Allow mkt-driven tariff, open funding routes: Essar Ports

Shaheen Mansuri
Moneycontrol.com

Despite posting a good numbers in the March quarter of FY13, factors like rigid tariff structure and high interest cost will continue to weigh on Essar Ports’ bottom-line in the current fiscal. If not for around  Rs 500 crore quarterly interest cost and low user fee at its Vadinar and Hazira ports, the company can perform better, it says.

Currently, sector regulator Tariff Authority of Major Ports (TAMP) decides user charge for major ports and operators believe they should be free to decide tariff based on market conditions. Read This: Vedanta, Essar vie for Rs 845cr ore handling proj in Vizag

“Tariff regulation is restricting investment and there are no takers for several projects at major ports. Market determined tariff will make operators more competitive. Also, the role of the regulator should be similar to telecom sector where TRAI does not regulate price,” said Rajeev Agarwal, managing director, Essar Ports in an exclusive interview with moneycontrol.com.

Another major worry for the company is high interest cost of around 12-14 percent which is eating into the bottomline. Port operators including Essar have appealed to the shipping ministry to raise the bar on external commercial borrowings (ECBs) from the current 25 percent.

Agarwal is confident of restructuring over Rs 5000 crore debt via ECB route in current fiscal to bring down finance cost.

Below is the edited transcript of Agarwal’s interview to moneycontrol.com

Q. Post a robust performance in Q4FY13, how confident are you of sustaining growth in the current year?

A.We kept our costs in control and ensured improved performance on all parameters in preceding quarters and will continue to do so in future. We also completed expansion of  20 million tonne refinery in mid 2012 and accordingly our Vadinar terminal is now operating at an enhanced run-rate of 10.5MMT per quarter. Also, we have seen cargo shifting to modern and efficient ports and this has helped Essar to handle record high cargo during Q4 of last financial year. During FY13, our terminals handled a record 683 ships, as against 514 ships handled during the previous year. It is one of the most modern terminals of its type in India, connected to the stockyard by a 9km long covered conveyor system.

Q. That means cargo volumes contributed majorly to your bottom-line

A. Yes, cargo volumes are growing signifcantly. We handled 54.52 metric tonne cargo in FY13 as against 43.23 in the year-ago period. This is despite other ports witnessing de-growth during the period.  We got a boost from captive cargo from Essar Steel and Essar Oil. That does not mean we may not look at third party cargo. We are fine-tuning strategies to increase share of non-Essar Group companies’ cargo to 25 percent in next two years. This business model is in-line with our capacity expansion plan.

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Q. Then could you update us on your current projects and operations ramp up as you have already embarked on expansion plans at Vadinar and Hazira along with a new port at Salay in Gujarat and two terminals at Paradip in Orissa.

A. We have commissioned state-of-the-art 16 MMTPA dry bulk terminal at Paradip, with a fully mechanised ship-loading system with a capacity of 5,000 tons per hour. It is one of the most modern terminals of its type in India, connected to the stockyard by a 9km long covered conveyor system.
We have also completed construction of 3 HSD tanks of capacity 180,000 KL during the year at Vadinar. The company is also setting up a dry bulk terminal at Salaya with a capacity of 20MMTPA. Additionally, we plan to expand its Hazira Port capacity by 20MMTPA, taking its capacity to 50MMTPA.

Q.The company stock has declined around 3 percent in one year and analysts are monitoring the progress of ParadipII and Salaya terminals as well as pick up in third party volumes which remain key triggers for the stock. Any comments?

A. The share price decline is negligible. In FY13, we have grown and we hope the trend to continue on the back of planned projects which will be commissioned, hopefully on time and our cargo volume is also rising. We have embarked on growth trajectory and there is no looking back from here. Also, along with the port sector maturing by the day, we, at Essar are taking steps to create value for shareholders. Today Essar Ports stands as one of the largest port companies of India, with a capacity of 104 MMTPA. The capacity is being expanded to 158 MMTPA over the next few years

Q.What about your plans for bidding for the new container terminal project at JNPT?

A.We are in the process of bidding for it.

Q. You have earlier mentioned about tariff regulation which his restricting investment in major ports. What are other demerits of the same?

A.Port sector in India has become highly competitive after liberalisation with high competition among ports and terminals within the port. Tariff regulation is restricting investment in the major ports and there are no takers for several projects at major ports This has resulted into lower capacity addition and in turn lower option and poor service to the customers.

Q.Any plan to restructure debt?

A.Yes, we are planning to bring down our interest cost via external commercial borrowing. As on date, most of our borrowing is in rupee terms, which is at an average rate of about 12-12.5 percent, which is extremely high for infrastructure projects.

shaheen.mansuri@network18online.com