel is available. The market of shipping industry being highly volatile, such protection creates a certain degree of stability for the Indian vessels.
The Land Policy for Major Ports, 2010
Land Policy is one of the most significant policy frameworks guiding the overall functioning of the Port Sector. In all major ports the world over, land has been leveraged for optimizing the throughput and increasing revenue of ports. This policy is developed to provide guidance to the ports for the optimum utilisation of the land.
The Draft Ports Bill, 2011
An Act to update and consolidate the law relating to Ports to meet the current requirements and to make provision for the constitution of port authorities for major ports in India to vest the administration, control and management of such ports in such authorities and for all matters connected thereto.
Source: Presentation on "Review of Marine and Coastal Policies in India", By Dr. Sangeeta Sonak, Prajwal Pangam, Asha Giriyan.
The following section provides highlights of some of the recently proposed Bills and policies.
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Draft Ports Bill 2011
The Ministry of Shipping felt the need to consolidate the two separate acts existing for regulating and promoting Ports namely The Indian Ports Act, 1908 and the Major Ports Trust Act, 1963 into one single act which would meet the current requirements. The Draft India Ports Bill, 2011 was posted on the website of Ministry of Shipping on 21 July 2011. Stakeholders were invited to give their comments on the Bill so as to have a holistic approach while formulating one of the Landmark Act which would affect future of the Maritime Industry. Objective of the exercise The basic purpose behind this exercise was to: Identify and amend / remove the provisions in the existing Statute that were redundant Identify the changes that are required to be done in the existing act and new provisions if any to be made
that would be in tune with the liberalization of the economy, and; Examine the possibility of consolidating the various statutes into one single statute / act. Subsequently, after many other studies and recommendations from various committees, it was decided to draft a Ports Bill which would cover both the existing Acts and would contain provisions to address the latest developments in the industry such as ISPS Code, P.P. Act, 1971, Common Recruitment Rules Head of the Departments of Major Ports, Overriding powers of Central Govt. in respect of port limits etc. The enactment of this Bill as an Act will require the existing two Acts namely The Indian Ports Act 1908 and the Major Ports Trust Act. 1963 to be repealed The following section gives the overall structure of the Draft Indian Ports Bill, 2011.
Draft Indian Ports Bill, 2011
Part A The following chapters are included under the Part A: 1.Preliminary 2.Powers of Government 3.Port officials and their powers and duties 4.Works and services to be provided at Ports 5.The Safety of shipping and the Conservator of Ports 6.Port dues, fees and other charges 7.Imposition and recovery of rates at ports 8.Hoisting Signals 9.Supplemental Provisions Applicable to: All ports All such parts of the navigable rivers or channels leading to the ports as notified under either The Indian Ports Act, 1908 or The Major Port Trusts Act, 1963
Part B The following chapters are included under the Part B: PART I: 10. Vesting of Ownership, Control and Management of Major Ports 11. Penalties 12. Miscellaneous PART II: 13. Special provisions for constitution, working and other aspects of the Board of Trustees 14. Borrowing Powers of Board of Trustees 15. Revenue & Expenditure 16. Supervision and Control of Central Government Applicable to: Exclusively to Major Ports
Part C The following chapters are included under the Part C: 17.Provisions with respect to penalties
Applicable to: All ports All such parts of the navigable rivers or channels leading to the ports as notified under either The Indian Ports Act, 1908 or The Major Port Trusts Act, 1963
No provisions of the act shall be applicable to the following: Any vessel belonging to or in the service of the Central Government or a State Government or to any vessel of war belonging to any sovereign country, and used for the time being, only on Government non-commercial services.
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Overall structure of the Draft Ports Bill, 2011 The Draft Ports bill is a comprehensive Bill containing the provisions including amendments made by the government declared by the way of notification in the Official Gazette in relation to any of the two acts namely The Indian Ports Act, 1908 & the Major Ports Trust Act, 1963. It defines the terms contained in both the acts. It is divided into three parts which are further sub-divided into Chapters and sections. While the Part A and Part C are applicable to all the ports i.e. major and non-major including the corporatized ports, the Part B of the Bill and its provisions are applicable only to the Major Ports. The Government may further extend this act to any navigable rivers and channels leading to the port. The Bill enables appointment of a Conservator for each port who shall act with the power to ensure the compliance of all the regulations relating to the operations of ports or affecting them and who is authorized to carry proceedings for offences and to levy penalties on the concerned offender. While the previous Act set guidelines as to who should be appointed to the post, the new Draft Bill states The Government may prescribe qualifications, responsibilities and conditions of appointment and removal in respect of the Conservator The Draft Bill also increases the amounts of penalties to be levied on the person found guilty of offence. These penalties include fines of various amounts and also various terms of imprisonment, based on the type and seriousness of the offence. Like the current act this Bill also builds up the power and responsibility matrix for the protection of ports, creeks, backwaters, estuaries, sea locks, development of waterfront, port entry and navigation channels, protection and preservation of marine environment etc. The Bill vests majority of powers and responsibilities on Port Authority which is defined as thus: Port authority in relation to a Port means an authority on whom the ownership, control and management of a port is transferred or vested for the time being or notified by the Government under this Act or any other Act for the time being in force.
All the port dues and charges applicable under the Bill are proposed to be paid to the Port Authority or any person authorized by the Port Authority. The Government or Port Authority or any other authority to which such powers are given by the government, shall frame the maximum ceiling rates for the services provided by the Port Authority. Additionally a statement mentioning the conditions under which the services listed below would not be covered should also be furnished by a notification in the Official Gazette: Activities of container freight station Tolling of Roads Public Utilities Internal Transport Parking Labour Supply Corporatization clause under the Bill: The Draft Indian Ports Bill 2011, by the virtue of Chapter X under Part B (relating to only major ports) empowers the Central Government to make regulations for the manner and mode in which the ownership, control and management of any major port may be vested in a company registered under The Companies Act 1956. Further it also states that the company can be a Government Company or a Public Limited Company. In such case all the assets, liabilities, dues, port charges, receivables-payables, non-recurring expenditure, all suits and other legal proceedings instituted against or by the port, all the employees working for the port authority would be treated as those of the Port Trust and nothing shall accrue to the Central Government or the State Government, as the case may be. This means virtually the whole port operations, obligations, rights and receivables are to be transferred to the Central Government. The non-recurring expenditure made by the government for assisting the setting up of such company, within the period specified in the act, shall be treated as capital expenditure / capital provided by the Government and the Port Authority shall have to pay interest on the Non-recurring expenditure incurred. The rate of interest shall be decided and revised by the government from time to time.
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Constitution of the Board of Trustees: The Constitution of the Board of trustees has been modified under the proposed Bill. The following is the constitution of the Board which is proposed under the Bill. Proposed constitution of the Board of Trustees under the Draft Ports Bill 2011 Sr. Position / Authority Number Comments / remarks
Chairperson
Appointed by the Central Government
Deputy Chairperson 16 other members from the list below: Ministry of Railways Central Government DG (Shipping) Indian Navy Coast Guard State Government Department of Revenue Labour employed in Port Major users & Terminal operators Shipowners/agents Exporters / Importers Other Interests
1 16 NS NS NS NS NS NS NS NS NS NS NS Minimum 4 in number 18
Appointed by the Central Government
Appointed by the Central Government from amongst the given categories. The Board could comprise of one or more from the listed categories, subject to the maximum of 16 members and also maintaining the minimum 4 number of members from the Other Interests group. Note: NS = Not specified
Total
The total number that would constitute a Board of Trustees shall be 18 members including the Chairperson and the Dy. Chairperson.
Source: Draft Indian Ports Bill 2011, Deloitte Analysis
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Trustees shall be disqualified if they fall under any of the following category: Are convicteTd and sentenced to imprisonment for an offence which, in the opinion of the Central Government, involves moral turpitude; or Are un-discharged Insolvent Are Person of Unsound Mind Have applied for insolvency and application is pending Have defaulted the Board, Central / State Government, central / state company, a Public Sector Enterprise
or Undertaking, Autonomous Organisations or any Scheduled Bank under RBI Act, 1934; Who is disqualified by the court Who has acted against the interest of the Board Persons who have completed 65 years of age No business should be transacted at any of the Board Meetings unless at least five trustees including the Chairperson and Deputy Chairperson are present throughout the proceedings of the meeting.
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Term of Office of Trustees under the Draft Ports Bill 2011 Position / Authority Chair Person & Deputy Chair Person Other Trustees Term As long as desired by the Central Government For a period of 3 years or of the age 65 years whichever is earlier subject to the other provisions of the act. Provided where such a Trustee is appointed any time after 1st April of the year of the constitution of the Board and his term shall expire on 31st March, the date when the term of other Trustees also expires. A person appointed by virtue of an office to be a Trustee shall, until the Central Government by notification in the Official Gazette otherwise directs, continue to be a Trustee so long as he continues to hold that office Reappointment of the Trustees Any trustee, unless he becomes disqualified by the provisions of the act, is eligible for reelected as the trustee, subject to the maximum of 2 consecutive terms. It should be kept in mind that the Chairman and Deputy Chairman are not covered under this provision as their term is directly decided by the Central Government.
Source: Draft Indian Ports Bill 2011, Deloitte Analysis
There are supposed to be many features in the proposed enactment which will be welcomed by the industry. For example the fixation of rates by any authority for services rendered by BOT operators has been removed, specific interests have been defined to minimize the entry of the persons who dont have much knowledge / expertise #1: Food for thought
and even interests in the Maritime sector in the Board of Trustees. The industry however is of the view that rather than just the compilation of the two acts if some changes in the existing acts would have been made then that would also have served the purpose better.
What is the major contribution of this Bill other than enabling Corporatization? Which other aspects of port industry should the Bill have touched / changed?
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Draft Ports Regulatory Authority Bill, 2011

The first draft of Ports Regulatory Authority Bill 2011 was issued by the Ministry of Shipping in March 2011 to invite comments from the stake holders. The following is a brief overview of the bill: The purpose of the Ports Regulatory Authority Act 2011 is to provide for the establishment of Regulatory Authorities to regulate rates for the facilities and services provided at the ports and to monitor the performance standards of port facilities and services. Constitution of Major Ports Regulatory Authority The Major Ports Regulatory Authority shall be a body corporate having perpetual succession and a common seal with power to acquire, hold and dispose of property, both moveable and immoveable and to contract including sue and be sued. Functions of the Regulatory Authority (1) Subject to the provisions of this Act, the Major Ports Regulatory Authority shall have jurisdiction over all the major ports and a State Port Regulatory Authority shall have jurisdiction over all the ports, other than major ports, located within the concerned state. (2) The Appropriate Regulatory Authority shall discharge the following functions, namely: (a) To formulate and notify tariff guidelines, from time to time, prescribing the methodology, approach and other conditions governing setting of rates for different facilities and services by the Port Authorities and Private Operators functioning therein. (b) Laying down the performance norms and standards of quality, continuity and reliability of services to be provided by the Port Authorities and Private Operators and monitor actual performance and services provided with a view to secure compliance of the prescribed norms and standards by the Port Authorities and Private Operators. (c) To discharge such other functions as may be assigned under this Act. (3) The appropriate Regulatory Authority shall advise the appropriate Government on all or any of the following matters, namely:(a) Promotion of efficiency and competition in the Port Sector (b) Promotion of investment in the Port Sector (c) Any other matter referred by the concerned appropriate Government (4) (a) The Major Ports Regulatory Authority shall specify the common principles, approach and methodology to be adopted by the State Ports Regulatory Authorities in their tariff guidelines and prescribe performance standards. (b) The Major Ports Regulatory Authority shall furnish necessary clarifications on implementation of the tariff guidelines and enforcement of performance standards based on a reference made to it by a State Ports Regulatory Authority. Coordination Forum (1) The Central Government shall constitute a Forum of Regulators consisting of the Chairperson of the Major Ports Regulatory Authority and Chairpersons of the State Ports Regulatory Authorities. (2) The Chairperson of the Major Ports Regulatory Authority shall be the Chairperson of the Forum of regulators referred to in sub-section (1). (3) The office of the Major Ports Regulatory Authority shall act as the secretariat of the Forum. (4) The Forum shall meet at least once in six months to discuss and evolve suitable approaches to framing of Tariff Guidelines and setting Performance Standards and issues arising from implementation of these besides any other common matter relevant to the efficient discharge of the functions assigned to the Regulatory Authorities under this Act.
#2: Food for thought Is this an attempt of the Centre to acquire control over state government ports? The industry had some issues with TAMP and its cost plus tariff setting process. Does this bill address these issues?
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Draft Captive Port Policy, 2011
The Draft Captive Port Policy is also termed as Captive User Policy for award of ports land / waterfront on Nomination Basis. This policy has been formulated for empowering the major ports and making them more competitive to attract large and dedicated cargo. The policy recommends the ways and procedures for handing over the water front or land or other port facilities to the private / public enterprise on nomination basis for a maximum period of 30 years for development of port related facilities. The Sanctioning Authority for such captive facility development is an Empowered Committee consisting of the following members: (i) Secretary, Ministry of Shipping, (ii) Secretary, Planning Commission (iii) Secretary, Department of Economic Affairs (iv) Secretary, Department of Expenditure and (v) AS &FA (Ministry of Shipping)- Member Secretary, (vi) Joint Secretary (Ports), (vii) Chairman Port Trust and (viii) Development Adviser (Ports) shall be co-opted. The steps for award of development project for the proposed captive facility is depicted in flowchart below:
#The formula for evaluation of the bids is as under: NPV = { (Quoted MGT in each year x Quoted revenue in corresponding year) / (1+R) } Where, R = 10 year G. Sec% + 5 % Important points to be considered: (i) The quoted revenue should not be less than 50% of (Wharfage + Handling Charges) as per schedule of rates. (ii) In case of no competition for the proposed captive facility or if the application is from the existing captive facility user for expansion of operations, the applicant should be awarded the project development on the basis of highest of the following: (a) 50% of (Wharfage +Handling Charges) OR (b) Return on Investment (as per TAMP order or Actual whichever is higher) @15% per year OR (c) A negotiated rate between the Port and the entrepreneur
The Port Authority receives request to allow development of facility for captive usage
The authorities check the availability of the facility for captive development
Port asks for submission of Feasibility Report and on submission does Proof Checking and assesses Estimated Project Cost
Port shall invite EOIs from other interested parties in at least 1 National Daily and on Ministry Website**
The party offering maximum NPV should be awarded the development of facility
The bids so received shall then be evaluated as per the prescribed formula below #
In the EOI notice it must be indicated that Minimum **Guaranteed Throughput (MGT) should be at least 50% of the capacity of the project within two years of Commercial Operation. In case more than one eligible response is received, bids will be invited from eligible applicants for quoting MGT (in MT for each year) and revenue payable to the port for the corresponding year for the 30 year concession period.
If the actual traffic handled is less than 90% of the MGT, as offered in the bid, continuously for two financial years, the port shall be entitled to terminate the Concession after making payment equal to Depreciated value of Estimated Cost of Project OR Investment made by the private party whichever is lower
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Key provisions of the proposed Draft Captive Port Policy, 2011 Particulars Construction costs Repair & Maintenance, Management costs Compliance with Navigational safety during operations Compliance with MARPOL, ISPS code etc. In case of non-utilisation of captive facilities, right to approve the use of facility to another user (on nomination by captive user) Right to assign the use of facilities to other users (on self-nomination by Ports) Duty of collection of port charges from such other users (if self-nominated by port) Responsible Captive User Port
Industry views: The views of industry are mixed as far as the captive port policy is concerned. While there are joyous exclamations, there also exist conflicts of interest in the industry which may make the government rethink about the policy. Some of the major issues identified with the policy are: The policy would negatively affect the nearby developed terminals on BOT basis. If a private player constructs his own captive berth near to its own terminals, then it would definitely affect the operations of the private terminal constructed on BOT and thereby even render the facility unviable. #3: Food for thought
The proposed policy is in direct contradiction to the BOT policy wherein the most efficient and effective bid gets selected from the shortlisted to develop and handle a port facility. There is also an allegation that a particular party may get favoured treatment. There seems to be vagueness in the definition of port-based industry as it does not include the other infrastructure and transport based industries which are dependent on the port facilities for their operations. The captive port policy charges the operator, a royalty on only Wharfage and Handling charges while the BOT operators pay royalty on gross revenue.
Is this policy more vulnerable to abuse at the hands of bureaucracy and business men? Would the captive policy discourage big industrial groups from participating in PPP bids and encourage them to strategize capacity creation through this non-competitive route?
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Land Policy for Major Ports, 2010
The Ministry of Shipping, Government of India in January 2011, approved the Land Policy for Major Ports, 2010 for immediate implementation by all Major Ports. The Land Policy issued in 2004 was superseded by the new one. Need for the policy Land Policy is one of the most significant policy frameworks guiding the overall functioning of the Port sector. In all major ports the world over, land has been leveraged for optimizing the throughput and increasing revenue of ports. All major ports in India have a combined land asset of 2.58 lakh acre at their disposal. Of this, up to 20% is not in use and could be leased out. It is an established practice globally for ports to allot land for carrying out economic activity including establishing industry to ensure captive cargo to the port, thereby enhancing the sustainability of that port. Port lands have also been used to set up Special Economic Zones (SEZs) aimed at encouraging industrial development in and around the port. Other than the above, ports are generally expected to utilize their land, with port related activities being given the first priority and activities incidental to the port being treated as secondary in nature. Hence, optimum utilization of land is a matter of continuing importance to all ports and is the prime purpose behind the issuance of this policy. Salient points of the new policy Every major port to have a Land use plan approved by their respective Boards The allotment of land in Custom bound area may be on license basis or medium term lease basis for activities directly related to Port operations or for
those which are not directly port related but aid the port activities and sea trade and security related activities. Allotment must be in accordance with approved Scale of Rates/ rates approved by the competent authority. Licence of land outside custom bound area may be for upto a 30-year period or upto 99 years with the approval of the Ministry, for both port related and non port related activities, with preference to portrelated activities. Land should normally be leased through a competitive bidding process and the reserve price of such plots shall normally be 6% of the market value of the plot in accordance with the ready reckoner published by State Government or the rates obtained in recent tenders for comparable land or Scale of Rates (SOR) prescribed by TAMP. However, Port Trust Boards are empowered to reduce the rates in specific cases, depending on the circumstances and for reasons to be recorded in writing. Land can be allotted on nomination basis to Government Departments, CPSUs, SPSUs or private parties in accordance with SOR/Rates approved by the competent authority with due justification. Land can be leased by the Port on upfront basis only with the approval of the Board of Trustees . Upfront basis would mean one time consideration amount for the lease period and a nominal lease rent to be collected every year for the currency of lease period. Specific procedures for renewal of the lease have to be followed. The port should consider renewing the lease only if it doesnt require the land for its own use and the renewal is consistent with its Land use plan. Specific procedures are also mentioned for enabling transfer of land by lessee during the lease term. Issues in the land policy Shipping minister G K Vasan had directed his officials to revise the earlier land use policy that gave the
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managements of major ports freedom to lease out land below market price. As reported in sections of the press, the move had been triggered due to unearthing of a land lease scam at the Kandla Port Trust, which could have caused a loss of up to Rs. 2 lakh crore to the public exchequer. In the said scandal, Kandla Port authorities had allegedly leased out 16,000 acre of prime land to salt manufacturers at a paltry sum of Rs. 149 an acre as rent in 2004, which was way below the market price. Kandla Port has land area of 2.2 lakh acre, maximum held by any single port in the world. #4: Food for thought
The new Land Policy for Major Ports 2010, requires land in custom-bound areas to be leased out either on scale of rates approved by competent authority or land rate in adjacent areas of the concerned port. Since, it is difficult to ascertain whether the rate so determined is current market value or not the minister seems to favour a transparent auction process to be followed to know the market rate of land in every case.
Will this policy result in centralisation / decentralisation of land allotment power? Will this enable superior utilisation of port land? Will it protect ports financial interest? Will this revenue have a tariff implication?
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PPP in Ports
It is known that all Indian Ports are governed directly or indirectly by various laws and regulations passed from time to time by the Central Government of India in accordance with the Ministry of Shipping. The Government has been encouraging private sector participation in port development since1996. The major areas which have been thrown open for private investment, mainly on Build, Operate and Transfer (BOT) basis with revenue sharing mechanism include construction of cargo handling berths, container terminals and warehousing facilities, installation of cargo handling equipment, construction of dry-docks and ship repair facilities, etc. The preferred route for private sector participation is through open competitive bidding Additionally FDIs upto 100% is permitted for construction and maintenance of ports. The Government has also standardized the PPP process by floating the model RFQ & RFP documents to bring uniformity and transparency in the process. Tariff setting mechanism for PPP projects have also been modified to herald upfront tariff fixation before the projects are bid out. Bringing the public and private resources together for the development of ports and related infrastructure facilities like rail-road connectivity to ports, warehousing and storage facilities etc. was an initiative led by the state of Gujarat. The success of the PPP model in the Gujarat ports sector was immediately welcomed
by other coastal states thus augmenting the use of PPP model in the ports. Public-Private model of Port development has significant advantages over the traditional model. Some of them are increase in the pace of the development of project, quick decision making, better operational and technological aspects, lesser legal hassles due to the involvement of the government etc. There are significant opportunities available to ports authorities in outsourcing which involves transfer of specific port activities from the public sector to the private sector while permitting the port to function as an operating port. The port reduces operating costs and increases efficiency by utilizing private companies to supply labor and equipment and to perform specific services like pilotage, towage, anchorage, bunkering, etc. Status of Port PPP projects: At present, 20 projects with private sector participation (BOT basis or on captive use basis) are under consideration by the Major Ports. The projects would cost Rs 10348.29 crores and are expected to add around 171.45 million tonnes to the capacity at Major Ports The status of these projects as well as the likely date of completion as presented by Ministry of Shipping in the Rajya Sabha on 4th of August, 2011 is given here under.
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Status of Port Projects as presented at Rajya Sabha on 4 August 2011 Sr. Project Development of Container Terminal at Ennore. LNG Re-gasification Terminal at Cochin. Construction of Offshore Container Berths and Development of terminal on BOT basis at Mumbai Harbour at Mumbai Port Construction of Captive Jetty for handling Coal by M/s. NPCL at NMPT Construction of Coal Berth at NBW for NLC TNEB at Tuticorin Construction of North Cargo Berth-II at Tuticorn Construction of Deep Draft Iron Ore Berth at Paradip. Construction of Deep Draft Coal Berth at Paradip. Multi-purpose Berth at Paradip to Handle Clean Cargo including Containers Setting up of Mechanised Iron Ore Handling Facilities at Berth No- 14 at New Mangalore Development of Coal Handling Teminal at Berth no- 7 at Mormugao Development of 13th Berth other than liquid and container cargo berth) at Kandla. Development of 15th multipurpose cargo berth at Kandla. Development of 16th multipurpose cargo berth at Kandla. Name of Dept. / Agency Ennore Port Cochin Port Estd. Cost (in Cr.) 1407 3500 1460.52 (I.R 445, Pvt Inst.1016) Rs. 1460.52 230 Structure Date of Award Likely date of completion Feb, 2014 March, 2012
1 2
BOT Captive
13 August 2010 13 March 2009
Mumbai Port
BOT
1 April 2009
Sep. 2012
New Mangalore Port
Captive
9 May 2008
March, 2011
VOC Port, Tuticorin
49.50 (Captive) 332.16
Captive
January 2010
Nov,2011
VOC Port, Tuticorin
BOT
12 August 2010
Oct, 2012
Paradip Port
591.35
BOT
1 July 2009
July 2013
Paradip Port
479.01
BOT
21 August 2009
July 2013
Paradip Port
387.31
BOT
5 July 2010
July 2013
10
New Mangalore Port
296.03
BOT
23 September 2009
Oct. 2011
11
Mormugao Port
252 (406 as per Financing Plan)
BOT
7 August 2009
May 2013
12
Kandla Port
188
BOT
19 September 2009
March, 2013
13
Kandla Port
188.87
BOT
7 December 2010
July, 2013
14
Kandla Port
188.87
BOT
7 December 2010
July, 2013
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Sr.
Project Setting up of Captive Barge Jetty at Old Kandla (IFFCO) Development of Western quay(WQ-6) in the northern arm of Inner harbour of VPT for handling Dry bulk cargo at Vizag Development of EQ-10 berth in Inner Harbour for handling liquid cargo at Vizag Mechanised Coal handling facilities at General cum Cargo Berth(GCB) in the Outer Harbour at Vizag Development of EQ-1 by replacement of Equity EQ-1 and Part of EQ-2 in Inner Harbour to Handle Steam Coal at Visakhapatnam Port Development of EQ-1A on South side of EQ-1 for Handling Thermal Coal and Stem Coal in the inner harbour of Visakhapatnam Port Total
Name of Dept. / Agency Kandla Port
Estd. Cost (in Cr.) 27.00
Structure
Date of Award
Likely date of completion Aug,2013
15
Captive
17 February 2011
16
Visakhapatnam Port
114.50
BOT
28 December 2009
Dec. 2011
17
Visakhapatnam Port
55.38
BOT
2 March 2010
Aug. 2012
18
Visakhapatnam Port
444.10
BOT
1 March 2010
Dec, 2012
Aug. 2013 Visakhapatnam Port 323.18 BOT 19 March 2011 (not firmed depending upon signing of CA)
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Visakhapatnam Port
313.39
BOT
19 March 2011
- do -
10348.29
Source: PIB
Despite various measures and initiatives, the overall progress in ports sector has been much below expectations. The investments during the Eleventh Plan are now projected at a level of Rs. 40,647 crore which is less than half of the original projection of Rs. 87,995 crore. Private investment in the port sector is also expected to be almost 40.31 per cent lower as compared to the projections made at the beginning of the Plan. This is because very few PPP projects have been awarded by the respective Port Trusts in the first two years of the Eleventh Plan. Ministry of Shipping has revised the original target of 545 MMT of additional capacity for the major ports downwards and now
proposes to develop only 48 projects with a capacity of 393.27 MMT costing Rs. 29,905 crore over the Eleventh Plan period. Compared to the slow progress in capacity addition in major ports, the private sector ports have done relatively well. Out of the total private investment of Rs.32,517 crore projected for the Eleventh Plan, the share of private investment in the state sector is Rs. 26,370 crore. The following table gives us an overview of the actual investments in the ports sector in the 11th Five Year plan:
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Sector Ports
X Plan (Actual) 4051 (17.62) 619 (2.69) 18327 (79.69) 22997
XI Plan (Original projections 29,889 (33.97) 3627 (4.12) 54479 (61.91) 87995
2007-08 (Actual)
2008-09 (Actual)
2009-10 (RE/ BE/ Proj.)
2010-11 (BE/ Proj.)
2011-12 (Proj.)
XI Plan (Revised Proj.) 5366 (13.20) 2763 (6.80) 32517 (80.00) 40647
Centre
831
1040
1076
1152
1268
States Private Total
223 3888 4942
375 5733 7148
654 6593 8323
719 7582 9454
791 8720 10779
Note: Figures in brackets indicate sectoral shares (as %) compared to total investment. Source: Investment in Infrastructure during the 11th Five year Plan, Secretariat for Infrastructure, GOI
Currently the failure of PPPs in port projects in India is at the outset start up stage itself. This is due to bureaucratic delays and hesitancy, environmental
clearance problems, local community opposition, site squatting by concession holders and overcrowding by small scale proximate port facilities.
#5: Food for thought What changes, to the current framework and approach to PPP, are required to enable meet the targets for capacity creation through PPP in the ports sector? Is government leaning excessively on PPP for creating capacity and in the process confusing the discussion around its responsibility to deliver the needed infrastructure to the country? Will the high revenue shares offered by bidders to win PPP concessions likely to drive up the port service costs to Industry and trade? Is there hence a case for revisiting the award criteria for PPP projects?
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Demand-Supply scenario of Ports
Indian ports have formulated ambitious plans for development of new ports, augmentation of existing facilities, mechanisation of ports, purchasing of modern cargo handling equipments and improvement in logistics to meet the challenges emerging from the anticipated growth in trade. The capacity at 13 major ports is likely to increase to 1459.53 million tonnes by 2020 from the level of 616.73 Million Tonnes in 2009-10. The capacity at non-major ports is expected to increase by 2020 to
1660.02 Million Tonnes from the level of 346.31 Million Tonnes in 2009-10. Thus, a surplus capacity of above 25% over the projected demand is what is targeted by the Indian ports. This will enable the ports to provide berthing facilities on arrival of the ships, thus achieving zero pre-berthing detention for the vessels. The proposed investment during the next ten years is expected to be Rs. 2.77 lakh crore - 1.09 lakh crore for Major Ports and Rs.1.68 lakh crore for non-major ports. The table below depicts the estimated traffic projections and capacity expansion plans.
Traffic projections for Indian ports as given in Maritime agenda 2010 Ports Major Ports Non-major Ports Overall Projections 2009-10 561.09 288.8 849.89 2011-12 629.64 402.5 1032.14 2016-17 1031.5 987.81 2019.31 2019-20 1214.82 1280.13 2494.95 CAGR between 2009-10 & (in %) 2011-12 5.93 18.05 10.20 2016-17 9.09 19.21 13.16 2019-20 8.03 16.06 11.37
Source: Maritime Agenda 2020, Deloitte Analysis
Capacity Addition plans of Indian ports Ports Major Ports Non-major Ports Overall Projections 2009-10 616.73 346.31 963.04 2011-12 741.36 498.68 1240.04 2016-17 1328.26 1263.86 2592.12 2019-20 1459.53 1670.51 3130.04 CAGR between 2009-10 & (in %) 2011-12 9.64 20 13.47 2016-17 11.58 20.31 15.19 2019-20 9.00 17.04 18.34
Source: Maritime Agenda 2020
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As observed from the above table, Indian ports have planned adequately to meet the projected increased traffic. The graph below depicts the planned percentage utilisation of the ports as is derived from both the tables above:
% Capacity utilization by Major Ports 95.00% 90.98% 90.00% 85.00% 80.00% 75.00% 70.00% 2009-10 2011-12 2016-17 2019-20 84.93% 83.23%
% Capacity utilization by Non-major ports 84.00% 82.00% 80.00% 78.16% 78.00% 76.63% 83.39%
80.71% 80.71%
77.66%
76.00% 74.00% 72.00% 2009-10 2011-12 2016-17 2019-20
#6: Food for thought When it is generally accepted that there is significant need for port capacity augmentation, is poor feasibility a tenable reason for poor capacity creation?
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Corporatization of Ports
Corporatization of ports is about changing the status of Major ports from Port Trusts to Port Companies with Limited Liability and getting registered as a corporate body so as to function more efficiently. The idea of corporatization in India is almost more than a decade old but the implementation is at a very slow pace. While JNPT, NMPT and Tuticorin Port Trusts were the ones originally considered for corporatization, the first corporatized port of India is Ennore Port. Currently JNPT is expected to be corporatized followed by the other two ports after analyzing the success of corporatization. The draft Indian Ports Bill, 2011, posted on the website of the shipping ministry, provides the following enabler: It shall be open to the central government at its discretion with effect from such dates as notified in the official gazette, from time to time, to divest ownership, control and management of a major port from the board of trustees and vest in a company, whether in a government company or a public limited company, The Bill,, thus seeks to enable the conversion of Union Govt. controlled ports into corporate entities. The industry is divided in its views of corporatization of ports. Some sections of the industry such as the port users, the management etc. are (in general) in favour of the corporatization while other section namely the workers and other parties differ in their opinion and say that the corporatization is just another method of the bourgeois to seek ways and avenues to expand its ambit of exploitation and find new avenues to raise the rate of profit. Amongst the varied views of the industry let us take a look at the anticipated advantages and disadvantages of the Corporatization. Advantages of Corporatization: Corporatization of ports will bring with them a lot of advantages to the maritime community as a whole. Some of them are discussed as under: Transparency and Flexibility: The companies registered under the Indian Companies Act, 1956 have to comply with many disclosures and report minute details of operations in their Annual reports. The Directors of the company are responsible for the functioning of the company. Further the Income Tax Act and the other laws also require transparency in
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the affairs of the company. Raising of finances and issuance of debt instruments also require various rules and regulations to be followed. Due to all these the Company gets regulated to be transparent in its affairs. Superior corporate governance presumably ensues. Acquisition of immovable property: Currently the process under the Act is that the Board of Trustees have to request the acquisition of the immovable assets such as buildings etc. from the Central Government which after due consideration will start the process for the same. This process is rather cumbersome and involves a lot of time and paper procedures. Corporatisation of the port trusts will remove this process and instead an appropriate majority decision in the meetings would be sufficient to start the acquisition process. Adoption of corporate planning practices: Several practices like financial risk management, yearly business plans and the performance measurement, target oriented planning, more focus on cost reduction and profitability improvement measures etc are some of the corporate planning practices which expectedly will be applied in the daily operations of the ports resulting into greater operational and financial discipline. Application of Human Resources Development (HRD) planning: We have discussed in the previous sections and it has been known from quite some time how the need for the development of skilled manpower and technologically updated workforce will drive the competition. To cater to the requirements of developing the manpower adequate assessment of the required human resources needs to be done, mapping those requirements as against the current employees, planning on the trainings and capacity building exercises. These all are the functions of the HR Department which will be more focused than they are now. Career planning and management development are important elements in a port modernization strategy. Many ports have failed to introduce career planning and career development in the organization, or omitted to link the two activities. As a result, such organizations are characterized by low employee motivation levels, high absenteeism, and high turnover rates at management level positions Efforts to improve the administrative environment and performance should include the rational use of computer applications and the application of modern
communication technologies. The use of technology, computer applications and Management Information Systems (MIS) is enhanced. Even in the Public Sector Units, the bare minimum education relating to the particular industry is maintained. Development of Electronic Data Interchange (EDI) and information and communication technology Disadvantages or Corporatization The move has created a lot of discontent among the port workers. It is seen as the first step for privatization. They see the changing institutional structure of the port as the greater involvement of the private sector in exploitation and financing of port facilities, terminals and services. The undue involvement of the private and the foreign investors in managing the Indian Ports will lead to threatening of the internal security. There are two threats to be considered under this issue. The first one is the threat of terrorist groups and second is the attitude of the private companies towards the safety of the ports and port workers.
The private companies tend to use machineries & other expensive items beyond their replaceable life spans, even if these damage the environment of the port or the health of workers. Government controlled management have their duties and are bound to follow the laws set for operations while the private management will have autonomy in day-to-day operations and other similar decisions. This may cause the workers and environment to suffer. There are various discussions on the implementation of the corporatization projects. Several Labor unions and welfare associations have suggested measures to strengthen the current institutional structure of the port trusts so that there is no need to convert them into companies. Suggestions like (i) Allocation of full functional and operational autonomy to the port trusts, (ii) The Chairman and Executive body of the port trust having deep experience and sufficient knowledge of the functioning of the ports, (iii) Empowering the ports to define the tariff regimes themselves, (iv) Relaxation of Cabotage law for some facilities etc. have been submitted to government for consideration.
#7: Food for thought Can corporatisation objectives be achieved differently? If so, why have they not been achieved so far? Is corporatisation a preclude to privatisation? Is corporatisation of port trusts desirable from port sector reform perspective? How should labour issues be dealt with in this context?
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Financing Port Projects
The Maritime Agenda 2020 lays down investment plans worth Rs. 167,931 crores, to create an additional capacity of 1293.56 million tonnes, to be made over the decade of 2010 to 2020. Largely, the following areas of investment have been identified Investment areas in the maritime sector as per Investment areas in the maritime sector as per MaritimeAgenda 2020 Maritime Agenda 2020
12,065.27 9,338.56 10,276.18 A B C 124,782.43 D E 11,468.40
A = Deepening of channel/berths B = Construction/reconstruction of berths/jetties etc. C = Procurement of equipments etc. D = Rail/road connectivity works E = Other works As can be noticed, a substantial part (more than Rs. 160,000 crore which is above 96%) of the planned investments is planned to be pulled in from the private sector. This section, determines the extent to which investment in the ports sector is lucrative for private players and tries to throw light on the ways and means of making investment. Foreign Direct Investments 100% FDI is allowed in the ports sector in India. Taking advantage of this, several global giants including Maersk, Dubai Ports World, P & O ports and PSA Singapore operate terminals on Build-Operate-Transfer basis across several major ports of the country including JNPT, Mumbai, Chennai, Cochin, Vishakhapatnam and Tuticorin. The countrys largest FDI in this sector is expected to flow in when PSA Singapore, which has entered into a consortium with India based ABG Ports Private Limited, invests Rs. 2000 crore for the fourth container terminal at JNPT. Public Private Partnerships Potential investors generally follow either of the following structures in the PPP model Landlord model: The government builds all the infrastructure financed by public funds and then leases it off to the private concessionaire who invests in and operates the terminal.
A = Deepening of channel/berths B = Construction/reconstruction of berths/jetties etc. C = Procurement of equipment etc. D = Rail/road connectivity works E = Other works Of this, 20% investment is to be made by the end of financial year 2012, 57% between 2012 and 2017 and the remaining 23% after 2017. The Maritime Agenda has identified sources of funding for the planned investments as follows
50% 40% 30% 20% 10% 0% A B C
Private sector External Borrowings & Others Gross budgetary support Internal Resources
Source: Maritime Agenda 2020, Deloitte Research 30
Joint venture model: The government takes a minority stake in a JV entity, with the private party taking up a majority stake and management control. The JV undertakes construction and operation of the port. Private Service model: The government grants an allinclusive concession to the private party to build and operate the port. Government may provide additional support through grants or loans to the private entity. The model that has to be chosen changes from caseto-case. The choice must be made so as to arrive at an optimal mix of public and private sector participation in the project so as to maximise public value. Initial Public Offers and Private Equities Several port promoters are choosing the IPO route for getting funds for executing mega port projects. The IPO of Gujarat Pipavav Port was oversubscribed 20 times and got a listing premium of 20%. Private equity investors invest in the startup ventures and then exit through the IPO route and make substantial profits. Other Sources of financing Infrastructure bonds In Budget 2011, the government has provided for issue of tax-free infrastructure bonds worth Rs. 30,000 crore and of which Rs. 5,000 crore is reserved for the ports sector. Indian ports would be raising bond finance for the first time. There have been reports that the Shipping ministry has given the nod to JNPT to raise Rs. 1000 crore and Ennore port to raise Rs. 1100 crore worth of
bonds to fund its development projects. Such bonds will enable ports to raise finance at low interest rates and will be attractive for the investors as well as they shall enjoy tax benefits. Viability Gap funding (VGF) In PPP projects, which have a long payback period with low commercial returns are supported by VGF. The Department of Economic Affairs announced the scheme, particularly to support projects having high economic returns and result in creation of substantial value for the public. The Scheme provides financial support in the form of grants, one time or deferred, to infrastructure projects undertaken through public private partnerships with a view to make them commercially viable. The Scheme provides total Viability Gap Funding up to 20% of the total project cost. The Government or statutory entity that owns the project may, if it so decides, provide additional grants out of its budget up to further 20% of the total project cost. Forming of High level committee on financing of infrastructure projects To evolve a policy responses to enable the flow of large capital resources into infrastructure projects, review the existing framework and to make recommendations, in November, 2010, the Government of India has constituted a High Level Committee on Financing of Infrastructure under the chairmanship of Shri Rakesh Mohan, former Deputy Governor of the Reserve Bank and former Secretary, Department of Economic Affairs.
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1. To assess the investment required to be made by the Central and State Government, Public Sector Undertakings (PSUs) and the private sector in the ten major physical infrastructure sectors during the Twelfth Five Year Plan. 2. To identify areas and activities to be financed by the government, public sector undertakings and the private sector respectively. 3. To suggest ways to enable the requisite flows of private investment in infrastructure including the creation of a supportive investor-friendly environment. 4. Make recommendations on the role government could play in developing the capital markets for intermediating long term savings for investments in infrastructure projects, including the fostering of appropriate institutional arrangements.
5. Examine the role of international capital flows in infrastructure financing and development, assess the nature of projects likely to receive such capital, and consider how such financing can be obtained, in a sustainable manner. 6. Identify any regulatory/ legal impediments constraining private investment in infrastructure, and make specific recommendations to facilitate their removal. The committee will function through the Planning Commission and the Infrastructure Development Finance Company (IDFC) and will be based in New Delhi. The tenure of the committee will be 18 months.
#8: Food for thought What are the key challenges to enthusing private sector investment in the port sector? Can such planning, relying so enormously on private financing, be depended upon to fructify the target infrastructure? What happens if private sector does not invest at the anticipated scale? Should the government have a Plan B ready? Given such emphasis on role of private sector on financing infrastructure has the concept of infrastructure led development been rendered hypothetical and irrelevant?
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Information Technology in Ports
Ports can be termed as the points of convergence of many trade centered activities. They are not only the hubs of the cargo export-import but are at the center of the most complex logistics networks. Numerous goods like coal, bulk, dry bulk, iron ores, fertilizers, food grains etc. are stored and transported across the country from the ports. Thus ports influence both, Industrial and agricultural, industries. We can fairly say the ports have a great responsibility as they deal with lot of money, lot of goods and a lot of people. Functionally, the ports provide a wide gamut of services right from the movement of ships & cargoes by various modes of transport till the compliance with various customs procedures and clearances. Efficient allocation of jetties, berths, allowing anchorage to ships, storage of unloaded cargo to warehouses and recording and maintenance of the details of personnel working for the port etc. are some of the complex and time consuming activities which are performed by the port. Thus ports are required to coordinate, collate and disseminate a huge amount of information that too with accuracy and within the required time. With the increase in the projected traffic volume in the ports more challenges lie ahead in terms of handling of all the above mentioned activities. The question then arises as to how to efficiently provide all the services so that they rival the global standards, and maintain a smooth flow of information relating to the services both at a time? One of the answers to these questions is inclusion of the Information Technology in the ports. The Ministry of Shipping has targeted the following developments for meeting these challenges: Ports to use information technology for quality performance Port Community System (PCS) to be fully integrated with all stakeholders Non-major ports also to have PCS Introduction of modern security systems in the ports including surveillance, CCTVs etc. Regular review of safety systems in the ports Vessel Traffic Management Systems (VTMS) for all ports handling EXIM cargo Integration of e-modules on COC, CDC, RPS, INDOS, SPFO etc for the benefit of seafarers Establishment of AIS network along the coast
Completion and operationalization of the VTS in the Gulf of Kutch Establishment of Real Time Kinematic (RTK) system in the Gulf of Kutch and the Gulf of Khambat Indian ports are rapidly moving towards the Paperless & Computerized status. Usage of integrated Port Operation System and internet is also proposed. A quick assessment of the current level of IT absorbed in the industry (particularly ports) would be adequate at this stage to gauge the implementation of the initiatives by MoS. Current status of IT/computerization at ports: Under this section we have tried to give a glimpse of the overall major IT initiatives undertaken by the government. In a separate section we have also brought out the salient features of the Port Community System (PCS) Vessel Traffic Management System (VTMS): Already implemented at JN Port, Kolkata Port, Chennai Port, Cochin Port, New Mangalore Port, Mormugao Port, the gulf of Kutch (which provides coverage to Kandla port and other non-major ports of Gujarat along the gulf line). Operational and Non-operational Areas: Latest modules like Integrated Vessel Services and Control Management, Integrated Cargo Management and Accounting System, Integrated Container handling and Tracking system, Enterprise Resource Planning, Terminal Operating systems, modern Hydrographic Survey units etc. have been brought to use by the ports. Areas like payroll processing, accounting functions, Provident Fund accounts, Income Tax and Materials Management systems are some of the areas in which IT is integrated for better performance. Surveillance System and Security system: To counter the terrorism threat a number of new technologies were introduced so that the ISPS code would be properly implemented. Besides the bio-metric based access control management system and CCTVs, the RFID and Optical Charter Recognition (OCR) is also being used at ports. IT is used in newer areas for example to speed up the process of containers movement in and out. Container scanning systems are the next level of technological advancement proposed to be implemented at ports.
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E-Commerce / Electronic Data Interchange (EDI): Effective Data flow between various Port communities / stake holders forms the base to perform functions efficiently. Unless the data can be exchanged between the various port users freely and with complete / near complete accuracy, the optimal functioning and throughput improvement of the ports would not be possible. EDI has therefore become an essential part of the efficient operation of not only ports. As the name suggests, through EDI (Electronic Data Interchange) the free flow of information has been made possible. The Way Forward Technological changes like creation of the Port Community System (PCS) and implementation of various IT initiatives are under proposal for the port sector. The creation of Integrated Port Management System (IPMS) by Gujarat Maritime Board (GMB), development of IT Strategy & Program Management by JNPT etc. are some noteworthy examples of the Indian ports upgrading themselves to meet the technological challenges. The next level of IT in ports is the Port Level Automation and the Port Community System (PCS). Port Level Automation In the Maritime Agenda the Ministry of Shipping has identified the following as steps to influence the IT changes. Enterprise Resource Planning: ERP is a software system that allows companies to integrate all their operations and resources and manage them through one program. Each port should take up implementation of the ERP systems to. Cochin Port and Mormugao port have already implemented the ERP systems and New Mangalore Port is in the stage of implementation of the same. Integration of all the functional areas including
port operations would help the ports achieve greater efficiency. Non-ERP solutions Land/Estate Management, Vigilance systems, Legal systems, Employee Welfare systems etc. are proposed for implementation. Computerization of Land Management processes is one of the areas on which the Ministry has given more weightage The automated/mechanized equipment for cargo / container handling, weigh bridges etc. is to be linked with centralized systems. A comprehensive database creation is advised which would contain of all the performance features and data of the port and thereby speed up the decision making for the authorities. Port Community System To integrate the electronic flow of information between the various stake holders like ports, shipping lines/ agents, surveyors, stevedores, banks, CFSs, government regulatory authorities, CHAs Importers & Exporters etc., a centralized system is proposed to be implemented across India. This system is Port Community System (PCS). Like the usual systems, the PCS would be accessible through web browser. The system has inherent advantages like saving of time and money and improving the speed of services, improve tracking of the shipment / service visibility. The status updates of the tracking services would be freely downloadable by interested parties. Progress has already been made to start the PCS at all Major Ports and it is proposed to be deployed at all the operational non-major ports as well.
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Advantages of the PCS system: PCS system is expected to provide global visibility and access to central database through internet based interfaces as detailed below: 1. Availability of messaging system for the stakeholders. The users can exchange messages in different languages like XML, UNEDIFACT 2. A centralized database providing track & trace facility to the stakeholders 3. Single electronic window for ports and stakeholders to access and maintaining the central database. 4. E-commerce portal for the port community 5. Standardization of procedures and data availability 24 x 7
6. Online payment system for better and quick transfer of money for the services requested online on the same portal 7. Effective and quick MIS reporting ensuring quick decision making and cost saving While we take quick steps towards growth, we must also consider the fact that for making the Balance Sheets Green our actual Green Resources i.e. (natural resources) should not be damaged. The climate change, global warming and carbon footprints etc. are some of the issues that should be kept in mind while developing measures to reduce cost and enhance productivity/operational effectiveness of the ports.
#9: Food for thought Given that we are a leading provider of information technology to the world, is the level of IT adoption at our ports satisfactory and reflective of our countrys capability in this regards? Why / Why not?
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Part II: Indian Shipping Industry: Progress, Issues and the Way Forward
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Introduction
Shipping is a global industry and its prospects are closely tied with the global economy. Any fluctuation in the global economy has a direct and indirect impact on the shipping industry. The industry is highly cyclical in nature and is today struggling to navigate through the changing economic context. Supply pressure is making matters worse. Indian shipping industry is also not unaffected by the changing macro -economic factors. India has one of the largest fleet and is ranked 16th in the world. The total fleet size of the Indian shipping industry is 10 million GT. Still it forms a marginal share of only 1% of the global fleet. On the other hand, Indias seaborne trade has been growing at a rate of over 12% in the last 10 years. Consequently, the share of Indias vessels in carrying countrys cargo has been declining and is currently only around 8%.
Above statistics raises serious concerns about the problems faced by the Indian shipping industry. One of the main reasons for the declining share of Indias fleet is the tardy growth in its size. The Indian shipping tonnage needs to grow at a much faster pace and match the growth of countrys seaborne trade. Government of India has envisaged an ambitious plan to grow the Indian shipping fleet from 10 million GT to 40 million GT by the year 2020. Various initiatives are being taken by the government to address the challenges and promote Indian shipping. Following sections give an overview of the problems plaguing the industry and the proposed solutions. It also discusses at length the proposed policy changes.
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Shipbuilding subsidy
The shipbuilding subsidy was introduced in 1993 and revised several times upto 2002. The latest scheme allowed a subsidy of 30% to both public and private sector shipyards on all ship sales to foreign firms and on ocean-going merchant vessels of more than 80 meters length to domestic clients. Owing to the subsidy, the order books of major Indian shipyards grew to over Rs. 20,000 crore in the period of 2002 to 2007 and Indias share in the global shipbuilding industry grew from a meagre 0.1% in 2002 to 1.3% in 2007 of the global order book. However, post 2007 when the subsidy scheme came to an end, Indias share in new orders placed has been declining from 1.3% in 2007 to 0.01% in 2009 and 0.13% in 2010. This is depicted in the following chart:
The abolition of the subsidy scheme, according to Shipyard Association of India, has adversely affected new orders, as Indian vessels are now pitched unfavourably against those from Korea, Japan and China, where subsidies are as high as 40%. Shipbuilders are intensely lobbying for extension of the scheme with the Ministry. The Maritime Agenda has identified capital investment worth Rs. 10,785 crore to be made in the shipbuilding and repair sector. If India is to tap the potential opportunity and be one of the top players in the world in shipbuilding, the subsidy scheme needs to be revisited and extended for a sufficient period of time. The Maritime Agenda has estimated the present value of amount of subsidy outlay required till 2017-18 to be Rs. 3484 crore. The report of the working group for
Market share in new orders 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 0.02% 2002
1.30%
0.01% 2007 2009
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Ship building and Ship repair industry for the Eleventh five year plan has also recommended extending the scheme for a 10 year period from August, 2007. The Ministries of Shipping and Finance are still working on the revised scheme and deliberations are not yet over. The shipping ministry had proposed a 20% subsidy for #10: Food for thought
10 years starting August, 2007. However, shipbuilders demanded for a revival of the old scheme itself and are of the view that a 30% subsidy will completely wipe out the systemic disadvantages on financial and taxation grounds faced by local builders and put Indian yards on par with global yards.
Shouldnt the shipbuilding subsidy be more aggressive for coastal vessels, tugs, OSVs, etc? In absence of shipbuilding subsidy, how does government plan to increase Indias share in global shipbuilding market to 5% by 2020?
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Manpower shortage in the shipping industry how to tackle it

Manpower shortage has plagued the shipping industry since long. A substantial rise in global trade is expected in the coming years. As per estimates in Maritime Agenda 2020, the global demand for seafarers is expected to rise from the current 1.15 mn to 1.6 mn by 2020. Similarly, about 660,000 Officers and 720,000 Ratings would be required by 2020, a 20% rise from the present. India aims at increasing its share in world manpower from 7% to 9%. To do this, it will require expanding its annual training capacity from 5600 to 15000 for Officers and from 4600 to 9000 for Ratings. Also, sea training berths have been identified to be in short supply. Currently sea training berths on Indian ships are not mapped and it is not possible to either accurately estimate the total existing or potential training accommodation available or verify the claims of the training institutes. There is an urgent need to address the aforementioned manpower problem. Following action points, if implemented in letter and spirit can address the discussed issues: Creating an efficient and transparent mechanism for Shipping companies and training institutes to trade in training slots. More weight to be given to training on coastal, river and IWT ships. Creating additional capacity by exploiting seasonal nature of passenger traffic plying from the mainland to Andaman-Nicobar and Lakshadweep islands and inter-island traffic. Bringing in foreign collaboration for the purpose of education in the Maritime sector. Dedicated training ships for giving on-board training Government of India has budgeted an investment of Rs.1425 crore to implement many of the above initiatives. Setting up Indian Maritime University (IMU) is a step in the same direction. Indian Maritime University (IMU) The IMU was established in November, 2008 with the objective of providing educational courses, undertaking research work, providing training in specialized areas and supporting the growth of maritime sector by way of supply of quality human resources. The IMU has campuses at Chennai (Headquarters), Mumbai, Vizag, Cochin and Kolkata each of which specialises in particular areas of Maritime study. IMU intends to offer high-end Masters degree programmes at its Headquarters in Chennai. Besides, each campus of IMU would focus more on the areas that it already specialises in. IMU would also introduce new programmes to meet the requirement of the maritime industry. New campuses of IMU are envisaged to be established in the states of Gujarat and Karnataka. Overseas campuses at Malaysia and African/Arab regions is also sought to be established. A total capital cost outlay to undertake the above stated plans is estimated to be Rs. 1280 crores. If India is to see itself as a major player in the World Maritime sector, having a strong human resource base is most vital. If the plans of the Ministry materialise effectively, then India will be able to generate enough resources to man the rising number of Indian flagged ships and also possibly man foreign vessels.
#11: Food for thought Should India invite IMO collaboration to raise the standards of training? Should separate trainings and accredition for Coastal and Inland shipping be organized? In view of equally lucrative opportunities available on shore, how can we avoid attrition of seafarers? How can we make career at sea more attractive? How do we ensure that our ratings are at par with other nationals such as Fillipinos?
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Shipbreaking - Green initiatives, current developments

Currently shipbreaking is primarily carried out in Pakistan, India, Bangladesh and China. Almost all vessels, with few exceptions, are broken up at beach facilities. Alang located on the western coast of Gulf of Cambay, in the western part of India, is the largest ship-recycling yard in the world. Ever since its inception in 1982, Alang has emerged as one of the choicest ship-scrapping destinations for the ship owners around the world. Hundreds of ships from all over the world find their final resting place in Alang every year. However, the burning question today is whether the environmental damage caused by the shipbreaking industry overweighs its benefits? This section lists the environmental effects of shipbreaking and the action required to be taken to ensure that environmental damage is minimized. Ships contain many substances that are banned or considered dangerous such as Asbestos and Polychlorinated Byphenyls (PCBs). There is a substantial health risk for workers at the ship breaking site. Dangerous vapours and fumes from burning materials can be inhaled and dusty asbestos laden areas can cause medical complications. Hazardous wastes also cause contamination of the coastal soil and sea water environment affecting ecological balance. Wastes (including oil and different types of heavy metals) from the scrapped ships are dumped back into the ocean affecting marine life. Thousands of fishermen who absolutely depend on the sea for their livelihood are severely affected. Shipbreaking may be commercially attractive but industrialists need to be equally aware and considerate about its potential hazards. The United States and other countries have strict laws, virtually preventing ship breaking. The Indian government should also understand that foregoing monetary gains to a certain extent may be better so as to be able to prevent health risks and preserve the beautiful flora and fauna that the country has been blessed with. Strict laws must be framed to ensure proper methods are followed and adequate safety of workers is ensured at the yard. Environmental laws must also be appropriately amended to ensure generation and disposal of wastes is made in a way that preserves the natural habitat. Some of these include water treatment plants, insulators, fixed working hours and waste handling facilities. Workers must also be given adequate training to educate them about the hazards involved and the necessary safeguards to be taken. Globally though there are businesses which have mastered the art of dismantling ships while containing the environmental damage to the bare minimum. These technologies should be imported and collaborations with such businesses incentivized. In view of the deterrence on ship breaking in several advanced countries and the global need for replacing ageing fleet with double hull larger ships, the number of ships requiring breakage is expected to increase. This offers a lucrative business opportunity and India may actually seek to actively regulate this industry with an intention to promote it rather than stifle it.
#12: Food for thought How do we face the challenge from other Shipbreaking yards in China, Bangladesh, etc? Do we have a vision to promote the shipbreaking industry in India? How do we make our shipbreaking yards competitive while ensuring that environmental damage is minimum? Should we exit the shipbreaking business altogether?
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Taxation in Shipping
The tonnage tax scheme, introduced in 2004 was aimed at reducing the tax burden on the shippers. Following advantages were expected out of it 1. Tax burden substantially decreased: It was anticipated that tonnage tax shall place an insignificant burden of only 2-3% on the company against an existing liability of about 35%. 2. Tax liability known in advance: Tax liabilities are ringfenced which helps making financial planning and strategic decision making easier. 3. Indian companies will come on a level playing field: 90% of the world fleet enjoys a tax-friendly regime. Tonnage tax scheme shall help Indian shippers become more competitive. 4. Rise in gainful employment: With growth in the vessel fleet, additional employment opportunities will be generated. 5. Better than 33AC: Tax breaks under section 33AC can be enjoyed only by existing companies with large reserves. They dont encourage new entrants (as they obviously wont have sufficient built up reserves). However, a Working paper on Policy for Indias Services Sector by the Ministry of Finance states that Indian flag vessels are gradually diminishing and even Indian owners are increasingly opting to own vessels outside India by paying, virtually zero tax, employing shipboard personnel of any nationality, while accessing Indias booming cargo base. Though 100 per cent FDI in shipping has been allowed since the late 90s, no worthwhile foreign investment has taken place due to the high taxes and rigid regulations like manning norms in India. Indian shipping is presently subjected to 12 direct/indirect taxes over and above the tonnage tax that add to its costs thereby increasing the effective tax rate of around 2 per cent under the tonnage regime to around 9 per cent. The 12 taxes include Direct Taxes Corporate income tax on interest and other income Minimum Alternate Tax (MAT) on profit on sale of vessels Dividend Distribution Tax
Withholding tax liability on interest paid to foreign lenders Withholding tax liability on charter hire charges paid to foreign ship-owners Seafarers taxation cost to employer Wealth tax Fringe benefit tax (now abolished) Indirect Taxes Sales tax/ Value added tax (VAT) on ship supplies/ spares Lease tax on charter hire charges Customs duty on import of certain categories of ships, stores, spares & bunkers and Service tax. Issues to be addressed in rationalizing the tax structure The following points summarize the main points where action is required to rationalize the overall tax structure: In the Tonnage tax scheme, the definition of core activities needs to be modified to include within its ambit sale of vessels so as to not subject the profits on them to MAT. Also, interest on income from compulsory reserves needs to be treated as arising from core activities. Seafarers taxation issue needs to be addressed to prevent drainage of personnel from Indian flagged vessels to foreign vessels in the lure of higher pays and lower taxes. Removal of withholding taxes to enable growth of free trade. Issuing tax-free shipping bonds for investment. This will indirectly help raising funds for growth. Giving infrastructure status to the shipbuilding industry so as to make it eligible for tax holidays under Section 80IA of the Income Tax Act. However, with the likelihood of the Direct Taxes Code being brought into effect soon, where asset based tax exemptions are envisaged rather than profit based ones (like 80IA), this expected policy measure may not be brought into effect soon.
#13: Food for thought Has the tonnage tax served the purpose for which it was introduced? How do we address the handicap faced by Indian shipping firms owing to service tax levied on their services?
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Maritime Security
Piracy - ways to tackle the menace In the recent years, pirates have been posing a huge problem to trade & security across the world. In the first 3 months of 2011 itself, there were 142 attacks, up from 67 in the previous year. As per recent estimates, Pircay is costing upto $12 billion annually to the world economy in following forms: 1. Cost of Ranson: Cost of ransom has almost doubled in the last couple of years. Average ransom paid in 2010 was $5.4 million. Total cost of ransom is almost double of actual ransom paid due to cost of negotiation, damage to vessel, opportunity cost, etc. 2. Cost of Insurance: War risk premium have increased 300 fold in sensitive areas such as Gulf of Aden and Malacca Strait. Kidnap & ransom insurance has grown ten fold in the last 3 years. Cargo insurance for containers has increased by more than 100 dollars in the last few years. Piracy has also doubled the cost of hull insurance. 3. Cost of Re-routing: Ship owners have of late started re-routing the vessels to avoid piracy attacks. This has resulted in additional voyage days, resulting in loss of yearly delivery capacity by over 15%. India is also not unaffected by Piracy. Indias trade is dependent on use of the sea, and Somali pirates pose a threat to the countrys booming economy. Annual Indian export- imports through the Gulf of Aden, a highly sensitive area, is valued at $110 billion. About 25 Indian merchant ships travel through the Gulf of Aden every month. Piracy also poses a challenge to approximately 100,000 Indian seafarers . Steps taken by the Government The government has till now taken the following steps in an effort to tackle the issue India is in the process of drafting a law that will improve authorities ability to prosecute captured pirates. A navy warship has been deployed in the gulf of Aden to protect Indian and foreign ships. The Indian navy has also deployed ships and aircraft for anti-piracy patrol off Maldives, Seychelles and Mauritius. An Inter-Ministerial Group has been formed to negotiate with hijackers and coordinate with vessel owners and other countries. The group will work on freeing captive Indians and enhancing maritime security.
Despite Indias greatest efforts, the threat continues largely because of the complex legal issues and the difficulty maritime forces have in patrolling a large segment of the sea. However, it is well understood that the root cause of this problem lies in the fact that Somalia is a failed state that does not provide sufficient education, jobs and opportunities to its people. This has to be addressed jointly by entire International community together. Coastal security ways to tackle the threat India has a 7,516 kilometre long coastline spread across 9 states and 4 union territories. The Indian Coast Guard has been entrusted with the responsibility of protecting the coastline. However, the extent to which it is being ensured has been critically questioned several times lately. With the ever increasing smuggling activities and especially the recent rise in terror activities, coastal security has become a burning issue. In this section, we intend to summarize the issues that the coast guard is facing and possible ways to tackle the issue. Major threats emanating from the seas The biggest threat, which has brought this issue into picture, is that of penetration of terrorists with possibility of attacks at vital installations across the country. The perennial threat of organized gangs smuggling arms, explosives and other goods into the country, for trivial profiteering is one that has been in the light since long. There is also the issue of infiltration of refugees and migrants from neighbouring countries, which though isnt as threatening as the ones described above, but still indirectly has undesirable effects on Indias wellbeing. The governments action plans Several action plans have been framed by the government and some of them have miserably failed. The last one of them seems to be quite diligent and is in the process of being implemented. Operation Swan In response to the 1993 Mumbai serial blasts, Operation Swan was launched under which there was extensive patrolling by warships, primarily aimed at preventing landing of contraband and infiltration. However, it was restricted to the coasts of Gujarat and Maharashtra, leaving the other areas vulnerable.
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Coastal Security Scheme This was quite a comprehensive scheme, launched on the basis of the recommendations prompted by the Kargil Review Committee. The objective was to provide overall security and strengthen patrolling along the entire coastal waters and shallow waters near the coast. However, the scheme did not receive sufficient support from all state governments. Revised Coastal Security Scheme (CSS) Post the 26/11 Mumbai attacks, a three-level CSS was framed delineating the geographical ambit of responsibilities to 3 parties: Marine Police: Upto 12 Nautical miles from the shore Indian Coast Guard: 12 to 200 Nautical miles Indian Navy: Beyond 200 Nautical. Additionally, plans have been framed in the past to build marine police stations, train police personnel, gather coastal intelligence information and issue ID cards to coastal villagers and fishermen. Issues in implementing a fool proof policy There is a lot of pressure, arising out of sheer need, to have a fool proof and comprehensive coastal security
policy framed and fully implemented. However, there are certain issues which have become roadblocks to its implementation: Considering the sheer enormity of the coastline, infrastructural issues are bound to arise. Substantial investments in terms of time and money will be required to put in place a system to ensure security of the highest level. Many a times, issues of co-ordination between union and state governments and between governmental bodies lead to initiatives lying dormant in government offices. Lack of human resources with adequate skills. Suggestions As several agencies have already recommended, the following measures need to be urgently taken up 1. To make IDs for fishermen and ensure vessel tracking systems are installed on all their boats. IDs may also be made for all villagers living in coastal establishments. 2. To train and inform coastal villagers about the existing threats and teach them the steps that they need to take up in various situations. These people can be of immense aid to the Navy, by way of giving critical information about the activities at sea. 3. Ensuring inter and intra government co-operation
#14: Food for thought Despite several steps being taken by Government post 26/11, why is our Coastal Security still porous? Are recent ship grounding incidents a reflection of laxity in our coastal security? How do we safeguard Indian seafarers from the menace of Piracy?
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Coastal Shipping New Policy & Issues

Coastal shipping is an environment friendly and cost effective mode of transport. Some of the many advantages of coastal shipping over the other conventional modes of transport are Effective and more economical There are anticipated cost savings of almost 40-50% for North-South cargoes as compared with transport by roads No additional investment is required in form of infrastructure creation as the origin-destination of the cargo is from one port to another port (which are already developed) Lesser traffic congestion on the railways & roads Environment friendly mode of transport which comes with benefits of economies of scale The developed countries recognize coastal shipping as an inseparable and important part of the overall transport network of the country. There is ample scope for its development in India. Indian Scenario Growth of coastal shipping in India has been rather lackluster due to inherent operational flaws as well as regulatory bottlenecks. The main challenges that hinder the development of coastal shipping are: Cumbersome customs procedures Non-availability of concessional finance to acquire coastal vessels Non availability of Integrated Transport Policy to promote inter-sectoral coordination Lack of ship building capacities for appropriate coastal vessels Lack of quality manpower High import duties on bunker oil & spares High operational costs Strict specifications for construction of vessels which also leads to higher capital costs Incidence of corporate tax for coastal as against tonnage tax for ocean going vessels Lack of separate berthing facilities at major ports and inadequate cargo handling facilities at minor ports Lesser importance is given to the coastal ships as the ocean-going vessels generate more revenues for the port operators However, the government realizes the importance of coastal shipping and the opportunities it can create and has hence initiated steps to promote it. Certain concessions are already in place Coastal ships are exempted from filing a bill of coastal goods at load ports and bill of entry at the discharge port Coastal ships are exempted from light dues Dedicated terminals have been provided for coastal shipping at major ports in India Vessel related charges for coastal vessels and cargo related charges for coastal cargo have been reduced, which are around 60% of what is charged from other (foreign going) vessels etc. The government has also started working on a comprehensive coastal shipping policy for the whole of India. Several states like Kerala have also been working on a state policy for coastal shipping. Draft Coastal Shipping Policy The coastal shipping policy, like other policies of its kind, is aimed to recommend structures and methods for operation of coastal shipping, declare subsidies / incentives for boosting the use of coastal shipping by the various operators and industry players and define regulations to address the issues faced in the development of coastal shipping. The recommendations of previously appointed committees on coastal shipping revolve around few main categories The policy issues that include implementation of cabotage law, a separate law for coastal shipping and a separate IWT (Inland Water Transport) policy. Fiscal and taxation regime which include, inter alia, special funding mechanism, tax concessions / customs duty exemptions for fuel, equipments, spares and ship repair activity, volume based incentives to registered multimodal operators and shippers for adoption of coastal transportation of cargo, a Centrally sponsored scheme (CSS) for the development of coastal shipping infrastructure and special rates at ports, separate tariff and waiver of lighthouse taxes Regulations, to facilitate less stringent construction, survey, load line and safety requirements and manning norms for coastal vessels, freedom from customs and immigration regulations and an Indian coastal ship safety code in lieu of international regulations. Manning scales and manpower which include rationalization of manning scales and creation of a separate cadre of seafarers Specific infrastructural requirements: A considerable need has been expressed for
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development of minor ports, exclusive ports for coastal shipping, exclusive berths earmarked for coastal ships at all major ports, design vessels such as RORO and silo vessels, hinterland connectivity and grant of infrastructure status. The proposed policy is supposed to aim at boosting the coastal cargo, coastal trade, various support services as well as carriers. Specific attention would be paid to the four components of coastal shipping namely (i) the RSVs (River Side Vessels), (ii) The IVs (Inland Vessels,
(iii) the MS (Coastal ships) and (iv) the MS (cross trade compatible). The proposed policy should be expected to give its recommendations on various Key Performance Indicators (KPIs) to measure the growth of costal shipping. A committee, constituted by DGS and led by Paul Antony, Cochin Port CM, prepared a draft coastal shipping policy. Salient features of the Policy is detailed hereunder:
Recommendations under the proposed Draft coastal shipping policy Sr. No. 1 Recommendations under various heads Promoting River Sea Vessels Facilitate smooth switching over between IV and RSV category on one hand and RSV and MS category on the other, as per the need of the trade Create easy facility for e-notification of change of command, category of vessel and crew Consider extending the limit of 3000 GT / 3000KW further for RSVs, after examining the legal provisions in respect of NCV segment and after re- assessment of the safety requirements for such category of MS coastal vessels Extending the scope of RSVs to other types of vessels such as oil tankers and other specialized vessels 2 Infrastructure Set up more minor ports along the coast, at least one port at a distance of every 100 kms Setting up dedicated berths for coastal ships Promotion of Ro-Ro jetties Set up adequate ship repair facility and dry-docks along the Indian coast for catering to the growth of coastal shipping LNG supply facilities Setup dedicated warehouses for coastal cargoes Setup rail and road connectivity at the ports to the nearest rail heads Deepening of sea channels at minor ports 3 Financial incentives including subsidies Remove the lower limit of 80 M on ship building subsidy in the new scheme proposed The DGS The MoS Ministries / other bodies (non-MoS)
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Sr. No.
Recommendations under various heads Implement an aggressive ship-building subsidy policy with special focus on coastal vessels, tugs, OSVs, etc Exemption on tax for ship construction SRU (Ship Repair Unit ) status to individual ships Tariff for coastal ships to be lower than those vessels which are on foreign run Delink port tariff for coastal vessels from FG vessels and reduce it further by 30% Waive service tax on costal/inland sea-freight as well as charter-hire of coastal/inland vessels Duty free bunkers to coastal vessels Confer Declared Goods status to bunkers being consumed by coastal/inland vessels Subsidy for Ro-Ro jetties, repair jetties and a higher level of subsidy for a pair of jetties dedicated to coastal shipping Introduce fiscal incentives for building & operating small ports (upto 5 m draft) dedicated for coastal vessels Establish a Coastal Development Fund for coastal ships. This fund may be used for an interest subsidy scheme for acquisition of coastal ships Coastal vessels should be treated as movable infrastructure and therefore granted such status for the purpose of ensuring competitive funding and fiscal benefits Exemption of Customs Duty on import of certain categories of vessels (e.g. Tugs, Pusher Crafts, Dredgers and Floating Docks/Cranes/ Production Platforms etc)
The DGS
The MoS
Ministries / other bodies (non-MoS)
Manpower issues including manning scales: Upgrading of IV crew to RSV crew through bridge courses Permitting CoC (FG) holders of MS vessels to jump one level up in manning RSVs Permitting foreign CoC holders working on Indian coastal ships for a specified period before permitting them to appear for Indian CoC examinations Establish a RSV cadre for officers-Master (RSV), Mate (RSV), 2nd Mate (RSV), MEO CI III (RSV-Ch. Engg), MEO CI IV (RSV) Candidates with certificates from ITIs should be allowed to work on coastal vessels with certain bridge courses
5 6 7
Cabotage Policy Support Declaration of IV limits for different states Promoting modal shift from road and rail to coastal shipping
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Sr. No.
Recommendations under various heads
The DGS
The MoS
Ministries / other bodies (non-MoS)
Improve competitive ability of coastal ships and facilitate shifting of cargo from road and rail to sea Carbon credit scheme 8 Data base and communication infrastructure Establish & maintain a robust system/database for collection of accurate voyage specific data on coastal shipping INSA to publish annual report on coastal tonnage and coastal cargo and work towards a coastal index Develop a freight exchange for India-centric international container trade which may later be extended to coastal operations Streamlining the multi-modal transport operations
Source: Draft Coastal Shipping Policy
The measures intended to be formulated in the policy are expected to provide a significant boost to the coastal shipping in India. It is advised to have an annual review of the action taken as against the recommendations to know the extent to which targets have been achieved. This shall help in keeping control over policy implementation and to determine the need to formulate changes in the policy, going forward. #15: Food for thought Why does coastal shipping in India move just 7% of the local freight, as against 43% in European Union? Is the nature of our geography responsible for this? How can coastal shipping play an active role in promoting India as a transhipment hub?
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Part III: Port Connectivity
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Introduction
Indias maritime sector has grown multifold in the last two decades, both in terms of number of operational ports and cargo volume. During 2009-10, the combined cargo traffic handled by all major and non-major ports was 850 Million Tonnes (MT), a growth of 15% over the previous year. To meet the challenge of increasing cargo traffic, the government has planned various initiatives like capacity expansion at ports, efficiency improvement, policy measures, etc. While capacity creation is a priority, the port performance also can be significantly improved if proper attention is paid to the supporting infrastructure development in terms of connectivity to the ports. Adequate connectivity to the port acts as a catalyst to the growth of a port aiding better performance. Keeping this in mind, the Government has already passed some regulations regarding the minimum required connectivity to the major ports. For example, the Committee of Secretaries (CoS), Government of India, has recommended a minimum 4-lane road and double line rail connectivity be provided at major ports.
Minor ports, which are now showing high growth also consider connectivity as an important parameter to further growth in business. Lack of proper connectivity has affected the growth and prospects of many ports. Despite having proper depth and adequate facilities, these ports are stranded for the want of containerized cargo, while the other ports are burdened with an excess they cant handle. The private players (coal traders, other manufacturers cum exporters/importers) give considerable weightage to connectivity at the proposed port while considering a stake in port development. Matching the improvement in connectivity with that of the port development is a challenging task. Many factors have to be taken into consideration e.g. the use of the connectivity facilities, their feasibility in terms of usage, financial returns, social resettlement plans, technical effectiveness, etc. A quick assessment of the current state of connectivity of ports and the future strategy and initiatives for enhancing the same is presented next.
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Current Port Connectivity Scenario

All the Major Ports in the country are currently having both road and rail connectivity. However, the capacity and quality of the existing connectivity requires improvement to enable smooth inflow and outflow of cargo. The projects on rail and road connectivity are implemented mainly by the Railways and National Highways Authority of India (NHAI) respectively. In a number of instances, the ports have also made Overview of present connectivity scenario at major ports Port Kolkata Port Railway The rail connectivity to the port is provided by the Sealdah-Budge Budge Branch Line to Majherhat Junction Road City roads connect the port to National Highways 2 and 6 and to the junction of National Highway 34 and the Airport The 10 kms stretch from the port to the junction of NH-2 and NH-6 including 1.7 kms long elevated road link between Vidyasagar Sethu and Swing Bridge is being constructed Connected to NH-41 which links it to NH-6 and the rest of the country. Four laning of 52.2 kms stretch of NH-41 from Kotaghat-Haldia is in progress. significant financial contribution for execution of the road and rail connectivity projects. A brief overview of the present rail and road connectivity status in ports along with some of the major connectivity projects proposed to be under taken is given below:
Haldia Dock
A single rail line from Panskura-Haldia Branch connects the docks to Trunk Railways Doubling of the 15.05 kms stretch of this line from Panskura to Rajgoda has been completed Port is connected by a single line section with Cuttack which connects HowrahChennai Trunk Line. This is being converted to a double line 155 kms Daitari-Banspani rail line is under construction The 78 kms Haridaspur-Paradip Rail Link to provide a dedicated corridor from the Port to the iron ore mines and steel plants is also under construction The port is connected to the Chennai Howrah main railway line off the East Coast Route
Paradip Port
Connected to NH-5 through a 2-lane road upto Chandikol. 4-laning of the road is completed. The two lane SH-12 from the port to Cuttack provides network between the port and the mines
Visakhapatnam Port
The port is connected to NH-5. A project for improving the 12.47 kms long stretch of Naval Dockyard and Industrial by pass State road is available. The port is connected to NH-4, NH-5 and NH-45 Ennore Manali Road improvement Project (EMRIP) costing around Rs. 600 cr. is to be executed by SPV comprising NHAI, ChPT, GoTN and Ennore Port Ltd
Ennore Port
Rail connectivity from the port is also available.
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Port Chennai Port Trust
Railway Port is well connected with the railway network to the southern parts of Tamil Nadu as also to the rest of India
Road The port is connected by road to NH-5 (Chennai-Kolkata), NH-4 (Chennai Bangalore / Hyderabad etc.) and NH-45 (Chennai Dindugal/ Tiruchirappalli The east coast highway connects the city with Puducherry and rest of South India Chennai Port Maduravoyal 4-Lane Elevated Corridor project is included in the NHDP Phase-VII to be executed under BOT model at a total estimated cost of Rs,1,655 Cr. covering a distance of 19 Kms. The port has two lane road connectivity through NH-45B, NH-7 and NH-7A. Four laning of the 47.2 kms stretch of NH-7A between Tuticorin and Tirunelvelli and NH-45B are in progress
Tuticorin Port
Port is connected by broad gauge (BG) rail link with major cities like Tirunelveli in the west, Nagercoil and Trivandrum in the south and Madurai, Trichi, Chennai and Bangalore in the north. Port is also linked to ICDs at Madurai, Tirupur, Karur, Salem, Coimbatore, Chennai and Bangalore Single rail line which branches off at Emakulam from the main line from ShornurTrivandrum serves the port Action is being taken to provide rail connectivity and National Highway connectivity to the International Container Transhipment Terminal An 8.86 km long link line from ICTT to the main rail grid is operational by November 2010
Cochin Port
Road connectivity to the port from the mainland is through two bridges one on Mattanchery channel and one on Emakulam Channel. A link road connects Willingdon Island to NH-47 bypass. Four laning of the 10.40 stretch of NH-47 is under progress
New Mangalore Port
Well connected to the Industrial hubs of Southern India as well as North India via Konkan railway A broad-gauge railway line connects the port to the southern parts of the country and the Konkan Railway links the port through Mangalore with Mumbai.
Connectivity to the port is provided through NH-48 (Bangalore-Mangalore), NH-17 (Cochin-Goa-Mangalore) and NH-13 (Sholapur-Mangalore). Four laning of NH-17 (Suratkal-Nantur section), NH-48 (Padil-Bantwal section) and a bypass from Nantur junction on NH-17 to Padil junction on NH-48 is in progress Two lane road link from the port to NH-17A through Vasco city is available. Four laning of 18 kms stretch of NH-17B from Verna Junction on NH-17 to Mormugao Port in progress
Mormugao Port
Rail connectivity to the port is available
52
Port Mumbai Port
Railway Port is connected to the Indian Railways at Raoli, Junction, Wadala.
Road Well connected to other parts of the country through NH-8 (Ahmedabad), NH-3 (Delhi and Kolkata), NH-4 (Bangalore) and NH-17 (Goa/ Mangalore) Anik-Panjorpole Link Road to provide access between Mumbai Port and Southern parts of Mumbai, Navi Mumbai on the mainland to the East and Eastern Express Highway is being undertaken Connected through NH-4Bto the MumbaiOune Expressway, NH-17 to Mumabi-Goa Highway, SH-54 to the western parts of India. Four laning of NH-4B and SH-54 and construction of a four lane Amra Marg including six lane major bridge across Panvel Creek is also in operation. Construction of second evacuation road from container gate to CFS / Dronagiri with respect the proposed development of SEZ in the area is also under consideration Port has two lane and four land approaches to NH-8A Four laning of various sections of NH-8A have also been implemented.
Jawaharlal Nehru Port
The port is well connected by rail to Panvel
Kandla Port
The port is connected by rail to Mumbai & Delhi via Ahmedabad. The port has metre-gauge connectivity to Palanpur
Connectivity Connectivity plays a key role in choice of Port for shipping a Container. Indias largest container terminal JNPT today handles more than half of container traffic ICD/CFS Agra Dadri Kanpur Madho singh Moradabad Tuglakabad Cargo Belt West U.P/ NCR West U.P/ NCR West U.P/ NCR West U.P/ NCR West U.P/ NCR West U.P/ NCR GPPL Rail 27,508 26,397 27,993 32,130 28,980 26,670 Road 35,162 33,436 35,458 40,698 36,708 33,782
in India. Majority of the containers arriving in JNPT are from West UP/NCR region. A brief comparison of the difference in inland logistics cost at various ports is given in the table below: Mundra Road 31,899 33,810 36,176 43,358 34,048 32,487 Rail 25,622 27,163 29,190 35,091 27,405 27,140 Road 32,752 34,721 36,974 44,449 34,713 34,692 JNPT Rail 27,577 29,484 27,615 30,870 30,555 29,967 Road 35,251 37,346 34,979 39,102 38,703 37,958
53
Kandla Rail 24,955 26,450 28,560 34,230 26,880 25,415
The proclivity of shippers to use JNPT for exporting/ importing their containers is explained by the excellent hinterland connectivity that the port enjoys and the frequency of vessels calling at port. The movement of cargo must be analyzed for understanding the requirements of connectivity. The requirement of ideal transport varies for different commodities. For example, coal is preferred to be carried through railway via rakes while petro-products are preferred to be carried through the pipelines or by Lorries carrying huge containers so that it is easy for distribution to various users. The following chart gives a glimpse of the general preference given to the mode of transport for different types of cargoes:
Ideally, a port with relatively high share in handling a particular commodity should concentrate more on the development of the preferred/required mode of transport. For example, if JNPT specializes in POL & Containers, its maximum connectivity projects should be focused on the road connectivity, rail connectivity and thereafter pipelines. Similarly if Kandla Port trades more in POL, coal and fertilizers then it should focus on connecting road-rail more than any other modes of transport. At the same time, the place of delivery of cargo and the feedback from the current and probable customers should also be accounted for while assessing the connectivity requirement. Coastal shipping should also be considered as a mode of connectivity. Potential for modal shift from less efficient, more expensive and
% of use for various transport modes for inland cargo movement 120 0 100 25 80 Axis Title 25 100 40 50 50 100 80 100 90 70 40 5 Crude Oil Conveyor Inland Waterways Roads Railway Pipeline 0 0 0 0 100 POL 0 0 25 25 50 LPG 0 0 50 50 0 LNG 0 0 0 0 100 Thermal Coking Coal Coal 0 0 20 80 0 0 0 0 100 0 Iron Ore 0 5 0 90 5 30 70 Food Grains Fertilis er Raw Mat. 15 15 30 40 0 Other Dry Bulk 0 0 70 30 0 Other Liquid Bulk 0 0 60 20 20 Containers 0 Break Bulk 0 0 80 20 0 30 50 70 0 20 0 0
30 60 55 80
60
20 45 30 20 20
20
0
55 45 0
Source: Deloitte Research
54
less carbon friendly modes to efficient, cheaper and carbon friendly modes should be examined. Planned Investments in Rail Road Connectivity: In view of the planned capacity expansions and the projected traffic numbers, the Ministry of Shipping has
planned various rail-road connectivity projects for the major ports. The following table enlists the phase-wise rail-road projects planned by the Ministry:
Phase-wise rail-road projects planned by the Ministry of Shipping Number of Connectivity Projects Name of Port Phase 1 + Ongoing (2010-12) 1 2 6 3 2 2 2 2 ----1 3 3 ----Phase 2 (2012-17) 3 ----2 1 ----2 1 ------------1 2 ----Phase 3 (2017-20) --------3 ----2 2 ----------------------------Investments in Crores Phase 1 + Ongoing (2010-12) 30.00 615.00 396.00 576.34 1000.00 126.77 803.00 69.55 ----333.00 681.00 45.26 ----Phase 2 (2012-17) 1075.00 ----150.00 446.00 ----640.00 40.00 ------------45.00 115.56 ----Phase 3 (2017-20) --------200.00 ----225.00 300.00 ----------------------------Total Investment 1105.00 615.00 746.00 1022.34 1225.00 1066.77 843.00 69.55 0 333.00 726.00 160.82 0
Kolkata Port Trust
Paradip Port Trust Visakhapatnam Port Trust Ennore Port Limited Chennai Port Trust Tuticorin Port Trust Cochin Port Trust New Mangalore Port Trust Mormugao Port Trust Mumbai Port Trust Jawaharlal Nehru Port Trust Kandla Port Trust Port Blair Port Trust Total
27
12
4675.92
2511.56
725.00
7912.48
55
56
It can be seen from the table above that Chennai Port has the maximum allocation of around Rs. 1225 crores while Kolkata Port ranks second with the projected investment of about Rs. 1105 crores. Indias largest container port JNPT, has also decided to invest Rs. 726 crores. City locked ports need to invest in connectivity as they face many constraints for goods movement and this seriously impacts their customers. Impact of inadequate connectivity & steps for improvement Inadequate hinterland connectivity will hinder the growth of external trade and therefore the development of the economy. It typically results in suboptimal choice of route and mode of transport, leading to time and cost escalations, and in many cases, congestion in the ports due to an inability to move cargo out of the port. Maritime Agenda 2020 has highlighted various steps for avoiding the connectivity crisis. Some of them are as under: Road Connectivity Projects: Each Major Port should have minimum four lane road connectivity. Such projects could be taken up through the National Highway Authority of India (NHAI) and / or on Build,
Operate and Transfer (BOT) basis and formation of Special Purpose Vehicles comprising of all the stakeholders. Rail Connectivity Projects: Each Major Port should preferably have double line rail connectivity. Such projects could be taken up by the Railways and / or on BOT basis and through formation of Special Purpose Vehicles in which the port may be an equity holder. Viability Gap Funding: Connectivity projects having a lower than prescribed rate of return, budgetary assistance or Viability Gap Funding maybe considered. National Highways Authority of India (NHAI) shall undertake port connectivity (less than 50 km) projects on BOT basis where possible Toll rates for highway port connectivity projects shall be established jointly by NHAI and the Ministry of Shipping Ongoing projects to be monitored on a quarterly basis and approvals of pending projects to be expedited While the suggestions given above are specifically for Major ports, a similar approach towards the stateregulated minor ports would help them in achieving better hinterland connectivity.
#16: Food for thought Despite its apparent cost and carbon footprint advantages, why has coastal shipping not received the required policy support so far, as a mode of connectivity? Effective connectivity requires multimodal conjunction. How far is absence of common perspective and coordination between agencies dealing with the different modes (road, rail, water and air) responsible for impeding implementation of each others projects dealing with connectivity? What can be done to improve affairs in this regard?
57
Inland Waterways Connectivity
Whenever we talk of connectivity, we tend to think of just road and rail connectivity. Despite all the measures taken by the government and the port authorities, other modes of transport which have the capacity to carry far more quantum of cargo than the traditional modes are not being given much importance. These include Inland Waterways and Coastal Shipping. While we have discussed about the coastal shipping in the shipping section, this section deals with inland waterways projects. India has a predominant history of inland waterways transportation. In spite of several efforts and policy level initiatives Government, inland waterways in India has not gained eminence as compared to other countries like Germany and Bangladesh. Central Inland Water Transportation Company Limited, a Government owned company, is slated for disinvestments with majority of its vessels being non-operational. Investments in this sector by way development of navigable waterways and support infrastructure have not equaled those in rail in early years and road in more recent times. Tonne - km-per litre Tonne km per
India has navigable inland waterways of almost 14,500 km, of which 5,200 km of major rivers and 500 km of canals are suitable for mechanized crafts. Currently Inland waterway transport (IWT) handles only around 1% of total inland cargo transport. Around 5% of Iron ore and 15% of the fertilizers is transported via the IWT route. There is potential for other cargo such as coal, dry & break bulk and containers to be transported economically and effectively through IWT. The following are key benefits of using Inland Waterways Inland Waterways is environment-friendly and low cost.Iit has higher fuel efficiency than road/rail transport. This can be seen from the chart below
litre 105 80
120 100 80 60 40 20 0 Road Transport Tonne-km per litre

Source: IWAI
25
Rail Transport
Inland Water Transport
Source: IWAI
58
59
Economies of scale can be enjoyed Reduces the traffic congestion problems on road and rail Waterways of India The Inland Waterways Authority of India (IWAI) had initially identified following waterways for development 1. The Ganga-Bhagirathi- Hooghly; 2. The Brahmaputra, Mandavi, Zuari river & Cumbarjua Canal, Goa 3. The Mahanadi; 4. The Godavari; 5. The Narmada; 6. The Sunderbans Area; 7. The Krishna; 8. The Tapi; and 9. The West Coast Canal Currently five national waterways have been identified, details of which are given in the table below. A sixth national waterway is being considered to be developed from Lakhipur to Bhanga.
Present status of the National Waterways of India Name National Waterway 1 National Waterway 2 River / Canal Ganga Brahmaputra Route From Haldia to Allahabad from Dhubri to Sadiya From Kottapuram to Kollam along with Udyogmandal and Champakara canals Kakinada-Puducherry stretch the East Coast Canal Declared in 1986 1988 Distance 1620 kms 891 kms
National Waterway 3
West Coast Canal
1993
205 kms
National Waterway 4
Godavari and Krishna Brahmani river and Mahanadi delta
2008
1078 kms
National Waterway 5 Total
2008
588 kms 4382 kms
Additionally Barak river from Lakhipur to Bhanga (121 km) as sixth NW is under consideration of the Ministry
Source: Maritime Agenda 2020 60
Financing Inland Water Transport development Inland waterways cannot replace the roads or railways as the means of transport in the short run. It has an inherent constraint of its reach being limited to certain areas. For an efficient inland waterway, the origin and destination has to be the final place of production/ manufacturing and consumption respectively. These reasons make the IRR expected from the investments in IWT projects to be less lucrative for the private sector. Due to this, currently the major contribution towards the IWT development is from the government funding. Government expenditure on developing IWT, has increased over the years. The following chart shows the picture.
Investment in IWT (Rs. in crores) 450 400 350 300 250 200 150 100 50 0
needed to develop 100 kms of waterways. A European survey on cash spent to cover socioeconomic costs such as accidents, air pollution, congestion, effects on the countryside and the urban environment, of various types of transport revealed the following:
% of Socio-Economic costs by various modes of transport 6 2 0.5
Roads Air 91.5 Railway Inland Navigation
385 310
151 35 8th Plan 9th Plan 10th Plan 11th Plan (First Three Years)
The pie-chart above is indicative of the huge potential of the Inland water navigation in terms of effect on the environment. It may enable India to substantially reduce its carbon footprint. In October 1986, the government set up the Inland Waterways Authority of India (IWAI) to coordinate and implement various Central schemes for the development of waterways. The IWAI operations are funded through grant received from Ministry of Shipping and Central Sectoral Scheme. Since the time of establishment, it has worked in the direction of regulating, promoting and developing the inland navigation. The coming decade promises investment worth INR 30,710 crores for the development of IWT projects. The summary of ongoing and upcoming project schemes to be funded through budgetary and private resources is given in the table below:
It is expected that a total of Rs. 450 crore shall be spent on IWT by the end of the 11th plan. However, the allocation still remains less as compared to that in the rail-road sector. IWT projects demand comparatively low investments both for creation and sustenance. A study reveals that development of 1 km of highway costs as much as is
61
Table showing breakup of funding for IWT projects (In crores) Particulars On-going projects New projects Total
Budgetary Support 4,175 6,630 10,805
Internal Resources ----------
Private Funding 8,400 11,505 19,905
Total 12,575 18,135 30,710
The share of private sector funding is proposed to increase drastically over the years as explained in the figure below: Govt. v/s Private funding for IWT projects Govt. v/s Private funding for IWT projects
20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 On-going projects
Private funding 11,505 Budgetary support
8,400
4,175
6,630
New projects
62
As a part of the expansion plans for IWT,, the following projects are proposed to be funded by the budgetary allocations: IWT projects to be funded by budgetary allocations Sr. No. Name of project Estimated Cost (Rs. Crore) Expected year of completion
On-going Projects 1 2 3 4 5 6 7 8 9 10 11 Making National Waterway 1 fully functional Making National Waterway 2 fully functional Making National Waterway 3 fully functional National Inland Navigation Institute (NINI) and setting up of STCTC Joint Venture (PPP projects) IWT promotion activities IT related activities Technical studies Inland vessel building subsidy scheme Indo Bangladesh Protocol routes Central Plan Scheme for development of waterways in NER Sub-total of Ongoing Projects New projects 1 2 3 4 5 6 7 8 9 Development of NW-4 Development of NW-5 Development of proposed NW-6 Other New Waterways Incentive for IWT Operators New Scheme for Unorganized Sector Vessel leasing Special Purpose Vehicle (SPV) Dedicated IWT Development Fund (for JV of acquisition of vessels) Funding for composite Transportation projects Sub-total new projects Total Investments by Budgetary allocations
Source: Maritime Agenda 2020 National Conference on Ports and Shipping 2011 Background paper 63
312.00 77.00 90.00 100.00 411.00 50.00 10.00 25.00 2700.00 200.00 200.00 4175.00
2013 2013 2013 2020 2020 2020 2020 2020 2020 2020 2020
600.00 1700.00 90.00 2720.00 320.00 100.00 100.00 500.00 500.00 6630.00 10805.00
2020 2020 2020 2020 2020 2020 2020 2020 2020
The following projects are proposed to be funded by the private sector: IWT projects to be funded by the private sector Sr. No. Estimated Cost (Rs. Crore) Expected year of completion
Name of project
On-going Projects 1 2 Joint Venture (PPP projects) Inland vessel building subsidy scheme Sub-total of Ongoing Projects New projects 1 2 3 4 5 6 7 Development of NW-4 Development of NW-5 Other New Waterways New Scheme for Unorganized Sector Vessel leasing Special Purpose Vehicle (SPV) Dedicated IWT Development Fund (for JV of acquisition of vessels) Funding for composite Transportation projects Sub-total new projects Total Investments by Private sector
2100.00 6300.00 8400.00
2020 2020
915.00 2510.00 4080.00 100.00 525.00 2625.00 750.00 11505.00 19905.00
2020 2020 2020 2020 2020 2020 2020
The optimism demonstrated by the private sector in seeing the inland water navigation as a favourable destination for investment comes as a big positive. As compared to the budgetary allocation, the private sector is estimated to invest 84.22% more. Though these investments are spread over a decade, the scenario is definitely improving. The importance being given to the IWT sector can also be attributed to the several initiatives undertaken by the government such as: Declaration of intention of development of commercially viable IWT stretches through PPP mode . Declaration of Central Sectoral Scheme for development of waterways of NER region.
The role of IWAI has been enlarged to facilitate its participation in commercial / joint ventures with equity participation. This is a major step towards developing PPPs. Inland Water Transport has been accorded the infrastructure status under Section 80 IA of the Income Tax Act so as to enable it to enjoy tax holidays Concessionary customs duty on imported equipment and machinery for the development of inland waterways Authorization to IWAI to raise bonds to enable it to borrow from the market and mobilise funds Assistance to the State governments to implement Centrally Sponsored Schemes (CSS) for IWT development by way of 90 per cent subsidy
64
Focus of IWAI in making the National Waterways 1, 2 & 3 fully functional along with facilities for 24 hours navigation and DGPS connectivity Expedition of the on-going projects and involvement of private sector in tracking such projects Creation of capacity of dredging by adding 6 more dredgers to the existing fleet of 11 dredgers Investment in technical training & capacity building of personnel related to IWT Identification & implementation of specific cargo transportation projects (e.g. dry bulk cargo) with assistance of PPP funding Development of Indo-Bangladesh protocol routes Promoting river cruising/tourism as a means of leisure Integration of Inland waterways and coastal shipping modes The Ministry of Shipping is committed to increase share of Inland navigation for cargo transportation, but there are still some challenges which are to be addressed while developing the IWT routes. Principal factors that may prove to be roadblocks are: #17: Food for thought
Insufficient depth throughout the navigable waters Excessive siltation in major rivers due to erosion and deforestation Development of Hydel Power stations on various major rivers has caused insufficient water levels in the rivers which are not suitable to the navigational purposes Water required for the industrial purposes, irrigational purposes and drinking purposes is drawn from rivers and lakes formed by rivers. Due to this reason also they are cannot be used for navigation Non-availability of adequate navigational aids resulting in restricted sailings over long periods of time Non-availability of return cargo on most of the routes Challenges as well as opportunities lie ahead for the development of the IWT sector. It remains to be seen that which one outweighs the other. Although there are many challenges still to arise once the sector gets a wide recognition / boom, the future of the Inland navigation seems brighter than before.
A study reveals that development of 1 km of highway costs as much as is needed to develop 100 kms of waterways. While one may take these statistics with a pinch of salt and even after considering the other operational challenges of inland transportation, would IWT projects be commercially feasible? Projects funding worth INR 11505 crores is expected to be attracted in IWT projects from the private sector. Is this feasible or is the estimate optimistic? Why?
65
Bibliography & References
1. Maritime Agenda : 2010 2020, Ministry of Shipping, Government of India 2. Deloitte Research 3. Observer Research Foundations Issue brief - Indias coastal security challenges & policy recommendations, August 2010 4. Working paper on Policy for Indias Services Sector, Ministry of Finance 5. Times Shipping Journal, various issues 6. Scheme and Guidelines for Financial Support to Public Private Partnerships in Infrastructure 7. The Draft Indian Ports Bill 2011 8. The Ports Regulatory Authority Bill 2011 9. Draft Captive Port Policy 2011 10. Land Policy for Major Ports 2010 11. Investment in Infrastructure during the 11th Five year Plan, Secretariat for Infrastructure, GOI 12. PPIAF, Port Reform Toolkit 13. Report of committee on Rail-Road Connectivity of Major ports 14. Review of Marine and Coastal Policies in India, By Dr. Sangeeta Sonak, Prajwal Pangam, Asha Giriyan 15. Recent news articles 16. Websites of a. Ministry of Shipping, Govt. of India b. Indian Ports Association (IPA) c. Inland Waterways Authority of India (IWAI) d. IBSA e. Press Information Bureau (PIB) f. Shipping Biz360
66
Contact
Deloitte
Hemant B. Bhattbhatt Senior Director Mobile: +91 98339 14075 Email:hbhattbhatt@deloitte.com Prashant Deshpande Senior Director Mobile: +91 98670 33840 Email:pradeshpande@deloitte.com Deepak Netto Senior Director Mobile: +91 98210 85216 Email: dnetto@deloitte.com
FICCI
Manab Majumdar Assistant Secretary General FICCI, Tansen Marg, New Delhi - 110001 Tel: 011 23765082 Fax: 011 23320736 Email: infra@ficci.com Web: www.ficci.com
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Shipping Background Paper

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Shipping Background Paper

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National Conference on Ports and Shipping 2011 Background paper

National Conference on Ports and Shipping 2011 Background paper

Foreword from FICCI

Mr Ramu S Deora Chairman All India Shippers Council (AISC)

Mr Hemant Kanoria Chairman FICCI National Committee on Infrastructure

Foreword from Deloitte

National Conference on Ports and Shipping 2011 Background paper

Part I: Policy reforms and initiatives for developing world-class Ports

Source: Deloitte Analysis, Indian Ports Association.

Tamil Nadu, 18 Maharashtra, 55 Lakshadweep Islands, 10

Source: Deloitte Analysis, Indian Ports Association.

National Conference on Ports and Shipping 2011 Background paper

100.00 90.00 80.00 70.00

60.00 50.00 40.00 30.00 20.00 10.00 0.00

Trafc Capacity Utilization (%)

Source: Indian Ports Association (IPA), Deloitte Analysis

National Conference on Ports and Shipping 2011 Background paper

Policies & Regulations

Major Ports Trust Act, 1963

Merchant Shipping Act, 1958

Cruise Shipping Policy

The Land Policy for Major Ports, 2010

The Draft Ports Bill, 2011

National Conference on Ports and Shipping 2011 Background paper

Draft Ports Bill 2011

Draft Indian Ports Bill, 2011

National Conference on Ports and Shipping 2011 Background paper

Appointed by the Central Government

Appointed by the Central Government

Source: Draft Indian Ports Bill 2011, Deloitte Analysis

National Conference on Ports and Shipping 2011 Background paper

Source: Draft Indian Ports Bill 2011, Deloitte Analysis

Draft Ports Regulatory Authority Bill, 2011

National Conference on Ports and Shipping 2011 Background paper

Draft Captive Port Policy, 2011

National Conference on Ports and Shipping 2011 Background paper

Land Policy for Major Ports, 2010

National Conference on Ports and Shipping 2011 Background paper

13 August 2010 13 March 2009

New Mangalore Port

VOC Port, Tuticorin

49.50 (Captive) 332.16

VOC Port, Tuticorin

New Mangalore Port

252 (406 as per Financing Plan)

National Conference on Ports and Shipping 2011 Background paper

Name of Dept. / Agency Kandla Port

Estd. Cost (in Cr.) 27.00

Likely date of completion Aug,2013

X Plan (Actual) 4051 (17.62) 619 (2.69) 18327 (79.69) 22997

2009-10 (RE/ BE/ Proj.)

2010-11 (BE/ Proj.)

States Private Total

223 3888 4942

375 5733 7148

654 6593 8323

719 7582 9454

791 8720 10779

National Conference on Ports and Shipping 2011 Background paper

Demand-Supply scenario of Ports

Source: Maritime Agenda 2020, Deloitte Analysis

Source: Maritime Agenda 2020

76.00% 74.00% 72.00% 2009-10 2011-12 2016-17 2019-20