Indian Economy News

Kolkata Port Trust, West Bengal govt to sign JV for new port

  • Livemint" target="_blank">Livemint
  • January 7, 2015

Bengaluru: Union government-owned Kolkata Port Trust will sign an agreement with the West Bengal government on Wednesday to set up a new port at Sagar Island in South 24 Parganas district through a joint venture (JV) between the two.

The Sagar Island port is estimated to cost Rs.11,900 crore and will be the first port to be built by the Union government in 14 years. The last major port— those owned by the Union government—to be constructed was the Kamarajar port at Ennore in Tamil Nadu in 2001 when the National Democratic Alliance government led by Atal Bihari Vajpayee was in power.

The new port will be developed through a special purpose vehicle (SPV) set up under the Companies Act, with 74% equity participation by the Kolkata Port Trust and 26% by the West Bengal government, a spokesperson for the shipping ministry said.

“Kolkata Port and West Bengal government will sign a joint venture agreement to set up the SPV, which will award concessions to private firms for setting up cargo handling facilities at the new port,” the spokesperson added.

This will enable Sagar Island to operate as a landlord port, a port development model where the land and waterfront infrastructure is owned by the government-controlled firm, which are given on lease to private firms who put up and maintain their own superstructure and install their own equipment to handle cargo.

Currently, 12 of the 13 major ports function as trusts under a law framed about four decades ago called the Major Port Trusts Act, 1963. Ennore port is the only exception. It was formed as a company under the Companies Act, 1956, when it was opened in 2001. The 13 ports together account for some 57% of India’s external trade shipped by sea.

Ports functioning as companies are free to set their own rates. In comparison, ports operating as trusts are subjected to rate regulation by the Tariff Authority for Major Ports.

The first phase of the new port, expected to start operations by 2019, will have the capacity to handle 54 million tonnes (mt) of cargo from nine berths. In the second phase, the capacity will be increased to 127.8 mt by adding 11 more berths to handle coal, iron ore, iron and steel products, fertilizer, container, petroleum, oil and lubricants.

India plans to almost triple cargo handling capacity at its ports to 3.13 billion tonnes by 2020 from the existing 1.16 billion tonnes to meet demand, according to a 10-year plan unveiled by the shipping ministry in 2011.

The Union government has decided to approach the Japan International Cooperation Agency for a soft loan of Rs.4,715 crore for the Sagar Island port—Rs.1,223 crore for dredging the approach channel and Rs.3,492 crore for building a 27km long rail road connectivity, including a bridge over the river Muriganga for evacuation of cargo, minister of state for shipping P. Radhakrishnan told Parliament on 11 December.

When operational, the new port with deep draft (depth) is expected to diminish the role of Kolkata port, India’s only riverine port, which has been hit by depth restrictions and higher logistics costs for exporters and importers.

As a result, Kolkata has been losing cargo to other neighbouring ports. From a peak of 57.329 mt in 2007-08, the port’s cargo volumes slumped to 41.386 mt in the year to March 2014.

Experts say there isn’t much cargo left for Kolkata to lose. “Whatever had to be lost, had been lost over the past five years. There is nothing more to lose,” said an executive at Steel Authority of India Ltd (SAIL)— Kolkata port’s biggest customer by volume.

SAIL, which ships about 5 mt of coking coal a year through the port’s Haldia dock, said it could consider shipping some of its coking coal imports through the Sagar Island port to save on logistics costs as bigger ships can be accommodated there, unlike in Haldia.

The shipping ministry is also expected to seek viability gap funding from the Union government for the new port.

Viability gap funding refers to a one-time grant given by the central/state government for supporting public-private-partnership projects in infrastructure that are economically justified but fall short of financial viability. A project can secure as much as 20% of its capital costs in viability gap grants from the central government to boost its viability.

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