On 5 December, India’s shipping minister Nitin Gadkari announced the government’s decision to ease a so-called cabotage law for the new container trans-shipment port being developed by Adani Ports and Special Economic Zone Ltd (APSEZ) at Vizhinjam near Thiruvananthapuram in the southern state of Kerala.
The announcement, made at the auspicious ground-breaking ceremony of the new port, was totally unexpected and came as a surprise to many although there have been demands for relaxing the law to allow foreign container ships to ply on local routes connecting Vizhinjam.
Cabotage law mandates that only Indian-registered ships can carry cargo between ports in India.
Relaxing cabotage is not an easy decision to take. Gadkari will vouch for that. While the container port operators wanted a relaxation in cabotage, given the limited number of Indian-registered container ships to ferry containers, local shipowners would argue against such a relaxation citing its detrimental effect on the growth of the Indian fleet.
“It left me confused,” Gadkari said. “I forwarded the files on the issue to the Prime Minister’s Office (PMO) requesting a decision. But the PMO returned the files, requesting me to decide whichever way I wanted,” he said.
A decision to relax cabotage was further complicated by a previous experience. The law was relaxed in September 2012 for a three-year period for India’s first container trans-shipment terminal located a few nautical miles away at Vallarpadam in the government-owned Cochin port. The relaxation hardly made any difference to India’s effort to reduce its dependence on neighbouring hub ports such as Colombo and Singapore to send and receive container cargo by developing its own hub port.
A container trans-shipment port acts like a hub into which smaller feeder vessels bring cargo, which, then, gets loaded onto larger ships for transportation to final destinations. Larger vessels bring about economies of scale and lower the cost of operations for shipping lines, which then translates into lower freight rates for exporters and importers.
Indian ports are mostly feeder ports where bigger container ships cannot call due to depth restrictions.
The three-year relaxation granted to Vallarpadam, run by Dubai’s DP World Ltd, ended on 19 September. The shipping ministry is yet to decide on renewing the relaxation.
The government is mulling the pros and cons of a piece-meal relaxation of cabotage for individual ports vis-a-vis a uniform policy benefiting all ports, deputy shipping minister Pon Radhakrishnan told Parliament on 30 November.
DP World has attributed the below-par performance of the Vallarpadam facility to the delay in granting relaxation in cabotage. To be sure, the law was relaxed and that, too, for a three-year period, in September 2012, exactly 19 months after the facility was opened in February 2011. The delay helped Colombo further establish its credentials as a regional trans-shipment hub.
The fracas over customs procedures relating to trans-shipment containers only added to the woes.
In the case of Vizhinjam, the announcement that the rule would be eased was made on the day construction started on the new port. The concession agreement for the Vizhinjam port project has given its developer APSEZ four years to complete construction although the company has set an internal target of 1,000 days for this task.
Gautam Adani, chairman of the Adani Group, says the intention behind the cabotage relaxation was to tackle the larger issue of making Indian manufacturing competitive in the global market. Indian manufacturers, according to Adani, are paying an extra cost of as much as $350 per container because the cargo is trans-shipped through other countries.
To be fair to local fleet owners, the government actually prepared them for competition from foreign fleet owners a few months ago.
In October, the government removed customs and excise duty leviable on bunker fuels used in Indian flag ships for transportation of export-import (EXIM), empty and domestic containers.
This, coupled with a re-working of the rules on computation of tax-free status for Indian seafarers working on Indian-registered ships, ensured that Indian ships were put on par with foreign ships in terms of operating costs.
Cabotage relaxation aside, experts say, Vizhinjam is a much better location for a trans-shipment hub, given its natural depth of up to 20 metres, capable of docking mega container ships afloat today.
In comparison, Vallarpadam has a depth of 14.5 metres, while Colombo has a depth of 16 metres. Vizhinjam is free to set rates based on competition while rates at Vallarpadam are set by a rate regulator.
Karan Adani, the executive director of APSEZ, said Vizhinjam can plan for cranes to handle big ships that are on the drawing board, which Colombo cannot.
Trans-shipment is all about costs, says Karan Adani, who is the son of Gautam Adani. “If a terminal is offering even $10 less, container lines will move lock stock and barrel; they don’t have any love lost for Colombo or any terminal for that matter”.
“So, it will purely be a cost game, how well we are able to price Vizhinjam, compared with Colombo, and at the same time, give the best infrastructure,” he said.
Both the central government and the Kerala state government have been generous in extending support—financial and non-financial—to Vizhinjam port. The ball now is in the court of Adani to make it a success.
[“source -financialexpress”]
