On the face of it, the corporatisation of government-run ports might seem an attempt to professionalise the entities to be better equipped to handle the rising cargo. However, the Budget fine print shows a complete makeover for some of these ports, which have so far been looked at as mere trading centres for India. Once under the Companies Act, Mumbai Port for instance, will have its assets valued, making it a company holding one of the costliest real estate assets in the country. Read our full coverage on Union Budget 2016 Read our full coverage on Union Budget With around 1,800 acres of land stretching from Chhatrapati Shivaji Terminus to Wadala, Mumbai Port will have the potential to be valued in line with some of India's top real estate companies such as DLF, Jaypee Infratech, and Oberoi Realty, among others. In a bid to provide the much-needed boost to India's port sector, finance minister Arun Jaitley had said in the Union Budget 2015-16 on Saturday that the government would encourage major port trusts to become companies under the Companies Act, in turn paving the way for the entities to become autonomous. “About half the total land at Mumbai port is being used for operational purposes and so even if this much portion of the asset gets valued (upon corporatisation), it will be a very substantial amount,” Rahul Asthana, former chairman of Mumbai Port Trust, told Business Standard. The value of land around Mumbai Port would be about Rs 60-70 crore per acre as a conservative rate, this is if the land is in the government circle, while private land would be about Rs 100 crore per acre, said Shubhankar Mitra, Head of Strategic Consulting (West), JLL India. Going by the government circle rate, the value of the surplus land at Mumbai Port land (900 acres) will come to about Rs 63,000 crore. In comparison, DLF, the country's top real estate company, has an enterprise value of Rs 44,817 crore as on March 31, 2014, which shows that the port's surplus land alone is nearly 30 percent more in value than the enterprise value of DLF. Established as the Bombay Port Trust on June 26, 1873, Mumbai Port was the pre-eminent commercial ports of India in the 19th and 20th centuries. It is known as the gateway to India, and has been a primary factor in the emergence of Mumbai as the commercial capital of the country. Currently, of the 12 government-run ports, Tamil Nadu-based Kamarajar Port, earlier known as Ennore Port, is the only one with a corporate structure, while the remaining continue to be under the Major Port Trusts Act, 1963. Corporatisation seems the best suited option for the government-run ports at the moment, which can solve several issues in one go. Apart from assets getting valued, corporatisation of these ports will also offer immense flexibility in terms of fund-raising and expansion. “Ports will be able to approach commercial banks for fund-raising and can also explore merger and acquisition options for expansion, which is not possible under the current port trust structure,” said Ramesh Singhal, CEO, i-maritime Consultancy. The port trust will also be replaced by a board of executives, which will make the entities more autonomous and efficient. In 2013-14, the cargo volume share of India's 12 major ports dropped to 55 per cent from 72 per cent in 2007-08, according to shipping ministry data. “Being a port under corporate structure is certainly a successful model as the board has not just more powers when it comes to making decisions, but the board members are professionals in their section of work, which is not always the case at the public-sector port trusts,” said a top official of Kamarajar Port, (formerly Ennore Port). “Raising funds from the market also becomes easier under the Companies Act,” he added. On a year-on-year basis, Kamarajar was the only major port that saw traffic double to 28 million tonne as on March 31, 2014. Compared to other government-run ports, the average turnaround time at Kamarajar Port has also been the lowest and consistent at 0.09 days for the past two successive years, according to the shipping ministry. This indicates the corporate model is auguring well for the Tamil Nadu-based port. “Going ahead, these ports can also look to get listed and raise funds via equity,” said Singhal of i-maritime. Corporatisation is also likely to give public ports the much-needed flexibility in terms of pricing as they will move out of the Tariff Authority for Major Ports (TAMP), a major reason why private ports are enjoying stronger customer relationship than public ones. “When created, TAMP was overseeing if there was enough competition in the market. But now the market has matured and the competition is largely governed by market dynamics.
Due to this, there needs to be a change in the role of TAMP from regulator to monitor, whereby it can ensure a level-playing field for participants,” a source who is an advisor to the shipping ministry told Business Standard. “Consultants have been appointed by the government to look into the changing role of TAMP,” he added. “It (the announcement) was a much-awaited decision by all major ports and so has come as a welcome move for us,” said N N Kumar, chairman, Jawaharlal Nehru Port Trust (JNPT). “The PPP (public-private partnership) mechanism is not attractive anymore and corporatisation seems the way ahead for all major ports,” he added. JNPT handles around 60 cent of the country's containerised cargo. “When the operator returns the facility to the authority (in this case the port trust), the port trust is left with a facility whose cost has depreciated completely and has run down heavily by the end of the concession period, which is typically 30 years. Due to this, the PPP model is no more attractive for the government,” said Sajith Sreedharan, deputy managing director at BMT Consultants India. Shifting to the Companies Act 2013, however, is not going to be quick as all the 11 public-sector ports currently come under the Major Port Trust Act 1963. According to experts, an amendment will have to be made to the Major Port Trusts Act to allow ports to come out of the ambit of the port trust structure and get registered under the Companies Act. “What has been announced in the Budget is a broad idea or intention to change the way major ports function. A lot needs to be done to actually make it happen,” said another maritime consultant on condition of anonymity. While it might be too early to envisage government-run ports functioning as corporates, the move is a necessary step in the wake of increasing competition from private ports. “Most of the major ports are well-established as good gateways and well-positioned to handle cargo. By corporatisation, the ports can be utilised well with efficiency and can boost the economy. Private ports, on the other hand, are standing out in competition as new-era ports in modernisation and technology, and so both are in different and at good direction for the economy of this country.” said C Sasidhar, managing director, Krishnapatnam Port Company. India has a 7,500-km coastline, with about 200 private and intermediate ports and 12 major ones. For the past few years, private ports have been giving stiff competition to government ports, clocking much higher cargo volumes than the latter. This is evident from the trend witnessed this financial year as well. In the first half of FY15, the growth in cargo volumes at private ports was more than twice (11.1 per cent year-on-year) than recorded by the 12 major public sector ports (4.1 per cent).