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Beyond the hubbub

An old plan is revived. But will it fare any better this time?

SUPRIYA KURANE                                                         Feedback to this article |   e-mail this article

Colombo would have listened to P. Chidambaram's latest Budget speech with uncommon interest. The part
that would have made them sit up and take notice came towards the middle: "[The] government will facilitate
the construction of an International Container Transshipment Terminal (ICTT) at Vallarpadam in Kochi port
on build, operate and transfer (BOT) basis."

Why should that worry Colombo? Because 40 per cent of the total container traffic currently handled by the
Colombo port is transshipment traffic from India. Last year, about 750,000 twenty-foot equivalent units
(TEUs) of cargo were loaded on feeder vessels headed for the transshipment port (or hub port) of Colombo,
where they were reloaded on to mainline vessels for their destination. For Colombo, that translated into
business of about Rs 270 crore. When the hub port at Vallarpadam comes up close to the international liner
routes that Colombo itself feeds, it can wean away more than this share of business from the Sri Lankan

Now, India's intention of setting up its first transshipment terminal is at least a decade old. But earlier
attempts at getting the project off the ground had come a cropper. It's only this year, after the concession for
development was awarded, that one can say the dream has begun to be realised. And Chidambaram's
mention was a re-affirmation of the Central government's resolve to see it through completion.

Port Of Calling

                                                   The Vallarpadam story so far has been nothing short of
                                                   sensational. It started way back in 1991, when the Cochin
                                                   Port Trust (CoPT) prepared the first feasibility report for
                                                   developing a greenfield port at Vallarpadam, on an island
                                                   opposite Kochi. In 2002, when CoPT finally managed to
                                                   float a request for bids after more than a decade of soul-
                                                   searching, it trawled more muck than anything else.

                                                   The idea was to develop the ICTT as a public-private
                                                   partnership, where the private operator would first
                                                   modernise the existing Rajiv Gandhi Container Terminal
                                                   (RGCT) at the Kochi port in the first phase. In the Rs
                                                   2,118-crore second phase, the operator would develop the
                                                   ICTT, maintain it for a concession period of 30 years, and
                                                   then transfer it to the government.
  The Vallarpadam transshipment terminal,
  to come up near this port at Kochi, could      The overall response was lukewarm the first time around.
  see India move into the global league          To top that, the intelligence bureaucracy forced CoPT to
                                                 scrap the bid by Hutchison Port Holdings, citing that the
Hong Kong-based group's contacts with mainland China were too close for comfort. The spectre of
monopoly was raised to keep P&O Ports away from the bidding. The reason: it was already operating
terminals at the Jawaharlal Nehru (JNP) port near Mumbai and the Chennai port. In the end, the bidding
process gave way under the pressure of the controversies.
The government revitalised the project last year when it found that the existing capacities at major ports like
JNP fell far short of the soaring demand. Ministry of Shipping officials were despatched on road shows to
Dubai, Singapore and Malaysia to showcase Vallarpadam.

"We realised that the existing conditions were difficult to attract investment, and so we relaxed some of
them," says D.T. Joseph, secretary, shipping. One of the reasons for the lukewarm response at the first
bidding was uncertainty over the commercial viability of a hub port near Kochi.
This time, the private operator was allowed to start developing the new port only after managing to push up
traffic at RGCT from the existing 170,000 TEUs to 400,000 TEUs, or after eight years from taking over the
concession, whichever happened first. The operator was also allowed pay for the costs of the existing
equipment in instalments.

The re-packaging worked. Six players - including heavy hitters like Maersk, Dubai Ports International (DPI),
Port of Singapore Authority and a Punj Lloyd-IL&FS consortium - evinced interest. Eventually, DPI won the
contract. In return, apart from Rs 40 crore for the equipment, it has to pay an annual licence fee of Rs 9.6
crore and a third of the gross revenues from the operations. A DPI-led consortium already operates a
terminal at the Vizag port.

Docking At The Mainland

Currently, about 70 per
cent of India's
transshipment cargo
goes to Colombo, which
has been serving Indian
exporters for the past 15
years. The other regional
hubs at Singapore and
Salalah serve the
remaining 30 per cent of
Indian transshipment
cargo. Once Vallarpadam
comes up, most of this is
expected to shift to the
Indian hub port
immediately. While
competition will be stiff,
Vallarpadam is expected
to offer a definite
advantage in costs - in
terms of both time saved
and competitive tariffs.

A hub port in the country
will save exporters up to
3-4 days. "It will not only
help in saving time for all,
but especially benefit
[textile] exporters from
Tirupur, Madurai and
Karur," says Rafeeq
Ahmed, president, Federation of Indian Export Organisations. For India-bound cargo too, traders would save
a lot by eliminating one whole step in the transportation process - that of unloading at Colombo, reloading on
feeder vessels, and then carting the cargo to an Indian port.

Some traders on the east coast of India may still find it cost-effective to go through Colombo, given the
comparatively steep inland transport rates in India. That, and more, is what the Central government needs to
address now. Since Vallarpadam is an island, a connection to the mainland needs to be worked out first.
CoPT has come up with an innovative scheme to fund the bridges: it would reclaim some land from the
backwaters owned by it, sell it, and use the proceeds to build the bridges. The National Highway Authority of
India, on its part, has done a feasibility report for linking the port to highways. The Container Corporation of
India, an Indian Railways subsidiary, will ensure rail connectivity. To back up this whole process, the Central
government has pledged a viability gap fund of Rs 932 crore.

The stickier issue is one of ensuring competitive tariffs. The shipping ministry set the direction earlier this
year by asking the major southern ports of Tuticorin, Chennai and Cochin to cut their vessel-related charges
and bring them on par with the rates at Colombo. "On the Colombo route, if you are carrying most of the
boxes across to the East, any detour that you make means additional time and money. Your rates need to
be such that this additional detour costs can be absorbed," says Joseph.

Berth Pangs

Despite the Centre's best intentions, Vallarpadam faces some serious worries. Among the lot that's less-
than-thrilled at the developments, a source at a port development company says mainline vessels will
continue to call at other ports like Colombo and Salalah, since the RGCT has a draught (depth) of only 12.5
metres and that's what DPI would begin with. Hence it's imperative that ICTT be developed before traffic
goes up at RGCT.

One possible scenario painted by the nay-sayers: DPI runs RGCT for eight years and pulls out before
making the large investment in ICTT. An official at a large shipping company points out: "The licensee can
be at an advantage if he artificially keeps his volumes below 400,000 TEUs for the next eight years, after
which there will be a re-assessment. He can get away with not developing the expensive terminal at all. [It]
will still be able to reap handsome profits from operating the existing terminal. How will this benefit the

The biggest threat yet comes from home. Incredible as it may sound, while Vallarpadam was being planned,
the state government of Kerala was working on another hub port just 30 km south of Kochi, at Vizhinjam. It
even invited expressions of interest in 1999 for developing this natural harbour, which currently enjoys the
status of a minor port. It received 10 expressions of interest for the Rs 2500-crore project. The final round of
bidding is expected to start at the end of July.

Even Joseph is sceptical about the prospects. "There just isn't enough scope for two hub ports in the area,"
he says. But the state government is adamant about carrying on. For the moment, Vallarpadam seems to be
ahead in the race.

It's a race of political endurance. And eight years is a pretty long time - especially in politics. Chidambaram
will agree.

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