The Indian ports sector is poised for major expansion but contractors taking on port expansion projects may face numerous challenges, discovers Charu Bahri.
Did you know that 13 major ports and around 200 non-major ports dot India's 7,500-km-long coastline. Sounds impressive, right? Unfortunately, only about one-third of the latter are operational. Another fact: at present, the marine transport sector contributes only around 0.2 per cent of India's GDP. Nevertheless, the host of multinational companies moving their manufacturing bases to India to tap the country's burgeoning domestic demand and the competitive edge coming from exporting goods manufactured in the country promises to grow this share in coming years.
In FY10, the traffic handling capacity of Indian ports stood at 599.3 mt, having registered capacity expansions of 4.3 per cent during the year. But that is way below the 1 billion tonne of traffic the government forecasts is likely to pass through Indian ports by 2012. "At such levels, the gap between installed capacity of Indian ports and actual throughput is about 8 per cent," comments Jonne Hankimaa, Managing Director, Cargotec India Pvt Ltd. "As this is below the 30 per cent gap recommended by international norms, it is leading to a substantial increase in waiting time for ships and a strain on infrastructure, including cargohandling equipment."
Recognising the need to shore up the country's port infrastructure, the National Maritime Development Programme (NMDP) launched in 2005 proposed a total investment of Rs 1,003 billion in 387 projects by FY12. Of these, 276 projects aim to expand the capacity of major ports to 800 million tonne by FY12, necessitating an investment of Rs 558 billion. Private players are expected to account for around 64 per cent of total proposed investment in major ports. The opportunities lie in the construction of jetties and berths; procurement, replacement, and upgrade of port equipment; and projects related to port connectivity. Projects also relate to deepening of channels to improve draught; a key factor considering that JNPT, for example, has a draught of only 12 m, which is inadequate to handle the latest-generation vessels. In contrast, PSA Singapore has a maximum draught of 16 m.
As port infrastructure projects under the NMDP are slated to require investments of $13.5 billion in the next nine years, and the liberalisation of the sector is helping complete projects speedily and efficiently, more PPP projects for the development of intermediate ports are also likely to be awarded on a BOT basis to private players. Such projects will help decongest overloaded major ports. The Tamil Nadu Maritime Board, a state maritime board, is also encouraging the establishment of captive ports that are expected to grow closer ties between ports facilities and port-based industries like oil and thermal power. Kattupalli Port, Thiruchopuram Port and Kaveri Port are a few such proposed ports.
The opportunities are plentiful but the takers are not as many as could be. Why's that? "Developing a greenfield port is nothing short of developing a township," responds Rajeeva Sinha, Director, Mundra Port and SEZ Ltd. "It's the most challenging of all infrastructure creation because of the huge investments needed and the long gestation period associated with such projects. While there is no rule of thumb defining minimum investment, as each port is a unique site with its own needs, developing a greenfield port costs not less than Rs 1,000 crore. Development takes four to five years and at least a few more years after that to break even or earn net revenue. This translates into huge financial risks for developers taking on BOT greenfield port development projects."
To cite an example, the country's largest single-operator container terminal and first hub port, the International Container Transhipment Terminal (ICTT) at Vallarpadam, off the coast of Kochi, was awarded to DP World, a leading international container terminal operator, in 2005. The first phase of this terminal has been built at a cost (including other infrastructure facilities such as road and rail connections) of around Rs 3,000 crore; DP World's share was close to Rs 1,300 crore. So, what encourages DP World to make such a huge investment? According to KK Krishnadas, CEO, DP World Cochin, "DP World is committed to India for the long term and at ICTT, we have the ability to serve some of the world's largest ships afloat today."
This greenfield project at Vallarpadam and the sixth terminal run by the group in the country was inaugurated by no less than the Prime Minister of India on February 11. Its future looks promising because of its potential to make inroads into transhipments through Colombo, Salalah, Dubai, Malaysia or Singapore. Today, over 45 per cent of the country's containerised cargo moves through these overseas hubs. ICTT will change all that, and reduce transit time for importers and exporters in southern India. But that will take time. That's why Sinha emphasises the staying power of port developers, "The development of a port mandates considerable financial resources. Developers need deep pockets to go the whole way. There's no such thing as viability gap funding, as is applicable to roads, for port developers."
The nature of demand for port services also necessitates staying power. "Demand for the services of a port gradually builds up," adds Sinha. "Cargo evolves, as custom agents, shipping agents and the entire chain of users develop confidence in the port's capabilities." He contrasts a greenfield port with road and power projects, for which users of roads and buyers of power readily exist. "Power plants can achieve plant loads immediately because of the huge demand for power and shortage of capacity," he reasons. "Ports are far more service-oriented infrastructure."
According to K Venkatesh, Senior Vice-President (Developmental Projects), Head-Developmental Projects, Larsen & Toubro (L&T), the development of a port is associated with several construction challenges, such as dredging the channel, construction of breakwater, berths, and the procurement, erection and commissioning of cranes. Other port equipment is easier to handle.
"As ports must cater to increasingly deeper draughts, construction of berths and jetties is a challenging task," says Dr PV Chandramohan, President -Technical, Navayuga Engineering Company. Deeper draughts translate into higher retention of soil for the retaining structures. An added challenge is the large surcharge loads experienced by way of cargo and handling equipment in the wharf premises. In the case of jetties on piles, this translates into longer free stand of the piles. The initial challenge is the design of such structures as it requires expertise of a higher order. "Experts in port engineering and marine structures are difficult to come by in our country," he adds.
In the view of SV Rajadhyaksha, CEO - Offshore Oil & Gas, Leighton Contractors (India) Pvt Ltd, "The ports sector currently faces a shortage of competent port design engineers and experienced subcontractors with the required marine spread to construct breakwaters in deeper waters [where conventional end-on method of construction is not possible]. This forces the industry to mobilise resources from abroad."
Further, Dr PV Chandramohan opines that the construction of jetties in the sea is associated with more challenges than jetties in harboured waters. "Marine contractors face rolling waters that make the process difficult," he explains. "This becomes more difficult with waters of large tidal range as in the northern part of the west coast. The usual methodology is to skim over approaching waves by using a gantry, done by an end-on process where support is taken from installed piles to move forward. Our country needs massive piling for its infrastructure projects. Piling of large magnitudes is being designed and executed. But it is an irony that not a single piling rig is being manufactured in India. They are being imported either from Germany or Italy or even from China."
Vishwesha Bhat, CEO, Ports & Jetties Business Vertical, Essar Projects India Ltd, lists the following as some of the key factors that can adversely affect marine construction: "Changes in environmental/ecological parameters,weather conditions, the requirement of a specialised construction approach, downtime assessment with or without breakwater, maintenance dredging and reliable and safe shipping operations, tight project schedules and adequate resource availability at project sites."
Management expertise can help bring down the cost and time associated with developing a port. So can the right equipment, though it calls for sizeable investments in a fleet of equipment by marine contractors as is the practice overseas. When the Port of Leixões in Portugal was being expanded, the port owner, Administração dos Portos do Douro e Leixões, turned to marine contractors Etermar and CPTP to handle a range of construction projects, including building new walkways and quays, to allow the port to receive larger cruise ships and other large vessels. These contractors were chosen for their expertise and owned fleets of Manitowoc cranes. According to Luis Adão, Project Job Site Manager, "Having crawler cranes all from one brand helps with assembly and service. The three Manitowoc cranes worked well together on this project."
So how did the crawler cranes help the process of construction? The 400-tonne capacity Model 16000 crane was based onshore with 60 m of main boom. It handled several jobs such as positioning large rock elements in a sea barrier, and setting precast concrete elements weighing up to 70 tonne for the construction of the port's quay wall. The 272 tonne capacity Model 2250 crane configured with 51.8 m of main boom worked offshore on a 60 m × 22 m pontoon. It placed steel piles filled with concrete for the installation of new marina walkways. This crane also placed large elements for a walkway to dock cruise ships. The 250-tonne capacity Model 999 crawler crane also worked offshore on a 24 m × 15 m jack-up barge. It worked with 33.5 m of main boom to position piles to support a new marina structure for cruise ships.
According to Prem Naithani, National Sales Manager, Manitowoc Crawler Cranes, India, "A few Indian ports are using Manitowoc crawler cranes such as the 4100 and 4000 models for port operations. We've recently been getting a number of enquiries from port operators for our 400-tonne Model 16000 crawler cranes too."
Gaps in equipment
In time, marine contractors may also begin to take more benefit from the latest construction technologies now available in the country. Their uptake of equipment will encourage more vendors to fill the gaps in the available range. Multinational contractors with global experience are more aware of the challenges of making do without the latest technologies that are readily found and used overseas.
Rajadhyaksha points out that jack-up platforms used for geotechnical investigation in deeper waters and port construction activities are not locally available, nor are jack-up platforms to work in stringent environmental conditions of high currents and waves. A host of other equipment, such as marine piling equipment like hydraulic impact hammers with adequate capacities, is also difficult to find in India. When contractors don't have appropriate construction equipment in hand, they are unable to avail of the time and cost economies that come from using the right machine at the right place. "In the absence of pile boring equipment capable of boring into rock strata, the industry has to use conventional chiselling, which consumes substantially more time," he adds. "Suitable rock trenching or dredging equipment [say, cutter suction dredgers] isn't available, forcing the industry to mobilise at a higher cost, which defeats its economic competence."
Indian marine contractors would also benefit if survey equipment were readily available. Subsea survey equipment, such as that used for 'refraction surveys' mapping the subsea strata with reasonable accuracy, is in short supply. Marine survey vessels capable of working in adverse marine environmental conditions with adequate anchoring, the full spectrum of marine geotechnical and geophysical survey capabilities, and that meet all shipping regulations would also be useful.
"Rail and expressway connectivity is critical for the success of a port, starting from the word go," asserts Capt. BVJK Sharma, Joint Managing Director & CEO, JSW Infrastructure Ltd. "Without this connectivity, you have no approach to the site through land. Approaching a port site only by sea significantly increases the cost of development." That's why Sinha perceives brownfield expansions such as developing a new berth or terminal as comparatively less challenging than developing a greenfield port - all other infrastructure support is readily available in the port and it's also easier to estimate the costs of such developments as these parameters are well-defined.
This means developers of greenfield ports must be prepared to lay rail lines and create rail sidings and roads, not only in the port precincts but also leading to it. But in the absence of a national policy for the development of railway connectivity at greenfield project sites, Sinha talks of railway connectivity as being "a huge challenge associated with the development of a port," because it means extra costs and having to contend with demands from the Railways for a share of the revenue generated from cargo being transported on the line. "Obtaining approvals from the state or central government from its various agencies including Railways is also very critical for efficient functioning," adds Venkatesh. "As each port has its own challenges, connectivity issues do not get resolved in time."
However, this reality creates opportunities for contractors specialised in such activities. Instances of road and rail-laying associated with Indian projects abound. Dhamra Port Company Ltd is laying a 62 km rail link from Dhamra to Bhadrak on the main Howrah-Chennai line to transport cargo to and from the port. Gangavaram Port has its own independent railway siding. Port Pipavav has a JV with the Indian Railways called the Pipavav Rail Corporation, which has built a 279 km broad gauge link to Surendranagar where the rail line connects to the main grid. "We are in constant touch with Concor to enhance the frequency of trains to help speedy evacuation of containers and bulk cargo from the port," says Bhuvana Ramalingam, General Manager - Communications, APM Terminals Pipavav, Gujarat Pipavav Port Ltd. "We have also built an 11 km roadway to connect to the NH8E. Excellent connectivity and CFS and warehouse facilities at the port and strategic locations in the hinterland are integral for port operations."
Connectivity defines how rapidly cargo can be evacuated from the port. It improves port throughput and its capacity to attract demand as global shipping lines tend to choose ports offering better logistics. But clients are also drawn to highly mechanised ports as vessels typically spend one-fifth of their time in ports, in loading and unloading cargo. Mechanisation improves key performance indicators such as preberthing waiting hours, turnaround time and average output per ship berth-day.
At present, Indian major ports are well behind the leading transhipment hubs in the region, Dubai and Singapore. The Indian Ports and Shipping Sector: Breaking Boundaries, Tapping Potential, a report by FICCI and Ernst & Young, mentions that container throughput at major Indian ports (combined) is 6.8 million twenty-foot equivalent units (TEU), which is substantially less than in Singapore (25.9 million TEU in CY09) and in Dubai (11.1 million TEU in CY09). Besides, major Indian ports are operating at over 90 per cent of their capacity and they handle more than their designed capacity for some kinds of cargo. That's why several NMDP proposed projects relate to the upgrading of port equipment.
Such projects require marine contractors to understand how to select appropriate equipment to improve port throughput. "The choice of equipment depends on site conditions and the kind of cargo the port will handle," says Sinha. For instance, if the port is likely to handle mostly container cargo, the fastest growing segment in maritime trade, it should invest in container handling equipment, such as quay gantry cranes, rubber-tyred gantry cranes, railmounted gantry cranes and toplife trucks, and replace reach stackers that are inadequate or of limited capacity.
According to Peter Klein, Head of Product Marketing, Demag Cranes, "the percentage of a port project usually allocated to material-handling equipment, depends on the terminal's infrastructure, the quantity of goods being handled at the port, and the material handling equipment planned for the terminal." Adds Hankimaa, "Material-handling equipment accounts for 25 to 40 per cent of project costs depending on local challenges such as civil works, dredging, etc." Contractors taking on equipment upgrade projects on a BOT basis should also emphasise maintenance as breakdowns translate into huge losses for port operators. "Ports must adopt preventive maintenance as opposed to reactive maintenance," avers Mahaveer C Rajwat, Head, Administration & Finance, Liebherr India. "We aim to shorten response time and offer a ready supply of spares."
Indian ports are mechanising in a big way. In Paradip port, a Gottwald Model 6 crane, G HMK 6407 B variant, successfully unloaded an entire Panamax vessel carrying 62,324 tonne of coal in only 61 hours and two minutes, with an average capacity of over 1,000 tonne per hour. "Generation 5 Gottwald mobile harbour cranes are high-performance machines that help manage increasing volumes and meet the challenges of operating special and multipurpose terminals," observes Klein.
Mundra port has four Gottwald and four Liebherr mobile harbour cranes, each with a handling capacity of 750 tonne per hour. Liebherr cranes are also installed at the ports in Haldia, Kandla, Paradip, and Vishakhapatnam. "Pipavav has post Panamax quay cranes, eco-friendly RTGS, bagging plants and other modern equipment that makes us attractive to our customers," shares Ramalingam. "GTI Terminal at JNPT uses 40 Kalmar Eco RTGs. It registered a growth of 19.89 per cent in 2009-10 over the previous year and 10 per cent less CO2 emissions compared to conventional gantry cranes," shares Hankimaa. He believes that state-of-the-art ship-to-shore cranes, zero-emission rubber-tyred gantry cranes,E-one 2 RTGs and terminal automation systems can help both existing and new Indian terminals match worldclass standards.
Evidently, if marine contractors and port developers working in tandem go full throttle ahead, Indian ports will be able to benchmark themselves to the world's best.
Port liberalisation has had a positive impact on the ports sector. Private-sector terminals at major ports are reporting higher throughput than their public-sector counterparts. The Nhava Sheva International Container Terminal (also known as DP World Nhava Sheva), India's first PPP in the ports sector set up in 1997, still retains its position as India's preferred container gateway. Last year, the Chennai Container Terminal (also known as DP World Chennai) was recognised for its TEU throughput performance, cost-efficiency, turnaround time and valueadded services delivered. In 2001, when the terminal was handed over to DP World by the Chennai Port Trust, the port was handling about 340,000 TEU per annum and registering a growth rate of 9 per cent. DP World Chennai's initiatives to improve operations enabled it to cross the 1 million TEU mark in 2007, registering a CAGR of 22 per cent. Throughput has improved significantly as well. "Our efforts in process reengineering have brought the dwell time of containers at the terminal from seven to eight days in 2001 when taken over, to less than 24 hours today," says Ennarasu Karunesan, CEO, DP World Chennai. Chennai port emerged as India's second largest port container gateway in 2009 and was Lloyds List Container Terminal Operator of the Year in 2010.
Recommendation: policy amendment
Port developers point out that anomalies and anachronisms in the policies formulated for the development and operation of ports should be addressed. For instance, while service tax benefits can be availed while developing the land area of a port, dredging, which is nothing but excavation of land under the sea, is not allowed similar benefits. This increases the cost of port development.
Long-drawn environmental clearances are a risk associated with developing a port. K Venkatesh, Senior Vice-President (Developmental Projects), Head - Developmental Projects, (L&T), which is developing Dhamra port jointly with Tata Steel, cites environmental issues, over and above all the statutory permissions taken before the construction starts, as a challenge. "We have handled it proactively such that there is appreciation and cooperation with the local population and therefore faced minimum hurdles," he says. "However, there are difficulties raised by vested interests from time to time affecting the progress of the projects." SV Rajadhyaksha, CEO - Offshore Oil & Gas, Leighton Contractors (India) Pvt Ltd, also points out that prevailing stringent environmental laws and guidelines make quarrying stones (for breakwater construction) and barrow area for mucking earth and dredging the sea or river floor (for reclamation work) more difficult.
Port performance:Traffic handling
Traffic handled in FY10 grew to 818.7 million tonne, representing a year-on-year growth of 10.9 per cent. Intermediate ports accounted for most of this growth. The traffic they handled grew by 24.1 per cent vis-à-vis the 5.7 per cent of major ports. The better performance of intermediate ports stems from the 34.5 per cent year-onyear growth of Gujarat Maritime Board ports. Traffic at Navlakhi, Sikka and Pipavav, for instance, grew by a staggering 57, 64 and 76 per cent respectively. Among major ports, the highest growth rates were recorded for Paradip (22.8 per cent), Mormugao (17.2 per cent), Cochin (12.6 per cent), and Kandla (10.1 per cent).
"The acquisition of land for a port, particularly waterfront land, and getting it transferred into your name is a challenge," shares Capt. BVJK Sharma, Joint Managing Director & CEO, JSW Infrastructure Ltd. Land may either be acquired or reclaimed and in this context, he believes the Gujarat Maritime Board has adopted an encouraging stance by promoting the scientific reclamation of land. "If morphology studies and mathematical and physical modelling studies show that the reclamation of land will not prove harmful in the long run, it is an easier route to follow," he adds. "Port developers have to demonstrate that the development would be environment-friendly. Fisheries and the aqua ecosystem should not be harmed."
Shortages of land plague brownfield developments at major ports too, necessitating ways to overcome these challenges. Chennai Port Trust, for instance, is setting up a dry port and multimodal logistics hub on a BOT basis, on 125 acre of land near the Sriperumbudur SEZ, about 40 km away from the port. As a result, the development of the Rs 600-crore Chennai-Ennore road and the Rs 1,655-crore elevated four-lane corridor to Maduravoyal have become priority projects.
Tariff is another sticky subject. According to K Venkatesh, Senior Vice-President (Developmental Projects), Head - Developmental Projects, L&T, "The lack of uniformity of tariffs and its administration creates a lot of uncertainty, particularly in brownfield expansion in major ports." At present, tariffs charged by private operators at major port terminals are subject to Tariff Authority of Major Ports (TAMP). In contrast, the tariffs charged by operational non-major ports are unregulated and therefore these ports are free to set tariffs as per market forces. "A non-major port would typically charge Rs 250-300 per tonne of cargo handled while private operators at major ports would charge around 50 to 60 per cent for similar services," says Sushi Shyamal, Partner, Ernst & Young Pvt Ltd. Differentiation between tariffs at major ports and non-major ports may help the former build up demand for their services, if they can offer comparable or better turnaround time and cargo-handling efficiency. But Shyamal believes this differentiation may not apply in the future, "Corporatisation of ports in a true sense can only be achieved if they are allowed to charge tariffs on a competitive basis rather than regulated tariffs, thus benefiting enduse customers using these port facilities. It is expected that sooner than later India's major ports will have the flexibility to set their own tariffs and compete with non-major ports."
Viewpoint: limit field to larger players
For its part, the government has come up with model documents to bring transparency to the process of awarding PPP contracts and, thereby, encourage competition among private players. These include the request for qualification, request for proposal, and the MCA defining the terms and conditions of the contract entered into by the concessionaire and concessioning authority. Guidelines have also been framed forprospective bidders for the PPP project, with the aim of preventing private monopolies to emerge. For instance, existing private operators at major ports are not allowed to bid for another terminal to handle the same cargo within the port. The number of ongoing BOT projects that a private player can have in operation within a 100-km radius of a major port has also been limited. The intentions behind these measures are good, no doubt, but it's translating into an interesting situation, as Rajeeva Sinha, Director, Mundra Port and SEZ Ltd, describes. "We're seeing a number of port projects being bid for and awarded, but how many of the concessionaires are actually developing the ports they are awarded? Lack of financial wherewithal and requisite experience is forcing many concessionaires to scout around for parties to buy their concessions. At this point, a part of the risk is mitigated as land may have already been awarded. But it would be more appropriate if the government introduces tough prequalification criteria to limit the field to players with sufficient financial muscle and requisite experience."
• The gap between installed capacity and actual throughput of Indian ports is way below international norms.• The National Maritime Development Programme has proposed a total investment of Rs 1,003 billion in 387 port projects by FY12.• Developing a Greenfield port is the most challenging infrastructure project.• Overcoming the many problems will enable Indian ports benchmark themselves with the world's best.