India mulls privatizing stressed public cargo facilities to regain growth

Undeterred by trade union calls for a pause on privatization and other sweeping policy reforms, the Indian government is considering boosting private participation in cargo operations at major public ports where container handling is already dominated by build-operate-transfer (BOT) operators.

The move stems from a government view that some of the major ports have further room for “landlord leverage” to scale up, thereby improving capacity utilization at state-owned cargo handling facilities that have suffered steady volume declines and are caught up in a growth quagmire.

The new roadmap for underutilized infrastructure at major ports was set at a recent brainstorming session the Ministry of Shipping held with various port leaders to review the latest performance and identify measures to bolster port growth.

India has 12 federal government-owned gateway ports dotting its east and west coasts, which together handle approximately 60 percent of the country’s containerized trade. With the exception of the Ennore Port (renamed Kamarajar), near Chennai, major port trusts widely follow a hybrid business model — providing cargo services themselves and secondly, acting as landlords to private concessionaires. Ennore is governed by a board of directors, akin to a typical corporate entity. A few years ago, the government put forward a new draft law to restructure all major port entities with greater operational autonomy, but that legislation has yet to be enacted.

There are approximately 270 cargo berths across these major ports, most  of which are state-owned and designed for general cargo operations. There are 34 container handling berths, with Jawaharlal Nehru Port Trust (JNPT) hosting 11 — eight operated by private concessionaires and three, including a shallow draft facility, run by the port authority.

At the review meeting, JNPT officials noted increasing competitive challenges from private operators — led by APM Terminals, DP World, and PSA International — caused a dire situation for its two main port-owned cargo berths and that all efforts to regain growth proved futile.

Considering those submissions, the ministry gave JNPT the provisional green light to move ahead with its plan to seek BOT operators for its stressed cargo berths, while calling on other port leaders to do likewise to monetize similar underperforming assets, industry sources told JOC.com.  An official announcement to that effect is expected in the coming days.

Seeking level playing field

That subdued sentiment is reflected in 2019 JNPT port data. Annual volume at the state-owned Jawaharlal Nehru Container Terminal stood at 770,000 TEU against a 1.5 million TEU installed capacity, even as combined port throughput for the year edged up to 5.1 million TEU from 5.05 million TEU during 2018.

Major ports began transitioning from the traditional “service model” to a “landlord role” toward the end of 1990s following liberalization of the Indian economy, but revenue sharing guidelines and pricing regulations have been the subject of pain points for investors seeking a level playing field with independently built, greenfield minor or non-major cargo handlers.

To illustrate the so-called uncompetitive grounds for BOT operators, the DP World-operated Nhava Sheva International Container Terminal (NSICT) at JNPT, which pioneered India’s public-private-partnership (PPP) development model with operations starting in 1999, has had to scale back container handling — from a 1.2 million TEU-designed level to a contracted 600,000 TEU threshold annually — to lessen the impact of adverse royalty obligations toward the landlord port, or the government. Pursuing that strategy, NSICT ended 2019 with 520,000 TEU, statistics show.

Industry stakeholders also see conflicts of interest at play when port entities engage themselves in cargo services. Further, full-fledged landlord-centric operations go more in sync with an open, evolving gig-oriented economy.

Above all, in a tighter market environment, terminal efficiency is seen as the most sought-after factor for transport service providers trying to improve their ailing balance sheets. Here, with superior infrastructure and global business competitiveness, private terminal operators have gained the upper hand over their public peers. But it remains to be seen how that intended effort to resuscitate struggling public cargo handlers will play out at a time when economic conditions present a weakening growth outlook.

Source: JOC