Indian port problems – blame the government

16 Feb 2012 - By Gavin van Marle - Editor's Blog

One of the more absorbing long running stories in the port sector is the development of India’s container terminal capacity. As an ex-resident of India – I was based in Chennai for a number of months in 2004 – I have followed the extraordinary twists and turns of the country’s ports for several years with great interest and, at times, not a little despair.

If anything, the creation of a set of modern box ports able to handle the country’s burgeoning trade is a microcosm of the tensions between governments trying to assert their authority in the globalised trading environment of the twenty-first century.

Yesterday APM Terminals CEO Kim Fejfer gave a speech to Indian business leaders at the Indian Ports Conference in Mumbai in which he noted the huge disparity between India’s potential and the depressing reality.

The world’s second largest country in terms of population cumulatively handled just under 10m teu last year – less than the port of Rotterdam and only marginally above the UK, a country with just 5% of its population. And while much of the world economy languished in close to recession in 2011, India recorded a 7.8% economic growth.

That starting point ought to be enough to whet the appetite of all global terminal operators, and indeed it does, until they have to deal with its legendary bureaucracy, in this case represented by the Tariff Authority of the Major Ports (TAMP), which sets handling rates at both private and public box terminals India’s largest 13 ports.

TAMP’s remit is to protect Indian exporters and importers from private operators imposing excessively high handling rates, and given the intense pressure on port capacity across the country this is a legitimate concern. However, its insistence on continually reducing box handling rates is only making investment in Indian ports ever less attractive.

APM Terminals this week received notification from TAMP that it is reducing its handling rates at its flagship terminal in Jawaharlal Nehru Port, APM Terminals Mumbai, by a staggering 44%, while APMT had applied to increase rates by 8.7%.

The absurdity of this is clear – long-term infrastructure investors such as terminal operators rely on a certain revenue surety before they push the button on investments. They can accept the risks attached with economic downturns, labour issues and hidden problems such as hinterland traffic bottlenecks, but to add into that mix a government authority which can – seemingly at random – dictate rates that bear no relation to the value of the original investment and the need for the operator to see a return on his investment is only going to drive other investors away.

When India unveils its next major terminal tender, who will be willing to buy the bid documents when they understand that whatever parameters are set out can also be changed down the road by TAMP?

As Mr Fejfer said diplomatically, “Port tariff regulations which penalize increased throughput and productivity will not assist in developing the needed infrastructure.”

It appears operators are beginning to vote with their feet. For several months Singapore’s PSA has been understood to have won the bidding for JNP’s fourth container terminal, but no agreement has yet been signed and all the indications are that it is pulling out of the project altogether.
India desperately needs to modernise its port infrastructure, and it needs global terminal operators – who have the required expertise – to help it achieve this, but they will remain reluctant to participate until the government understands that an investment climate that rewards efficient terminal operators will benefit the entire economy.