India’s PPP: Ports

There is a notorious delay in turnaround times at Indian Ports, in Mumbai it typically takes about three days to turn a container ship around, it Shanghai it takes eight hours. Massive investment is required to combat problems with inadequate berths, road links, and related infrastructure constraints. The major Ports highlighted for redevelopment are namely Kandla, Mumbai, Mormugao, New Mangalore on the east coast, Cochin and Tuticorn to the South, and Chennai, Ennore, Vizag, Paradip and Kolkata on the east coast.

With 12 major ports and 187 minor ports, the 7,517 kilometer-long Indian coastline plays a key role in maritime transport amongst international trade capabilities.

The Indian government reported that traffic handled at India’s major ports during April 2008 to January 2009 reached 436,686 units. The ports situation in India therefore offers tremendous scope for the development of international maritime transport both for passenger and cargo handling.

According to the Department of Shipping, the government of India has targeted an increase in the cargo handling capacity of major ports by 200 percent to reach 1.5 billion metric tons by the year 2012.

They aim to achieve this through an investment of US$25 billion through public-private partnerships. An independent Crisil credit rating report focusing on Indian ports and maritime transport estimated that port capacity will grow by 160 per cent over the 2011–12 period. Cargo handling at the major ports is projected to grow at 7.7 percent annually to 2011-12, while cargo traffic is estimated to reach 877 million tons by 2011-12. Containerized cargo is expected to grow at 15.5 percent over seven years. The new foreign trade policy sees India’s share of global exports doubling in the next five years to US$150 billion. A large portion of newly generated foreign trade is expected to be via shipping, taking an estimated 95 percent by volume and 70 percent by value of India’s total trade.

The government has undertaken the expansion and modernization of ports on a priority basis as part of its initiatives in the up gradation of India’s infrastructure achieving the targeted growth rate. According to the Ministry of Shipping, this includes numerous plans:

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• Formulation of a national maritime development policy to facilitate private investment, improve service quality and promote competitiveness. US$ 11.33 billion has been allocated for the same
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• An investment of more than US$9.07 billion to be made by 2015 for 111 shipping sector projects
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• In 2008–09, the Ministry of Shipping launched 10 major expansion projects at an estimated investment of US$1.06 billion, 60% of which was allocated for the Chennai mega container terminal
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• Permission for 100% foreign direct investment for port development projects under the automatic route
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• 100% income tax exemption is provided for a period of 10 years for port developmental projects
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• The opening up of all the areas of port operation for private sector participation
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• Increase in the rail connectivity of ports with the domestic market
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• The experience of operating berths through PPPs at some of the major ports in India has thus far been successful. It has been decided to expand the program and allocate new berths to be constructed through PPPs. A model concession agreement is being formulated for this purpose
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• The government has also decided to empower and enable the 12 major ports to attain world-class standards; to this end, each port is preparing a perspective plan for 20 years and an action plan for seven years
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• A high level committee has finalized the plan for improving rail-road connectivity of major ports; the plan is to be implemented within a period of three years and further changes in customs procedures are being carried out with a view to reducing the dwell time and transaction costs; the government has also delegated powers to the respective port trusts for facilitating speedier decision-making and implementation, at the same time, several measures to simplify and streamline procedure related to security and customs are been initiated
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• The National Maritime Development Program is expected to bring a total investment of over US$120 million into port infrastructure; improvements in the scale and quality of Indian port infrastructure are recognized as significantly improving India’s competitive advantage in an increasingly globalized world

For professional advice and assistance with foreign direct investment matters, incorporation, tax accounting, due diligence, payroll or audit services in India please contact Dezan Shira & Associates at india@dezshira.com or visit www.dezshira.com.