Vizhinjam way forward sep 7 2012

Vizhinjam Deep water Port Project

A New Vision and Way Forward

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Agenda

•  Revisi>ng the Market •  Core ABrac>ons of the Project •  Modifica>ons to the Master Plan •  Development Structure •  Expanded Government Support

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Market Study -‐ 1 •  Current study by Drewry/IFC under-‐es>mates the poten>al of the port •  Very conserva>ve projec>on of container transshipment volumes even aPer assuming deep rate discounts

•  Benefits of deep draP and strategic loca>on to act as single stop for India for 10,000+ TEU class ships not factored in

•  Vizhinjam has been posi>oned as “just another container port” and not a regional transshipment hub

•  Lessons of successful “transshipment-‐only” hubs, such as Salalah (99.5% transshipment) or Tanjung Pelapas (95.8%), not incorporated into market forecasts

•  Poten>al for cargo such as LNG and coal ignored, ci>ng the need to be a “green port”

•  Poten>al for deep water shipyard not factored in despite clear proposal from CSL

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Market Study -‐ 2 •  Further traffic drivers need to be taken into account:

•  Study cost-‐savings of using 10,000+ TEU vessels and use as a strategic driver for transshipment traffic; 18 m depth to be used as USP

•  Posi>on Vizhinjam as “the one stop in India” for 6th and 7th genera3on ships” – aBract a line such as APM or MSC that typically call at one transshipment hub per country with minimum devia>on from the shipping lanes

•  Kerala has a significant power deficit – poten>al for LNG terminal and LNG power plant

•  Shipyard and bunkering facility to be included in market study

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Market Study -‐ 3 •  Govt. of India has proposed revision of SEZ rules •  Single-‐sector/Port based SEZs will need only 40 hectares/100 acres as opposed to 100 hectares/250 acres

•  Mul>product SEZs will need only 250 hectares/625 acres as opposed to 1000 hectares/2500 acres

•  Significant dis-‐con>guity may be allowed for large SEZs as long as clear connec>ons can be established

•  The Vizhinjam market study should now factor in at least a Port-‐based SEZ; necessary for exemp>on from Customs for transshipment cargo; precedent established at Vallarpadam

•  Poten>al for Mul>-‐product SEZ to be studied – land available in the Southern (Poovar) and Eastern parts of district

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Vizhinjam Has to be Developed as a World-‐class port because it….

•  Is Strategically Located • Has Global Scale • Has the Lowest Opera>ng Costs •  Can be the Gateway to South India

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Strategic Loca>on •  Vizhinjam is less than 10 nau>cal miles from

the Suez/Gulf-‐Malacca shipping lane •  Closest Indian port to 30% of world sea traffic •  Best located port-‐of-‐call in India for container

ships, cruise vessels and tankers •  Access to large hinterland area in South India •  Also ideal for ship repair and bunkering

facili>es

Actual photo of a supertanker sailing close off the Vizhinjam shore, sans dredging

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Global Scale •  Site has a natural draP of 18-‐23 m •  With minimal capital dredging, the project will be

the only container terminal in India capable of handling container ships of > 12,000 TEUs

•  Rapid increase in container ship size – latest genera>on will carry up to 18,000 TEUs

•  Economies of scale will allow for the lowest logis>cs costs

•  Ideal loca>on for container transhipment terminal

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Compe>>ve Opera>ng Costs •  Vizhinjam needs next to nil maintenance

dredging to maintain 18-‐20 m draP •  Compe>ng ports spend hundreds of Millions of

dollars a year to maintain even 14 m of draP •  Vizhinjam has full flexibility to set tariffs to

aBract business; major Indian ports are constrained by regulators

•  New workforce; no legacy unioniza>on

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Gateway to South India •  Within 18-‐24 hours road/rail transit from Vizhinjam: •  120 million consumers •  $ 180 Bn of GSDP •  Bangalore, Chennai,

Coimbatore, Tu>corin and Tirunelveli

•  Within 36-‐48 hours road/rail distance from Vizhinjam: •  220 Million consumers •  $ 300 Bn of GSDP •  Hyderabad, Vizag and Goa

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Capturing the Hinterland •  To assume that the hinterland for Vizhinjam is constrained between

those of Tu>corin and Ernakulam is to incorrectly concede that Vizhinjam cannot import/export cargo at lower seaborne costs because it can handle bigger ships;

•  Total transport costs = sea transit + land transit costs •  Vizhinjam can move cargo at rates 30-‐50% cheaper than compe>ng

ports because it can handle much bigger ships – a 12,000 TEU vessel Vs a 6000 TEU vessel

•  Logis>cs firms will quickly shiP to the lowest total cost op>on as long as land transit can be made cost-‐efficient and fast

•  Vizhinjam can also match, if not beat, exis>ng ports’ handling >mes by minimizing conges>on and turn-‐around >me for ships

•  Such shiPs in hinterland cargo are already being seen in the case of efficient, deep water ports such as Mundra, Gangavaram and Ennore

•  However world-‐class road-‐rail connec>vity is absolutely cri>cal

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Further Development Prospects •  Vizhinjam has significant poten>al to develop into a

premier cruise port •  300 cruise ships transit on the nearby shipping lanes annually •  Trivandrum is already a top tourist des>na>on

•  Cochin Shipyard Ltd. has already announced plans to set up a VLCC-‐class ship repair and building yard at Vizhinjam

•  Poten>al for LNG terminal and power plant; significant energy demand in South India

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LNG as a Key Energy Source -‐ 1 •  Kerala is currently facing an acute power shortage

•  Current genera>on of about 2500 MW is unable to meet demand of about 3300 MW

•  Current genera>on is mostly hydel and is at the mercy of the weather •  Opposi>on to coal and nuclear plants; shortage of land

•  Demand is expected to hit 6000-‐7500 MW by 2020

0

2000

4000

6000

8000

Current State Supply

Current Demand

Demand Es>mate -‐2020

MW Supply shortall

•  Minimal addi>on expected; for KKNPP and gas sta>ons associated with Petronet LNG terminal

•  Supply gap of at least 2000 MW by 2020

Source: 18th EPS – CERC; WB; KSEB

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LNG as a Key Energy Source •  Liquefied Natural Gas is gaining prominence world-‐wide as the fossil-‐

fuel of choice •  LNG is cleaner as a fuel than coal •  Cost of power produced is comparable to coal, with a global drop in

LNG prices due to new supply in Australia, Africa and the US •  LNG power plants are much more compact than coal-‐fired power

sta>ons – 40-‐50 acres of a 1000 MW gas power plant Vs 400 acres for a coal-‐fired plant

•  LNG is also much easier to handle as a fuel – lower volumes/MW and it can be moved via pipelines

•  Natural gas can also power vehicles •  LNG power plants are cheaper (per MW) and faster to permit and build •  In short, LNG is the ideal op>on to solve Kerala’s power crisis

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Gas-fired Power Generation CCGT (Combined Cycle Gas Turbine)

� Modern combined cycle 1000 MW power plant (CCGT) -‐ needs ~ 50 acres of land

� Diagram CCGT, a combina>on of a gas turbine and a steam turbine. Efficiency ~ 59 %.

Very efficient generation technology

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Source: MMD, June 2010

2

5

1

4

3

Capital costs of options may vary considerably in absolute terms, but very little in relative terms

Indicative, cost levels million $/MW

LNG-fired power generation Lowest capital costs per MW installed

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Prices (at plant inlet) Gas : 8 $/MMBtu Coal: 80 $/t


$/MWh

Based on: 7000 hrs operation for gas and coal per year 2500 hrs for onshore wind per year 3600 hrs for offshore wind per year 7800 hrs for nuclear per year

Competitive for meeting Base-load Demand

Lowest All-in Unit Costs per Kwh produced

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Smaller plant size reduces risk of Overcapacity

Gas CCGT Coalsupercritical

Nuclear

450

600 -1000

1000 -1600


Minimum size to capture economies of scale (in MW)

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0

1

2

3

4

5

6

7

8

CCGT Coal Nuclear

Plus shortest time for LA, permitting and construction

years

Source: Energy Technology Perspectives, IEA 2010

Short construc>on >me reduces risks of demand uncertainty

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LNG import via Vizhinjam •  The bulk of India’s LNG demand will be met via imports – the country’s

only major NG source – the KG basin – has been underperforming •  Major suppliers will be Qatar, Australia, Africa (Mozambique) and, possibly

at a later stage, the US •  Vizhinjam is the closest port for imports from Australia, Africa and North

America (via Malacca/Cape) •  LNG import has economies of scale like in the case of any sea-‐borne trade

– such as containers: the bigger the ship, the cheaper it is! •  The largest LNG carriers – such as the 260,000 Cu.m Q-‐MAX – can be

30-‐50% more cost-‐efficient to import gas than smaller ships •  Vizhinjam can handle the biggest LNG tankers with its 18 m draP •  Ideal loca>on for a 2.5 MT/year LNG import terminal and a 1000 MW

power plant (expandable to 5 MT/year and 2000 MW) •  Can supply domes>c gas and vehicle fuel to Trivandrum, Kollam,

Tirunelveli, Tu>corin and Madurai and industrial gas to Tu>corin & Tirunelveli

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Cruise Terminal •  Hundreds of cruise ships cross the Indian Ocean and transit very close

to Indian ports •  Over 100 cruise calls were made at ports like Mumbai, Mangalore, Goa

and Kochi •  Close to 50 made calls at Kochi because of its proximity to the shipping

lane and the aBrac>veness of Kerala as a tourist des>na>on •  Vizhinjam is the closest Indian port to the interna>onal shipping lane –

a cruise ship will have to divert only an hour to call at Vizhinjam Vs about 10 hours to call at Kochi and 24+ hours at Goa

•  Vizhinjam is located right inside Kerala’s top foreign tourist aBrac>on – the Trivandrum – Kovalam – Kollam tourist belt

•  As a greenfield port, cruise ships will not encounter conges>on •  India’s first world-‐class Cruise Terminal at Vizhinjam could aBract over

100 ships and up to 100,000 premium tourists every year!

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Deep Water Shipyard •  Significant market for ship repair and construc>on

•  About 1/3rd of global shipping passes close to Vizhinjam, necessita>ng periodic maintenance and repair of tens of thousands of ships each year

•  India and Asia are seeing rapid addi>on in shipping capacity – especially for container ships and LNG tankers

•  No deep water shipyard between Dubai and Singapore •  Indian workers form a major part of the workforce at Dubai &

Singapore; India is well known for low cost, high quality engineering •  Vizhinjam has a draP of 18 m and can build any size ship •  Cochin Shipyard Limited has already expresses strong interest in a deep

water ship repair and construc>on yard at Vizhinjam; needs larger yard to complete its order book including India’s second new aircraP carrier

•  The shipyard will aBract more traffic to the port and create thousands of Crores of economic ac>vity including for small manufacturers

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Master Plan – Basic Concepts -‐ 1 •  Deep water port with a focus on container

transshipment; close to the int’l shipping lanes

•  Design emphasis should be on creaGng a world-‐class port, NOT on cuMng costs to build a mediocre port – ALL-‐IN STRATEGY!

•  Design draP in Phase I itself should be the best in India – 18 m at least – sufficient for 6th genera>on ships

•  Turning circle/breakwater length to be sufficient to handle 6th genera>on ships (10,000 TEUs)

•  Future-‐proof by Maximizing berth length within loca>onal constraints – have berths along main breakwater and allowance of two way vessel traffic in port channel

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Master Plan – Basic Concepts -‐ 2 •  Container berths need to be located on the land side of the basin since they need adjacent stacking areas for maximum opera>onal efficiency

•  Since there are constraints on the total length of coast that the project can occupy, it’ll be ideal to create another line of berths along the main breakwater

•  Cruise, LNG and liquid cargo terminals can be located along the breakwater

•  Vizhinjam Port area development including logis>cs hubs, Container Freight Sta>ons (CFS) etc to be planned

•  Addi>on of bunkering facility •  Mul>purpose/general cargo handling to be provisioned for •  Strategic Choice: Longer berth length, greater basin depth and capacity Vs increased construc>on cost

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Master Plan Modifica>ons

Phase I capacity to be at least 1.5 Mn TEUs

Phase I Design Depth to be 18 m

Turning circle to accommodate 6th Gen ships

Phase II capacity to be at least = Phase I

Move Cruise Terminal to Breakwater

Move Main Breakwater further out to sea to allow berths for non-‐container uses 16 25

Master Plan on Site

ABrac>ve Deal Structure •  The State Government of Kerala

acts as the ‘Landlord’; it pays for basic facili>es such as the breakwater, berths and road/rail connec>vity

•  Landlord invests 75% of capital cost

•  Operator/Investor develops terminal infrastructure; invests 25% of capital cost

•  Landlord can provide ‘soP debt’ support; at low interest and with a 10 yr repayment moratorium

•  Operator/Investor receives all opera>ng revenue for 30 years; op>on to share with Landlord

PORT

BASIC INFRSTRUCTURE

Landlord Invests 75% of project

cost

TERMINAL SUPERSTRUCTURE

Operator invests 25%

Opera>ng Revenue

Revenue Share

SoP Debt

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Modifying the Business Model •  Offer the private investor the op>on to set the business plan for the

en>re port as opposed to just the container terminal •  A Swiss-‐Challenge op>on to develop further container and non-‐

container terminals •  Rather than the Government ge{ng involved in marine services as

is envisaged in the current Landlord model, all opera>ons would be leP to the operator

•  As opposed to an op>onal revenue share, the Government could mandate a share of the overall net income(cargo handing + marine charges) above a Preferred Return earned by the private investor

•  The Investor/Operator makes an offer based on the share of revenue that it will offer to GoK above the Preferred Return •  This could be modified for later phases based on the rela>ve investment

by the public and private sectors

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Increased Government Support -‐ 1 •  Establishment of Port-‐based and Mul>-‐Product SEZs; along with road/rail connec>vity between the port and SEZs

•  Improve hinterland connec>vity for Vizhinjam; to rest of Kerala, South TN, Coimbatore and Bangalore •  New mixed use rail corridor from Vizhinjam to Coimbatore and Mangalore; high speed rail and passenger services

•  Road connec>vity to Southern TN via KoBur-‐Ambasamudram

•  Coastal passenger & freight shipping services •  Immediate decision to establish CSL’s new deep draP shipyard at Vizhinjam

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Road Connec>vity

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•  The exis>ng road infrastructure in Kerala is severely congested

•  4/6-‐laning of NH-‐66 from TN Border to Mangalore to be taken up urgently

•  Four Lane road to T i r u n e l v e l i v i a Ambasamudram to be re-‐developed

•  GoK to apply for GoI funding under port connec>vity scheme

Stretch to be upgraded to 4/6 lane Existing 4 lane

New 4 lane road

Rail Connec>vity

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•  Upgrade key rail routes to p r o v i d e h i g h s p e e d connec>vity to key ci>es like Mangalore, Coimbatore, C h e n n a i , B a n g a l o r e , Tirunelveli, Tu>corin and Kochi

•  Electrifica>on of en>re route to Chennai via Nagercoil

•  New North-‐South rail corridor needed from Trivandrum to Mangalore as current routes are at over 100% capacity

Increased Government Support -‐ 2 •  Parity with Vallarpadam on incen>ves and policies – Cabotage, Customs clearance, tax incen>ves etc

•  Preferen>al power purchase policy for an LNG power plant that sources fuel via Vizhinjam since the port is a State Government project

•  Expedite construc>on of Outer Ring Road in Trivandrum to provide more land for port-‐based industrial uses

•  Expedite 4/6 laning of NH-‐66 and connec>on to the Na>onal Highway network

•  PPP mode development of logis>cs and industrial areas including warehouses, CFS etc

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Logis>cs Zone -‐ 1

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•  World-‐class Industrial facili>es including logis>cs and light manufacturing space is a cri>cal success factor for a major port like Vizhinjam

•  World-‐wide, the concentra>on of industrial real estate is closely correlated with hub ports

•  Focus areas for value addi>on in the supply chain, such as just-‐in-‐>me inventory management, re-‐packaging of cargo for regional distribu>on and loading/unloading of containers, require world-‐class logis>cs spaces

•  These ac>vi>es will be a differen>ator for Vizhinjam Vs current ports which generally only have rudimentary warehouses

•  World-‐class logis>cs spaces will aBract global logis>cs and retail players who are currently entering India

•  Generate addi>onal employment and economic ac>vity

Logis>cs Networks and Hubs

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•  Logis>cs space is co-‐located with major ports and airports; increases importance of hubs in the supply chain

•  In the US, there is an average of 36 SF of space/TEU handled

Logis>cs Zone -‐ 2

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•  Considering an ini>al container terminal capacity of 1,500,000 TEUs and 80% transshipment, Vizhinjam will need up to 8,000,000 SF of logis>cs space

•  GoK should set up a Free Trade Warehouse Zone (FTWZ) on 100 acres of land close to the port and engage private developers to build and operate world-‐class logis>cs facili>es

•  Build a combina>on of storage warehouses, cross-‐docking facili>es for re-‐distribu>on opera>ons and regional distribu>on facili>es

•  Anchor tenants could include major retail players such as IKEA, Wal-‐Mart, Future Group, Carrefour, METRO, Amazon, E-‐Bay etc and logis>cs players such as global shipping lines and cargo operators like DHL, FedEx and UPS

•  On-‐site access to road and rail transport and ancillary facili>es like truck maintenance, Customs & Security etc

Key Next Steps •  Appoint consultants to update market study and to re-‐visit development and business plans

•  AECOM to prepare master plan according to updated market study and business plan

•  Govt. of Kerala & VISL to explore G2G op>ons to iden>fy a capable operator •  Under the leadership of the Hon. MP of Trivandrum •  Focused discussions with Governments that have na>onal/

regional port operators such as Barcelona, Singapore, Hamburg and Malaysia

•  Pro-‐ac>ve discussion with Liner based Operators who would be direct beneficiaries in transshipment terminals such as APM Terminals (Maersk), APL Terminals (APL/NOL), Terminal Link (CMA CGM), Ceres Global (NYK Liners), Hapag Lloyd etc

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THANK YOU

37 © Benny, Gopinathan and Prasad, MMXII

Education

Vizhinjam way forward sep 7 2012