Rough road ahead

India is beginning the long process of modernising its ports and their related infrastructure – although few expect it to be quick or without bumps.

The most recent milestone in this process was July 18 when the Government approved the draft Major Port Authorities (MPAs) Bill, 2016 to replace the existing Major Port Trusts Act (MPTA), 1963. This will, according to the Government, “empower the 12 major ports to perform with greater efficiency on account of full autonomy in decision making”.

Government thinking is that India’s major ports face severe competition and difficulties in implementing the changes necessary to allow them to compete in the more competitive world of 2017. One particular issue is “the regulation of tariff in the major ports by the Central Government are some of the critical factors hindering their growth and development”.

Hence the planned overhaul, which aims to provide greater autonomy and flexibility to the country’s twelve major ports. This will be done by moving to a Board of Port Authority for each instead of a Board of Trustees. More importantly, each new Board will be allowed “to use its property, assets and funds in such manner and for such purposes as it may deem fit”.

One key detail is that the Boards are empowered “to raise loans and issue securities for the purposes of the capital expenditure and working capital requirements”.

They are also allowed to enter into any contract necessary for the performance of their functions under the proposed legislation, to make regulations for operation, development and planning, to frame the scales of rates for assets and services available at major ports and to claim lien on such goods and to seize and detain them until rates and rents are fully paid.

“An Adjudicatory Board has been proposed inter-alia for expeditious disposal of disputes between ports and PPP concessionaries and suggest measures for revival of such stressed to them,” says the Government. “This will help boost private investment in port sector and enable faster dispute resolution.” The key is in the second sentence: it is not so much what is being set up but about encouraging investment and getting things moving.

Getting serious

There can be no doubt about it, this is serious legislation that signals big changes in the offing as well as the Government’s commitment to India’s Sagarmala, its port-led development programme.

Industry support is already there. “It’s a very big reform and it’s clearly something that is welcome,” Julian Bevis, senior director, group relations for Maersk Group, tells Port Strategy. The trouble is the legislation is prospective which means it does not apply to existing ports and terminals, only to those that will be built in the future.

“Essentially for the private operators they will remain under those existing guidelines until the government works out a way for them to go forward,” says Mr Bevis. “A lot of terminals are stuck on guidelines that are outdated and inappropriate.”

But this is only the start of what could be a long and multi-pronged process as much more is needed to modernise India’s regulatory framework. India’s Port Ministry’s website reports that the Rajya Sabha, the Upper House of India’s Parliament, unanimously passed the Admiralty (Jurisdiction and Settlement of Maritime Claims) Bill, 2017.

This Bill aims to establish a legal framework for consolidation of related laws to replace the “age old archaic laws” with modern Indian legislation and to confer admiralty jurisdiction on all High Courts of the coastal states of the country, the website says. The Bill also provides for prioritisation of maritime claims and maritime liens while protecting owners, charterers, operators, crew members and seafarers at the same time, it adds.

The Bill also repealed five different Admiralty Acts which range from 126 to 177 years old – an index of how ill-suited India’s current legislation is for its current goals, but also a hint as to how complex and time consuming its reform is.

Three challenges

Within this reform process, three issues are regularly flagged by port users: labour, Customs services and tax.

The issue of labour is not so much one of cost, but one of inflexibility. The Government has allowed some change but certain rigidities still have to be dealt with. Customs services face a similar issue.

But while India is not known for its ease of doing business, it is attempting to improve its offering and is working on how its Customs operates is part and parcel of that.

“The government is trying to define it more simply,” says Mr Bevis, pointing out that there are more single windows and local portal use.

Already underway are changes in tax policy with the introduction of a national Goods and Services Tax. This in itself is a major reform as previously multiple indirect taxes had been levied by both the Centre and the Indian States. The Indian government has pushed hard for this, believing it will significantly boost Indian manufacturing and exports.

However, that has not been the initial experience as the implementation of the tax has, at least in the short term, disrupted rather than helped business.

“We are facing some hiccups in the flow of goods as importers and exporters are holding back on their orders due to familiarisation of the GST process. We are experiencing a decline in our trade volume especially with our imports but we perceive this impact might be temporarily,” Charlie Chu, executive vice president (business) for Regional Container Lines tells Port Strategy.

Capacity and connectivity

A bigger possible disruptor is capacity and connectivity. RCL’s Mr Chu says: “India’s existing ports infrastructure is not sufficient to handle the increased loads – cargo unloading at many ports is currently inadequate, even where ports have already been modernised. We are seeing the real issue with connection on roads and trains which, well beyond their capacity, affect efficiency.

“Port hinterlands are to be industrialised and increased activities put the biggest strain on road, rail facilities, and sea ports. Current development needs to speed up in order to fill this gap.”

Jason Chiang, director at Ocean Shipping Consultants agrees there is an issue with on land connectivity. He also paints an interesting and highly regionalised picture of India with large west coast ports that can cope with up to 14,000 teu ships against the east coast’s mainly river ports. Import pull is underlining the need for capacity build up. This is needed “pretty quickly” at Mumbai’s Jawaharlal Nehru Port Trust (JNPT) which he believes “could be improved a lot by operational improvements”.

The biggest issue overhanging all this though is how improvements are to be paid for. Despite the current boom, India is a poor country with a lot of needs pressing on limited government money. Fortunately, foreign direct investment is allowed and there is, as Mr Chiang points out, ”lots of interest in the private sector in ports”.

Quick off the blocks was DP World who announced in May it will be investing over $1bn in what it terms “logistics opportunities” over the next five years. Specifically focused on ports, DP World mentioned developments under the Sagarmala programme, river transportation and port-led economic zones.

This money is more important than it might first seem because one of the weaknesses of India’s position has been its refusal to take part in China’s One Belt One Road (OBOR) project, which is being used to fund Hambantota port in Sri Lanka and Gwadar Port in Pakistan. Big projects of a similar type will not happen in India unless there is a major domestic and international reconfiguration.

Lack of willingness

There is also a stubborn unwillingness to co-operate across the country.

One reason for India’s public refusal to even attend OBOR conferences is China’s funding of the China Pakistan Economic Corridor (CPEC). This connects Gwadar Port to Western China via road, rail and pipeline links through Northern Pakistan including through the much-disputed, Indian-claimed Kashmir.

Even though some of the Indian corporates, such as Tata, are keen for Delhi to sign up to the OBOR initiative, Kashmir makes it “very hard to resolve because it touches on issues such as sovereignty and security”, says Peter Cai, a Research Fellow at Australia’s Lowy Institute.

Also undermining Indian involvement is the OBOR package itself which is as much about shifting China’s surplus of cement and steel as it is about building the connectivity South Asia needs.

“I can’t see how India can join in the foreseeable future,” says Mr Cai. Short-term it has little impact on port development in India but long-term it might affect who and where those ports are built to serve.”

URGENT NEED FOR NEW PORT

Bangladesh illustrates all too well the problems afflicting ports throughout South Asia. Chittagong has to facilitate both exports and imports for the country’s thriving garment sector but it too has problems with connectivity.

“Maritime access is a bit of an issue, as is access from landside,” Maersk Group’s Julian Bevis tells Port Strategy.

Chittagong is essentially still a river port, as Ocean Shipping Consultants’ Mr Chiang points out, and dredging the river is, as he put it, “not quite possible.” On top of that the existing facility is distant from Bangladesh’s economic hinterlands which are clustered around the upriver capital Dhaka.

There is strong feeling that the country needs a new port but the issue is who should pay for it. This tends to run behind the more important debate about where such a facility would go.

“We really need a deep sea port to reduce our lead times and costs,” the Bangladesh Garments Manufacturers and Exporters Association tells Port Strategy.

Complicating this is the lack of private sector involvement. However, longer term they may be a glimmer of hope as government-to-government funds, most likely from other Asian countries, could kick-start new ports, which could in turn attract private money at a later date.

CORRIDOR LEAVES PAKISTAN WANTING

Incremental improvements at Pakistan’s major ports illustrate the changes afoot in the country and the region, but these are being overshadowed by a dispute about China Pakistan Economic Corridor (CPEC).

Topline changes are the arrival of new cranes at Gwadar and the start-up of the bulk terminal at Karachi’s Port Qasim. As important are deepening of the channel from 13.5 metres to 16.5 metres; the completion of the 1m teu South Asia Pakistan Terminal Deep Sea Terminal; computerisation of port operations; online Customs clearance; and filing via WEBOC (Web Based One Customs, developed by the Federal Board of Revenue and Works under the Customs Authority; and accession to the TIR Convention and its implementation for cross border transportation.

With these reforms, the current container capacity at Pakistan’s ports is 4.1m teu, while Karachi Port has a capacity of 70m tonnes, Port Qasim’s capacity is 58m tonnes and Gwadar’s capacity is 4.8m tonnes.

“The Markran Coastal Highway of 630 kilometres has been developed, connecting Gwadar Port with Karachi Port and Port Qasim and all the ports work under WEBOC system for goods declaration,” the All Pakistan Shipping Association said to Port Strategy. “However, the master plan of Gwadar is still awaited to exactly know what new development programmes are underway.”

What is making headlines, though, is not these changes but India’s tantrum over the CPEC which is the road, rail network and pipelines connecting Gwadar to China via the disputed Kashmir.

That said, the All Pakistan Shipping Association is optimist about the future, while acknowledging that more work needs to be done.

“Under the CPEC regime we believe that both inbound and outbound cargo volumes will increase tremendously and we need to fortify the cargo handling capacities across Pakistan, specifically the rail connectivity with terminals and demand centres, and encourage private sector to invest in logistics related commercial services,” it said.