After covering India’s biggest major port Kandla in our last edition, we decided to head to the south-east for an on-ground health-check of India’s first and only corporate major port – Kamarajar Port. Yes, Ennore Port has been rechristened. The first pleasant surprise, probably a benefit of corporatisation, which one got while seeking appointment with its Managing Director was that it was done over email and a few phone calls, unlike most other major ports that still rely on fax! This built curiosity and we were eager to figure out if this was just cosmetic or corporatisation that has actually brought in some real changes. Here’s what we found – professionalism, efficiency, and the potential to excel!

Sisir Kumar Pradhan | @TheDollarBiz 

Chairman-cum-Managing Director of Kamarajar Port Ltd. (KPL) M.A. Bhaskarachar confirmed the appointment for a Tuesday. Usually, we avoid visiting major ports on Tuesdays since most of them conduct their weekly traffic and port operation related meetings with stakeholders on Tuesdays. But since Bhaskarachar had a packed schedule for subsequent days, we didn’t have much choice and landed in Chennai on a Tuesday morning. There were a few more surprises waiting for us the moment we landed in Chennai. Firstly, the infrastructure in Chennai is far better than that in most metros in India. Even though metro rail construction in Chennai is in full swing, the Chennai Metro Rail officials have done a great job of carrying on construction without disrupting regular traffic or dotting the roads with potholes, unlike their counterparts in other cities. Secondly, Kamarajar Port Ltd. doesn’t wait for Tuesdays to conduct review meetings – they do it very professionally, as and when the need arises!

Sical Logistics’ coal terminal at Kamarajar Port. The terminal is solely responsible for supplying coal to TNEB (now TANGEDCO). It is the first in India to have an assured discharge rate of 40,000 TPD (tonnes per day). The terminal’s BOT agreement is for a period of 20 years and it is equipped with fully automated unloading and material handling equipment and conveyor systems

Born of a vision

The Government of India (GoI) has initiated the process of reorienting strategies and infusing fresh ideas to transform India’s major ports into viable, feasible and productive assets. The main objective of this strategy is to divest out of major ports and provide the port’s management with operational flexibility. As a part of this strategy, Ennore Port Ltd. (EPL), very recently renamed as Kamarajar Port Ltd. (KPL), became the first major port in the country to get a corporate identity. It was also established at a crucial juncture – when there was dire need as the Chennai Port Trust (CHPT) had reached a saturation point. Even before the private sector could rush to fill the space, the Shipping Ministry established KPL – that has since its inception been the most preferred port for a sizeable chunk of exporters, especially automobile exporters from Tamil Nadu.

The evolution

KPL was conceptualised as a satellite port of Chennai Port Trust (CHPT). Tamil Nadu has been among the top five major exporting states in India and most of the cargo from it is being routed through CHPT. But, with the establishment of production facilities by major automakers like Nissan, Renault and Ford, apart from many more original equipment manufacturers (OEMs) and a host of export oriented heavy, medium and small industries, Chennai Port was just not in a condition to handle the rising traffic, resulting in congestion. With the growth of the city as a major business hub, CHPT authorities had very little land to expand or to provide storage and parking space to incoming vehicles. In a bid to ease congestion at CHPT, the Indian government envisioned a new port a little away from city limits. A location close to an industrial corridor and far from human habitat was chosen for the purpose. CHPT was appointed as the implementing agency for the Ennore Port project. The project was sanctioned on April 23, 1993 and the Port was incorporated as a public limited company in October 1993 under the Companies Act, 1956. It was declared as a major port and its limits were brought under the Indian Ports Act on May 23, 1999. This year EPL was renamed as KPL. The Government of India and CHPT respectively have stakes of 66.67% and 33.33% in KPL. Initially, CHPT invested around Rs.445 crore, excluding the cost of the land, for the development of the port. Additionally, a loan of Rs.431 crore was allocated by Asian Development Bank (ADB) towards developing the Port. Thereafter, the operations of the port were handed over to the management of the company.

Spreading wings

KPL, the 12th major port of India, was commissioned in 2001, primarily to handle coal supplies to the thermal power generating units of Tamil Nadu Electricity Board (TNEB) – now Tamil Nadu Generation and Distribution Corporation or TANGEDCO. Initially, it was dedicated to handle coastal coal coming from Odisha and Visakhapatnam ports, and in some cases imported coal to feed TANGEDCO’s thermal power plants. During the second phase of development, a 3 million metric tonne per annum (MMTPA) liquid terminal, a 8 MMTPA common user coal terminal and a 12 MMTPA iron-ore terminal were set up in public-private partnership (PPP) mode. Later, an automobile/general cargo berth with a capacity of two lakh cars per annum and other cargo capacity of 0.5 MMTPA were constructed. The Government of India, which is incurring huge expenditure in paying salaries and retirement benefits to the large work force at major ports, planned KPL as a ‘Landlord Port’. The landlord model vests the port with autonomy to manage resources and provide basic infrastructure. It has licensed the development and operation of cargo handling terminals on build-operate-transfer (BOT) basis to private players and is setting a benchmark for the public-private partnership (PPP) model. Interestingly, it has just 100 people on its payroll, unlike the other major ports in the country where employee count runs into thousands. The Port is an artificial deep sea harbour. The two-rubble mound type breakwaters, with concrete capping facilitates, allows continuous berthing and cargo handling operations round the year. The Port has six berths of which two berths have been exclusively dedicated to handle coal for TANGEDCO. Sical Logistics, which has a long-term agreement with TANGEDCO, has built a mechanised coal handling facility at the port under the BOT model. Another berth has been allotted for common user coal imports and is operated by Chettinad International Coal Terminal. Another berth managed by BOT operator Ennore Tank Terminals Private Limited (ETTPL) is dedicated to handle liquid cargo. The cargo being handled at the terminal presently comprises petroleum, oil, lubricants, LPG, carbon black feedstock and chemicals. KPL entered into a licensing agreement with SICAL Iron-ore Terminal Limited (SIOTL) in 2006 for handling iron-ore. However, this remains idle due to the ban on iron-ore export in Karnataka. KPL has also, with its own investment, developed an automobile/general cargo berth. The berth, with a capacity of 10,000 cars, can accommodate the world’s largest carriers. It has entered into an agreement with Nissan Motor India for use on a need-based basis, with a minimum assured traffic of 60,000 cars every financial year. Moreover, Ford, Toyota, and Ashok Leyland are also using the facility to export their vehicles.

At the right place

KPL is a greenfield project situated close to a major industrial city, Chennai. It has 2,118.74 acres of land. The port has good connectivity to the NH4, NH5 and NH45 through state highways bypassing the Chennai city. This helps ease cargo-laden vehicular movement. Elucidating the facilities at the port, KPL Director (Operations) Sanjay Kumar told The Dollar Business, “The port channel has a 16 metre draft and permits a maximum draft of 13.5 meters at all berths except the automobile cargo berth where the maximum draft is restricted to 10.5 meters. On completion of our ongoing Phase-II dredging, the existing draft will rise to 20 meters in the channel and 18.50 meters in the basin which will enable the port to handle capesize vessels.” Kamarajar Port’s hinterland includes major cities like Chennai, Coimbatore and Bangalore, which give it the advantage of attracting large volumes of cargo. Moreover, following the ban imposed by Madras High Court on CHPT in 2011 on handling polluting cargoes like coal and iron ore, cargo has moved to other nearby ports. And KPL is the biggest beneficiary. Numbers stand testimony. In terms of cargo handling KPL recorded the highest growth rate among all major ports in FY2014. It handled 27.33 MMT cargo during FY2014 against 17.89 MMT in FY2013, a growth of 52.8% y-o-y. Just how well KPL is doing can be judged from the fact that the next best – Paradip – recorded a growth of just 20.2%. Pointing out the geographical advantage Bhaskarachar says, “Our advantage is that we are close to a metro like Chennai and have got good rail and road connectivity to the hinterland. We have a big land bank. In fact, we have recently acquired around 650 acres of land, which gives us the flexibility to expand. We are going to develop many port based industries, storage yards and parking yards that we hope will attract new users. This port was created 13 years back and the cost has already been recovered. This helps us to provide services at very competitive price. Since we don’t carry the baggage of a huge workforce, we are very competitive.”

(Read exclusive interview:We have decision making autonomy, unlike other major ports - M.A. Bhaskarachar, Chairman & MDirector of Kamarajar Port Ltd)

Until a few years back, auto exporters were scouting for other options due to the congestion at CHPT and found a solution in KPL. The contribution of auto exporters to KPL’s success can be gauged from the fact that almost 10% of its revenue comes from this sector only. According to Sanjay Kumar, “Auto exports grew at a rate of 52% in FY2014. Around 2 lakh cars were exported from the port in FY2014, which is less than 2% of the total cargo handled at the port, but it fetches good revenues.” Dayalan Bernard, General Manager, Ennore Automotive Logistics – a consultant to KPL, told The Business Dollar, “Though the company has export agreements with only Nissan and Ford, other automakers are also coming to the port. It’s because the Port offers clean environment and good storage facilities.”

Competitive edge

The KPL model has many built-in advantages when it comes to freedom of operations. According to Bhaskarachar, “We have a Landlord model management and have just 100 employees. This helps us to check salary and pension liabilities, which is reflected in our balance sheet.” Adds CARE Ratings’ AGM (Corporate Ratings) P. Sudhakar, “The port, because of its corporate structure, has a faster decision making capacity. It has a low risk profile and assured earnings from captive users. Its key growth drivers are a steady rise in coal imports and increasing car exports. Unlike other major ports, KPL has the freedom to fix its tariff as per market requirements.”

The responsibility of development of common infrastructure facilities like capital dredging and road & rail connectivity is vested with KPL. For this, it needs to raise massive amounts from the market, with no government assistance. Although the company has a healthy revenue model, it got very poor response to its tax-free bonds’ issue last year. It managed to raise only Rs.94.65 crore against an issue size of Rs.250 crore. “The port recently sold around 350 acres of land to arrange Rs.500 crore, which will be used for development of common infrastructure,” says Kumar. Clarifying the reason for such poor response to the bonds, Sudhakar points out, “The Port issued the bonds at a time when a lot of other PSUs were also tapping the market. Hence, there weren’t many takers for KPL Bonds. However, the Port has good incremental cash flow and it registered a PAT of about Rs.300 crore in FY2014.”

Not all hunky dory

Although the Port has been recording outstanding growth rates year-on-year, critics claim that there is more than meets the eye. “We have only CHPT and KPL to export our vehicles. There is a ban on vehicle movement to CHPT between 5 am and 10 pm. So, we have no choice but to depend on KPL and pay higher charges,” Venkat Manukonda of Renault Nissan Automotive told The Dollar Business. He adds that KPL should reduce port charges to attract more users and it necessarily needs to have dedicated customs officials at the Port itself.

 Speaking on the non-availability of customs officials, a top-level officer at Chennai Customs, on condition of anonymity, told The Dollar Business, “KPL authorities are not providing basic facilities like office space, cargo examination area and transportation. As a result, our officials are reluctant to visit the Port.” Further, according to the same official, “The Port currently serves a limited number of captive users and has plans to open more multi-cargo common user berths in the future. The Port authorities will have to change their attitude and become more communicative to users and customs, otherwise it will be difficult for the Port to stay in the race.” When questioned about the reason for the higher tariff at the automobile cargo berth, Daylan Bernard pointed out, “KPL car berth is a newly developed facility. This is why the Port is charging higher tariff to recover its investment. However, as the time goes by and depreciation of the assets take place, the tariff will come down. In FY2011 when car export started from the Port, it charged 0.45% of FOB. Today it has come down to 0.40%, and by the end of December 2014 we have proposed the Port authorities to reduce it further to 0.34%.” It’s worth noting that the average tariff in other ports in India like Mumbai Port and Nhava Sheva is just 0.23-25% of FOB value.

Further, although the Port authorities claim that the car yard has a capacity of 10,000, the Port has space for just 8,500 hatch-backs if the reserve area being used for vehicular movement and washing is deducted from the total space available. Presently, vehicles are shipped out from KPL mostly through roll-on/roll-off (RO-RO) vessels. Be as it may, KPL still happens to be the first choice of several big carmakers. For instance, Honda Cars India Ltd., which manufactures cars at Greater Noida in Uttar Pradesh and Bhiwadi in Haryana, prefers KPL over other ports on the west coast, despite proximity, primarily for its facilities.

Anchored deep

KPL has the potential to grow on a much faster pace if the management improves the infrastructure and storage facilities. Stressing more on connectivity, Bernard said, “The Port management has to focus more on improving connectivity and parking space. If the officials could remove the over-head railway cable that passes through the entry gate, higher capacity project cargo carriers will be able to enter the port.” Having spent a few days at Ennore  and being a first-hand witness to how Kamarajar Port Ltd is a country mile ahead of most other major ports in India – in terms of infrastructure and professionalism – we are sure that its management will do whatever it takes to ensure that KPL maintains its superiority. The burning question, though, is just why can’t other major ports in India be as professional as this Landlord Port? Perhaps, other port trusts have their own reasons.