India's Ports: Public-private partnership propelling growth

A substantial portion of cargo at major ports is handled through PPPs, projected to increase to 85% by the end of the decade.

By Veni Mathur 

In the dynamic world of infrastructure development, Public-Private Partnerships (PPPs) have become a key driver of transformation in India’s ports sector. By leveraging private investment and expertise, India has modernized its port facilities, improved operational efficiencies, and strengthened its position in global trade. Much like in sectors such as airports and railways, PPPs in ports significantly impact the economy and overall development. The success of India's first privately operated container terminal at JNPT paved the way for broader adoption of PPP models. Today, 51% of major ports operate under PPPs, with the Ministry of Ports, Shipping and Waterways (MOPSW) targeting to award 100% of terminals under the PPP model in the future.

This strategic shift towards PPPs has led to tangible improvements in port operations and revenue, aligning with broader government initiatives like Sagarmala, PM Gati Shakti, 'Make in India', and the Production-Linked Incentive (PLI) scheme aimed at enhancing India’s role as a global manufacturing and export hub.

Infrastructure Expansion through PPPs

PPPs have significantly contributed to the growth of India's port sector, facilitating investments of Rs 55,000 crore over the past 25 years. Under the Sagarmala Programme, numerous PPP projects are underway, with significant investments planned. By the end of 2024-25, MOPSW aims to initiate additional PPP projects at a colossal cost of Rs 42,300 crore. These investments cover various infrastructure improvements, including berths, terminals, mechanization, and the development of oil and container jetties. Currently, a substantial portion of cargo at major ports is handled through PPPs, projected to increase to 85% by the end of the decade.

India's merchandise EXIM trade has crossed the $1 trillion mark annually, a significant leap from $90 billion in 2000. The port sector has played a crucial role in supporting this growth by developing infrastructure and enhancing capacity and efficiency, largely due to private sector involvement.

The Landlord Port Model

The Indian government has implemented various PPP models tailored to specific needs and objectives, with the Landlord Port Model emerging as a preferred approach. In this model, the port authority serves as a regulatory body while private companies operate the terminals. JNPT, as India's first landlord port, exemplifies this model’s efficiency through clear role division. The port authority focuses on strategic planning, development, and regulation, while private operators contribute operational expertise and efficient cargo handling.

Other notable PPP variants include the Build-Operate-Transfer (BOT) and Design-Build-Finance-Operate-Transfer (DBFOT) models. In these arrangements, private entities receive concessions to finance, construct, operate, and maintain port facilities for a specified tenure, after which the assets revert to the public authority. For instance, Western India Shipyard Limited operated a ship repair facility under the BOT model, while the Ennore Coal Terminal was developed under the DBFOT model to handle coal imports for power generation. These models facilitate rapid infrastructure development by leveraging private sector capital.

The government envisions the port sector playing a pivotal role in supporting India's economic advancement over the next 25 years. With a noticeable shift towards a 'China plus one' strategy by developed nations post-COVID, India aims to capitalize on this opportunity, expanding port infrastructure to enhance cargo handling capacity from the current 2,600 million tonnes per annum (MTPA) to 10,000 MTPA by 2047.

A World Bank study found that PPP port terminals in developing countries achieved an average reduction in operating costs of 20-40% compared to publicly operated terminals. The study highlighted India's PPP model's success, thanks to timely policy changes and institutional initiatives.

Challenges and Critical Success Factors

PPPs offer numerous advantages, including private capital infusion, operational efficiencies, and technological innovation. However, challenges such as contractual rigidity and inadequate lease periods can hinder long-term planning. Lengthy and complex contracts may discourage innovation and optimize operations over time. To attain a higher growth trajectory, critical success factors include creating a clear vision for risk allocation, defining responsibilities, and implementing transparent monitoring procedures.

Initially, the PPP model lacked a Model Concession Agreement. The current norm of 30-year leases was deemed adequate; however, as markets have evolved, there is a pressing need to extend lease durations to 50 or 60 years. Longer concessions enable substantial capital infusion, capacity development, and flexibility in overcoming business cycles. Furthermore, they provide stability and assurance of returns on investment, encouraging strategic infrastructure investments.

Need for Longer Concession Tenures

To achieve the ambitious target of developing port infrastructure and boosting EXIM trade, adopting a more engaging model is crucial. Leading international seaports often offer concession tenures of 50 to 72 years, whereas India's average currently stands at 30 years, with some recent agreements including a 20-year extension clause. For example, PT Pelabuhan Port in Indonesia offers terminal management contracts lasting between 65 and 72 years.

Longer concession periods attract global players and private operators, enabling strategic investments and advanced technologies to enhance operational efficiency. The Indian government has started extending concession tenures in sectors like aviation, with recent privatizations including 50-year concessions for six airports.

Business Impact of Operator Turnaround

Extending concession tenures incentivizes participation from leading global concessionaires and encourages long-term commitments from terminal operators. Experienced operators bring valuable expertise, ensuring smooth functioning and knowledge transfer. However, changes in terminal operators have often disrupted operations. For example, the Port of Baltimore experienced a 10-15% drop in container handling efficiency during operator transitions, taking nearly a year to recover.

Aligning India's Ports with Global Norms

Recognizing successes and challenges in the PPP framework, the government must reconsider contractual terms to align with international norms. Implementing a transparent framework for renegotiating concessions based on performance can foster predictability and attract higher investments. Extending concession periods and reducing operator turnover will enhance stability, encourage long-term commitments, and promote operational efficiencies.

Ultimately, these measures will pave the way for India's ports sector to achieve a projected 300% increase in cargo handling capacity by 2047, supporting the country's economic aspirations and vision of 'Viksit Bharat'. A well-designed PPP model, implemented with balanced regulatory policies and longer concession periods, can transform India's ports into highly efficient and sustainable entities, ready for future challenges.

(Veni Mathur, Vice-chairman, Chartered Institute of Logistics & Transport (CILT), India.)

Views are personal, and do not represent the stance of this publication.