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Mamuni Das
T. C. A. Srinivasa-Raghavan

India has a coastline of 7,517 km, including the circumference of its islands. Without the islands, the coastline is 6,100 km. More than 3,500 km of this are accessible to large vessels.

To serve this long coastline, India has 12 major ports, which carry about three-fourth of the total traffic. And there are about 200 ‘minor’ ports. Sixty of these handle large volumes, so large as to be major, really.

So what’s the difference between ‘major’ and ‘minor’? The major ports are run by the Centre and the minor ones come under the State governments. It is a typically Indian device whose purpose is lost in the mists of distant time.

To add to the melee, there are private ports as well. Until recently, the private sector was not allowed to build and operate ports. Now it is. Three-fourth of the total projected investment in the Eleventh Plan in the ports sector is expected to come from the private sector.

Each category is regulated differently but that is not the end of the story. ‘Minor’ ports own and operate berths in major ports.

Meanwhile, the share of cargo traffic at the ‘minor’ ports is likely to increase at an accelerated pace as coastal states and Union Territories get going with the development of ‘their’ ports.

They are expected to add 610.85 million tonnes per annum capacity during the Eleventh Plan.

Some think the new capacity could add up to one billion tonnes by 2011-12. Gujarat, Maharashtra and Andhra Pradesh are likely to drive the port capacity expansion of the country over the next five years.

From the point of view of economics, therefore, the whole sector is a bit of a dog’s breakfast. The rest of this article seeks to inject some economic sense into the way the Government has approached policy.

Ports are called natural monopolies in economics. Usually it is nature, because it has designed a nice harbour, which creates such monopolies.

The British, for instance, in the latter half of the 18th century, had the option of choosing Surat instead of Bombay as their main harbour.

But the latter won because the harbour there is better.

By their very definition, natural monopolies do not compete.

But technology and finance can, eventually, neutralise these locational advantages and even the best of natural monopolies can face competition.

The imperatives of global capital seeking investment opportunities and market access have also played their part. The result has been a change in the very way ports function.

Ports no longer offer the full range of services themselves — they outsource. They continue to own the land and basic infrastructure assets such as berths and breakwater facilities but managerial and financial responsibility for commercial facilities, such as terminals and equipment in the port area, are frequently handed out to private players.

So the nature of the beast has changed. This is known to the Government which, typically, has been slow to respond in a way that recognises the structural change.

Instead, it has been content with makeshift solutions (what is called jugaad in North India) that address a symptom but not the cause. To start with, the administrative distinction between major and non-major ports must go. A port is a port, never mind under whose jurisdiction — the Centre or the State — it falls under.

The distinction introduces all sorts of distortions. For one thing, since the major ports and the private developers are under the ambit of the tariff regulator, they lack the operational flexibility of the ‘minor’ ports.

The major ports, for example, have been unable to enter into long-term agreements with large and long term users for setting up captive berths.

They have been unable to attract captive users because the Government has not yet been able to finalise guidelines for a captive use policy for major ports.

Thus, when Maruti Suzuki decided to set up a facility for exporting its cars, it considered various options including Kandla (major port) and Mundra (non-major port).

But, it finally decided on the latter and not the former because there were doubts on how fast infrastructure could be created in a major port.

There was also the problem that Kandla is considered a port for break-bulk cargo.

In fact, Maruti Suzuki is learnt to have used the relatively lower tariffs of Kandla port as a parameter to negotiate the user charges with Mundra. In a nutshell, what you get looks like competition which, in fact, is not.

This has made competition between ports a subject of intense discussion.

Given that the Centre has developed major ports with an eye to make available common user facilities, it has guidelines in place on whether an existing terminal operator would be allowed to bid for the next immediate project.

These guidelines take care of ensuring “intra-port” competition but do not have powers to ensure inter-port competition.

What happens is this. Suppose a second terminal is coming up in a major port.

The operator of the first terminal of the major port cannot bid for it, but nothing prevents a private operator of a competing, non-major port located close to the major port from bidding for the terminal. If this makes sense, please write in.

Several examples of such distortions can be provided but suffice it to say that until a sensible way of looking at ports is adopted, the country will not get the biggest bang for bucks from investments in ports.

More Stories on : Shipping/Ports | Shipping/Ports | Insight | T.C.A. Srinivasa-Raghavan

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