Centre likely to identify five coastal shipping projects for PPP in FY24

As part of its plan to reorient national logistics, the Centre is likely to invite private participation in five coastal shipping projects with a provision of viability gap funding (VGF) in the approaching fiscal year (2023-24, or FY24), Business Standard has learnt.

This follows the announcement by Finance Minister Nirmala Sitharaman in her Union Budget speech.

“Coastal shipping will be promoted as the energy-efficient and lower-cost mode of transport, both for passengers and freight, through public-private partnership (PPP) mode with VGF,” she had said.

“Work is currently on to identify these five projects. The aim is to connect vital, high-demand economic areas which have an infrastructure deficit or traditional transport like roadways and railways that have reached saturation,” said an official, adding that the exercise is being undertaken as part of an action plan to promote coastal shipping being overseen by the highest stakeholders in the Centre.

Moreover, the Ministry of Ports, Shipping, and Waterways (MoPSW) has plans to conduct 12 roadshows and introduce a raft of provisions for assurance of revenue to elicit greater private interest in coastal shipping projects.

One of these proposals being considered is to have a provision for minimum guaranteed volumes for bulk commodities such as coal and fertilisers in these projects, which would allay some concerns of private players.

The Asian Development Bank also highlighted the issue in its 2019 report on the promotion of coastal shipping.

“The review of key clauses of recent public sector undertaking (PSU) contracts for coastal shipping highlights issues detrimental to coastal shipping, such as no minimum guarantee of cargo, no fuel price variation for bunker fuel, fixed transit period of delivering the cargo,” it had said.

Assured cargo volumes also become important since the rail-sea-rail mode of transportation is costlier than using all-rail, which is a worry for the private sector.

PSUs may still transport their cargo through the route for key commodities like coal, as the railway network is typically overloaded during the summer, as power demand hits its peak.

Business Standard previously reported that the Centre is holding deliberations on lowering rail freight rates for thermal coal transported coastally, which could bring down the overall transportation costs substantially, increasing the commercial viability of these projects.

Although costlier, coastal shipping is an important cog in the Centre’s wheel to meet its net-zero carbon emission targets, as it is believed to have significantly fewer polluting levels than railways and roadways.

With a pool of multiple serious players, India’s ports are a significant market for international trade, which is exemplified by the fact that MoPSW has already overshot its asset monetisation target for 2022-23. However, coastal projects (for the domestic movement of freight) continue to be laggards owing to India’s modal mix of freight, where waterways account for barely 6-8 per cent of total volumes. 

VGF was introduced to support infrastructure projects undertaken through PPP mode that are economically justified but commercially unviable due to large capital investment requirements, long gestation periods, and the inability to increase user charges to commercial levels.

In 2020, the Union Cabinet approved a revamped VGF scheme with an outlay of Rs 8,100 crore. Under this, economic projects were allocated Rs 6,000 crore of deficit funding until 2024-25. The outlay for VGF in FY24 is Rs 1,700 crore, according to the Ministry of Finance.