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Can Enayam port sail past hurdles?

Friday, 08 July 2016 | 17:00

Even as the Union Cabinet has given its ‘in-principle’ approval for setting up a major port at Enayam near Colachel in Tamil Nadu’s Kanyakumari district, questions are raised related to the economic feasibility of the Rs 25,000-crore project.

The other challenge would be roping in locals, who have raised voice against the project in apprehension of its impact on the environment and their livelihood.

The project is envisaged to be implemented through a special purpose vehicle (SPV) with an initial equity investment from the three major ports in Tamil Nadu — V O Chidambaranar Port Trust, Chennai Port Trust, and Kamarajar Port Limited. The SPV will develop the port infrastructure including dredging and reclamation, construction of breakwater, and ensuring connectivity links, etc.

The overall project cost is pegged at Rs 25,000 crore. The first phase is estimated to cost Rs 6,575 crore. Private operators will invest around Rs 2,500 crore for development of terminal berths, yard and equipment. Seventy per cent of the remaining amount will be funded through debt and 30 per cent would be equity invested by the three major ports and a few strategic partners.

The Union shipping ministry plans to start the construction by July 2017 and wants to start the first container terminal to be commissioned by July 2020.

According to Shipping Minister Nitin Gadkari, around 25 per cent of Indian container cargo is trans-shipped at foreign ports and Tamil Nadu alone accounts for 50 per cent of trans-shipped cargo. Developing a port at Enayam will also thwart attempts by neighbouring nations eyeing the trans-shipment opportunities in the region.

There are only a few ports in India that have sufficient draught and can match global cargo-handling efficiencies. Average draught ranges between 12 and 14 metres, peaking to 18-19 metres in some places. The Enayam Port will have a draught of 20 metres.

This will also reduce the logistics cost for exporters and importers in south India, who depend on trans-shipment in Colombo or other ports currently, incurring additional port-handling charges. According to shipping ministry estimates, Indian ports lose out Rs 1,500 crore of revenues each year on account of trans-shipments.

Establishing a port at Enayam will not only act as a major gateway container port for Indian cargo that is currently trans-shipped outside the country, but also become a trans-shipment hub for the global east-west trade route.

The port will mainly accommodate containers and operate largely as a hub, leveraging its location on international trade route between countries in southeast Asia, West Asia and Europe. The port has been designed for triple-E class container vessels and 120,000 deadweight tonnes capacity cape-size solid bulk vessels.

According to Manish R Sharma, partner (capital projects and infrastructure) at PwC, Enayam is relatively closer to the international mainline route compared to Colombo.

The choice of Enayam is not only deep draught, but also its ability to cater to domestic containers and other commodities (in addition to trans-shipped volumes from other ports in subcontinent), thereby improving its commercial risk profile and making it less susceptible to dependence on only one cargo type — that is trans-shipment container traffic.

Does it make business sense? Experts are divided on this. A shipping ministry document showed that the project’s internal rate of return (IRR) was estimated at 10.8 per cent and equity IRR at 11 per cent.

“It doesn’t make any business sense,” says J Krishnan, former trustee of Chennai Port Trust and an industry veteran. Already, huge investments have gone into Vallarpadam (near Kochi in Kerala), which continues to be a non-starter trans-shipment port.

Also, creating a port in less than 100 nautical miles does not make any commercial sense. Both the ports are going to go after the same existing market and not to expand it.

Agreeing to his view, an official of a major port said the other major challenge would be how to match Colombo’s costs, where port-calling costs are one-tenth of Vallarpadam.

Vallarpadam terminal handled 366,376 twenty-foot equivalent units (TEUs) in 2015-16, of which the trans-shipment containers (shipped directly without routing through neighbouring hub ports) were only 17,000 TEUs. The numbers show that Vallarpadam has not even scratched the surface compared with what’s handled by Colombo.

It may be noted that around 2 million TEUs originating in and destined for India gets trans-shipped at Colombo port every year.

Sharma noted that trans-shipment volumes are not easy to migrate from one port to another as the choice of port for customers depends on a host of factors. Further, domestic volumes also take time to ramp up whether container, liquid or bulk.

Given that Vizhinjam Port (near Thiruvananthapuram in Kerala) run by Adani Group is not far (around 49 kms) from Enayam, it would be interesting to watch which port is able to claim the trans-shipment traffic, Sharma added.

G Raghushankar, chairman, SICCI Logistics Committee said that creating clusters of ports within a short radius would be unhealthy unless each port is driven by specific requirements that would not compete with each other. In terms of reduction of cost it will not be anything and in terms of time it could be less than a day to attract as an alternate solution.

Such mega projects need smooth Centre-state relationship, which is wanting due to political reasons. Besides, handling locals is another challenge for these kinds of projects.

The locals fear that the project will come at the expense of many residences and fertile agricultural lands, apart from the issues with the coastal ecosystem.

While fishermen in the Colachel belt are up in arms against the proposed project, another group of people belonging to four revenue villages has also begun their protest.

The proposed port is expected to cover 330 hectares by 2030.

According to fishing federations, nearly 10 fishing villages will be covered under the project, which will force 250,000 fishermen to be relocated, putting their livelihood at stake. Environmental protection groups also allege that the deepening of the draught would create ecological issues with the ecosystem of the coastal region.
Source: BusinessStandard

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