Ports in India are feeling the strain of Delhi’s push to nearly double the size of the national economy over the next five years.
But for Essar Ports — one of the country’s biggest operators — the plan to build an economy worth about $5trn in GDP a year presents new growth opportunities.
Chief executive and managing director Rajiv Agarwal expects the economic plan will drive strong demand growth due to a need for bulk cargoes and an increase in coastal cargoes.
Power and logistics
Essar Ports is part of Essar Group, a conglomerate that includes power generation and commercial shipping in its portfolio.
With four terminals specialising in handling the import and export of bulk, liquid, breakbulk and general cargoes, it has total cargo capacity of 110m metric tonnes per annum, which is about 5% of India’s total port capacity.
According to its latest performance figures, throughput is growing rapidly. In the first quarter of its 2019/2020 financial year, cargo volumes rose 17.4%, with a total throughput of 13.5m metric tonnes across its terminals in the ports of Hazira, Salaya, Visakhapatnam and Paradip.
Cargoes handled by third-parties outside Essar Group have been the main contributors to growth, more than doubling during the quarter to account for 27.4% of total cargo volumes.
“We plan to increase third-party cargoes to 50% in the next three to five years,” said Agarwal, who added plans to develop liquid bulk and LNG handling facilities at Hazira, and a new ro-ro cargo terminal, are under consideration.
We aim to continue investing in the expansion of our capacity through investments that are modular in nature, consolidating our existing operations, and ensuring higher cargo-handling numbers and improved turnaround times
Rajiv Agarwal
“Diversifying cargo profile and customer base is central to our strategy and we look forward to any opportunity as we grow.”
Agarwal said there were two key elements that had helped Essar Ports consolidate its market position: enhanced capacity utilisation by anchor customers, and capacity expansion at its terminals.
Targeting 20% growth
“We expect to see overall growth of more than 20% in the near future, beating industry benchmarks,” he said, stressing that the company was interested only in the sustainable development of its Indian terminals.
With infrastructure investments at its four ports now operational, Essar Ports is now focusing on increasing revenue, diversifying its cargo base, optimising costs, and improving its operational and financial performance.
“All our terminals are scaleable and come with the necessary infrastructure to further expand the capacity.
"We aim to continue investing in the expansion of our capacity through investments that are modular in nature, consolidating our existing operations, and ensuring higher cargo-handling numbers and improved turnaround times.”
Agarwal pulled no punches when speaking to TradeWinds about the problems India's private or public ports face when seeking to expand capacity.
He highlighted a dearth of low-cost funding for infrastructure, high domestic logistics costs that make Indian exports uncompetitive, and a lack of hinterland connectivity by road or rail.
Other issues include the non-equitable risk sharing between concession authorities and concessionaires in public-private partnerships (PPP), and frequent delays in projects caused by problems obtaining approvals, financing, litigation, land acquisition and other local hurdles.
“We believe there is a pressing need for ensuring the availability of low-cost, long-duration funds for the sector; and for equitable sharing of risk in PPP projects, with concessionaires having flexibility to modify the terms of the agreements, keeping in mind myriad of risks faced by the private players,” he said.
“We also need to enhance capacity utilisation of existing infrastructures through slew of measures and policy changes. These efforts will not only boost the investor confidence but also pave way for port-led development in the future.”
Essar Ports may have no new port projects underway in India, but it is developing a dry bulk facility in Beira, Mozambique.
The company signed a 30-year concession agreement with the Mozambican government in 2017 to develop the Beira coal terminal as a PPP on a design, build, own, operate and transfer basis.
Essar Ports holds a 70% stake in New Coal Terminal Beira, with joint venture partner CFM, Mozambique’s ports and rail company, holding the remaining 30%.
The coal terminal will be capable of handling 10m tonnes of coal per year when completed. The first phase is scheduled to go into operation next year.
