BUSINESS ENVIRONMENT

Vallarpadam Container Terminal Project: Enabling Port Infrastructure

Vallarpadam Container Terminal Project (VCTP) will be a unique one in infrastructure to boost the containerization in India. The establishment of VCTP will help in bringing larger ships to India and therefore will decrease the dependence on foreign ports.

-N Janardhan Rao and Deepak Kumar

The important infrastructures in port sector are marine access, cargo infrastructure, land access infrastructure, port superstructure services and port operators. A rapid increase in tariff volume over the years which has opened differerent challenges to restructuring the major and minor ports in India and to handle large tariff in less time, containerization is the need of the hour. The growth of containerization in India has been slow and steady the growth of containerization in India has been slow and steady and mostly dry goods based. Initially, it was government run and relied much on captive cargo. In 1988, Container Corporation of India (Concor) was established as an autonomous body under the Ministry of Railways, which has really boosted the container traffic in the country. The new terminals at Jawaharlal Nehru Port Trust (JNPT) and Mumbai port which have been established as the gateway ports for container traffic to India have really pushed up the volumes. Together, they have a market share of around 60% of the total container traffic. However, substantial investments have been made in recent times by private players in the ports of Tuticorin and Cochin to overcome the backlog. Following the global trend, Indian ports are trying to take the role of a hub port by developing the necessary infrastructure to attract large size mother vessels, but it is going to be a complex exercise, especially as regards trans-shipment cargo.

As of now 38 million tons out of 78 million tons of cargo is only being containerized in India. Thus, there is a big prospect of trans-shipment by containerization in Indian maritime industry. Raj Mal, Senior Principal PS to Secretary (Shipping), says, "The rate of growth of containerization should be speeded up so that more products are imported and exported using containers. Also, the infrastructure necessary for the manufacture of containers, and transport and containers documentation related to customs procedure should be speeded up and simplified."

P Nair, Senior Consultant and Member of New Initiatives Group, The ICFAI University says, "India has always been weak in the field of trans-shipment cargo, which is often the true test of the worth of a port. Captive cargo can always be obtained, especially in a government set up and there is no real need for a port to do any marketing to attract cargo. With trans-shipment, the situation is totaly different and there are several alternative ports of call along a route. The one which is most attractive both cost-wise and service-wise will be selected."

Vallarpadam Container Terminal Project (VCTP)

Vallarpadam is a part of the existing Cochin port. The Cochin port became a major port under the Major Port Trust Act 1963 and now has crude handling facilitates, containerization of cargo and electronic data interchange facilities, which have put Cochin in the front as far as port development in the country is concerned. The Cochin port has unique geographical advantages as it is near to international sea trade routes which connects Europe and the Gulf to South East Asia and the Far East.

Vallarpadam Container Terminal Project (VCTP) will be a unique project in infrastructure, especially to boost containerization in India. VCTP was
inaugurated by Prime Minister Dr. Manmohan Singh on February 16, 2005. While inaugurating VCTP, Dr. Manmohan Singh said, "The project would be a role model for private-public partnership, blending efficiently private sector managerial efficiency and marketing acumen with public sector capital and infrastructure planning."

VCTP will be India's first ever International Container Trans-shipment Terminal (ICTT). According to a CNBC report, this project will enable India to move into the top 20 maritime nations. A detailed study of VCTP was done by Frederic R Harris, the Dutch Consultants and the total establishment cost of VCTP has been estimated at Rs. 2,118 cr. Dubai Ports International (DPI) has emerged as the successful bidder for developing and operating the project on a Build-Operate-Transfer (BOT) basis for 30 years by quoting the highest revenue share of 33.30% to the Port Trust and the project is expected to be completed by 2009. It is expected to be one of the largest single-operator trans-shipment terminals in India.

Issues

Privatization of infrastructure is to some extent the necessity in today's world. The same goes for the port condition. The question of privatization in ports rose because of inefficiency in the system. There are several issues which need to be catered to in case of the VCTP like:

• Will DPI be contributing the overall development of the VCTP port services?
• Will labor unions accept the large-scale entry of private operators like DPI?

There has been seen several problems in privatizing this sector like multiplicity of activities within the port sector and the argument to justify port operation from public monopoly to private monopoly. Nevertheless, BOT projects are the backbone of today's Indian infrastructure because the government does not have sufficient funds to take care of every socio-regional-economical development and thus the time has come to involve private investors, be it Indian or international. In the port sector, Nhava Sheva International Container Terminal (NSICT) was the first ever concession agreement to P&O Ports (Australia) and NSICT has proved that privatization of ports will really work if properly managed. NSICT, today, is rated high on the international scale. Raj Mal says, "ICTT project in
India will be as successful as other BOT projects in the road sector in India." But
P Nair contradicts by adding, "Road projects are one thing and a massive high-tech container port is quite another thing altogether. Massive support will be required from the Kerala government and labor unions at least in the first five years of operation, to make this project a success." Thus, issues like labor problems and operational activities must be catered to while implementing high-tech and high-cost projects like VCTP.

While discussing VCTP's future contribution to the Indian maritime sector, Raj Mal says, "ICTT, Vallarpadam will help in bringing larger ships to India and, therefore, will avoid trans-shipment through ports such as Colombo. It is expected that private investors will ensure aggressive marketing and the best of technology to ensure faster throughput of containers through ICTT, Vallarpadam." At present, almost 70% of the trans-shipment business meant for India is being handled by ports such as Colombo, Salalah, Dubai, Aden and Singapore and thus the dependency on these countries will definitely be less.

Challenges

Generally, the following problems can be observed in a poorly developed port system:

• Too much idle time at the berth because of frequent break down of obsolete equipment and no assured timing for container trains.
• Inadequate berth and dredging and absence of round-the-clock working in three shifts as well as lack of commitment to work 365 days in an year.
• Non-matching working culture of the customs department for commercial needs of the port and lack of integration of port and trunk railways.
• Inadequate financial and administrative powers.

Thus, VCTP has to counter the above problems in order to brand itself among the best container terminals, especially when neighboring countries are highly equipped to handle traffics and to manage the system. In Raj Mal's opinion, the challenge before VCTP will be, "To compete with Colombo and ensure the latest of equipment and the best of practices at reasonable costs such that international lines will patronize Vallarpadam in competition with Colombo. The landward facilities in Cochin and the connectivity with the hinterland would be major challenges for ICTT." On the other hand, P Nair opines, "Getting the labor organized will still be a big problem, although the situation has improved somewhat. Also, the need to attract sufficient cargo to keep the port viable, especially at the initial stage is the key. Cochin is definitely not a port which is really on the international maritime map. So, marketing is a major issue right now." Therefore, the process of `brand building' and road shows will have to start and some amount of money and time will have to be spent in this process. At the same time, Indian maritime has to take a lesson from international maritime, which has done really better by implementing high-tech technologies. The Singapore Port, for instance, uses advanced communication and information technology to allow its terminal operators to communicate with terminals in order to enhance its productivity.

Future opportunities

Vallarpadam, ICTT will help bring trans-shipment of Indian cargo back to India. Raj Mal says, "Since Vallarpadam is part of the existing Cochin port, we hope that the strategic advantage of line owners to the international route will be fully utilized by this terminal." Thus, projects like International Container Trans-shipment Terminal (ICTT) at Vallarpadam, Cochin will be helpful in bringing up India in the international maritime industry. P Nair also quotes, "The strategic advantages in establishing Vallarpadam container terminal is its `East-West' route. Earlier, ships used to avoid this port due to

(i) Poor technological facility and

(ii) Constant and consistent labor troubles, leading to delays."

In sum, VCTP will handle the bulk of the cargo from this terminal, which is now trans-shipped via Dubai, Colombo, the ports of kelang, Salalah and Singapore. The completion of the ICTT project will reduce container traffic and save time. The completion of such projects will surely be helpful in placing the Indian maritime industry on the global map.

Reference # 01M-2005-05-02-01.