India: Shipping ministry misses project award target by wide margin
Shipping ministry had plans to award 59 projects for capacity enhancement during the ongoing fiscal, but managed to award only a dozen.
Last fiscal, the ministry had awarded 57 projects involving an investment of Rs 9,490.51 crore involving a capacity addition of 103.52 million tonne per annum (mpta).
“It’s a tall order and would be difficult to clear pending projects in just one fiscal quarter remaining. A total of 47 projects won’t be possible to award during the last quarter,” K Ravichandran, senior vice-president and group head, Corporate Ratings, Icra, told DNA Money.
One of the biggest factors missing the target is the rollout of goods and services tax (GST) on July 1 that resulted in slowing down in project execution as well.
Meanwhile, on the eastern and western coasts, the capacity addition of container terminals is likely to result in competitive pressures for a larger share of volumes.
Government’s ambitious Sagarmala Programme, which aims to reduce logistics cost for Exim and domestic trade with minimal infrastructure investment, will also augment capacity. In the next 10-15 years, “142 port projects involving an investment of around Rs 91,434 crore for capacity enhancement have been identified for implementation,” read shipping ministry’s project details.
Besides, private ports have also been raising their capacity. As a result, “with surplus capacity addition of container terminals in the Mundra-Jawaharlal Nehru Port Trust (JNPT) and the Chennai cluster (South-East) regions, container terminals are likely to witness severe competitive pressures for larger share of incremental volumes, and thereby pressure on realisations as well,” read Icra’s latest note on shipping sector.
As per the Icra note, with JNPT adding large capacity over the next three years, there is a likelihood of Mundra, Pipavav, Hazira ports in Gujarat and other JNPT terminals facing severe competitive pressures for a larger share of the export-import (Exim) cargo belonging to the northern region. This will not just lead to a fight for incremental volumes, but could also drive down average realisations for terminal operators as companies grapple to corner higher volumes.
Similarly, the Chennai-Ennore-Kattupalli-Krishnapatnam (South-East) cluster, too, is likely to face strong competition for volumes over the next three to five years, with current surplus capacity.
Commenting on this, Ravichandran said, “While the recent capacity creation in these regions is backed by prediction of strong demand growth, increase in Exim cargo movement would be gradual and in the interim, terminals could witness pressure on volumes. Terminals with short-to-medium term contracts with container lines could partly address the volume risk, while pressure on realisation and margins is imminent as the lines drive a hard bargain on rates.”
During the initial eight months of FY2018, volume growth at major ports has been low at 3.5% as coal volumes recorded 5% decline during the period, even as iron ore and petroleum, oil and LNG volumes grew by 8% and 7%, respectively.
The decline in coal volumes, notwithstanding some reversal seen in November 2017, is a concern over the long term for the port sector since many ports and terminals have a significant dependence on coal imports. A prolonged decline in coal import requirement in the absence of diversification into other cargo categories can impact the returns for such port sector players.