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!)


  1. Nice article.. Well said... Can we start an online campaign or petition.. Through social networks to promote this issue?

  2. prakmrao, SSC:
    No need to get emotional as this is not the only port project in India getting inordinately delayed. The following points shall be borne in mind by the concerned authorities:

    1. If Vizhinjam is to be developed as multi cargo port cum container transshipment hub on Landlord model basis, what is the logic in appointing a single operator. JNPT has already 3 container terminal operator where all the basic infrastructure was planned and constructed by port. Same is the case world all over.

    2. Potential operators will not blindly go by the projections by the Client. They will do their own viability study. Drewry is one of the first consultants they most likely to approach.

    3. VISL is one of the very very few organisation in India which is transparently publishing all the reports and project status in its website. But I agree that this mega project is beyond the capacity of state politicians and babus. Government of India only can develop this project in the Ennore Port or JNPT model as a Major Port or corporate port.


Thanks for your comment, I will take a look at it and put it up at the earliest.