Ports

1. Introduction and Policy Updates 2. Trends and Outlook 3. Capacity Addition 4. Tariff Issues 5. Taxation Regime 6. Private Participation Models 7. Challenges 8. Recommendations 9. Comp. of FP (Adani/Essar)

Introduction & Policy Updates

Indias marine sector is intricately linked with its economic activity and trade and has been a critical contributor to its competitive position in global trade. India has 13 major ports administered by the Ministry of Shipping (MoS) of the Central Government. The country also has 176 notified non-major ports, which are under the jurisdiction of the state governments. The Tariff Authority for Major Ports (TAMP) - regulates all tariff, vesseland cargo-related & the lease rates of properties in major port trusts and the private operators.
The National Maritime Agenda 2010-20 (Jan11) Capacity creation projects (target capacity of over 3 BT by 2020 with most of the projects being executed and funded by the private sector) and certain policy related initiatives to improve the operating efficiency and competitiveness of Indian ports The Draft Port Regulatory Authority Bill, 2011, seeks to bring tariffs and the performance of non-major ports under regulatory purview Captive port policy Aims to provide a level playing field to private companies with their public sector competitors. Government will allot captive berths at major ports to private companies, and enable them to utilize these facilities exclusively for their own goods. Captive berths will result in reduced berthing and turnaround time of ships. Port connectivity by rail Government has passed some regulations relating to minimum required connectivity to ports. This includes at the minimum that four-lane road and double line rail connectivity is available for major ports. Land policy for major ports, 2010 Monitoring the land use to ensure optimal utilization Enhancing sustainability by providing industrial development 20% of land across all major ports is currently not in use The regulatory and institutional environment in the Indian port sector is currently undergoing changes with new laws and policy measures being formulated.

Trends and Outlook

Containerization expected to rise Containerization in India, which is at 68%, is expected to see significant growth, since the current level is well below international levels of around 80% Business conglomerates wanting to enter port sector Indian business groups are contemplating the feasibility of entering the sector due to the key role played by ports in the development of allied industries such as power, steel, fertilizers, engineering goods, and mining and metals. Cargo Motors Pvt. Ltd., (Nargol port), the Welspun Group, (Vizhingham port) and Shapoorji Pallonji Group, (Chhara port). Jindal Steel and Power Ltd. (JSPL) also plans to enter the port sector by acquiring a 60% stake in Gopalpur Ports Ltd. in Orissa.

Traffic at ports in India

Iron ore traffic at major ports declined from 100 MT in 2009-10 to 61 MT in 2011-12 due to ban on illegal mining, increase in export duty and higher logistic costs

Source : IPA, CRISIL Research

Outlook on traffic at Indian ports

E: Estimated; P: Projected Source: CRISIL Research

Non-major ports to continue to capture share in overall port traffic

Drivers of Growth for NonMajor Ports
Sound Infrastructure Capacity Expansions Plans for port-based power projects and special economic zones (SEZs) near non-major ports Ex: APSEZ @ Mundra improvement in infrastructure such as road and rail connectivity Operational efficiency related issues such as congestion, capacity constraints, connectivity issues, etc. will also compel traffic to shift from major to non-major ports.

Source: CRISIL Research

Capacity

Capacity growth scenario The overall port capacity in the country is expected to grow at a CAGR of 13.3% from 1,020 MT in FY11 to 3,130 MT in FY20. The capacity at nonmajor ports is projected to expand at a faster CAGR of 18% during FY1120 from 375 MT to 1,670 MT. As compared to this, the capacity at major ports is expected to grow at a CAGR of 9.5% during this period, from 645 MT to 1,460 MT. The share of non major ports in port capacity is anticipated to increase from 36.8% in FY11 to 53.4% by 2020.

Maritime Agenda 2020 Cont.

Tariff Issues
For Non major ports, the chief risk originates from proposals to bring them under tariff purview, with the latest such step being the Draft Port Regulatory Bill 2011. In major ports, the main tariff risk for the BOT (build-operate-transfer) operators originates from certain anomalies in the Tariff Authority for Major Ports (TAMP) Guidelines. There was a sharp reduction in tariff rates being ordered by the regulator for some main terminals of the country namely Gateway Terminals India (GTI); Nhava Sheva International Container Terminal (NSICT); Chennai Container Terminal Ltd (CCTL) and Chennai International Terminal Pvt Ltd (CITPL). Further there are efforts underway to refine the TAMP guidelines, wherein again the proposals under consideration (The Energy and Resources Institute- TERI recommendations) are viewed to be unfavorable for industry participants. Tariff risk thus continues to be a key event based risk factor for the port sector entities.

Taxation Regime
Direct tax The Government proposes to introduce the Direct Tax Code, 2010 (DTC) to simplify and rationalize existing tax laws, rates and exemptions and make

them more equitable. The DTC is meant to provide

direct incentive for investment. Accordingly, the Government proposes to replace profit-linked tax incentives with investment-linked ones to encourage additional investments in the port sector.

Private Participation

Challenges

Recommendations
Policy reforms Construction of dedicated freight corridor projects (railways and roads), Development of coastal shipping and inland waterways, which may help to reduce the pressure on roads and railways and increase hinterland coverage Guidelines on areas such as licensing, environment, conservation, safety, quality of services, dispute resolution and container freight station (CFS) development can be revaluated and simplified Emphasis on containerization The share of container traffic in Indias total port traffic has been rising, but total container throughput is still substantially low as compared to transshipment hubs in Singapore and Dubai Setting up of ultra mega ports (UMPs) with integrated industrial, residential and transportation hubs Human resource development (HRD) and retention According to the Maritime Agenda 2020, the global demand for marine staff is expected to rise from 1.15 million at present to 1.6 million by 2020. Creating an efficient and transparent mechanism for shipping companies and training institutes to trade in training slots Collaborating with foreign universities for personnel to attend courses relating to the maritime sector Establishing more campuses of the Indian Maritime University (IMU) and opening more institutes that will impart education and training in specialized sectors such as dredging

Financial Performance

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ESSAR Ports Ltd.

Adani Ports and SEZ