Shipping Background Paper

7/31/2019 Shipping Background Paper

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National Conerence on

Ports and Shipping 2011Background paper

August 2011


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3/68National Conerence on Ports and Shipping 2011 Background paper 3

Contents

Foreword rom FICCI 4

Foreword rom Deloitte 5

PART I: Policy reorms and initiatives or developing world-class Ports 6

Ports: An Overview 7

Policies & Regulations 10

Drat Ports Bill 2011 12

Drat Ports Regulatory Authority Bill, 2011 17

Drat Captive Port Policy, 2011 18

Land Policy or Major Ports, 2010 20

PPP in Ports 22

Demand-Supply scenario o Ports 26

Corporatization o Ports 28

Financing Port Projects 30

Inormation Technology in Ports 33

PART II: Indian Shipping Industry: Progress, Issues and the Way Forward 36

Introduction 37

Shipbuilding subsidy 38

Manpower shortage in the shipping industry how to tackle it 40

Shipbreaking - Green initiatives, current developments 41

Taxation in Shipping 42

Maritime Security 43

Coastal Shipping New Policy & Issues 45

PART III: Port Connectivity 49

Introduction 50

Current Port Connectivity Scenario 51

Inland Waterways Connectivity 58

Bibliography & Reerences 66

Contact 67

Deloitte Oces in India 68


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Indian Ports and Shipping sector is going through a signicant transormation. It

is becoming increasingly competitive, which raises both threats and opportuni-

ties or the sector. There are various challenges aced due to rising trac and

constraints on inrastructure ront. The challenges also throw open several oppor-

tunities including those or investment.

To discuss some o the critical issues Federation o Indian Chambers o

Commerce & Industry (FICCI) and All India Shippers Council (AISC) are jointly

organizing the National Conerence on Ports & Shipping in Mumbai. The coner-

ence will also ocus on procedural bottlenecks & other stumbling blocks in port

inrastructure development, and brainstorm strategy options to overcome manyo the major problems.

As Knowledge Partner or the event, Deloitte Touche Tohmatsu India Pvt Ltd

has prepared a comprehensive Background Paper covering a large number o

important areas. The report has been prepared through detailed analysis o the

critical actors infuencing the sector in India. We take this opportunity to thank

them or their eorts.

At the conerence, the speakers, resource persons and delegates would debate

and discuss a wide range o topics pertaining to the ports & shipping sector. I

hope you would enjoy reading this report and o course, your suggestions and

eedback are welcome.

Mr Hemant Kanoria

Chairman

FICCI National Committee on Inrastructure

Mr Ramu S Deora

Chairman

All India Shippers Council (AISC)

Foreword rom FICCI



The economic progress o India depends signicantly on the value addition

its trade, commerce and industry delivers in the international marketplace.

The extent o success in this regard depends on the attractiveness and

competitiveness o its products in the global arena. This competitiveness

is in turn a unction o the cost and quality o its products and services.

Transporting and delivering goods in timely, cost eective and convenient

manner is an essential dimension o such global trade. Since 90% o Indias

trade (by volume) happens through water transport, ports and shipping

companies end up being extremely critical nodes o the supply chain.

Consequently their availability, eciency, and capability have a major impact

on the competitiveness o Indias products in the global markets.

Given such ar-reaching impact that the ports and shipping industry

has on our economic progress, it is o paramount importance to have it

operate as a vibrant and healthy service industry catering to our

manuacturing sector. This requires a judiciously balanced pro-development

regulation o the sector.

In the last ew years the Ministry o 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 or thestakeholders in this industry to assess the implications o these policies and

strategize taking the best advantage o them. The Captive Port Policy, the

Land Policy or 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 or the FICCIs national Conerence on Ports

& Shipping 2011.

The various sections provide a very high level overview o these

developments and identiy several issues requiring deliberation and debate

as Food or Thought. Obviously this is not a comprehensive listing o all

issues and is only intended to serve the purpose o prompting a discussionon these developments at the conerence.

I am sure participants will nd the Knowledge Paper very helpul in

obtaining a quick appreciation o these important documents and acilitate

an interactive participation at the conerence. I will be happy to receive any

eedback readers might want to oer.

Best regards,

Hemant B. Bhattbhatt

Senior Director

Deloitte Touche Tohmatsu India Pvt. Ltd.

Foreword rom Deloitte


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Part I:Policy reorms and initiatives

or developing world-classPorts



Introduction

Ports provide an interace between the ocean transport

and land-based transport. They represent a promising

sector or India, given the countrys 7500-km long

coastline, robust economic growth, abundant raw

material, cost-competitive workorce and a strategic

location on the trade map.

Indias port inrastructure constitutes o 13 major ports

and 187 non-major ports. O the non-major ports,

only about 48 are operational; while the rest are only

shing harbours. The 13 major ports are administered

by the Central Government through the Ministry o

Shipping, and non-major ports are under respective

state governments. The state wise numbers o ports are

given hereunder:

Major and Non major ports across the 11 Indian

Coastal States and Indian Islands

West Coast o India East Coast o India

Gujarat (41 ports)

Maharashtra (55 Ports)

Goa (6 ports)

Daman & Diu (2 ports)

Karnataka (11 ports)

Kerala (14 ports)

Lakshadweep Islands(10 ports)

Tamil Nadu (18 Ports)

Pondicherry (1 port)

Andhra Pradesh (13 Ports)

Orissa (3 ports)

West Bengal (2 port)

Andaman & NicobarIslands (24 ports)

Total (139 ports) Total (61 ports)

Source: Deloitte Analysis, Indian Ports Association.

Source: Deloitte Analysis, Indian Ports Association.

Perormance

On an average, port trac grew at ~ 7.66 per cent

between 2005-06 & 2010-11. More specically, non-

major ports registered a double-digit growth at 13.55

per cent as against 5.37% per cent growth in trac at

major ports. POL, iron ore, and coal

constitute a major chunk o trac at both major and

non-major ports.

India's Port Sector trafc growth (in Mn. tons)

Source: Indian Ports Association (IPA), Deloitte Analysis

Gujarat has emerged as the leading state in cargo

handling. While Kandla port in Gujarat accounted or

the highest share (~14 per cent) in major port trac,

non-major ports under the Gujarat Maritime Board

collectively boasted the maximum minor port trac

(~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 signicant growth in

cargo trac, it has still not been able to optimizeoperations owing to technical and institutional

constraints as under

Capacity constraint

As per the latest statistics (2009-10), around 8 o the 12

major ports are operating at more than optimum range

o 70-75 per cent utilisation. Further, our o 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 or aster development

o port projects to ensure smooth fow o traded goods

& growth o EXIM trade.

Inefcient cargo handling & low productivity

A study placed in the Parliament in Feb 2010 by

Ports: An Overview

423.57519.31 561.09

569.90

150.12

206.38

288.80 300.00

0.00

200.00

400.00

600.00

800.00

1000.00

2005-06 2007-08 2009-10 2010-11

Gujarat, 41

Maharashtra, 55

Goa, 6

Daman & Diu, 2

Karnataka, 11

Kerala, 14

LakshadweepIslands, 10

Tamil Nadu, 18

Pondicherry, 1

Andhra Pradesh, 13

Orissa, 3

West Bengal, 2

Andaman & Nicobar Islands, 24

:


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the Comptroller and Auditor General o India (CAG)

highlighted that cargo handling services at ports were

inecient. A predominant number o berths did not

have the dedicated acilities necessary or the quick

handling o cargo. Around 55 per cent o 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.

Consequently, wide variations were observed in

eciency 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 ve days. In contrast,

the turnaround time at globally competing ports like

Singapore or Hong Kong is between our and six hours

Inadequate drats & poor connectivity with

other modes

Future shipping trends point towards larger vessels

with a minimum o 6000-8000 TEUs and a ew vessels

with 12000-14000 TEUs. These uture generation

vessels would require drats between 13 to 15.5 m.

Due to current drat restrictions, several Indian ports are

unable to handle larger vessels typically with more than

9.5 m and 12.5 m drat. This could lead to shipping

lines / large shippers moving to other ports. Thereore,

there is a need to rm up dredging plans and also

improve productivity through removal o constraints

like inadequate inrastructure, absence o seamless

connectivity with other modes, etc

Kolkata

Source: Indian Ports Association (IPA), Deloitte Analysis

Haldia Paradip Vizag Ennore Chennai Tuticorin Cochin NMPT MPT MBPT JNPT Kandla

Traffic 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

Capacity 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

Utilization (%) 64 71 75 105 67 86 100 57 80 132 110 95 93

0

20

40

60

80

100

120

140

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

%C

apacityUtilization

MillionTonnes

Capacity Utilization at major ports



Cumbersome institutional arrangements

& other issues

Institutional and regulatory arrangements need to

be reviewed to ensure speedy development o ports.

Similarly, the procedure regarding environmental

clearances needs to be rationalized. Other issues acing

Indian ports relate to high cost structures, dierent

tari setting rameworks or major & non-major ports,

port security, land acquisition, etc. Ministry o Shipping

is taking various steps to address the aorementioned

problems. It has been quite active during the recent ew

years in promoting the development o Ports, Shipping

and Logistics sector in India.

From time to time it has issued various documents

and contributed research in the eld o maritime

development. The recently published Maritime

Agenda 2020 is one such important document. It is a

perspective plan o the Ministry or this decade which

shall act as a roadmap or the Government agencies

or development o maritime sector in India.MaritimeAgenda 2010-2020 replaces the current $30-billion

National Maritime Development Program, which was

launched in 2007 and slated to end in March 2012.

A brie summary o the Maritime Agenda summarizing

the goals to be achieved by year 2020 is detailed below:

Create Port capacity o 3200 M.T. or handling

about 2500 M.T. o cargo (This would necessitate an

investment o about Rs 3 lakhs crores)

Improve Port perormance on par with the best in

the world

Increase tonnage under the Indian fag as well asunder Indian control (This would need an investment

o about 1.20 lakh crores)

Increase Coastal shipping and acilitate hassle-ree

multimodal transport

Increase Indias share in global ship building to 5%

Promote use o the inland waterways or cargo

movement

Increase the strength o Indian seaarers to 9% o the

global strength by 2015 and sustain above this level

Policy on cargo support

Policy on liner co-operatives

Establishment o a reight exchange

Creation o an Ombudsman/Tribunals or

shipping matters

Forming an independent marine casualty cell

Establishing a P & I (Protection & Indemnity) club

in India

Opening o a second register

Review o TRANSCHART

Study o taxation systems

Introduction o passenger erry services between India

and neighbouring countries

SCI to have ambitious vessel acquisition plans and

increase container handling capacity

Promotion o building o Green ships

Grant o Inrastructure status to the

Shipbuilding industry

Developing cruise shipping and promote river cruises

Creation o a Shipping sectoral Innovation council

Establishing a National Maritime Museum

Enactment o the Shipping Trade Practices Act

Bilateral maritime agreements with selected countries/ regions or mutual benet

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 x taris but also perorm the role o a regulator.

A bill has been prepared titled the Drat Port Regulatory

Authority Bill, 2011 or the creation o this authority.

Proposed MPRA will have under its jurisdiction, the

power to regulate rates and monitor the perormance

standards o port acilities and services. A synopsis o thebill has been presented in the section related to policies

in this background paper.

Another initiative being undertaken by Ministry o

Shipping is establishing maritime boards or various

states. States like Goa, Orissa, Kerala, Karnataka,

and Andhra Pradesh have shown interest in creating

Maritime Boards or their respective states which would

enable aster decision making, aster implementation

o developmental projects and promote the respective

states as destinations or maritime investment.


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The Ministry o Shipping and Directorate General o

Shipping revise various rules / regulations meant or

the promotion o the industry on a regular basis, in

accordance with the international standards. One o

the unctions o the Ministry o Shipping is to address

the issues arising in the port sector and to acilitate the

maritime development. Accordingly, various policies and

Acts are brought into existence to regulate the players in

the respective elds and protect the users o the acilities

rom unair trade practices.

The table below provides a glimpse o the several acts /

policies applicable to the Indian Maritime Industry:

Acts / policies applicable to the Indian Maritime Industry

Indian Ports Act, 1908

Enactment relating to ports and port charges. Provides or rules or the saety

o shipping and conservation o ports.

NOTE: This Act and the Major Ports Trust Act, 1963 are proposed to be

merged into a single Act. The opinions o the industry have been called upon

the Drat Bill or the ormulation o such an Act.

Major Ports Trust Act, 1963

The Act makes provision or the constitution o port authorities or certain

major ports in India and to vest the administration, control and management

o such ports in such authorities and or matters connected therewith.

Merchant Shipping Act,

1958

Ensures ecient maintenance o Indian mercantile marine. It also covers

registration o Indian ships and control o pollution rom ships and o-shore

platorms. The Act also provides or the establishment and development o

National Shipping Board and Shipping Development Fund.

Maritime Zones Act, 1976An Act to provide or certain matters relating to the territorial waters,

continental shel, exclusive economic zone and other maritime zones o India.

GMB (prevention o fre

and accidents or saety

o workers and protection

o environment duringshipbreaking activities)

Regulation, 2000

Makes regulations or saety and welare o workers during cutting operation

in ship-breaking yards and environmental measures to be taken during ship

breaking activities.

Guidelines or ship breaking

activities by Central

Pollution Control Board

Aims at minimizing the pollution impact o ship breaking activities by xing

responsibility or several authorities o state government and ship breaking

association.

Cruise Shipping Policy

Established with the prime objective o boosting cruise shipping in India.

Some other areas under mandate consist strengthening o inter-sectoral

linkages, consolidating existing ports o call and exploring other ports and

suitable anchoring sites on the Indian coast etc.

Policies & Regulations



Policy or preventing private

sector monopoly in Major

Ports August, 2010

Ensures healthy competition and smooth award o the projects or capacity

augmentation at the Major Ports under Section 111 o the Major Port Trusts

Act, 1963 so as to avoid private sector monopoly in the Major Ports.

The primary guideline o the policy is given hereunder

I there is only one private terminal/berth operator in a port or a specic

cargo, the operator o that berth or his associates shall not be allowed to bidor the next terminal/berth or handling the same cargo in the same port

Cabotage Law

Cabotage Law in India is under the Merchant Shipping Act (section 4070

which bars oreign vessels rom carrying cargo between Indian ports;

exceptions are made i no suitable Indian vessel is available. The market

o shipping industry being highly volatile, such protection creates a certain

degree o stability or the Indian vessels.

The Land Policy or MajorPorts, 2010

Land Policy is one o the most signicant policy rameworks guiding the

overall unctioning o the Port Sector. In all major ports the world over, land

has been leveraged or optimizing the throughput and increasing revenueo ports. This policy is developed to provide guidance to the ports or the

optimum utilisation o the land.

The Drat Ports Bill, 2011

An Act to update and consolidate the law relating to Ports to meet the current

requirements and to make provision or the constitution o port authorities or

major ports in India to vest the administration, control and management o

such ports in such authorities and or all matters connected thereto.

Source: Presentation on "Review o Marine and Coastal Policies in India", By Dr. Sangeeta Sonak, Prajwal Pangam, Asha Giriyan.

The ollowing section provides highlights o some o the recently proposed Bills and policies.


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Drat Ports Bill 2011

The Ministry o Shipping elt the need to consolidate the

two separate acts existing or 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 Drat India Ports Bill, 2011 was posted on the

website o Ministry o Shipping on 21 July 2011.

Stakeholders were invited to give their comments on the

Bill so as to have a holistic approach while ormulating

one o the Landmark Act which would aect uture o

the Maritime Industry.

Objective o the exercise

The basic purpose behind this exercise was to:

Identiy and amend / remove the provisions in the

existing Statute that were redundant

Identiy the changes that are required to be done in

the existing act and new provisions i any to be made

that would be in tune with the liberalization o the

economy, and;

Examine the possibility o consolidating the various

statutes into one single statute / act.

Subsequently, ater many other studies and

recommendations rom various committees, it was

decided to drat 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 o the Departments o Major Ports, Overriding

powers o Central Govt. in respect o port limits etc. The

enactment o 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 ollowing section gives the overall structure o the

Drat Indian Ports Bill, 2011.

Draft Indian Ports Bill, 2011

No provisions of the act shall be applicable to the following:

Any vessel belonging to or in the service o the Central Government or a State Government or to any vessel o war belonging to

any sovereign country, and used or the time being, only on Government non-commercial services.

Part A

The ollowing chapters are included

under the Part A:

1. Preliminary

2. Powers o Government

3. Port ofcials and their powers and

duties

4. Works and services to be provided atPorts

5. The Saety o shipping and the

Conservator o Ports

6. Port dues, ees and other charges

7. Imposition and recovery o rates at

ports

8. Hoisting Signals

9. Supplemental Provisions

Applicable to:

Allports

Allsuchpartsofthenavigablerivers

or channels leading to the ports as

notifed under either The Indian Ports

Act, 1908 or The Major Port TrustsAct, 1963

Part B


under the Part B:

PART I:

10. Vesting o Ownership, Control and

Management o Major Ports

11. Penalties

12. MiscellaneousPART II:

13. Special provisions or constitution,

working and other aspects o the

Board o Trustees

14. Borrowing Powers o Board o

Trustees

15. Revenue & Expenditure

16. Supervision and Control o Central

Government

Applicable to:

Exclusively to Major Ports

Part C


under the Part C:

17.Provisions with respect to penalties

Applicable to:

Allports

Allsuchpartsofthenavigablerivers

or channels leading to the ports as

notifed under either The Indian Ports

Act, 1908 or The Major Port Trusts

Act, 1963



Overall structure o the Drat Ports Bill, 2011

The Drat Ports bill is a comprehensive Bill containing

the provisions including amendments made by the

government declared by the way o notication in the

Ocial Gazette in relation to any o the two acts

namely The Indian Ports Act, 1908 & the Major Ports

Trust Act, 1963.

It denes the terms contained in both the acts. It is

divided into three parts which are urther 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 o the Bill

and its provisions are applicable only to the Major Ports.

The Government may urther extend this act to any

navigable rivers and channels leading to the port.

The Bill enables appointment o a Conservator or

each port who shall act with the power to ensure

the compliance o all the regulations relating to the

operations o ports or aecting them and who isauthorized to carry proceedings or oences and to levy

penalties on the concerned oender. While the previous

Act set guidelines as to who should be appointed to the

post, the new Drat Bill states The Government may

prescribe qualications, responsibilities and conditions o

appointment and removal in respect o the Conservator

The Drat Bill also increases the amounts o penalties to

be levied on the person ound guilty o oence. These

penalties include nes o various amounts and also

various terms o imprisonment, based on the type and

seriousness o the oence.

Like the current act this Bill also builds up the power

and responsibility matrix or the protection o ports,

creeks, backwaters, estuaries, sea locks, development

o waterront, port entry and navigation channels,

protection and preservation o marine environment etc.

The Bill vests majority o powers and responsibilities on

Port Authority which is dened as thus:

Port authority in relation to a Port means an authority

on whom the ownership, control and management

o a port is transerred or vested or the time being or

notifed by the Government under this Act or any other

Act or the time being in orce.

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 rame the maximum ceiling rates or 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 urnished by a notication in the

Ocial Gazette:

Activities o container reight station

Tolling o Roads

Public Utilities

Internal Transport

Parking

Labour Supply

Corporatization clause under the Bill:The Drat Indian Ports Bill 2011, by the virtue o Chapter

X under Part B (relating to only major ports) empowers

the Central Government to make regulations or the

manner and mode in which the ownership, control

and management o 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 or the port authoritywould be treated as those o 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 transerred to the

Central Government.

The non-recurring expenditure made by the government

or assisting the setting up o such company, within the

period specied 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 o interest

shall be decided and revised by the government rom

time to time.


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Constitution o the Board o Trustees:

The Constitution o the Board o trustees has been modied under the proposed Bill. The ollowing is the constitution

o the Board which is proposed under the Bill.

Proposed constitution o the Board o Trustees under the Drat Ports Bill 2011

Sr. Position / Authority Number Comments / remarks

1 Chairperson 1 Appointed by the Central Government

2 Deputy Chairperson 1 Appointed by the Central Government

3 16 other members rom the list below: 16

Appointed by the Central Government rom

amongst the given categories. The Board

could comprise o one or more rom the listed

categories, subject to the maximum o 16

members and also maintaining the minimum 4

number o members rom the Other Interests

group.

Note: NS = Not specied

Ministry o Railways NS

Central Government NS

DG (Shipping) NS

Indian Navy NS

Coast Guard NS

State Government NS

Department o Revenue NS

Labour employed in Port NS

Major users & Terminal operators NS

Shipowners/agents NS

Exporters / Importers NS

Other InterestsMinimum 4

in number

4 Total 18

The total number that would constitute a Board

o Trustees shall be 18 members including the

Chairperson and the Dy. Chairperson.

Source: Drat Indian Ports Bill 2011, Deloitte Analysis



Trustees shall be disqualifed i they all under any o

the ollowing category:

Are convicteTd and sentenced to imprisonment

or an oence which, in the opinion o the Central

Government, involves moral turpitude; or

Are un-discharged Insolvent

Are Person o Unsound Mind

Have applied or insolvency and application is pending

Have deaulted 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 disqualied by the court

Who has acted against the interest o the Board

Persons who have completed 65 years o age

No business should be transacted at any o the Board

Meetings unless at least ve trustees including the

Chairperson and Deputy Chairperson are present

throughout the proceedings o the meeting.


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There are supposed to be many eatures in the

proposed enactment which will be welcomed by

the industry. For example the xation o rates by anyauthority or services rendered by BOT operators has

been removed, specic interests have been

dened to minimize the entry o the persons

who dont have much knowledge / expertise

and even interests in the Maritime sector

in the Board o Trustees.

The industry however is o the view that rather than just

the compilation o the two acts i some changes in the

existing acts would have been made then that would

also have served the purpose better.

#1: Food or thought

What is the major contribution o this Bil l other than enabling Corporatization?

Which other aspects o port industry should the Bill have touched / changed?

Term o Ofce o Trustees under the Drat Ports Bill 2011

Position / Authority Term

Chair Person & Deputy Chair Person As long as desired by the Central Government

Other Trustees For a period o 3 years or o the age 65 years whichever is

earlier subject to the other provisions o the act.

Provided where such a Trustee is appointed any time ater 1st

April o the year o the constitution o the Board and his term

shall expire on 31st March, the date when the term o other

Trustees also expires.

A person appointed by virtue o an oce to be a Trustee shall,

until the Central Government by notication in the Ocial

Gazette otherwise directs, continue to be a Trustee so long as

he continues to hold that oce

Reappointment o the Trustees Any trustee, unless he becomes disqualied by the provisions

o the act, is eligible or reelected as the trustee, subject tothe maximum o 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: Drat Indian Ports Bill 2011, Deloitte Analysis



Drat Ports Regulatory AuthorityBill, 2011

The rst drat o Ports Regulatory Authority Bill 2011

was issued by the Ministry o Shipping in March 2011 to

invite comments rom the stake holders. The ollowing is

a brie overview o the bill:

The purpose o the Ports Regulatory Authority Act

2011 is to provide or the establishment o Regulatory

Authorities to regulate rates or the acilities and services

provided at the ports and to monitor the perormancestandards o port acilities and services.

Constitution o 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 o

property, both moveable and immoveable and to

contract including sue and be sued.

Functions o the Regulatory Authority

(1) Subject to the provisions o this Act, the Major

Ports Regulatory Authority shall have jurisdiction

over all the major ports and a State Port RegulatoryAuthority shall have jurisdiction over all the

ports, other than major ports, located within the

concerned state.

(2) The Appropriate Regulatory Authority shall discharge

the ollowing unctions, namely:

(a) To ormulate and notiy tari guidelines, rom

time to time, prescribing the methodology,

approach and other conditions governing

setting o rates or dierent acilities and services

by the Port Authorities and Private Operators

unctioning therein.

(b) Laying down the perormance norms and

standards o quality, continuity and reliability o

services to be provided by the Port Authorities

and Private Operators and monitor actual

perormance and services provided with a view

to secure compliance o the prescribed norms

and standards by the Port Authorities and

Private Operators.

(c) To discharge such other unctions as may be

assigned under this Act.

(3) The appropriate Regulatory Authority shall advise the

appropriate Government on all or any o the ollowing

matters, namely:-

(a) Promotion o eciency and competition in the

Port Sector

(b) Promotion o investment in the Port Sector

(c) Any other matter reerred by the concerned

appropriate Government

(4) (a) The Major Ports Regulatory Authority shall

speciy the common principles, approach and

methodology to be adopted by the State Ports

Regulatory Authorities in their tari guidelines

and prescribe perormance standards.

(b) The Major Ports Regulatory Authority shall

urnish necessary clarications on implementation

o the tari guidelines and enorcement o

perormance standards based on a reerence

made to it by a State Ports Regulatory Authority.

Coordination Forum

(1) The Central Government shall constitute a Forum

o Regulators consisting o the Chairperson o the

Major Ports Regulatory Authority and Chairpersons

o the State Ports Regulatory Authorities.

(2) The Chairperson o the Major Ports Regulatory

Authority shall be the Chairperson o the Forum o

regulators reerred to in sub-section (1).

(3) The oce o the Major Ports Regulatory Authority

shall act as the secretariat o the Forum.

(4) The Forum shall meet at least once in six months to

discuss and evolve suitable approaches to raming oTari Guidelines and setting Perormance Standards

and issues arising rom implementation o these

besides any other common matter relevant to the

ecient discharge o the unctions assigned to the

Regulatory Authorities under this Act.

#2: Food or thought

Is this an attempt o the Centre to acquire control over state government ports?

The industry had some issues with TAMP and its cost plus tari setting process. Does this bill addressthese issues?


18/6818

Drat Captive Port Policy, 2011

The Drat Captive Port Policy is also termed as Captive

User Policy or award o ports land / waterront on

Nomination Basis. This policy has been ormulated or

empowering the major ports and making them more

competitive to attract large and dedicated cargo.

The policy recommends the ways and procedures or

handing over the water ront or land or other port

acilities to the private / public enterprise on nomination

basis or a maximum period o 30 years or development

o port related acilities.

The Sanctioning Authority or such captive acility

development is an Empowered Committee consisting

o the ollowing members: (i) Secretary, Ministry o

Shipping, (ii) Secretary, Planning Commission (iii)

Secretary, Department o Economic Aairs (iv) Secretary,

Department o Expenditure and (v) AS &FA (Ministry o

Shipping)- Member Secretary, (vi) Joint Secretary (Ports),

(vii) Chairman Port Trust and (viii) Development Adviser

(Ports) shall be co-opted.

The steps or award o development project or the

proposed captive acility is depicted in fowchart below:

In the EOI notice it must be indicated that Minimum

**Guaranteed Throughput (MGT) should be at least

50% o the capacity o the project within two years o

Commercial Operation. In case more than one eligible

response is received, bids will be invited rom eligible

applicants or quoting MGT (in MT or each year) and

revenue payable to the port or the corresponding year

or the 30 year concession period.

#The ormula or evaluation o 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% o

(Wharage + Handling Charges) as per schedule o

rates.

(ii) In case o no competition or the proposed captive

acility or i the application is rom the existing captive

acility user or expansion o operations, the applicant

should be awarded the project development on the

basis o highest o the ollowing:

(a) 50% o (Wharage +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 theentrepreneur

I the actual trac handled is less than 90% o the MGT,

as oered in the bid, continuously or two nancial

years, the port shall be entitled to terminate the

Concession ater making payment equal to Depreciated

value o Estimated Cost o Project OR Investment made

by the private party whichever is lower

The Port Authority

receives request to allow

development of facility for

captive usage

The authorities check the

availability of the facility for

captive development

The party offering

maximum NPV should be

awarded the development

of facility

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 bids so received shall

then be evaluated as per the

prescribed formula below #



Key provisions o the proposed Drat Captive Port Policy, 2011

ParticularsResponsible

Captive User Port

Construction costs

Repair & Maintenance, Management costs

Compliance with Navigational saety during operations

Compliance with MARPOL, ISPS code etc.

In case o non-utilisation o captive acilities, right to approve the use o

acility to another user (on nomination by captive user)

Right to assign the use o acilit ies to other users (on sel-nomination by Ports)

Duty o collection o port charges rom such other users (i sel-nominated

by port)

Industry views:

The views o industry are mixed as ar as the captive

port policy is concerned. While there are joyous

exclamations, there also exist conficts o interest in the

industry which may make the government rethink about

the policy. Some o the major issues identied with the

policy are:

The policy would negatively aect the nearby

developed terminals on BOT basis. I a private

player constructs his own captive berth near to its

own terminals, then it would denitely aect theoperations o the private terminal constructed on BOT

and thereby even render the acility unviable.

The proposed policy is in direct contradiction to the

BOT policy wherein the most ecient and eective

bid gets selected rom the shortlisted to develop and

handle a port acility. There is also an allegation that a

particular party may get avoured treatment.

There seems to be vagueness in the denition o

port-based industry as it does not include the other

inrastructure and transport based industries which are

dependent on the port acilities or their operations.

The captive port policy charges the operator, a royalty

on only Wharage and Handling charges while theBOT operators pay royalty on gross revenue.

#3: Food or thought

Is this policy more vulnerable to abuse at the hands o bureaucracy and business men?

Would the captive policy discourage big industrial groups rom participating in PPP bids and encourage them to

strategize capacity creation through this non-competitive route?


20/68



managements o major ports reedom to lease out landbelow market price. As reported in sections o the press,

the move had been triggered due to unearthing o a

land lease scam at the Kandla Port Trust, which could

have caused a loss o up to Rs. 2 lakh crore to the public

exchequer. In the said scandal, Kandla Port authorities

had allegedly leased out 16,000 acre o prime land to

salt manuacturers at a paltry sum o Rs. 149 an acre as

rent in 2004, which was way below the market price.

Kandla Port has land area o 2.2 lakh acre, maximum

held by any single port in the world.

The new Land Policy or Major Ports 2010, requires landin custom-bound areas to be leased out either on scale

o rates approved by competent authority or land

rate in adjacent areas o the concerned port. Since, it is

dicult to ascertain whether the rate so determined is

current market value or not the minister seems to avour

a transparent auction process to be ollowed to know

the market rate o land in every case.

#4: Food or thought

Will this policy result in centralisation / decentralisation o land allotment power?

Will this enable superior utilisation o port land?

Will it protect ports nancial interest?

Will this revenue have a tari implication?


22/6822

PPP in Ports

It is known that all Indian Ports are governed directly

or indirectly by various laws and regulations passed

rom time to time by the Central Government o India

in accordance with the Ministry o Shipping. The

Government has been encouraging private sector

participation in port development since1996. The

major areas which have been thrown open or private

investment, mainly on Build, Operate and Transer

(BOT) basis with revenue sharing mechanism include

construction o cargo handling berths, container

terminals and warehousing acilities, installation o cargo

handling equipment, construction o dry-docks and

ship repair acilities, etc. The preerred route or private

sector participation is through open competitive bidding

Additionally FDIs upto 100% is permitted or

construction and maintenance o ports. The

Government has also standardized the PPP process

by foating the model RFQ & RFP documents to bring

uniormity and transparency in the process. Tari settingmechanism or PPP projects have also been modied to

herald upront tari xation beore the projects are

bid out.

Bringing the public and private resources together or

the development o ports and related inrastructure

acilities like rail-road connectivity to ports, warehousing

and storage acilities etc. was an initiative led by the

state o Gujarat. The success o the PPP model in

the Gujarat ports sector was immediately welcomed

by other coastal states thus augmenting the use o

PPP model in the ports. Public-Private model o Port

development has signicant advantages over the

traditional model. Some o them are increase in the

pace o the development o project, quick decision

making, better operational and technological aspects,

lesser legal hassles due to the involvement o the

government etc.

There are signicant opportunities available to ports

authorities in outsourcing which involves transer o

specic port activities rom the public sector to the

private sector while permitting the port to unction as

an operating port. The port reduces operating costs

and increases eciency by utilizing private companies

to supply labor and equipment and to perorm specic

services like pilotage, towage, anchorage,

bunkering, etc.

Status o 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 o these projects as well as the likely date o

completion as presented by Ministry o Shipping in the

Rajya Sabha on 4th o August, 2011 is given here under.



Status o Port Projects as presented at Rajya Sabha on 4 August 2011

Sr. ProjectName o Dept. /

Agency

Estd. Cost

(in Cr.)Structure Date o Award

Likely date o

completion

1Development o Container Terminal at

Ennore.Ennore Port 1407 BOT 13 August 2010 Feb, 2014

2 LNG Re-gasication Terminal at Cochin. Cochin Port 3500 Captive 13 March 2009 March, 2012

3

Construction o Oshore Container

Berths and Development o terminal

on BOT basis at Mumbai Harbour at

Mumbai Port

Mumbai Port

1460.52

(I.R 445, Pvt

Inst.1016) Rs.

1460.52

BOT 1 April 2009 Sep. 2012

4Construction o Captive Jetty or

handling Coal by M/s. NPCL at NMPT

New Mangalore

Port230 Captive 9 May 2008 March, 2011

5Construction o Coal Berth at NBW or

NLC TNEB at TuticorinVOC Port, Tuticorin

49.50

(Captive)Captive January 2010 Nov,2011

6Construction o North Cargo Berth-II at

TuticornVOC Port, Tuticorin 332.16 BOT 12 August 2010 Oct, 2012

7Construction o Deep Drat Iron Ore

Berth at Paradip.Paradip Port 591.35 BOT 1 July 2009 July 2013

8Construction o Deep Drat Coal Berth

at Paradip.Paradip Port 479.01 BOT 21 August 2009 July 2013

9

Multi-purpose Berth at Paradip

to Handle Clean Cargo including

Containers

Paradip Port 387.31 BOT 5 July 2010 July 2013

10Setting up o Mechanised Iron OreHandling Facilities at Berth No- 14 at

New Mangalore

New Mangalore

Port296.03 BOT 23 September 2009 Oct. 2011

11Development o Coal Handling Teminal

at Berth no- 7 at MormugaoMormugao Port

252 (406 as

per Financing

Plan)

BOT 7 August 2009 May 2013

12

Development o 13th Berth other than

liquid and container cargo berth) at

Kandla.

Kandla Port 188 BOT 19 September 2009 March, 2013

13

Development o 15th multipurpose

cargo berth at Kandla. Kandla Port 188.87 BOT 7 December 2010 July, 2013

14Development o 16th multipurpose

cargo berth at Kandla.Kandla Port 188.87 BOT 7 December 2010 July, 2013


24/6824

Sr. ProjectName o Dept. /

Agency

Estd. Cost

(in Cr.)Structure Date o Award

Likely date o

completion

15Setting up o Captive Barge Jetty at Old

Kandla (IFFCO)Kandla Port 27.00 Captive 17 February 2011 Aug,2013

16

Development o Western quay(WQ-6)

in the northern arm o Inner harbour oVPT or handling Dry bulk cargo

at Vizag

Visakhapatnam Port 114.50 BOT 28 December 2009 Dec. 2011

17

Development o EQ-10 berth in Inner

Harbour or handling liquid cargo at

Vizag

Visakhapatnam Port 55.38 BOT 2 March 2010 Aug. 2012

18

Mechanised Coal handling acilities at

General cum Cargo Berth(GCB) in the

Outer Harbour at Vizag

Visakhapatnam Port 444.10 BOT 1 March 2010 Dec, 2012

19

Development o EQ-1 by replacement

o Equity EQ-1 and Part o EQ-2 in

Inner Harbour to Handle Steam Coal at

Visakhapatnam Port

Visakhapatnam Port 323.18 BOT 19 March 2011

Aug. 2013

(not rmed

depending

upon signing

o CA)

20

Development o EQ-1A on South side

o EQ-1 or Handling Thermal Coal

and Stem Coal in the inner harbour o

Visakhapatnam Port

Visakhapatnam Port 313.39 BOT 19 March 2011 - do -

Total 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 o Rs. 40,647 crore

which is less than hal o the original projection o 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

o the Plan. This is because very ew PPP projects have

been awarded by the respective Port Trusts in the rst

two years o the Eleventh Plan. Ministry o Shipping has

revised the original target o 545 MMT o additionalcapacity or the major ports downwards and now

proposes to develop only 48 projects with a capacity o

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 o the total private investment o Rs.32,517

crore projected or the Eleventh Plan, the share o

private investment in the state sector is Rs. 26,370 crore.

The ollowing table gives us an overview o the

actual investments in the ports sector in the

11th Five Year plan:



Sector

Ports

X Plan

(Actual)

XI Plan

(Original

projections

2007-08

(Actual)

2008-09

(Actual)

2009-10 (RE/

BE/ Proj.)

2010-11

(BE/ Proj.)

2011-12

(Proj.)

XI Plan

(Revised Proj.)

Centre4051

(17.62)

29,889

(33.97)831 1040 1076 1152 1268

5366

(13.20)

States619

(2.69)

3627

(4.12) 223 375 654 719 7912763

(6.80)

Private18327

(79.69)

54479

(61.91)3888 5733 6593 7582 8720

32517

(80.00)

Total 22997 87995 4942 7148 8323 9454 10779 40647

Note: Figures in brackets indicate sectoral shares (as %) compared to total investment.

Source: Investment in Inrastructure during the 11 th Five year Plan, Secretariat or Inrastructure, GOI

Currently the ailure o PPPs in port projects in India

is at the outset start up stage itsel. 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 acilities.

#5: Food or thought

What changes, to the current ramework and approach to PPP, are required to enable meet the targets or

capacity creation through PPP in the ports sector?

Is government leaning excessively on PPP or creating capacity and in the process conusing the discussion

around its responsibility to deliver the needed inrastructure to the country?

Will the high revenue shares oered by bidders to win PPP concessions likely to drive up the port service costs

to Industry and trade? Is there hence a case or revisiting the award criteria or PPP projects?


26/6826

Demand-Supply scenario o Ports

Trafc projections or Indian ports as given in Maritime agenda 2010

Ports

Projections CAGR between 2009-10 & (in %)

2009-10 2011-12 2016-17 2019-20 2011-12 2016-17 2019-20

Major Ports 561.09 629.64 1031.5 1214.82 5.93 9.09 8.03

Non-major Ports 288.8 402.5 987.81 1280.13 18.05 19.21 16.06

Overall 849.89 1032.14 2019.31 2494.95 10.20 13.16 11.37

Source: Maritime Agenda 2020, Deloitte Analysis

Capacity Addition plans o Indian ports

Ports

Projections CAGR between 2009-10 & (in %)

2009-10 2011-12 2016-17 2019-20 2011-12 2016-17 2019-20

Major Ports 616.73 741.36 1328.26 1459.53 9.64 11.58 9.00

Non-major

Ports346.31 498.68 1263.86 1670.51 20 20.31 17.04

Overall 963.04 1240.04 2592.12 3130.04 13.47 15.19 18.34

Source: Maritime Agenda 2020

Indian ports have ormulated ambitious plans or

development o new ports, augmentation o existing

acilities, mechanisation o ports, purchasing o modern

cargo handling equipments and improvement in logistics

to meet the challenges emerging rom the anticipated

growth in trade.

The capacity at 13 major ports is likely to increase

to 1459.53 million tonnes by 2020 rom the level o

616.73 Million Tonnes in 2009-10. The capacity at

non-major ports is expected to increase by 2020 to

1660.02 Million Tonnes rom the level o

346.31 Million Tonnes in 2009-10. Thus, a surplus

capacity o above 25% over the projected demand is

what is targeted by the Indian ports. This will enable

the ports to provide berthing acilities on arrival o the

ships, thus achieving zero pre-berthing detention or

the vessels. The proposed investment during the next

ten years is expected to be Rs. 2.77 lakh crore - 1.09

lakh crore or Major Ports and Rs.1.68 lakh crore or

non-major ports. The table below depicts the estimated

trac projections and capacity expansion plans.



90.98%

84.93%

77.66%

83.23%

70.00%

75.00%

80.00%

85.00%

90.00%

95.00%

20 09- 10 20 11- 12 2 016 -17 2 019 -2 0

% Capacity utilization by Major Ports

83.39%

80.71%

78.16%

76.63%

72.00%

74.00%

76.00%

78.00%

80.00%

82.00%

84.00%

20 09- 10 20 11 -12 2 016 -17 2 01 9- 20

% Capacity utilization by Non-major ports

#6: Food or thought

When it is generally accepted that there is signicant need or port capacity augmentation, is poor easibility

a tenable reason or poor capacity creation?

As observed rom the above table, Indian ports have planned adequately to meet the projected increased trac. The

graph below depicts the planned percentage utilisation o the ports as is derived rom both the tables above:


28/6828

Corporatization o Ports

Corporatization o ports is about changing the status

o Major ports rom Port Trusts to Port Companies with

Limited Liability and getting registered as a corporate

body so as to unction more eciently.

The idea o 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 or corporatization,

the rst corporatized port o India is Ennore Port.

Currently JNPT is expected to be corporatized ollowed

by the other two ports ater analyzing the success o

corporatization.

The drat Indian Ports Bill, 2011, posted on the website

o the shipping ministry, provides the ollowing enabler:

It shall be open to the central government at its

discretion with eect rom such dates as notifed in the

ofcial gazette, rom time to time, to divest ownership,

control and management o a major port rom the

board o trustees and vest in a company, whether in a

government company or a public limited company,

The Bill,, thus seeks to enable the conversion o Union

Govt. controlled ports into corporate entities.

The industry is divided in its views o corporatization o

ports. Some sections o the industry such as the port

users, the management etc. are (in general) in avour

o the corporatization while other section namely the

workers and other parties dier in their opinion and say

that the corporatization is just another method o the

bourgeois to seek ways and avenues to expand its ambit

o exploitation and nd new avenues to raise the rateo prot.

Amongst the varied views o the industry let us take a

look at the anticipated advantages and disadvantages o

the Corporatization.

Advantages o Corporatization:

Corporatization o ports will bring with them a lot o

advantages to the maritime community as a whole.

Some o 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 o operations in their Annual reports.

The Directors o the company are responsible or the

unctioning o the company. Further the Income Tax

Act and the other laws also require transparency in

the aairs o the company. Raising o nances and

issuance o debt instruments also require various

rules and regulations to be ollowed. Due to all these

the Company gets regulated to be transparent in its

aairs. Superior corporate governance presumably

ensues.

Acquisition o immovable property: Currently

the process under the Act is that the Board o

Trustees have to request the acquisition o the

immovable assets such as buildings etc. rom the

Central Government which ater due consideration

will start the process or the same. This process is

rather cumbersome and involves a lot o time and

paper procedures. Corporatisation o the port trusts

will remove this process and instead an appropriate

majority decision in the meetings would be sucient

to start the acquisition process.

Adoption o corporate planning practices:

Several practices like nancial risk management, yearly

business plans and the perormance measurement,

target oriented planning, more ocus on costreduction and protability improvement measures etc

are some o the corporate planning practices which

expectedly will be applied in the daily operations

o the ports resulting into greater operational and

nancial discipline.

Application o Human Resources Development

(HRD) planning: We have discussed in the previous

sections and it has been known rom quite some

time how the need or the development o skilled

manpower and technologically updated workorce will

drive the competition. To cater to the requirements

o developing the manpower adequate assessmento 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 unctions o the

HR Department which will be more ocused than they

are now.

Career planning and management development are

important elements in a port modernization strategy.

Many ports have ailed 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

Eorts to improve the administrative environment

and perormance should include the rational use o

computer applications and the application o modern



communication technologies. The use o technology,

computer applications and Management Inormation

Systems (MIS) is enhanced. Even in the Public Sector

Units, the bare minimum education relating to the

particular industry is maintained.

Development o Electronic Data Interchange (EDI) and

inormation and communication technology

Disadvantages or Corporatization

The move has created a lot o discontent among

the port workers. It is seen as the rst step or

privatization. They see the changing institutional

structure o the port as the greater involvement o

the private sector in exploitation and nancing o port

acilities, terminals and services.

The undue involvement o the private and the oreign

investors in managing the Indian Ports will lead to

threatening o the internal security. There are two

threats to be considered under this issue. The rst

one is the threat o terrorist groups and second is the

attitude o the private companies towards the saetyo the ports and port workers.

The private companies tend to use machineries &

other expensive items beyond their replaceable lie

spans, even i these damage the environment o the

port or the health o workers. Government controlled

management have their duties and are bound to

ollow the laws set or 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 suer.

There are various discussions on the implementation

o the corporatization projects. Several Labor unions

and welare associations have suggested measures

to strengthen the current institutional structure o

the port trusts so that there is no need to convert

them into companies. Suggestions like (i) Allocation

o ull unctional and operational autonomy to the

port trusts, (ii) The Chairman and Executive body o

the port trust having deep experience and sucient

knowledge o the unctioning o the ports, (iii)

Empowering the ports to dene the tari regimes

themselves, (iv) Relaxation o Cabotage law or someacilities etc. have been submitted to government

or consideration.

#7: Food or thought

Can corporatisation objectives be achieved dierently? I so, why have they not been achieved so ar?

Is corporatisation a preclude to privatisation?

Is corporatisation o port trusts desirable rom port sector reorm perspective?

How should labour issues be dealt with in this context?


30/6830

Financing Port Projects

The Maritime Agenda 2020 lays down investment

plans worth Rs. 167,931 crores, to create an additional

capacity o 1293.56 million tonnes, to be made over the

decade o 2010 to 2020. Largely, the ollowing areas o

investment have been identied

Investment areas in the maritime sector as per

Maritime Agenda 2020

A = Deepening o channel/berths

B = Construction/reconstruction o berths/jetties etc.

C = Procurement o equipment etc.

D = Rail/road connectivity works

E = Other works

O this, 20% investment is to be made by the end o

nancial year 2012, 57% between 2012 and 2017 and

the remaining 23% ater 2017.

The Maritime Agenda has identied sources o unding

or the planned investments as ollows

A = Deepening o channel/berths

B = Construction/reconstruction o berths/jetties etc.

C = Procurement o 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%) o the planned

investments is planned to be pulled in rom the private

sector. This section, determines the extent to which

investment in the ports sector is lucrative or private

players and tries to throw light on the ways and means

o making investment.

Foreign Direct Investments

100% FDI is allowed in the ports sector in India. Taking

advantage o this, several global giants including

Maersk, Dubai Ports World, P & O ports and PSA

Singapore operate terminals on Build-Operate-Transer

basis across several major ports o the country includingJNPT, Mumbai, Chennai, Cochin, Vishakhapatnam

and Tuticorin. The countrys largest FDI in this sector

is expected to fow in when PSA Singapore, which has

entered into a consortium with India based ABG Ports

Private Limited, invests Rs. 2000 crore or the ourth

container terminal at JNPT.

Public Private Partnerships

Potential investors generally ollow either o the

ollowing structures in the PPP model

Landlord model: The government builds all the inra-

structure nanced by public unds and then leases ito to the private concessionaire who invests in and

operates the terminal.

11,468.40

124,782.43

10,276.18

9,338.56

12,065.27

A

B

C

D

E

0%

10%

20%

30%

40%

50%

A B C D E

Private sector

External Borrowings & Others

Gross budgetary support

Internal Resources

Source: Maritime Agenda 2020, Deloitte Research



Joint venture model: The government takes a minority

stake in a JV entity, with the private party taking upa majority stake and management control. The JV

undertakes construction and operation o the port.

Private Service model: The government grants an all-

inclusive 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 rom case-

to-case. The choice must be made so as to arrive at an

optimal mix o public and private sector participation in

the project so as to maximise public value.

Initial Public Oers and Private Equities Several port promoters are choosing the IPO route or

getting unds or executing mega port projects. The IPO

o Gujarat Pipavav Port was oversubscribed 20 times and

got a listing premium o 20%. Private equity investors

invest in the startup ventures and then exit through the

IPO route and make substantial prots.

Other Sources o fnancing

Inrastructure bonds

In Budget 2011, the government has provided or issue

o tax-ree inrastructure bonds worth Rs. 30,000 crore

and o which Rs. 5,000 crore is reserved or the ports

sector. Indian ports would be raising bond nance or

the rst 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 o

bonds to und its development projects. Such bonds will

enable ports to raise nance at low interest rates andwill be attractive or the investors as well as they shall

enjoy tax benets.

Viability Gap unding (VGF)

In PPP projects, which have a long payback period with

low commercial returns are supported by VGF. The

Department o Economic Aairs announced the scheme,

particularly to support projects having high economic

returns and result in creation o substantial value or the

public. The Scheme provides nancial support in the

orm o grants, one time or deerred, to inrastructure

projects undertaken through public private partnerships

with a view to make them commercially viable. TheScheme provides total Viability Gap Funding up to 20%

o the total project cost. The Government or statutory

entity that owns the project may, i it so decides, provide

additional grants out o its budget up to urther 20% o

the total project cost.

Forming o High level committee on fnancing o

inrastructure projects

To evolve a policy responses to enable the fow o large

capital resources into inrastructure projects, review the

existing ramework and to make recommendations,

in November, 2010, the Government o Ind ia has

constituted a High Level Committee on Financing o

Inrastructure under the chairmanship o Shri Rakesh

Mohan, ormer Deputy Governor o the Reserve Bank

and ormer Secretary, Department o Economic Aairs.


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#8: Food or thought

What are the key challenges to enthusing private sector investment in the port sector?Can such planning, relying so enormously on private nancing, be depended upon to ructiy the target

inrastructure? What happens i private sector does not invest at the anticipated scale? Should the government

have a Plan B ready?

Given such emphasis on role o private sector on nancing inrastructure has the concept o inrastructure led

development been rendered hypothetical and irrelevant?

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 inrastructure sectors during the

Twelth Five Year Plan.

2. To identiy areas and activities to be nanced by the

government, public sector undertakings and the

private sector respectively.

3. To suggest ways to enable the requisite fows o

private investment in inrastructure including the

creation o a supportive investor-riendly environment.

4. Make recommendations on the role government

could play in developing the capital markets or

intermediating long term savings or investments

in inrastructure projects, including the ostering o

appropriate institutional arrangements.

5. Examine the role o international capital fows in

inrastructure nancing and development, assess the

nature o projects likely to receive such capital, and

consider how such nancing can be obtained, in a

sustainable manner.

6. Identiy any regulatory/ legal impediments

constraining private investment in inrastructure,

and make specic recommendations to acilitate

their removal.

The committee will unction through the Planning

Commission and the Inrastructure Development Finance

Company (IDFC) and will be based in New Delhi. The

tenure o the committee will be 18 months.



Inormation Technology in Ports

Ports can be termed as the points o convergence o

many trade centered activities. They are not only the

hubs o the cargo export-import but are at the center o

the most complex logistics networks.

Numerous goods like coal, bulk, dry bulk, iron ores,

ertilizers, ood grains etc. are stored and transported

across the country rom the ports. Thus ports infuence

both, Industrial and agricultural, industries. We can airly

say the ports have a great responsibility as they deal

with lot o money, lot o goods and a lot o people.

Functionally, the ports provide a wide gamut o services

right rom the movement o ships & cargoes by various

modes o transport till the compliance with various

customs procedures and clearances. Ecient allocation

o jetties, berths, allowing anchorage to ships, storage

o unloaded cargo to warehouses and recording and

maintenance o the details o personnel working or the

port etc. are some o the complex and time consuming

activities which are perormed by the port. Thus portsare required to coordinate, collate and disseminate a

huge amount o inormation that too with accuracy and

within the required time.

With the increase in the projected trac volume in the

ports more challenges lie ahead in terms o handling o

all the above mentioned activities. The question then

arises as to how to eciently provide all the services

so that they rival the global standards, and maintain

a smooth fow o inormation relating to the services

both at a time? One o the answers to these questions is

inclusion o the Inormation Technology in the ports.

The Ministry o Shipping has targeted the ollowing

developments or meeting these challenges:

Ports to use inormation technology or quality

perormance

Port Community System (PCS) to be ully integrated

with all stakeholders

Non-major ports also to have PCS

Introduction o modern security systems in the ports

including surveillance, CCTVs etc.

Regular review o saety systems in the ports

Vessel Trac Management Systems (VTMS) or all

ports handling EXIM cargo

Integration o e-modules on COC, CDC, RPS, INDOS,

SPFO etc or the benet o seaarers

Establishment o AIS network along the coast

Completion and operationalization o the VTS in the

Gul o Kutch

Establishment o Real Time Kinematic (RTK) system in

the Gul o Kutch and the Gul o Khambat

Indian ports are rapidly moving towards the Paperless

& Computerized status. Usage o integrated Port

Operation System and internet is also proposed. A quick

assessment o the current level o IT absorbed in the

industry (particularly ports) would be adequate at this

stage to gauge the implementation o the initiatives by

MoS.

Current status o IT/computerization at ports:

Under this section we have tried to give a glimpse

o the overall major IT initiatives undertaken by the

government. In a separate section we have also

brought out the salient eatures o the Port

Community System (PCS)

Vessel Trafc Management System (VTMS): Alreadyimplemented at JN Port, Kolkata Port, Chennai Port,

Cochin Port, New Mangalore Port, Mormugao Port, the

gul o Kutch (which provides coverage to Kandla port

and other non-major ports o Gujarat along the

gul 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 unitsetc. have been brought to use by the ports. Areas like

payroll processing, accounting unctions, Provident

Fund accounts, Income Tax and Materials Management

systems are some o the areas in which IT is integrated

or better perormance.

Surveillance System and Security system: To counter

the terrorism threat a number o 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 or example

to speed up the process o containers movement in

and out. Container scanning systems are the next

level o technological advancement proposed to be

implemented at ports.


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E-Commerce / Electronic Data Interchange (EDI):

Eective Data fow between various Port communities

/ stake holders orms the base to perorm unctions

eciently. Unless the data can be exchanged between

the various port users reely and with complete /

near complete accuracy, the optimal unctioning and

throughput improvement o the ports would not be

possible. EDI has thereore become an essential part o

the ecient operation o not only ports. As the name

suggests, through EDI (Electronic Data Interchange) the

ree fow o inormation has been made possible.

The Way Forward

Technological changes like creation o the Port

Community System (PCS) and implementation o various

IT initiatives are under proposal or the port sector. The

creation o Integrated Port Management System (IPMS)

by Gujarat Maritime Board (GMB), development o IT

Strategy & Program Management by JNPT etc. are some

noteworthy examples o the Indian ports upgrading

themselves to meet the technological challenges. Thenext level o IT in ports is the Port Level Automation and

the Port Community System (PCS).

Port Level Automation

In the Maritime Agenda the Ministry o Shipping has

identied the ollowing as steps to infuence the IT

changes.

Enterprise Resource Planning: ERP is a sotware system

that allows companies to integrate all their opera-

tions and resources and manage them through one

program. Each port should take up implementation othe ERP systems to. Cochin Port and Mormugao port

have already implemented the ERP systems and New

Mangalore Port is in the stage o implementation o the

same. Integration o all the unctional areas including

port operations would help the ports achieve

greater eciency.

Non-ERP solutions Land/Estate Management, Vigilance

systems, Legal systems, Employee Welare systems etc.

are proposed or implementation. Computerization o

Land Management processes is one o the areas on

which the Ministry has given more weightage

The automated/mechanized equipment or cargo /

container handling, weigh bridges etc. is to be linked

with centralized systems.

A comprehensive database creation is advised which

would contain o all the perormance eatures and data

o the port and thereby speed up the decision making

or the authorities.

Port Community System

To integrate the electronic fow o inormation between

the various stake holders like ports, shipping lines/

agents, surveyors, stevedores, banks, CFSs, governmentregulatory 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 o

time and money and improving the speed o services,

improve tracking o the shipment / service visibility. The

status updates o the tracking services would be reely

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.



Advantages o the PCS system:

PCS system is expected to provide global visibili ty and

access to central database through internet based

interaces as detailed below:

1. Availability o messaging system or the stakeholders.

The users can exchange messages in dierent

languages like XML, UNEDIFACT

2. A centralized database providing track & trace acilityto the stakeholders

3. Single electronic window or ports and stakeholders to

access and maintaining the central database.

4. E-commerce portal or the port community

5. Standardization o procedures and data availability

24 x 7

6. Online payment system or better and quick transer

o money or the services requested online on the

same portal

7. Eective and quick MIS reporting ensuring quick

decision making and cost saving

While we take quick steps towards growth, we must

also consider the act that or making the Balance

Sheets Green our actual Green Resources i.e.

(natural resources) should not be damaged. The climate

change, global warming and carbon ootprints etc. are

some o the issues that should be kept in mind while

developing measures to reduce cost and enhance

productivity/operational eectiveness o the ports.

#9: Food or thought

Given that we are a leading provider o inormation technology to the world, is the level o IT adoption at our

ports satisactory and refective o our countrys capability in this regards? Why / Why not?


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Part II:Indian Shipping Industry:

Progress, Issues and theWay Forward



Introduction

Shipping is a global industry and its prospects are closely

tied with the global economy. Any fuctuation 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

unaected by the changing macro -economic actors.

India has one o the largest feet and is ranked 16th in

the world. The total feet size o the Indian shipping

industry is 10 million GT. Still it orms a marginal share o

only 1% o the global feet. On the other hand, Indias

seaborne trade has been growing at a rate o over 12%

in the last 10 years. Consequently, the share o Indias

vessels in carrying countrys cargo has been declining

and is currently only around 8%.

Above statistics raises serious concerns about the

problems aced by the Indian shipping industry. One

o the main reasons or the declining share o Indias

feet is the tardy growth in its size. The Indian shipping

tonnage needs to grow at a much aster pace and

match the growth o countrys seaborne trade.

Government o India has envisaged an ambitious plan to

grow the Indian shipping feet rom 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 o 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 o 30% to both public and private

sector shipyards on all ship sales to oreign rms and on

ocean-going merchant vessels o more than 80 meters

length to domestic clients.

Owing to the subsidy, the order books o major

Indian shipyards grew to over Rs. 20,000 crore in the

period o 2002 to 2007 and Indias share in the global

shipbuilding industry grew rom a meagre 0.1% in 2002

to 1.3% in 2007 o the global order book. However,

post 2007 when the subsidy scheme came to an end,

Indias share in new orders placed has been declining

rom 1.3% in 2007 to 0.01% in 2009 and 0.13% in

2010. This is depicted in the ollowing chart:

The abolition o the subsidy scheme, according to

Shipyard Association o India, has adversely aected

new orders, as Indian vessels are now pitched

unavourably against those rom Korea, Japan and

China, where subsidies are as high as 40%. Shipbuilders

are intensely lobbying or extension o the scheme with

the Ministry.

The Maritime Agenda has identied capital investment

worth Rs. 10,785 crore to be made in the shipbuilding

and repair sector. I India is to tap the potential

opportunity and be one o the top players in the world

in shipbuilding, the subsidy scheme needs to be revisited

and extended or a sucient period o time.

The Maritime Agenda has estimated the present value

o amount

Documents

Shipping Background Paper