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Globalization of Port Logistics: Opportunities and Challenges for Developing Countries Role of PPP – Adani Experience Yogendra Sharma President, Adani.

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Presentation on theme: "Globalization of Port Logistics: Opportunities and Challenges for Developing Countries Role of PPP – Adani Experience Yogendra Sharma President, Adani."— Presentation transcript:

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2 Globalization of Port Logistics: Opportunities and Challenges for Developing Countries Role of PPP – Adani Experience Yogendra Sharma President, Adani Logistics, INDIA

3 Presentation- Layout Indian Economic Scenario EXIM trade in India Factors Contributing success of Container Terminal development Role of the Govt – Policy Initiatives Role of Public-Private-Partnership Adani experience – a case study

4 In India much has been done in the field of port infrastructure. Much more needs to be done if India is to avail of the opportunity to secure and maintain a competitive advantage for its industry and thereby its people.

5 Indias Growth Story India is the third fastest growing economy in the world GDP growth – moving continuously upward 5 – 6% in Previous two decades 7.5 % in years and % in year % in year % + GDP growth is achievable This growth represents a structural increase rather than a cyclic upturn Indias GPD shall grow four times by 2020 Import of capital goods increasing According to the Mc-kinsey report – India shall –Become 5 th largest consumer market by She is at 12 th position today –Have 400 million people with annual disposable income of US $ –Have market size of US$ 1750 million

6 Few Growth Drivers Industries Cement Finished Steel Automobile

7 Manufacturing Foreign Tourists arrivals Few Growth Drivers Others Positive demographics – over 50% population under 25 years A high 60% literacy rate Increasing Domestic Consumption

8 Growth drivers of Logistics Globalization:- India, which has a low-cost manufacturing base, is establishing itself as the worlds manufacturing hub. The lowering of trade barriers by various countries, combined with rapid advances in global transportation and information technology, has led to the proliferation of global manufacturing networks. As companies operates globally, their logistics needs increase correspondingly. FMCG:- It accounts for 80% of consumer spending in India. Rapid Growth in the processed food segment, as is evident from expansion of branded food outlets and café chains, provide ample opportunities for logistics service providers.

9 Ocean Logistics Indian coast line Kms India has 12 major and 184 minor ports Sea traffic in India carries 95% of Indias exports by volume and 70% in value terms

10 Major Ports in India (Controlled by Central Govt) Kandla JNPT Mumbai New Mangalore Marmagoa Cochin Tuticorin Chennai Ennore Visakhapatanam Paradip Haldia

11 Ennore

12 and (30 Years)+ 61 Million Tonnes and (10 Years)+ 72 Million Tonnes and (10 Years )+ 217 Million Tonnes and (7 Years) Million Tonnes TRAFFIC AT INDIAN PORTS In Million Tonnes

13 Traffic Projections at Indian Ports. (#) CAGR = Compounded Annual Growth Rate between and % for Major Ports, % for Non-Major Ports and Overall 8.69% Overall CAGR : 7.70% Major Ports : 6.99% Non Major Ports : 9.55% ( onwards) In Million Tonnes

14 Container Traffic Projections (#) CARG = Compounded Annual Rate of Growth for Container Traffic is 15.71% In Million TEUs

15 Container Traffic Throughput Growth Projections

16 JN PORT- CONTAINER TRAFFIC PROJECTION UPTO TRAFFIC FIGURES IN MILLION TEUs

17 Few Facts The major ports – contribute to more than 75% of the total traffic handled. A total of MT in as compared with MT in , 9.51 %. Projected capacity of 1 billion ton by Five ports – Vishakhapatnam, Kolkata, Mumbai, Chennai and Kandla – crossed 50 MT each. All have inadequate draft for mainline vessels. The Jawaharlal Nehru Port crossed the 3 million TEU mark, handled 3.30 million TEUs in as against 2.67 million TEUs in – to register a 23.6 per cent growth in container traffic. Container Traffic In India 17.85% in as compared to 13.6% in last five years. The turnaround time at Indian ports improved from 8.5 days in to about 3.5 days in Today ports capacity is short of 7 container berths. Current container handling capacity at terminals is about 7 m TEUs. 60% containers transshipped at Colombo, Singapore and Salalah. US$ 20 billion - estimated investment by the end 0f 11 th plan

18 Market Segments Imports 1.ICD by Rail (33.3 %) 2.ICD by Road (4%) 3.En Bloc CFS (59.7%) 4.Green Channel (3%) Export 1.ICD by Rail (22.6%) 2.ICD by Road (7.5%) 3.CFS by Road + Buffer Yard ( 26.5 % + 7.7%) 4.Factory Stuffed under Excise Seal –35.7%) The above movement pattern throws some basic questions? The JNPT Case

19 Movement Pattern of Containerized Cargo Unevenly distributed over the hinterland Total market share – 5.5 MTEUS (06-07) –North 1.5 million TEUs – 26% –West 2.1 million TEUs – 40 % –South 1.5 million TEUS - 26% –East 0.40 million TEUs – 8 % About 70% traffic is on the North- West corridor This uneven distribution of origin/destination of goods poses a challenge for transporters

20 NUMBER OF CONTAINER TRAINS AT JNPT (Projections between ) YEAR TRAINS PER DAY 2006 / / / / / /

21 Are We Aware ? That in India containerized trade is JNPT centric YearTotal (MTEU) JNPT (MTEU) %Others (MTEU) %North bound %2.2040% %7.5560% 5.25 This is putting undue pressure on land bridging, both on roads and rail. If JNPT grows as per plan, its market share will come down from 60% to 40% in next five years. And market share of other ports shall reverse from 40% to 60%

22 So What is the Challenge ? By , India will have to create additional 5.35 MTEU capacity in non major ports as JNPT shall add only 1.45 MTEU by that time. Due to their location, additional berths shall come at Mundra, Pipavav, Hazira and Dholera or the cost of inland transportation shall go if southern ports have to deal north bound cargo. By , we will need 150 trains daily from north to western ports to evacuate the cargo. While JNPT shall deal 60 trains, other ports ports shall have to deal with 90 trains per day. It shall be a serious issue as neither ports, dry ports, or the railway are prepared for it. Of late Govt has initiated some action, It is enough? Let us examine?

23 Factors Contributing Terminal Development Composite growth of port logistics depend upon the development of following infrastructure Ports Side Facilities –Ocean side development –Ports terminal development Hinterland Connectivity –Dry ports development –Railways connectivity –Roadways connectivity –Container Trains

24 Government Initiatives Looking into impressive growth indicators in EXIM business, Indian govt has taken many initiatives in development of port logistics through Public-Private- Partnership This has shown impressive results

25 1. Port Terminals Development The Government has redefined the role of ports - from being mere trade gateways to becoming integral components of the global logistics and transportation chain by: Increasing the plan outlay for ports by per cent from US$ 175 million in to US$ 330 million for Launching National Maritime Development Programme (NMDP) for a 10 year period, to ensure holistic development of the maritime sector. It covers 276 projects with investment of US$ 12.7 billion, of which US$ 7.9 million is expected to come from private investment. Setting up a Committee of Secretaries under the chairmanship of the Prime Minister to oversee projects implementation

26 1. Port Terminals Development Opening up all the areas of port operation for private sector participation. Allowing FDI up to 100 per cent in construction and maintenance of ports/harbours and in other area providing support services, such as operation and maintenance of piers, loading and discharging of vehicles. Leasing out of existing assets of the ports to private operators for providing port services up to 30 years. Establishing an independent tariff regulatory authority, Tariff Authority for Major Ports (TAMP), to regulate tariffs in ports, 100% income tax exception for 10 years..

27 1. Port Terminals through PPP Already US$ 1052 million invested in 15 port development projects, including 7 container terminals, 4 liquid cargo berths and 4 dry cargo berths projects. Further 1 container terminal, 2 for liquid cargo berth and 2 for dry bulk cargo berths – with an investment of US$ 562 million are under way. PSA Singapore-SICAL operates one terminal with 0,4 Million TEU capacity at Tuticorin port, Also developing another terminal at Chennai Maersk - APM Terminals in Joint Venture with Container Corporation of India Ltd.operates at terminal at JNPT. Maersk also invested in Pipavav port, their total investment is of the order of US$ 500 million in India

28 1. Ports Terminals through PPP DP World - developed one terminal each at JNPT Cochin Mundra port Kulpi ( West Bangal), their total investment to touch US$ 2 billion. Vallarpadam transhipment port in association with Cochin port at an investment of US$ million. ABG Volti- Kandla Port Shell - Hazira Adani – Mundra Reliance – Rewas Tata – Dhamra Private developers offered revenue sharing between 33.3%(DPW at Cochin) to 48.99%(ABG at Kandla) while bidding.

29 2. Container Freight Station/Dry ports Dry ports play an integrated role in promotion of EXIM trade of a country having big land mass like that of India. Rail linked dry ports, known as ICDs, facilitate smooth movement of containers by rail over a long distance and reduce pressure on roads, to avoid case like Diesel clouds in China as reported in papers recently. So far only state owned CONCOR was operating container trains in India. Today they have 56 terminals across country. Due to monopoly of CONCOR, there has been limited growth of dry ports, leading to spurt in Freight Stations near port causing congestion on roads, pollution in Cities. Quality of terminal services has also been a major issue due to monopolistic environment

30 2. Development of Dry Ports through PPP So far Private parties were free to open Container Freight Stations any where in the country, However they were not given rail connectivity Result – They were using roads for moving goods to the gateway ports, leading to high cost and inefficiency. Govt in Jan 2007 has signed a 20 year agreement with 14 other private operators for setting up rail side container terminals Already 3 private terminals with annual rated capacity of 0.2 million TEUs have become operational. At least 10 terminals are likely to come in year Private party arrange land, building, equipment, rail facility, manpower, etc. Govt only facilitates rail connectivity and provides locomotive for evacuation of their trains. Operators is free to market its services and retains revenue. This will create capacities for meeting growing demands of EXIM trade. Also there shall be technological advancement due to competition

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32 NORTHERN INDIA - 6 NORTHERN INDIA - 6 SOUTHERN INDIA - 10 WESTERN INDIA- 13 EASTERN INDIA- 08 CENTRAL INDIA- 09 TOTAL - 56

33 Port-Hinterland connectivity According to Govt policy, all major ports should have a minimum of four-lane road connectivity and double line rail connectivity In case of projects having low IRR, govt provides budgetary assistance or viability gap funding Road connectivity upto 50 kms shall be part of port infrastructure. This is to create supply ahead of demand

34 3.Port Connectivity – Roads India has second largest road network in the world, with 3.32 million km roads, however congested, leading to over deaths every year.. National Highway Authority of India set up to take development of national highways, including development of –4 lane highways to six lane, 6500 kms –2 lane roads to four lane highways, 12,000 kms –Single roads to 2 lane roads, 20,000 kms, –New Expressways 1000 kms –Ring roads, grade separators, bypass, and service roads, etc. Needs US$ 50,000 million for next five years. Private sector investment is pouring in toll roads, accelerating speedy implementation. However, Such PPP projects some time become unaffordable for the consumer and expectations fall leading to backlash as seen in south America, Eastern Europe and Russia Govt encourages 100% FDI in such projects

35 The Golden Quadrilateral and North- South, East- West projects

36 4. Port Connectivity – Rail In 2000 – Railways in association with a private developer, set up a Special Purpose Vehicle under PPP to provide rail connectivity to Papavav port( 270 km). In 2003 – under National Rail Vikas Yojna, Ministry of Railways set up Rail Vikas Nigam Limited to develop various railway projects under PPP in order to Improve rail connectivity to various ports Augment rail capacity on golden quadrilateral In 2004 – Another SPV (Kutch Rail Company) was set up to convert 301 Km MG line to provide double line to Kandla and Mundra ports. Other partners were Kandla port, Mundra port and Govt of Gujarat. In 2005 – Another SPV set up to improve connectivity to New Mangalore port.. Other partners are State Govt, Financial institutions. In 2007 – 3 more SPVs formed for providing connectivity to Paradip, Krishnapatnam and Dahej ports In Dedicated Freight Corridor Company limited set up to plan and construct two Freight corridors at the cost of US$12500 Million

37 New Rail Freight Corridor Routes

38 5. Opening of Container Train Operations to the private sector So far only govt owned company CONCOR was in container train operations in India. CONCOR market share has been only 30%, other 70% cargo either moves by road or gets de-stuffed at port and moves in break bulk. It defeats very purpose of multimodal transport, which is based on the principle of Door to Door delivery of goods in containers. It also poses many problem to the local administration as the roads leading to major ports are getting chocked. Also due to monopoly of one operator, quality of service was affecting too.

39 Private Container Train Operation. In a land mark initiative, Ministry of Railways, in Jan 2007, threw open operation of container trains to the private sector. CONCOR monopoly ends Licence to 14 more players granted –10 for all India operations – 4 for operations to other than JNPT 20 year licence granted on payment of US$ 12.5 million for all port routes and US$ 2.5 million for ports other than JNPT. Operators to acquire rolling stock, plan ICDs and commence operations in 3 years time. Railways to maintain rolling stock and provide locomotive, crew, etc. for movement of their trains on payment of predetermined haulage charges. Private operators are free to market services and fix tariff based of market conditions.

40 Container Trains by Private Operations MOR guaranteed level playing field to all operators, including CONCOR. In less than a year, 10 private operators have commenced operations, putting 35 rakes into service so far. CONCOR has only 160 rakes in all. This means 22% expansion in capacity in less than a year. This has also lead to new innovations where due to competition, operators are busy in providing customized solutions, including new box types for domestic cargo. For the first time, automobiles have started moving in containers. It also opens up new opportunities for coastal shipping of domestic cargo.

41 Upto five cars are stuffed in one FEU

42 6. Double Stack Container Train Due to multiple players, improving throughput on the oversaturated railway system has been a big challenge Through an another innovative exercise, in March 2006, Indian Railway introduced operations of double stack container trains, India becomes 3 rd in the world. IR is operating DSC trains on flat BLC wagons on diesel territory, thereby enhancing throughput by 100% With Average pay load of 12tonne per TEU, it is possible to operate DSC on IR with Ton axle load Railways have also decided to increase axle load to 22.9 ton on DSC routes to carry heavier weight cargo

43 6. Double Stack Container Trains Indian Railways also announced 50% concession in haulage rates for the containers moving on the upper deck. According to an estimate, for moving 0.2 million TEUs in double stack form, there is direct saving of US$ 15 million. Cost of inland transportation in India is about 14% as compared to 8% in developed countries. DSC trains shall enable the operators to lower their cost for shifting cargo from road to rail. Operators are also trying to innovate for movement of cars in double stacks under electrified territory to reduce cost.

44 DSC trains Routes on IR

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46 What is PPP? A Public-Private-Partnership is a contractual agreement and a legal framework between a public agency (Federal, State or Local) and a private entity in order to execute an assigned project for sharing risks and rewards Characteristics of PPP –Inadequate public funding leading to significant gap between demand and supply –Need for attracting private capital providing reasonable rate of return to them, who improve managerial efficiency –All stakeholders share risks and rewards –Government or the Principal agency develops projects and facilitates its execution, whereas Private investors bring in design, technology,execute, and manage operations & maintenance. –In case project is not viable, on the recommendations of the nodal public agency, Govt provides viability gap funding

47 Govt Initiatives on PPP To promote PPP, a committee on Infrastructure was set up under Chairmanship of the Hon Prime Minister In 2005, Govt of India announced Scheme for Financial Support to PPP in Infrastructure Under the scheme, Govt provides Viability Gap Funding to the important projects of relatively low Internal Rate of Return VGF is granted for a maximum amount of US$ 50 Million, subject to 20% of the total project cost

48 Kinds of PPP There are various types of PPPs based on the extent of Private Sectors Participation Service/ Management Contracts BOT/ Concession BOOT/ BOO Lease Complete Privatization Public Private Partnership Low High Extent of private sector participation

49 Roles Allocation between Public and Private PPP OptionsAsset OwnedO&MCapital ExpCommercial risk Duration Service contractPublicPrivatePublic 1-3 yrs Management Contract PublicPrivatePublic 3-5 yrs LeasePublicPrivatePublicShared8-15 yrs Concession/ BOTPrivate/PublicPrivate yrs BOOT/BOOPrivate/PublicPrivate yrs/ indefinite

50 Agents of PPP Principal –The principal is usually a government agency, a local or federal government body that recognizes the need for a public facility to be provided under PPP Concessionaire –The concessionaire is usually a private party/consortium that takes the responsibility of developing (designing, financing and constructing), maintaining and operating the facility, on behalf of the principal. –The concessionaire is the owner of the facility during the concession period and realizes profits on their investment through the usage of the facility

51 Agents of PPP Investors –The shareholders bring in capital in exchange for equity, –Lenders support the concessionaire in project development and provide finances as debt through long term loans Contractor –concessionaire appoints a contractor for construction of the project under an agreement –In some cases, the contractor is part of the concessionaires consortium –contractor is responsible for the construction of the project and for hiring subcontractors, suppliers and consultants

52 Agents of PPP Operator –The concessionaire either by itself or through its agent manages the day to day operations –The operator brings new technology and set higher benchmarks for improved efficiency – –The Concessionaire either by itself or through same /other operator maintains the facility –The Operator recovers its cost on O&M from the concessionaire

53 BOT/BOOT – Legal Framework PRINCIPAL Concession Agreement Shareholders SHA Executing Agency Cons. Agreement Special Purpose Vehicle Debt Financing Lenders Agreement Operations & Maintenance Agreement Beneficiaries Construction cost Limited EquityFacility Concession Dividends Equity Debt Debt Servicing O&M Cost O&M Services Revenue

54 Mundra Port – A successful PPP case With a coast line of 1600 km, Gujarat has 43 ports including only one major port. In 1995, state government invited private parties for development of minor ports in Gujarat Two ports were developed, including Mundra port by Gautam Adani Mundra had no rail connectivity. Adani built 62 km line at his cost. Adani also took 20% equity in 315 km line providing alternate route to Mundra port. Adani asked P&O ports to operate one container berth. Adani provided all social infrastructure required for port operators and the users.

55 Mundra Port as a PPP case Today Mundra has 12 berths, including two for container handling. Mundra also has Indias first multi commodity SEZ spreading over 100 sq km area. Handled 19 million ton cargo in , shall handle 50 million ton by With one additional berth becomes operational, port can handle 2 million TEU. Cargo handled in increased by more than 140 % over the previous year. Mundra port and SEZ is inviting huge investment, shall give rise to port traffic. Today Mundra has deepest draft (17.5 meter) in India Mundra provides shortest route to the vast northern hinterland, providing cost effective solutions to the customers. Now Adani is developing two more non major ports in Gujarat.

56 Mundra Port- Logistical Connected RAIL Connected to the Indian Railway network at Gandhidham through the Mundra – Adipur Broad Gauge line AIR Aerodrome at Mundra to land private jets, to be opened to commercial plane ROAD Connected to the National Highway (NH 8A) and State Highway (SH 6)

57 PPP Effect - How did Govt gain? Indias expenditure in infrastructure has been only 4% of its GDP during the period from to In recent years, the infrastructure deficiencies have become more visible because of high growth, Infrastructure at port, highways, railways, airports, etc. are overstretched, leading to overcrowding and queuing up. India need over US$ 490 billion in next five years in various infrastructure projects, including $200 billion from private investment. Unable to meet growing demands, India promoted PPP in infrastructure and received massive capital funds through Private investment. This has lead to availability of govt resources for other projects in social sectors. Through PPP govt is able to create asserts, which shall revert back to them after the expiry of concession period.

58 How did Promoters gain? Private developers, who are able to raise money at the competitive rates, due to innovation in design and new technology in construction are able to create assets at much faster pace and get fixed returns as annuity payments Or in case of BOT projects, developers recover their investment through access /toll charge as in case of highway /railway projects. In case of ports and airports, investors get direct revenue from the services provided based on revenue sharing mechanism. In case of Railways, JV companies get apportioned revenue after meeting their O&M cost. In addition, investors get rail connectivity, which is crucial to their project such as private green field ports because the existing rail infrastructure was inadequate in meeting growing demands. This is evident from the growth of private ports such as Mundra in state of Gujarat. Due to better connectivity, a large number of major industries moved into the area leading to more opportunities for the state and rapid growth in employment, real estate, power, roads, health, service sector etc.

59 How did Customers gain? Under monopolistic situation it is the customer who suffers the most as supply becomes limited. We have seen in case of telecom in India, how life of a ordinary customer changed after it was opened to the private sector. Today even daily wage earner is able to afford a cell phone. In case of transportation, customers are able to have better services at lower cost, meet their shipment needs. Today they can opt port of their choice for discharging their goods at much faster pace. Indian Manufacturers are increasingly becoming cost effective in the export goods. Global manufacturers are moving into India, which shall lead to better goods at low cost to the customers.

60 Recommendations As JNPT shall not be able to handle projected growth and evacuation shall become difficult, need to promote other ports to handle containerized cargo and improve rail linkages through PPP with consistent policy frame work. Govt to facilitate development of dry ports as land acquisition by the private parties is becoming difficult. Railways are on the other hand asking for a very high land lease for providing rail siding. Development of dry ports should be open to FDI as in case of ports. North- West dedicated rail freight corridor have to come fast, with the present speed it is not likely to come before Container train operators have to be given lower haulage rates as the present tares are not viable to start new business, particularly if you compete with roads. Railways to promote hub and spoke system by offering telescopic rates for the individual boxes as per their destination and not for a minimum number of boxes for a particular destination (80TEUs today). It will attract short lead traffic to rail and also improve frequency of service. Today acquisition of rolling stock and ICD equipments do not come under Export Promotion Scheme and there is no savings on excise/custom duty, as revenue does not come in foreign currency. Investment in EXIM trade logistics should come under EPCG.

61 Thank You for your attention Yogendra Sharma


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