India moves closer to modernising major state-owned ports

Indian port reform. Credit: JNPT

Putting an end to protracted delays and uncertainty generated by labour pressure and wider stakeholder consultation, the Indian government has approved a long-awaited reform bill designed to revamp and modernise the country’s major public port entities.

The proposal was first tabled in the parliament in 2016, but members then sought a review from the Parliamentary Standing Committee (PSC) before enactment. The modified “Major Ports Authority Bill 2020” legislation is set to repeal and replace the existing law of 1963 centering on a “trust” model. The new law will be put to another vote in the current parliament session for final approval, which seems a certainty because of the government’s overwhelming majority.

India has 12 major ports dotting the east and west coasts – Kandla (renamed Deendayal), Mumbai, Jawaharlal Nehru Port Trust (JNPT), Mormugao, New Mangalore, Cochin, Chennai, Kamarajar (renamed Ennore), Tuticorin (renamed VO Chidambaranar), Visakhapatnam, Paradip, and Kolkata (renamed Syama Prasad Mukherjee). These ports handled about 700 million tonnes of cargo in India during 2018–19.

The intended overhaul will allow greater operational and financial autonomy to government establishments that have stagnated due to years of underinvestment and bureaucratic controls, resulting in a steady loss of market share to minor rivals equipped with pricing and infrastructure advantages. Terminals at major ports are regulated by the Tariff Authority for Major Ports (TAMP).

To improve efficiency and competitiveness in port management and delivery systems, each major port is to be restructured with a leaner board of 11–13 members, compared with current 17–19 members. These members are also known as trustees. But the bigger gain from an investor perspective comes from a provision to abolish the role of TAMP in tariff setting, which will be replaced with a market-driven pricing environment to level the field with minor port operators and yield more competitiveness.

“The board of the Port Authority has delegated the power to fix the scale of rates for other port services and assets, including land,” the amended provision stated. “An Adjudicatory Board has been proposed to be created to carry out the residual function of the erstwhile TAMP for major ports, to look into disputes between ports and PPP [public-private-partnership] concessionaires, to review stressed PPP projects and suggest measures to review stressed PPP projects and suggest measures to revive such projects, and to look into complaints regarding services rendered by the ports or private operators operating within the ports would be constituted.”

These structural changes had incited displeasure among dockworker unions, who have held several protests and nationwide strikes to thwart the government’s intent, noting that reforms would lead to job losses and privatisation of port activities in stages. Further industrial actions remain a possibility on this count.

The emergence of a new crop of minor ports – led by the Adani Group – poses threat to the growth of major ports. The Ahmedabad-based diversified conglomerate has expanded its port-terminal reach to 11 locations with a recently announced USD1.9 billion deal for the Krishnapatnam Port. The group’s Mundra Port has recorded strong growth in recent years, powered by strategic partnerships with liner giants Mediterranean Shipping Co. and CMA CGM for terminal operations and broader cargo mix.

“APSEZ [Adani Ports and Special Economic Zone] with its pan-India presence has been continuously outperforming Indian cargo volume growth,” the company said. “Our focus on diversifying cargo mix continues. Gas [LNG and LPG] being the newest commodity added this quarter to the cargo basket. In FY 2020, we expect to achieve cargo volume of 224–226 million metric tonnes, revenue growth of around 13%, and EBIDTA growth of around 14%.”

With the above as a backdrop, it remains to be seen how resurgent, better-equipped major port leaders firm up their business plans to combat rising competition and regain lost cargo.