12-08-2016

India: Govt flags off discussion on privatizing state-run berths at major ports

MP

The shipping ministry has flagged off discussions on the next round of reforms in the ports sector with one of its agencies suggesting privatization of berths/terminals that are currently run by Union government-owned port authorities themselves.

The suggestion by the Indian Ports Association, a body representing the 12 ports owned by the Union government, assumes significance as these ports, with the exception of Kamarajar Port Ltd, are in the midst of transforming themselves into landlord port authorities under a new law drafted by the ministry.

But the suggestion to privatize existing berths through the public-private-partnership (PPP) route has the potential to raise the hackles of port workers’ unions who have just managed to ward off a government plan to convert 11 of these ports into corporate entities. These 11 ports are currently run as trusts. Kamarajar Port which runs the port at Ennore near Chennai is the only exception in this regard. Kamarajar was set up as a company when it was opened in 2001.

Ports in India, essentially the major ports or those owned by the Indian government and run as trusts, widely follow a hybrid format of the long obsolete service port model and the preferred landlord model of port management followed globally. This has resulted in a conflict of interest between the port trusts and the private sector, with the former acting both as port regulators and providers of commercial services in many instances.

In the service port model, the port authority owns the land and all available assets—fixed and mobile—and performs all regulatory and port functions. Here, the port trust is both the landlord and the cargo terminal operator.

While the service port model in India was consistent with a centralized economy, it does not fit well in a market-oriented economy, says a port industry executive.

In the landlord port model, the publicly governed port authority acts as a regulatory body and as landlord while private companies carry out port operations—mainly cargo handling activities. Here, the port authority maintains ownership of the port while the infrastructure is leased to private companies that provide and maintain their own superstructure and install their own equipment.

Currently, most of the major port trusts in India carry out terminal operations as well, resulting in a hybrid model of port governance.

“The involvement of the port authorities in terminal operations leads to a conflict of interest and works against objectivity. The neutrality of the landlord port authority is a basic requirement for fair competition between port service providers, particularly the terminal operators. The role of the landlord port authority would be to carry out all public sector services and operations such as the award of bids for terminals and dredging,” the port industry executive mentioned earlier, said.

Of the total 240 cargo berths operating at major ports, 66 berths are on PPP model while 174 berths are state owned.

The PPP potential for the 174 state-owned berths can be gauged on parameters such as traffic projections/cargo growth for next 10 years (until 2025) with berths registering steady cargo growth of more than 6 per cent becoming preferred choices for privatization, the IPA has suggested in a report to the ministry.

Currently, 102 of the 174 state-owned berths load multiple or general cargo. To build financial returns, berths with dedicated cargo have greater potential for PPP.

Besides, mechanised berths as well as berths with scope for mechanisation have more potential for PPP since it ensures larger cargo handling and throughput.

Berths in ports with overall strong financials, for instance, with over 20% net profit, seem to have higher potential for PPP. This is reassuring for prospective investors interested in higher returns, the IPA stated.

PPP cargo berths/terminals at major ports have so far been awarded through the revenue sharing mode – the bidder willing to share the most from his annual revenue winning the deal— since these projects were viable on a stand-alone basis.

About 10 cargo berths have the potential to switch to PPP through the revenue sharing model, the IPA wrote in its report.

“However some of the berths with potential for PPP may be constrained by revenue potential. New models may be explored for such berths such as viability gap funding, annuity and management contracts, it added.

“By converting to PPP, the port’s own infrastructure will be dismantled and the private people will be allowed to erect their own infrastructure thereby workers will be made redundant and surplus. It is one way or the other sending the worker out. We are opposed to the suggestion,” says T. Narendra Rao, general secretary, Water Transport Workers Federation of India, one of the five recognized port workers unions at major ports.

Source: Live Mint 

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