Arbitrage to make Indian ports more competitive

Indian ports are set to become more competitive with the advent of port arbitrage, DNA reported.

As private terminal operators gain control of ports, what is distinguishing them is the concession terms on which they operate the facilities. This, in turn, decides the price of services offered at ports.

Take the case of Gujarat-Pipavav Port, which was acquired by APM Terminals in 2006. It has just begun full-fledged commercial operations after investing as much as US$135 million in upgrading facilities.

APM also runs and manages another port in Mumbai - Gateway Terminals International - at the Jawaharlal Nehru Port Trust (JNPT).

Gateway has already become the biggest and the most efficient terminal operator at JNPT (overtaking both JNPT itself, and Dubai Port Works) both in terms of operational efficiency and revenues.

What is even more interesting is that while Gateway pays a royalty of 35.5 percent to JNPT for operating the terminal, Gujarat Pipavav has to cough up just five percent to the Gujarat Marine Board, which has given it permission to operate the port at Pipavav.

The actual money that Pipavav pays is lower now: just around 1.5 percent in calendar 2007, 1.6 percent in 2008 and 2.2 percent in the first nine months of 2009.

That's because as per the terms of agreement, royalties will increase 20 percent every three years till they reach five percent.

With Pipavav just 10 hours of sailing distance away from Mumbai, and considering the yawning gap in royalty, it is only a matter of time before APM decides to promote Pipavav as the destination port from where cargo meant for Mumbai can be trans-shipped. It could be the beginning of a trend.

Experts say all non-major ports have begun to enjoy this kind of benefit - of lower concessions/royalties than are currently being charged by the major ports. Unfortunately, details are still shrouded in secrecy - port owners don't want to disclose the royalties they will pay state governments.

But it is believed that all the ports in Gujarat - including Mundra (whose waterfront charges were just 1.5 percent of income in 2008-09) and Dahej - pay a royalty of under five percent, making operations in Gujarat much more profitable than in Maharashtra.

Private port developers have been negotiating similar deals in other states.

(Source: Cargo News Asia)