How will India respond to disquieting developments on its doorstep, asks Stevie Knight
Colombo, the well-established Sri Lankan transhipment hub that’s been so successful at helping itself to a large slice of Indian transhipment cargo, is expanding its West Terminal by another 2.4m teu. Further, despite cold feet about the amount of debt, the Sri Lankan government is still behind Hambantota’s Phase II which includes 2km of box berths alongside other general purpose facilities.
This is disquieting for India, which has “shown its concerns over these developments”, says Nivesh Chaudhary of Drewry. Firstly, India hasn’t yet got a proper hub of its own and its infrastructure is fairly dated: “Most major, (state-owned) ports are running very close to full and have capacity issues on the horizon, so a lot of ports will need to be looking for immediate investment.”
Secondly, there’s old business between India and China: China’s playing with Pakistan’s military ambitions, relations have somewhat soured over Tibet and now the large footprint of Hambantota may be placed squarely on India’s doorstep.
The Hambantota deal originally cut in 2008 was for an estimated $361m backed, to the tune of 85%, by the Bank of the People’s Republic of China; construction was to be via state-run China Harbour Engineering Company (CHEC) and China Merchants Holdings International. This may have simply raised a few eyebrows, but when it became apparent that Sri Lanka had also granted Chinese state-owned companies the concession rights in exchange for an easing of loan conditions, the news didn’t go down too well in India and stirred up trouble: “The project was put on hold for quite a long time because of the risks associated with it,” says Mr Chaudhary.
However, despite the Sri Lankan government’s concern that the Hambantota project leaves the country deeply in debt to China (with the extra worry that a default would give China de facto control over a major piece of infrastructure), it seems that backing out now will cost more than seeing it through.
Mark Womersley of Seaport Consultants Asia says that although initiatives like China’s ‘Maritime Silk Road’– which aims to tie its surplus to new markets – can be very useful in giving economies a helping hand this can be a double-edged sword. China, despite outward appearances, is not particularly ‘global’ in its allegiances, preferring to bring in design, operators and even labour from home, a habit which often sets local resident’s teeth on edge.
Further he adds that while the Chinese state-run companies are very efficient when it comes to getting the infrastructure in place, they are not so hot at managing its forward development. Lastly, not all the ‘help’ is of equal value.
While Mr Womersley admits Colombo, one of the first ports in the area to benefit from Chinese input, has done exceptionally well he says “this was partly down to the involvement of China Merchants, a very commercially oriented company, along with support from the Asian Development Bank”.
However, he points to Gwadar in Pakistan as an instructive lesson in two parts: the earlier phase of development which covered three multipurpose berths “had a reason to happen and was managed by a local PSA International team”.
This changed in 2012 with the termination of PSA involvement amid accusations of the operation simply not living up to expectations. Mr Womersley believes that this simple wasn’t a realistic appraisal, and he says the later phase at Gwadar which involves a 1,200m container terminal and hinterland connections, “has been politically driven rather than making particular business sense”. While an economic corridor from China’s remote, landlocked western quarter might help Gwadar gain a little traction “its 3,000km of a long, hard land crossing” and he says it may not come to much – along with Gwadar’s ambitions.
More, although the two governments have portrayed the deal as neighbourly, Pakistan may find the terms are intensely commercial rather than friendly: recently China’s been defending a 6.3% loan rate on other projects – such as Hambantota.
So, despite the switch of operator to the China Overseas Port Holding Company and predicted massive US$46bn investment in the entire corridor, Mr Womersley still doesn’t hold out much optimism for Gwadar.
Likewise, the Hambantota development may not have the necessary driver for real growth and there may be reason to suspect its motives. Mr Womersley points out the harbour does not seem to have been built for commercial operations, but laid out, further inland than the obvious deepwater spot, for something more akin to strategic defence with berthing more suited to military vessels.
Despite all this, while India may moan about China’s presence, it just hasn’t proved equal to taking it on in a commercial setting. It has lacked the deep pockets or muscle that comes with straightforward support from home – and for better or worse, it’s democratic procedures seem to be no match for a simple one-party state.
But that could change. India, prodded hard by all this activity next door, is responding.
Mr Chaudhary explained there’s been a lot of talk about Prime Minister Narendra Modi’s ambitious plans to raise the game. Firstly, the Tariff Authority for the Major Ports (TAMP) has, after years of heated bickering and court cases, being wound up allowing market-linked tariff for the 12 government owned ports.
Secondly, despite some limited schemes being in place since the mid-1990s, Mr Chaudhary explains that private finance has historically been reluctant to get onboard due to messy environmental clearances, security clearances and litigation. However, India now has an all-encompassing initiative that aims to shake up Indian bureaucracy by tying authorisations into a transparent online portal, cutting out red tape, delays and outright backhanders. Mr Chaudhary, for one, is hopeful of a brighter future.
Given all this David Wignall, author of an ADB study on ports in the Bay of Bengal, says it’s possible - he emphasizes ‘possible’ - that either Chennai or Ennore could eventually start to compete with Colombo. Chennai still has a healthy container throughput, handling 1.6m teu last year (despite bulk and automotive troubles) and is putting an ‘outer harbour’ 4m teu box and automotive proposal on the table for private partnership consideration.
Alternatively, neighbouring Ennore could lead the way. It’s ramping up box throughput a year earlier than expected with Gautami Adani’s Kamarajar facility which will eventually have capacity for 1.4m teu, as well as automotive and general cargo. Predictably this has led to unfavourable comparisons between ‘bloated’ Chennai and lean and fast Ennore - the only corporatised major port so far.
However connectivity, the main reason Chennai’s earlier mega container terminal plan failed, remains an issue. Ennore’s promised highway links are still not fully realised and the big container stop planned for the truck-congested road shared by both ports will only alleviate a small amount of the troubles.
The big snarl up is of course in the region around Mumbai. In an attempt to bring efficiency into Jawaharlal Nehru Port, Gateway Terminals India operator APM Terminals and DP World have joined forces on a ‘paperless port’ initiative. But it will probably take more than that to clear the regular queues outside the gate: volumes at GTI hit a record high of 2.1m boxes last year and the port is creaking. The operators appear to have a fraught relationship with freight associations who have spoken of a 24 or 36 hour waits, despite APMT’s protests that the queues are a knock-on effect of the construction traffic for JPNT’s badly needed fourth terminal. Further, another initiative to get ahead of the game landed GTI in more trouble when extra costs for (soon to be mandatory) container weighing were simply added onto the fees.
The idea of giving India’s port infrastructure a push isn’t new and some could point to the failure of other initiatives and legitimately ask what’s different this time around. In 2012 the (then) government proposed increasing India’s port capacity by over a third to 1.6bn tonnes by 2017 with as many as five additional major ports. Despite the noise, “nothing much seemed to come of it on the ground”, says Mr Chaudhary.
Some of the delays came about as massive public corruption scandals unwound plans “and this latest government sailed in on the back of all that in 2014 with promises to do much better”, says Kaushik Jadhou of DBIS: “It’s under a lot of pressure to deliver.”
Recently, the new NMDP project brought focus to bear on two headline facilities, one at Sagar in West Bengal and another at Dugarajapatnam in the Nellore district of Andhra Pradesh. However, Mr Chaudhary says that despite the envisaged $28bn in private funds “past trends suggests that the actual investments have been much lower than the targets”, pointing out that government initiatives between 2007 and 2012 drew in less than half its $88bn objective. Mr Wignall adds: “Although there may be money to spend, if there’s not a corresponding change in the administrative structure, then I can’t see real capacity growth being delivered.”
However, recent moves may help, says Mr Chaudhary: both Dugarajapatnam and Sagar, like Ennore, are likely to be corporatised, (potentially other major ports will follow) with a competitive ‘landlord’ model which should smooth the way for private involvement. But Mr Wignall remains sceptical, explaining that the NMDP project will still be centrally run and for some this is still not the best way forward. Central government initiatives leak money and efficiency all too easily.
Returning to the battle for India to get its own hub port and steal cargo away from Sri Lanka, Adani’s APSEZ group has some political hurdles to clear before getting the go-ahead for the deepwater multipurpose Vizhinjam concession. This $950m greenfield site on India’s southernmost tip (almost nextdoor to Colombo) probably stands a much better chance of becoming a hub than any other facility simply because it’s in the right spot, saving lines the costs of deviating further up the east coast.
Despite the issues around Adani’s ‘sole bid’ for the concession, many believe that if any port can dent Colombo’s ambitions, its Vizhinjam.
A matter of individuality
There are those that believe that individual states should be in charge of putting the projects in place on the ground in India. They point to the rise of privately run minor ports in Gujarat and Andhra Pradesh which have, with supportive regulation and governance, been able to put the major ports to shame, increasing their combined throughput from 120m tonnes in 2004 to 417m tonnes in 2014, accounting for around 60% of India’s overall growth.
But while Drewry's Nivesh Chaudhary has to admit that “major ports are losing sheen and market share to minor ports”, he is cautious about a blanket conclusion, explaining that this result is down to a few almost incredibly successful facilities rather than being a broad sweep across the board.
India’s clear winners include Pipavav and Mundra. Mundra developed by leveraging other businesses into the port’s activities including power plants, mining and food refineries and then Gautami Adani added rail, road and container depots to the structure at the same time as investing heavily in handling equipment to keep turnaround times to under a day.
On Pipavav’s side has been huge restructuring under APM Terminals which offered discounts to get it on its feet again. It’s done well - container growth has reached 23%, albeit from a low start, and shares have now shot through the roof. Further, Pipavav and Kattupalli may gain from government permissions to handle new car imports.
But Drewry's Nivesh Chaudhary says their policies are only half the story and in fact, both Pipavav and Mundra benefit from their position in India’s northwest to attract cargo streams from Gujarat’s dense industrial hinterland and overspill from congestion at Mumbai and JPNT – although this could change with JPNT’s coming fourth container terminal, expected to be in operation by 2018.
In reality, a closer look at the numbers tells another story says Mr Chaudhary. While between them Mundra and Pipavav accounted for around three quarters of the minor port traffic during spring and summer last year, there are in fact 187 minor ports (as opposed to just 13 major facilities) so by far the great majority of minor ports are not doing that well especially since India’s clamp down on coal exports.
He says that giving the major ports flexibility will even the score, adding: “It’s high time that the government reformed the public-private project approval process. We need infrastructure support... getting private players into the major ports is going to be the way forward.”