PPP bogey coming in way of port investment plans

Port trusts are being dissuaded from investing in their own projects as ministry feels PPP model is more efficient

When the Kandla Port Trust did not get any private bidders for its Rs 250-crore barge handling project, the port decided to make the investment itself. The New Mangalore Port Trust too took the same recourse for a container facility.

However, cash-rich ports like Kandla, Jawaharlal Nehru Port Trust (JNPT) with reserves in the range of Rs 3,000-3,500 crore are not being encouraged to invest in their own projects for the want of getting a private partner.

JNPT’s proposal to invest in its big-ticket projects has been turned down by the shipping ministry. The port trust officials said they have expressed their intention to invest their own reserves in projects, but due to government's thrust on the public private partnership (PPP) model, the port trust has not been encouraged to pursue such goals. The issue had cropped up recently when the port trust had agreed to extend financial assistance of Rs 200 crore to the beleaguered Mormugao Port.

“Cash-rich major ports are often expected to fund each other out of their reserves. While there is nothing wrong in it, we can also invest in building on our facilities instead of relying upon the private sector,” a senior JNPT executive who did not wish to be quoted said.

While much of JNPT’s surplus is deposited in the bank, around Rs 1,900 crore has been set aside for dredging the 30km-long channel between Mumbai and JNPT. “We will have 100 per cent ownership if we invest our money. Currently, we just get a small revenue share,” he added.

However, the government says private companies are better placed in implementing projects as they manage costs more effectively. “The work in which a private company will employ one person, a port trust would get 10. It is not an efficient model,” a senior shipping ministry official said.

Mumbai Port Trust with cash reserves of over Rs 3,500 crore, ends up using it in paying wages, pension and debt. “Mumbai Port has grown because of the PPP model. On its own, it would not have had such efficiencies. I am for the PPP model,” said Rajiv Gupta, former chairman, Mumbai Port Trust.

Experts, however, say ports have the experience and expertise to understand the technical aspects and also the way the government functions. A senior maritime analyst said whether a project is best suited for the PPP model should be decided on certain parameters. “If the project requires a lot of logistics support, forward and backward linking then private players should be given preference,” said P D Vaghela, former chairman, Kandla Port Trust.

With easy access to consultants in all fields including financial, technical and legal, port trusts feel they can do as good a job as any other private player. “If required, ports can outsource work to engineers and experts,” Vaghela added.

Port trusts are also lured by the possibility of getting higher returns on capital if they invest in a project as against in bonds and securities.

According to the tariff authority of major ports, 16 per cent returns on capital is accrued to the investor compared with a nine-10 per cent return port trusts get on their cash reserves lying in banks.

Nearly 80 per cent of the total targeted investment in the port sector is expected to come from the private sector. The PPP model which took off in 2009, has added to the country’s overall port capacity but still falls short of the government’s overall targets.  This year so far, the government has awarded 13 projects of which only five are PPP.