Published Editorial

Maritime infrastructure development: trust is key

July 2016

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The Financial Express

By

Abhaya K Agarwal
Infrastructure and PPP, Government and Transaction Advisory Services, EY India

&

Rohit Ahuja
Senior Manager, Infrastructure Advisory, EY India

To enhance the efficacy of the country’s maritime infrastructure and services, the government is formulating various measures ranging from policy reforms to creation of new infrastructure.

To enhance the efficacy of the country’s maritime infrastructure and services, the government is formulating various measures ranging from policy reforms to creation of new infrastructure. Some of the key measures include Sagarmala, revision in Model Concession Agreement (MCA) and a new legislation, the Central Port Authorities Act (CPA Act). While Sagarmala is expected to carve out the approach for creation of maritime infrastructure, measures like a revised MCA and the new CPA Act will offer a conducive regulatory environment to fast-track development.

CPA Act

To provide more autonomy to the Major Ports and professionalise their governance, the Ministry of Shipping has prepared a draft bill ‘The Central Port Authorities Act 2016’ to replace the Major Port Trusts Act, 1963. It empowers the board of a port authority to appoint consultants, lease land, raise loans, and issue securities to manage expenditures. In the proposed Act, TAMP has been done away with and the board of the port authorities empowered to set tariffs. It also includes a provision for appointing a review board to resolve PPP issues. The proposed Act will address a majority of governance issues and expedite the development of infrastructure.

Sagarmala

Sagarmala is an ambitious project based on port-led development. The Sagarmala National Perspective Plan (NPP), April 2016, emphasises three key components including (i) Capacity creation, (ii) Development of Coastal Economic Regions, and (iii) Efficient evacuation systems. Nearly 150 projects with a total investment of about R4 lakh crore were identified in the NPP.

While the plan identifies projects, it lacks a time-specific implementation roadmap. A roadmap for implementing the NPP is still under finalisation. Further, the approach for project identification is primarily based on commodity-wise supply chain requirements. With this, it is expected that a majority of commercial risks associated with the projects identified would be addressed to a certain extent. However, this approach does not identify various other risks which may delay implementation and cause revenue loss to stakeholders.

Revised MCA

In order to encourage private sector participation, the government is revising the MCA used for awarding port projects to the private sector. The revised MCA would include provisions such as substitution of the minimum guaranteed cargo (MGC) requirement with minimum guaranteed revenue (MGR); making revised tariff guidelines applicable for existing operators; provision for discounted revenue share; allowing the private operator to exit six years after start of commercial operations, etc.

A majority of these provisions are based on the traditional approach of tariff regulation to prevent private sector monopoly. However, in the present scenario, most of the major ports are fraught with intense competition from private ports such as Mundra, Pipavav, and Dhamra. Given the present business environment, government policies should emphasise Capacity Creation and Efficiency Maximisation. Following this approach, the MCA and other policy documents should be structured to clearly articulate the role of the private sector. The need for tariff regulation to prevent a monopoly would be suitably addressed by competition. The approach for enabling a productive environment should exclude traditional practices of tariff regulation and traffic commitments (minimum guaranteed cargo/revenue).

With these measures, the government is aiming to promote port-based development. However, the success of such measures would eventually be governed by their receptiveness for the private sector.