Michael Pinto: Developing the wrong kind of port

Instead of more ports for international trade, India needs to focus on smaller ports for coastal and inland shipping

Vietnam has suddenly woken up to a new and unusual problem. On its 3,400 kilometre-long coastline, along one of the busiest sea routes it is dismayed to find that its policy of encouraging the establishment of more and more ports has only led to overcapacity, and has put a question mark over its ability to attract the sort of high-value manufacturing that depends on efficient logistics systems. Almost every province along the coast has managed to grab a port project, and the Vietnamese government has projected private investment of more than $32 billion until 2020 to develop transport infrastructure. As a result, the country finds that port capacity lies idle, cranes are silent and investors are counting their losses.

This is typified by Vietnam's only deep sea facility, the Cai Mep Port, set up on the South China Sea at a cost of $2 billion in 2009. It was seen as a crucial step towards boosting shipping volumes by 130 per cent by the end of the decade. South Sea Consultants, Asia, estimate that the port has already lost about $1.5 billion since then mainly because there are just too many ports nearby. Traffic is routinely siphoned off to other ports in the area, and, with each port fighting for the same cargo and wooing the same lines, the future for Cai Mep looks bleak.

Vietnam is not the only country that has sought quantity over quality in the port sector. Gujarat, which has what is arguably one of the best maritime boards in the country, also tried to hard-sell the state's coastline by encouraging huge private investment in a large number of ports. The difference is that hard-headed businessmen in India studied capacity creation in Gujarat and made their own investment decisions. Many sites offered for port development did not attract any bids, so overcapacity is not a problem for Gujarat.

Unfortunately, governments do not always exercise the same care and consideration when they make investment decisions with public funds. In a misguided move made in last year's budget speech, the finance minister announced the setting up of two new major ports on the east coast of India. Estimates put government outlays for these ports in excess of Rs 5,000 crores. And even this is not enough. Not long ago the ministry of shipping said it would approach the finance ministry for viability gap funding for these ports because on their own they would not be able to attract investment.

One of these ports, located in West Bengal, is expected to offset the disadvantages of the long riverine channel and shifting currents from which both Kolkata and Haldia ports suffer. To access Kolkata port ships must traverse a channel of 236 km with a dodgy draft and excessive silting. Huge amounts have to be spent each year on dredging this channel and even then, a minimum depth is not guaranteed. A port located at the point where the ocean meets the river can easily receive large vessels that can be lightered so that smaller vessels could deliver cargo at Kolkata and Haldia. Even here however, it is not clear why Paradip port, which is not very far from the site of the proposed new port, was not dredged and developed for this purpose. Why create another port when an existing one can perform the same function after being suitably upgraded at a much smaller cost?

The real killer however, is the proposed port in the erstwhile Andhra Pradesh. Planned for location at Dugarajapatnam in Nellore District, it will have to compete with ports that were established much earlier and therefore, are better placed to offer cargo handling facilities at greatly lower costs. Andhra Pradesh already has a major port at Visakhapatnam that is one of the largest among the major ports in terms of cargo handled. In addition it has two other private ports, one at Gangavaram and the other at Krishnapatnam that have been set up at some considerable cost and will leave no stone unturned to attract cargo. Finally, there is the Kakinada port which has been in existence for a long time and which receives a good deal of liquid cargo.

Faced with this embarrassment of riches, why would the government want to spend good money on setting up yet another port in this area? If P G Wodehouse once talked of a very stout man whose several chins were continually fighting for a place on his collar, one can only pity the state of Andhra Pradesh as port after port fights for place on its coast and for a share of its cargo. More ports do not necessarily bring in more cargo. The extent of a country's trade is a function of its policies and its openness to international commerce. When growth rates pick up, existing port capacity will definitely be inadequate. But the best and most cost effective way of addressing this is to upgrade and refurbish existing ports to enhance their capacity. In other words, quality over quantity every time.

The unfortunate part is that the budget provision for building new ports is needed but not where the government is spending it. There is a crying need for investment in small new ports in India that can more effectively cater to vessels on coastal and inland waterway runs. In spite of a massive 7,500 km of coastline and five national waterways, the amount of domestic cargo moved by water is negligible. Instead of concentrating on the development and expansion of infrastructure that would make water transport more attractive, we have prioritised road transport and turned our already over-crowded highways into death traps.

There are many policy initiatives needed to promote coastal shipping and inland water transport, but one vital input is a series of small ports dotting the coastline which will be accessed only by such vessels. Coastal vessels find it extremely difficult to use large ports. Such ports are usually expensive, congested and priority is invariably given to larger, international vessels. Most important of all, such ports come under the jurisdiction of the customs department and coastal vessels find it extraordinarily difficult to persuade its officials that their writ does not cover coastal shipping. There is a huge amount of paperwork that must be gone through before coastal or inland vessels can move out of these ports and this only adds to transactional costs.

All this points to the need for a string of small ports around the coast that will be meant exclusively for short sea and inland shipping. Port capacity for international trade must be enhanced but this can be done by upgrading and expanding existing ports, for which private investment is available. The new government must take a conscious decision to avoid duplication in the major port sector and instead invest in ports where the return may not be so good in the initial years but which nonetheless bring huge returns in terms of a cleaner environment and less congested roads.

The writer was secretary for shipping in the Union government