Friday, July 27, 2012

Who needs a World-class Port...and the God of Small Rails! (Part 2)

It's official, the Government is going to dump Welspun's bid citing the grant that they had asked for to operate the port for the next 30 years. 

On one hand, one wonders why there's so much stinginess at paying out a few hundred Crores when there is no concern whatsoever for splurging over 120,000 Crores of the same taxpayers' money on a white brontosaur of a bullet train project or when there are no compunctions about handing out multi-hundred Crore contracts without even the formality of a bid! Of course, it seems that the regulations have to be followed down to the "T" only in the case of one district, which sadly for its sake happens to be the Capital of the State! That said, considering the fact that the Welspun consortium seems to be extremely conservative in its expectations of the potential of the project and more interested in the EPC contract than in port operations (understandably so, since the consortium is comprised of three civil contractors, nary an port operator in sight!), it may not be in the project's best interests (and not of the city or the State) to hand over a greenfield mega-project which needs an aggressive and capable operator to a half-interested-at-best entity. Of course, the Billion dollar question now is what next? A re-tender is what seems to be the default (and least effort intensive) option for the Government, although a more pro-active G2G effort may yield better results. In either case, the need to update the market study and master plan of the project becomes paramount.

Considering the time taken to reach this underwhelming and anti-climactic conclusion to the latest bid process for the project as well as the reason for the said conclusion, one almost wishes that Welspun had called in the services of the one man who can get anything done in Kerala (from bullet trains flying on magnets to trash disposal), thus convincing the current Government of the need to dispense with trifling formalities such as a bid!

Which brings us to the second project in Trivandrum that is going around in circles (or a closed loop of rails, as may be more appropriate). This ladies and gentlemen, is the much-heralded Trivandrum Mass Rapid Transit System. What, you don't remember it? Well, I can't blame you, the idea's been mired in red tape and in the hyperactive imagination of E. Sreedharan and the lack of imagination of the concerned Minister for several months now, dropping out of the public eye just as quickly as it grabbed attention when first proposed in 2011. Here's the story so far....

About a decade ago, a study conducted by L&T Ramboll on MRTS possibilities for Trivandrum and Ernakulam suggested that an MRTS be implemented in the State Capital. Keep in mind the fact that the city was about half its current size and population at that time, and this was before Technopark, Technopark or Vizhinjam.

Then in 2006, DMRC (or Sreedharan & Co) prepared a report that vetoed an MRTS in Trivandrum and proposed one in Ernakulam, even though both cities were of the same size and population (if at all, Trivandrum was already the bigger Corporation). DMRC recommended suburban rail services.

In June 2009, a Bus Rapid Transit System, believed to be more suited for Tier II cities, was approved in principle in Trivandrum. This sank without  a trace even as cities such as Ahmedabad and Indore successfully implemented it.

After a couple of years of slumber about mass transit in Kerala's biggest and fastest growing city and IT hub, the new Government announced plans to set up a monorail MRTS in Trivandrum and asked NATPAC to prepare a preliminary report.

At this point, E Sreedharan who has abruptly retired from the DMRC and has wrangled a position as advisor to the Ernakulam MRTS project, is of the opinion that monorails are suited only for amusement parks despite hundreds of kilometers of operational monorail-based MRTS in cities across the world.

However, as the feasibility report for the monorail in Trivandrum is under preparation, Sreedharan's opposition to the monorail starts to mysteriously vanish and he starts supporting the monorail project in Kozhikode.

The feasibility report for the monorail project in Trivandrum was approved on March 1st. The 42 Km route stretches from Technocity to Neyyatinkara and is planned to be implemented in two stretches, from Technocity to Thampanoor and then onwards to Neyyatinkara. Although NATPAC pays lip service to feeder bus services, there is no talk about further routes or about an integrated transportation system.

Thereafter, the project vanishes into the depths of the bureaucracy and nothing is heard about it for months. In the meantime, a MLA from Malabar becomes Transport Minister and our Metroman takes over the Kozhikode monorail after smoothly swallowing his avowed skepticism for the technology. 

Soon after, he is found sniffing around the much bigger project in Trivandrum (in fact, in route length and cost, it's the biggest MRTS project in Kerala). Despite the fact that the gentleman had been loudly proclaiming the fact that the capital city doesn't deserve an MRTS and that monorails are meant only for Disneyland, the reins are happily turned over to him in May. The reason? Sreedharan is acting as an "advisor" or a sales agent for DMRC which charges a whopping 8-12% of project cost as its consulting fee or commission! For the Rs 5500 Crore Trivandrum MRTS project, this means anywhere from Rs 450-660 Crores and all without even the pretense of a tender. A tidy sum for a retiree working from the comfort of his wife's house in Ponnani (yes, hundreds of kilometers from any of the project cities!). Not only is awarding a contract of this size without a tender ludicrous, so are DMRC's consulting rates which easily exceed those charged even my global firms such as AECOM, PB or Bechtel. Even more so, since unlike any of these giants with experience in hundreds of projects across the world, DMRC has no experience....absolutely zilch...with monorails.

In the meantime, the formation of the Special Purpose Company that would execute the project, just like VISL does for the Vizhinjam project, has gone nowhere and to add insult to injury, it turned out that Rs 190 Crores allotted for the preliminary road improvements (from Ulloor to Kazhakkoottam) necessary for Phase I had been "temporarily diverted" to the Kozhikode monorail project. Oh yes, and the Minister apparently decided on a whim that the monorail would be extended to Varkala, about 30 Km to the North. At least he can be forgiven for not knowing the difference between urban transit and commuter rail.

And then to add to the confusion, the right honorable Metroman opined that instead of the monorail, the Trivandrum MRTS should be a higher capacity "metro" and not just any ordinary metro, but one that uses magnetic levitation. He even very conveniently lined up representatives of the Korean Hyundai ROTEM consortium to make a pitch on this highly untested technology. Magnetic levitation propulsion is valued for its high speed capabilities but is complex, requiring super-strong magnets to suspend the train above the guide-rail, thus eliminating friction. It has been used on experimental tracks and on a few showcase routes such as from Shanghai Airport to the City Center. With its high speed, maglevs seem more suited for longer distance, city-to-city routes than on intra-city routes, where stations are hardly 0.5 to 1 Km apart. It's common sense that a MRTS train cannot exceed a certain acceleration/deceleration profile to avoid discomfort to its passengers, unless all of them are onboard to enjoy roll-coaster thrills!! In any case, bringing in an untested technology is a sure-fire way to delay the project indefinitely. Sreedharan tried the same trick in the case of his pet project in Ernakulam but was thwarted by the officials in the SPV.

In short, we are in a fine soup indeed! The project doesn't have a working structure yet as the SPV is still in limbo. That needs to be formed first and given a clear mandate, funding and a competent staff (easier said than done!). There is talk of having a single SPV for both the Trivandrum and Kozhikode projects, which is a horrible idea because the two projects are very different in scale, complexity and locational context. It reminds one of the way in which separate SPVs were not formed for the JNNURM buses allotted to Trivandrum and Ernakulam and how funds from the former were used to subsidize the latter and both had to be operated at the same fares, even though the buses in Trivandrum had greater subsidies from the Central Government and hence a lower cost of operation. No, we need separate SPVs for the two projects.

And the SPV for Trivandrum should be given the freedom to choose a competent consultant or consultants, not have any agency stuffed down its throat because a celebrity advisor comes free with it. 

A) The SPV needs to bring on board management consultants to understand the best development model for the project. Currently, pure Build-Operate-Transfer has been mooted, which is unlikely to work for a public transit system and that too in a Tier-II city. Other options such as the hybrid landlord-operator model being used in the Vizhinjam project or the public funding + development institution debt model being used in Delhi, Chennai or Ernakulam need to be considered. With JNNURM-II promising financial assistance for MRTS systems, this is much easier than before. And anyways, why would the State Government only use tax-payer money to pay for one city's MRTS and expect the private sector to pay for the other two. As we like to say in Kerala, everything should be equal, right?

B) The SPV also needs to float a global-tender for technical consultants with actual experience in various MRTS options such as monorail, light and heavy rail systems to first of all conduct an independent study on the best choice of technology for Trivandrum as well as to revalidate the traffic study, with a view to create a multi-route network.

If Sreedharan & Co are left to their work, we will probably end up with a Find-Replace-Copy-Paste version of the report they prepared for some other city in the past, with Trivandrum suitably inserted. DMRC did precisely this for the much-trumpted initial report for Sreedharan's other pet idea, the bullet train, where the report had clear traces of having been "adapted" from the project report of the Jaipur Metro! With his obvious focus on the Ernakulam project, it's most likely that Trivandrum will languish in the files indefinitely. Moreover, the skeletons are beginning to tumble out of DMRC's cupboard, the biggest one thus far being the shutting down of the flagship Delhi Airport Express line because of a drastic failure in construction executed by DMRC, including the failure of no less than 91% of the critical bearings that support the line itself on its support piers. While this glaring and potentially lethal failure in construction was detected by the line's operator, Reliance Infrastructure, one hopes that more dangers do not lie hidden along the rest of the Delhi Metro network. It may be recalled that the Comptroller and Auditor General of India had harshly criticized DMRC's quality control measures in a 2009 report, a report that the Government managed to stop from being tabled in Parliament. Shortly after the report was made, one of the deadliest accidents to hit the Delhi Metro had seen an entire span collapse, killing five people, one of many accidents in the project, that resulted in a total of 109 deaths in Phases I and II alone. When one begins to consider disturbing facts like these, the facade of invincibility around DMRC vanishes very, very quickly. 

Span collapse - July 12, 2009 Courtesy: The Guardian, UK

And this is the agency that we want to trust blindly with a technology, namely monorails, that it has no experience with?! With all due respect to E Sreedharan, one cannot depend on just a single individual, even if we ignore the fact that he is pushing 80. What happens if this individual is not able to perform his duties for whatever reason, will DMRC be abruptly replaced or the project terminated, after spending thousands of Crores of public money?

That said, the scariest part is that this Government has committed itself to a plethora of massive infrastructure projects - the Rs 8000 Crore Vizhinjam port, the Rs 5500 Crore Trivandrum MRTS, the Rs 5000 Crore Ernakulam MRTS, the Rs 3000 Crore Kozhikode MRTS and the Rs 2000 Crore Kannur International Airport, not to mention the grand-daddy of white elephants, the Rs 120,000 Crore bullet train! The awful realization must be starting to dawn in various high places that these projects, even after excluding the bullet train fantasy, would need the State Government to pump in close to Rs 10,000 Crores as direct investment in the next 3-4 years if all of them enter construction. Which is a lot more than the shaky Treasury can afford! The State's debt load just hit Rs 87,000 Crores (well over 70% of annual GDP!), having soared by over Rs 10,000 Crores or over 14% since the current Government took office in May 2011. So, I suspect that the current strategy may be to slow-pedal some, if most of the projects, so that the ones that have the right political backing will get whatever limited funding there is. The rest, well the rest can wait for better days. And anyone who understands the current political clout of the capital, or rather the evident lack thereof, would not bet on Vizhinjam or the Trivandrum MRTS being anywhere but at the bottom of the priority stack. Maybe that's why re-tendering in the case of the first and testing out new technologies for the second are very convenient indeed?!

The one thing that is clear - neither of Trivandrum's so-called "dream" projects is making any real progress. Without urgent, strong, pragmatic and pro-active intervention from its elected representatives and the general public (no, I am not calling for a lynch mob, not yet anyway!), it's unlikely that any progress can be expected any time soon! 

Especially not unless our legislators and Government can find more to agree on besides this!!!

Wednesday, July 18, 2012

Who needs a World-class Port...and the God of Small Rails!

In the weeks that have elapsed since my last (honestly dated) post, things have come to a head for two of Trivandrum's most important infrastructural projects. The way that they have been treated, one would be forgiven for thinking that all reason has deserted the higher echelons of power in the State. I believe it's high time that we took stock of what's been happening and apply some logic and sound reasoning to the whole mess.

Who Needs a World-class Port Anyway?

The tenders for operating the $2 Billion Vizhinjam deepwater port and container transshipment terminal were opened in August last year, then more than half a year was wasted in getting security clearance for the bidders - a process which should have taken weeks not months - and one of the two bidders, a 100% Indian company that operates the nation's largest private port, was knocked out. This left the Welspun consortium, primarily civil contractors, as the lone bidder. Since their bid was opened in February of this year and found to require the Government to pay them a grant to operate the port for 30 years, they have been engaged in a back-and-forth dialogue with the Government with the latter wanting the grant knocked off. Although Welspun did lower their grant demand, it seems the project has reached an impasse. With the Government unwilling to countenance a pay-out for its star infrastructure project, it looks likely that Vizhinjam is headed for a re-tender or down the MoU route.

From their conservative approach to the bid, it seems that Welspun doesn't want to risk anything on the operational economics of the project, something that they have no experience with while hoping that the operations contract will give them an advantage in the Rs 3000 Crore ($600 Million) civil engineering contract to the build the port itself (the tender gives the operator a sort of reverse Swiss Challenge right for the civil contract) which is in their core sphere of operations. That said, one cannot blame them for not putting  a lot of expectations on the revenue potential of the project when the project's master consultant, the IFC, itself casts doubt on the same. The consultant and its traffic planner, Drewery, have grossly underestimated the potential of the project, failing to account for potential uses such as fuel (coal/LNG) import and shipbuilding (if we ever manage to locate the proposal by CSL that seems to have gone Missing In Action!), and by assuming very tame traffic forecasts for containers which apparently do not factor in Vizhinjam's strategic advantages (depth, location and operating costs) while considering its competitive potential viz a viz the likes of Colombo, Dubai or even other Indian ports. The saddest part is that no one at VISL or the Government even bothered to question even the most glaring (and common-sensical) issues in the reports BEFORE the bids were called. If they had done so, the response to the bid may have been much better and we may already have had an operator.

Without crying over spilt milk, the most pragmatic thing to do is consider options to try and fix this badly executed bid. First and foremost, VISL should have and can still get the market study re-visited in order to get a better estimate of the true potential of the project. While it may be a stretch to suggest that IFC/Drewery were bent on driving away potential investors from a project that they were supposed to be selling (a salesman spiking his own sale?!), it wouldn't take a rocket-scientist to see that they had done a poor job of promoting what is a very capital intensive greenfield project. If VISL had spent the months in between bid submission and opening on this task, it may have had a great tool to renegotiate terms with Welspun. Even now, it's not too late as a updated study could prove invaluable if VISL goes in for a re-tender or if it tries to identify an operator via the MoU or G-2-G route. Additionally, it would have made sense to ask Welspun to identify and bring onboard a terminal operator into its consortium as soon as it emerged as the lone bidder. The operator would have had a much better idea of the port's potential than a pure contractor like Welspun does or than VISL, for that matter. 

As India's logistics effectiveness slips and it begins to directly and serious impact the nation's economic growth, the market demand for a game-changer like Vizhinjam, which could allow 10,000+ TEU container ships to call at an Indian port for the first time ever, will be hard to over-estimate. Existing ports like JNPT, India's premier container terminal, and even new ones like Dhamra, are struggling to achieve or maintain adequate operating depth. The story with the port at Ernakulam and its much heralded container transshipment terminal's struggles to achieve even a comparatively tame draft of 14 m are now as sad and notorious in the maritime community as they are a clear pointer to why Vizhinjam which already has a natural draft of 18 m is an urgent national need. 

Do we have a Master Plan in the room?

Despite the very evident struggles to find an operator for the port, VISL has pressed on gamely with the work of awarding the civil tender to build the basic infrastructure of the port, such as the breakwaters and the berths, as envisaged in the "landlord" model of development currently in force. Or so it seems.

The argument behind proceeding with this is that perhaps an operator may be more convinced about the project if it is already under construction. However, it is really a chicken-and-egg scenario because constructing a project of this magnitude without inputs from its future operator is a major risk since the construction plan has to meet key requirements such as operating draft, length of berths and so on could prove disastrous. Going by the reports submitted by IFC and its technical consultant, Royal Haskoning, the emphasis has been on cost reduction and not on maximizing the potential of the project. For a port that bases its viability on being able to out-compete other ports in India and in the South Asian region on the basis of its depth and ability to handle 6th and 7th generation container ships, a master plan that limits its depth and capacity to that of existing ports is self-defeating. It's sort of like a super car that's being pitched on its higher top speed but is actually speed-limited to less than that of a school bus! The master plan has been handed over to AECOM, a leading global engineering, design and project management firm and so when they came up with a design a couple of weeks ago, it was no surprise that it didn't exactly inspire a lot of confidence!

Vizhinjam Master Plan; Image Courtesy: The Hindu

It doesn't take a PhD in Marine Engineering to see that there are a lot of elements that are out of place here (although I did get feedback from a  friend of mine who makes a living out of design ports and has a couple of snazzy degrees to back it up!) First and foremost, the second Phase of the container terminal seems smaller than the first, which doesn't exactly inspire confidence in the growth prospects of the project. Phase I needs to have a capacity of at least 1-1.5 Million TEUs and Phase II needs to be similar sized, if not bigger. Secondly, there is a cruise terminal stuck right in the way of future expansion! Yes, a cruise terminal is a good addition to the project and will be a fine boost to the regional tourist industry, if not a great source of direct revenue to the port itself. After all, I happen to know someone who's been talking about the potential of Vizhinjam as a cruise hub for years and years now, including whispering not-so-quietly in VISL's ears.

Moreover, the cruise terminal has been apparently included right in Phase I of the port to assuage the feelings of a section of the tourist industry which believes that it will be wiped out if the project is built (well, in all truth, we are talking about 3-4 resorts located in the area where the port is being built, not some catastrophic decline in the industry but these resorts apparently have a well-oiled propaganda machine and a bunch of "experts" on their side!) The trouble with the location of the cruise terminal is that it blocks the expansion of the container terminal and probably takes away valuable space that could be used for a dry-dock perhaps (well that shipyard proposal is still MIA!). My marine engineer friend tells me that container berths have to be located along the coast because they need stacking areas adjacent to them and hence cannot be built out to sea due to the need for very expensive reclamation (Vizhinjam's advantage of natural deep draft works against it to make reclamation expensive). Hence it's best to devote all available berth length along the coast to container operations and move berths for other uses such as cruise ships and LNG tankers out on to the breakwater side of the port basin. This brings us to the third issue with the current master plan which is the fact that the breakwater itself is so tightly designed that there is no space for a line of berths alongside it. If the image that appeared in the media (above) is correct the basin itself is wide only to accommodate the turning circle for the ships. Now, it remains to be seen whether the turning circle has bend designed with the biggest ships likely to call at Vizhinjam (the 400+ m long Emma Maersk or Triple-E classes of ships) or whether cost-cutting has been the main design input here too. Fortunately, it is understood that Dr Tharoor has intervened with VISL on the master-plan and that discussions on the same will be held soon. What is clear is that unless the port is designed with maximum potential in mind, it will be doomed to failure right at the outset. Yes, this will probably increase the cost by a not-so-insignificant margin (for example, due to the need for a bigger breakwater) but that is far better than spending all those thousands of Crores on a project that is born crippled by an unimaginative design. 

Finally, VISL also needs to take into consideration the need to have an industrial zone for the port and take advantage of the proposed changes in the SEZ Act that allow for smaller and discontiguous SEZs to set up a port-based SEZ (on 100 acres as opposed to the current 250 acres), if not a multi product SEZ (625 acres instead of the current 2500 acres), especially since an SEZ may be a necessity for the container transshipment terminal to receive relaxation from Customs inspections, as has been recently allowed for the terminal at the Ernakulam port.

Vizhinjam's natural potential, to become a port capable of challenging Singapore or Dubai, is undiminished although the development process of the last two years has done it scant justice and it's not too late to reverse these unflattering moves and to recast the project as the superstar that it really is. All it will take is some pragmatic but quick action on the part of VISL and the State and Central Governments and Vizhinjam will be back on track. Let's just hope that someone who can make a change's listening.

(Stay tuned for the concluding part of this article which discusses how "divine" intervention by a certain elderly gentleman is driving the Trivandrum MRTS project round in circles!)