Cabinet approval for ‘Major Ports Authorities Bill’ is a credit positive for major ports: ICRA
The ultimate aim of the above Act is to provide more autonomy to the major ports by enabling speedier decision making process, improvement in their governance structure, fund raising from the capital markets, leverage their land assets and attract investments.
During the first seven months of FY2017, cargo throughput at major ports has registered a 4.6% growth over the corresponding period of the previous year. The growth was supported by a doubling of iron ore cargo volumes (21 MT against 10 MT) as well as growth in POL (9%) and Other cargo categories (8%). However, volumes of other categories like coal and fertilizers were down by 4% and 11% respectively during the period. The coal volumes continue to remain subdued, as higher domestic production of coal and lower than projected growth in demand continue to reduce the existing demand-supply gap.
According to K. Ravichandran, Senior Vice-President and Group Head, Corporate Ratings, ICRA, “Iron ore volumes had been declining upto H1 FY2016, as mining restrictions prevailed during a large part of the year in major states like Karnataka, Goa and Odisha and other policy measures such as high export duty. With lifting of bans and further relaxation of export duty on low grade iron ore in Union Budget of February 2016, mining activities have commenced gradually and further supported by a rise in prices, iron ore exports have picked up in recent months. Commencement of exports by NMDC to Korea and Japan, based on a long-term agreement signed during the year (16.5 million tonnes over three years) is also likely to have supported volumes.”
In another major development for the port sector, the Union Cabinet, in December 2016, has approved the ‘Major Port Authorities Bill’ with the aim to provide more autonomy and level playing field to the major ports. The ultimate aim of the above Act is to provide more autonomy to the major ports by enabling speedier decision making process, improvement in their governance structure, fund raising from the capital markets, leverage their land assets and attract investments.
Ravichandran mentioned, “With the new Act, the MoS aims to enable the port authorities to function like a corporate entity and provide autonomy and flexibility to operate, besides bringing in a professional approach in their governance. For example, provisions like raising loans without GoI approval could be a game changer as these major ports have struggled in the past in implementation of some of their major capacity expansion plans owing to lack of funds. ICRA research believes that the above step is a significant positive step for the major ports as it provides significant operational autonomy to the major ports and should ensures quick decision-making, attract investments as well as leverage the land assets. Nevertheless, the Bill needs to be passed by both the houses of Parliament before its implemented and hence timeliness of the same will be a key event to watch out for.”
In terms of the cargo growth outlook, K Ravichandran mentioned, “Over the medium to long term, the outlook for cargo growth continues to be favorable, driven by domestic requirements of coal for power (including coastal movements) and other sectors; crude oil, for meeting domestic petroleum requirements; and containers, given the cost and logistical advantages associated with containerization. However, the near to medium term outlook remains slightly subdued, including on margins, with uncertainty associated with particular cargo categories like imported coal, due to narrowing domestic demand-supply gap following the increase in coal production by Coal India Ltd; and containers, due to the relatively weak global environment affecting exim trade. However, iron ore export volumes could improve further, due to export contract of NMDC, elimination of export duty on low grade iron ore and restarting of mining operations – as has been evident in the uptick in the first seven month volumes in FY2017. Moreover, various initiatives under the Sagar Mala programme will aid the long term growth trajectory of the industry.”