[vc_row][vc_column][vc_column_text]Technology advancement has been the major driver of change in the current decade. Increase in the size of ships has put pressure on the port infrastructure. Global trade of coal, which has been growing since 1995, has for the first time registered a decline, which is expected to continue. Power generation, the main use of thermal coal has seen a shift to solar energy. Technological advancement continues to reduce cost of solar power generation. LNG power plants, as clean and green options are also viable. All this would have a lasting effect on shipping and port.
Indian ports have traditionally developed as gateways to handle the country’s foreign trade. Export Import (EXIM) cargoes have been the focus. Rules and regulations including customs notifications are also in line with the same which limit the focus on the emerging role of ports like transshipment hubs. Government policy continues to have a major impact on the development, viability and sustainability of port projects.
The focus on EXIM trade has led to ports not covering all possibilities including domestic cargoes, thus limiting their role into integrating as a multi modal interface covering the hinterland, country and global logistics to cover the opportunities which maritime trade and their geographical location offers.
Main drivers of port cargo volumes
Main cargoes, which have contributed and given volumes to Indian ports, are coal, iron ore and crude oil. Container trade has also added volumes but same has largely remained confined to three or four main ports. Crude oil can be termed as captive cargo as refineries, which are its main users, have to be linked with the landing terminal. Import facilities for crude oil have been largely concentrated on the west coast of India particularly Gujarat due to its proximity to the Persian Gulf and its established linkage pipeline to the refinery in the northern and central hinterland. Thus, any new terminal to handle crude oil would be restricted to facility, which has linkage to existing or new refineries.
Black Gold
Indian thermal coal imports have recorded their peak in mid-2015, as per energy experts and are now set to permanently and rapidly decline. Energy Minister Piyush Goyal’s target to cease thermal coal imports by 2017, with the exception of a few coastal power plants needs consideration by ports handling thermal coal as most of the energy think tanks have accepted it as workable and achievable. In India, excellent port facility to handle coal has largely developed in the East coast of India to supplement the existing facility on the west coast. However, import of coal is now looking at a negative trend. Increase in domestic production of coal has also diluted the demand for imported coal. Domestic production by Coal India Limited (which accounts for over 80 per cent of domestic market) grew by 8.5 per cent year-on-year. The increase in production has resulted in surplus stockpile of 90 million tonnes (MT) 55 MT at pithead and 35 MT at power plant during the 2016 fiscal. In 2015-16, Coal India produced 536 MT, which was 42 MT more than the previous fiscal.
Coal India Ltd is now looking at exports starting from Bangladesh where a 1,320-MW plant by NTPC in joint venture with Bangladesh Power Development Board (BPDB) is to be developed. It would require 6 million tonnes of coal every year. These would reverse the logistics chain by moving cargo from the hinterland coal pits to the ports for exports – rather than moving import cargo from the ports to the power plants.
India’s coal imports mainly consist (90 per cent) of thermal coal, used primarily for electricity generation and coking coal used to manufacture steel covering the remaining 10 per cent. Hence, it would be logically to cover the Indian power sector scenario and the trends of power generation including the fuel of the future.
Power sector
The main users of imported thermal coal are the power plants. The Ministry of Power had initiated in 2005-06, a policy to develop Ultra Mega Power Projects (UMPP). Many plants each having a capacity of about 4,000 MW, were to be developed. These were to be located at both the coal pitheads and coastal locations. These have also led to creation or augmentation of port facilities to handle the envisaged increase in imported coal. The government policy of giving a thrust to renewable energy in line with global trends has led to shifting of investment in solar energy projects. Cost of solar projects has been coming down as more as more technological advancement has reduced cost to produce solar power.
As per Institute for Energy Economics and Financial Analysis (IEEFA) Indian solar generation costs have fallen 25 per cent in the last year. It further sees a cost reduction of 5 to 10 per cent annually, further eroding imported coal’s competitiveness.
Coastal power plants, developed to feed on imported coal transported by sea, are to be captive customers of port due to their logistics cost advantage over movement of coal from pithead by rail. These also look uncertain with Liquefied Natural Gas (LNG) substituting coal as a clean fuel. Power plants based on LNG are in demand due to low prices and availability other than being a clean fuel compared to coal.
Essar Group has plans to setup an LNG floating storage and re-gasification unit (FSRU) near Hazira (Surat) in Gujarat. Essar group companies – Essar Steel and Essar Power are buyers for the LNG with a demand for 2.5 million metric tonnes per annum (MMTA). Market also exists for the excess quantity as infrastructure with network of pipes for linkage with end users already exists, as Gujarat has been the first state to set up a gas pipeline grid. A FSRU uses the sea and can be operational with a short time of within a year. Hence, feasibility exists for end users or actual buyers of fuel to shift to LNG at the cost of imported coal subject to viability.
All this raises questions over the traffic increase to existing and projected port facility to handle thermal coal as these terminals are dedicated for coal, specialised with handling grabs, conveyor belts and protected storage and handling facility with rail linkage, rail wagon loading etc which cannot be easily used for handling any other cargo.
Reorientation
Indian ports could do well to have a reorientation based on the value creation, which the ports can offer. This can cover their strategic geographical location, primary hinterland advantage, support of stakeholders or inherent developed assets, which can enhance development for the community, country and the port and also support the needs of the future. This can be a 360-degree approach without limiting to commercial cargo but can cover all natural and hinterland advantage, which the port can target, and all services which it can develop.
One of the key roles of a port is to act as a catalyst for development and to integrate with the local region. Recently Mumbai, an island city and commercial capital of India with a population of around 22 million was in the news due to a restricted fire at its Deonar garbage dump ground leading to major air pollution. Mumbai port can play an important role in replicating Singapore type garbage movement by closed barges to mainland.
Ports need to collaborate and work with other ports, which are strategically important to complete the chain of sea transport. Ports working in pairs would ensure that similar standard facility is available for a voyage to generate and handle cargoes at both ends. The benefit of such collaboration is always greater as it creates more value than envisaged. Coastal cargo, Ro-Ro vessels, Passenger liners etc would require such joint working.
Two ports one of which is located on the west coast of India and another on the east can act as a transit point port with a Land Bridge. The concept of Land bridge may be feasible with the growth of container cargo and India now more committed to covering African countries, Iran and Bangladesh with ports terminals. Land bridge would connect the East Coast of India (say in south Andhra Pradesh or north Tamil Nadu) to the west coast near Mangalore with a DFC, standard train, which can transport 400 teu in one journey. Such a land bridge concept can help in avoiding transshipment to Colombo.
Indian ports would also have to look at identifying a role in the global container logistics chain. Indian ports are presently restricted to country’s own EXIM cargoes which leave scope for growth. With government promoted Sagar Mala the maritime infrastructure is to develop further reaching all segments and areas, which would boost coastal and waterways development. Increase in coastal, bilateral and regional cargoes and shifting of commodities from break bulk and bulk to containerised cargo would increase containerisation. Identifying opportunities in sync with programs under Sagar Mala would help the port integrate and grow.
Indian ports based on their advantage and limitations can handle container cargo, which is going to remain for the future and can look at specialisation and value addition. Ports would need to align themselves and adapt a role in the logistics chain either as a feeder, transit or hub port based on their strength and available opportunities. Competing with adjacent ports for the same model and type of cargoes may not be in the ports or national interest.
Surendra Sharma (sharmaport@gmail.com) is a fellow of NMIS with various courses from Harvard Business School and Institute of Rail New Delhi. He has extensive experience in covering the port led logistics management supply chain and has worked on various projects for state, central government and private sector. His contribution to the industry includes two research papers to the Ministry of Shipping Government of India and more than fifty research papers / articles on macro issues in various forums. His views and insights are regularly covered by the national and international shipping media.[/vc_column_text][/vc_column][/vc_row]
