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Tuticorin gets ready to harness its potential

Business Standard:  August 05, 2014

Chennai: In the Budget presented on July 10, the government allocated Rs 11,635 crore for the expansion of the V O Chidambaranar (VOC) Port in Tuticorin. It was a confirmation that the current government, like the previous one that had initiated the project, foresaw this port located in a crook off the Tamil Nadu coast handling a bigger traffic burden. Industry representatives, especially exporters, say the enhancement of berthing facilities there will give a boost to exports and will translate into big savings in freight for manufacturers who currently have to send their products bound for the west via Colombo in Sri Lanka.

The development of the outer harbour at VOC Port will be completed in four phases over 24 years (2019-2043) and will cost an estimated Rs 23,432 crore. The new facilities will include 17 berths, which will enhance the port's capacity by an additional 338 million tonnes. The first two berths, meant to handle coal and containers, will become operational by 2019.

VOC Port will invest Rs 5,870 crore in the project, while public-private project investments will contribute Rs 15,922 crore. According to I-Maritime Consultancy, which prepared the project report, the internal rate of return for phase-I that will include five berths, two for coal and three for containers, will be 8.3-13.13 per cent. I-Maritime has also suggested that for financial viability, the port could finance the construction of the new harbour's breakwater through international institutions like the Asian Development Bank or the World Bank.

K Pon Venkatesh, one of the trustees of VOC Port, says that Tuticorin is badly in need of expansion to handle the increase in traffic. At the moment, it lags behind Colombo port as an international container transshipment hub because the Sri Lankan facility offers deeper berths that enable bigger ships, or mother vessels, to dock.

Exporters will rejoice at the news. At present, they have to send their cargo on a feeder ship to Colombo where it is reloaded on a mother vessel for onward journey. "They spend $150-200 per container as transshipment cost," says Ventakesh. It is estimated that exporters pay as much as Rs 1,400 crore to Colombo every year for transshipment.

A Sakthivel, president of the Tirupur Exporters Association, says that the additional capacity at Tuticorin will not only save freight costs, but also time because consignments can be routed to their destinations without a detour to Colombo. The price difference that the savings on forex could make to products will be substantial, says T Johnson of logistics company St John Group.

Readying for the future

VOC Port, one of the 12 major ports in India and the second biggest in the state after Chennai, was established in 1974. It started by importing coal for the Tuticorin thermal power station, but over the years has diversified to handling export and import of timber, granite, sugar, machinery, petroleum products, liquefied natural gas, liquid ammonia, chemicals and fertilisers. Now with business prospects growing manifold in the port's hinterland of south Tamil Nadu, Kerala and Karnataka, the redevelopment of the port has become a necessity.

Of the planned 17 new berths in the outer harbour, six are earmarked for coal and eight for containers. Tuticorin is turning into a hub of power plants, and industry representatives say new power plants in the region are projected to generate as much as 17,274 Mw of coal-fired electricity. Tamil Nadu is also becoming an important manufacturing hub, with 40,352 factories in the state in 2013. With Chennai and its suburbs getting saturated, the state government is keen to develop the southern parts of the state as industrial areas.

Over 1.3 million cars are manufactured in the state every year. In addition, 361,000 trucks and 350,000 two-wheelers are also produced here. A major chunk of the products are meant for the export market.

The state government has initiated fiscal incentives for industries that are setting up units in this region. It has also announced the development of industrial estates and infrastructure, including the Madurai-Tuticorin industrial corridor, besides creating a land bank of over 50,000 acres for new manufacturing and economic zones. "The Madurai-Tuticorin corridor will create huge traffic for the Tuticorin port," says Venkatesh.

Liquefied natural gas can become a prospective cargo for the port, provided the domestic and international prices achieve parity and downstream infrastructure, like a gas pipeline from Tuticorin to Chennai, is developed. The options for developing an export-based refinery, an integrated steel plant, strategic crude oil storage and development of tank farms can also be explored.

Of the traffic forecast of 338.3 million tonnes by 2043, containers will account for 65 per cent and coal, 27 per cent. While the fully complete inner habour is expected to operate at 55 per cent of capacity, the new outer habour will operate at 85 per cent capacity utilisation because of its comparably superior infrastructure.

I-Maritime is also hopeful that the Indian Navy will develop a naval base and dockyard in Tuticorin to strengthen its presence in the Indian Ocean. For this purpose, the inner harbour of VOC Port can be leased to the navy and the yield could be used to finance the outer habour project. With all these revenue options available, the hopes are high for the port. But its success will depend on how well it is able to harness this potential.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

x IBEF : India Brand Equity Foundation