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Research Assistant

Krishangi Kathotia is a research and policy professional working at the intersection of trade, geopolitics, foreign policy, and strategy. She brings experience in analysing complex regulatory landscapes, mapping global value chains and assessing geopolitical risks that shape India’s engagement with the global economy. She has previously worked with the American energy policy team at FiscalNote Professional Services and holds an M.A. in Diplomacy, Law, and Business from the Jindal School of International Affairs, India.

 

At BRIEF, she analyses the trade and logistics landscape through a geopolitical and geoeconomic lens.

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And for this, the project will focus to strengthen further the mechanisms of LoC trade, accompanied with adequate steps towards: scaling up of JKJCCI, capacity building of traders, capacity building of chambers on contemporary economic indicators and issues, creating platforms for discussion at both national and local level, focused research on other economic issues of the state, building strategic and economic linkages between J&K and rest of India, and leveraging opportunities to create a sustainable economy in J&K, etc. The project will adopt an approach that is mindful of the local sentiments, engages with key stakeholders, most importantly youth, and the one that promotes trade and pushes for locally-led peacebuilding initiatives from the grassroots.

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SAARC Development Fund (SDF) is established by the Heads of the eight SAARC Member States in April 2010 as an umbrella financial institution for SAARC projects and program in the SAARC region. The fund works for promoting the welfare of the people of SAARC region, improving their quality of life, and accelerating economic growth, social progress and poverty alleviation in South Asia.

Dr. Sunil Motiwal, Chief Executive Officer informed that SDF have recently accorded in-principle approval of two important infrastructure projects in energy sector in the SAARC region. These include waste to energy project in Sri Lanka with participation of India and hydropower project in Nepal with participation of Bangladesh and India. The total loan commitment would be USD 30 million. We are confident that the projects would help SDF to achieve its development goals in the region and promote welfare and prosperity of the people in the SAARC region. Other potential bankable infrastructure projects with regional connectivity are under our active consideration to co-finance.

Dr. Motiwal informed that under its Social Window, SDF has committed USD 73.74 million for 12 projects being implemented by 67 Implementing Agencies across the 8 SAARC Member States. Of the total fund commitment, USD 46.75 million has been disbursed to the Implementing Agencies.

Dr. Motiwal informed that SDF is in the process of launching the Social Enterprise Development Program (SEDP) as part of its Social Window. The program will be implemented in all the SAARC Member States with the objective of identifying and building social enterprises by using a mix of grants and concessional returnable capital. The program intends to fund around 80 enterprises across the 8 SAARC Member States annually.

SDF also proposes to launch its MSME program in order to upgrade Micro Small and Medium Enterprises in the SAARC region by providing line of credit. SDF would create access to financial services which can in-turn boost job creation, raise income, reduce vulnerability and increase investments in human capital in SAARC Member states.

Dr. Motiwal stated that our focus areas of funding under the Economic Window are projects related to Trade and Industrial Development, Agriculture and allied sectors, Services Sector, Science and Technology, and other non-Infrastructure areas. Similarly our focus areas of funding the Infrastructure Window are projects related to Energy, Power, Transportation, Tele Communications, Environment, Tourism, and other Infrastructure areas. In Social Window, we focus to finance projects on poverty alleviation, social development focusing on education, health, human resource development, support to vulnerable/ disadvantaged segments of the society, funding needs of communities, micro enterprises, rural infrastructure development.

Dr. Motiwal informed that post development of a healthy credit portfolio; SDF shall raise fund from various IFIs, MDBs, and commercial Banks for on-lending to various projects and programs in the SAARC Member States as there is requirement of large quantum of fund to finance the infrastructure gap in the region. The Fund is working tirelessly to promote regional cooperation and integration and envisages acting as a catalyst for infrastructure funding in the region by forming consortium of funding agencies and co-financing of such projects.

Dr. Motiwal emphasized the need to form Economic Union of SAARC Member States in promoting trade and investment in the SAARC region. He said that our vision is to create an integrated, poverty-free, and prosperous South Asia region through project funding and collaboration. As such we are committed to support regional cooperation and integration (RCI) initiatives in the region. All the projects and programs we finance; have regional integration and connectivity component as integral parts of the project design and development.

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Captain Amarinder Singh Chief Minister (CM) of Punjab, during his meeting (April 21, 2017) with Prime Minister Narendra Modi, sought the intervention for sale of electricity to Pakistan and Nepal. According to the Punjab CM, since the state shares its border with Pakistan and its Goindwal Sahib thermal power plant is situated close to the international border, logistically sale of power to Pakistan would not be a problem.

The Indian premier reacted positively to the Punjab CM’s proposal, and in fact urged Captain Singh to explore more avenues of cooperation, especially trade, with Pakistan. Significantly, the sale of electricity to Pakistani Punjab had been first mooted by the earlier Shiromani Akali Dal government. Former Deputy CM (Punjab, India) Sukhbir Singh Badal had mooted this idea during his visit to Pakistan in 2012, and had discussed this with Pakistan Punjab CM, Shahbaz Sharif and brother of Pakistan PM, Nawaz Sharif. A piece of land had been identified, in Patti (Punjab, India) for establishing a grid. Later in 2014, Adani Enterprises, sent a delegation to Pakistan to explore the potential of sale of 500MW of power to Pakistan. Tensions between both sides have stymied the potential of power cooperation, and the recent mutilation of  the bodies of two Indian soldiers, Naib Subedar Paramjit Singh, and BSF head constable Prem Sagar on May 1, 2017 have once again increased tensions and reduced the scope for any possible cooperation. There is in fact a growing clamour for India to remove MFN status to Pakistan, as was the case after the Uri attacks last year.  MEA spokesman, Gopal Baglay clarified however, “MFN status to Pakistan is an obligation from WTO. All members have to extend to each other, its with others also not just Pakistan,”.

Power shortfall in Pakistan

If one were to examine the rationale for sale of power from Indian Punjab to Pakistani Punjab, a study by top Indian Business School, Indian Institute of Management (IIM) Ahmedabad, in 2016, titled ‘tariff and related matters: The electricity sector in Punjab’  highlighted Pakistan’s energy profound energy deficit, and batted in favor of energy sale to Pakistani Punjab.

The shortfall in Punjab (Pakistan) is estimated at about 5,000 Megawatts. According to the Times of Islamabad, the total production of electricity has come down to less than 10,000 megawatt (estimated at 9400MW) due to water scarce reservoirs, whereas demand stands at nearly 15,000 MW (14,700MW).

Due to a severe decline in power production, and a sudden rise in demand, load shedding has witnessed a significant rise. In recent times, power cuts in urban areas are estimated at 8-10 hours, while rural areas witness load shedding of up to 10-14 hours. Pakistani Prime Minister Nawaz Sharif, in the 2013 Manifesto of PML-N made a firm commitment, that his government would tackle the load shedding issue, and take concrete steps to deal with the energy crisis.

While there are some who are skeptical about the prospects of sale of power as a result of the unstable relationship between both countries. The Captain Amarinder Singh government has reduced the electricity rate to Indian Rupee (INR) 5 per unit for all types of customers. Currently, the Punjab State Corporation Limited (PSPCL) sells surplus power at INR 3.40 per unit to the grid. More significantly, Mahindra and Reliance have evinced interest in selling electricity at the rate of INR 1.50 per unit and INR 1.75 per unit respectively to Indian Punjab’s government.

In Pakistan, National Electric Power Regularly Authority (Nepra) sells electricity at a rate of 11 Pakistani rupees (INR 6.75) to the customer including the subsidy provided by the government. In November 2016, Pakistan imported electricity at the rate of 10.63 Pakistani rupees (INR 6.50).

India-Bangladesh ties

Significantly, Indian power export to Bangladesh is one of the key aspects of bilateral cooperation between both neighboring countries. Currently, Bangladesh imports 600mW power from Indian grid, having first link between Baharampur in West Bengal and Bheramara in Bangladesh’s Khulna division has a capacity of 500mW. The second 100 mW capacity line connects Tripura’s Surya Maninagar (about 60 kilometres from the state capital of Agartala) with Comilla division in Bangladesh. A proposal for a third link is also being examined, which will be laid from Assam’s Bongaigaon to a suitable interconnect point in Bihar through Bangladesh but this will provide part of electricity through this line.

Interestingly, it was the state of Tripura, led by Manik Sarkar, which has been seeking to enhance connectivity with Bangladesh, and to further develop power linkages and sale of 100mW electricity. Bangladesh had cooperated with India, and its waterways were utilized for transportation of oversized cargo from Kolkata (West Bengal) to Agartala (Tripura) before installation of the Palatana power project in Gomati district, about 60 km from Agartala. India is supplying 100mW of electricity in return of Internet bandwidth (10 gigabits per second) from Bangladesh. Both these initiatives were launched via video conferencing between Hasina and Modi in March 2016, in the presence of Sarkar. Even during Hasina’s visit in April 2017, there was a strong thrust on further developing energy linkages and connectivity.

Punjab CM’s earlier efforts

The Indian Punjab CM has been an advocate of better relations with Pakistan, and in his last tenure, he was at the forefront of strengthening ties with West Punjab (Pakistan). Singh established a strong rapport with his then counterpart, Chaudhry Pervaiz Elahi and also met with then President General Pervez Musharraf during his visit. Apart from seeking to promote cultural ties between both Punjabs, Captain Singh and Elahi both had made concerted efforts to find common ground in the economic sphere. One of the significant achievements in the context of bilateral trade between India and Pakistan has been setting up of the Integrated Check Post at Attari, though due to the exacerbation of tensions, trade has not really accelerated, and hovered around 2.5 billion USD.

India has made efforts for over one decade to strengthen economic ties with its neighbours including Pakistan, while those including Bangladesh have been pragmatic. The same can not be said of Islamabad – or at least large sections of the establishment. Till Pakistan sheds its zero-sum approach, even cooperation in areas like Power seems a far cry.

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Looking back into the past brings certain very pleasant memories to my mind. Those were the days when Tuticorin Container Terminal (TCT), operated by Port of Singapore Authority (PSA) along with South India Corporation (SICAL), had just started operations in December 1999. Looking at those huge quay cranes moving containers from the ship to the shore and vice versa at high speed was indeed a delight to watch.

Prior to TCT commencing operations at Tuticorin, containers were handled by ship gears. A small feeder vessel with total 400 moves – in and out put together – took not less than two days to complete its discharging and loading operations at Tuticorin. However, after TCT started operations, each quay crane achieved around 30-35 moves an hour and loading/unloading of a vessel could be completed within an eight hour shift. The RTGs paved way for quick delivery of import boxes and receipt of export boxes at the stack. The whole shipping fraternity was riding high on the highly efficient operations by TCT.

Tuticorin moved to an enviable position among the South Indian Ports. The containerised volumes raced from 1.99 Lakh TEUs to 3.12 Lakh TEUs per annum in the first five years and from 3.12 Lakhs to 4.59 Lakh TEUs in the next five years. New services like Indamex (US East Coast), RTW (Europe) and various other Far East, Red Sea and Gulf services started calling Tuticorin.

However, the successful run didn’t last for long. Within a few years of operation, the tariff related issues started and it led to litigations. The terminal, once known for its high level of efficiency, faster turnaround of vessels, quicker delivery etc., is no more the same. Today, the trade faces enormous difficulties due to slower turnaround of vessels, move count restrictions and huge delays in receipt and delivery of containers. Years of unresolved tariff issues has hampered the progress of the once bustling TCT.

Rather than analysing what went wrong, who is to be blamed for this scenario, it would be prudent to carefully analyse the facts and find out a resolution within the framework of the existing policy framework of the PPP concession agreement.

STEP 1 –
370 meters of quay at Berth 7 is a strategic national asset through which goods worth billions move in and out of our country. So, the utilisation of this valuable national asset has to be maximised. The international norm is 1 Quay crane for every 80-100 meters of quay length. So, 4 quay cranes can be installed in a quay of 370 meters length.
If 4 twin lift quay cranes are installed, the productivity calculation would be as follows…
PARTICULARS (PER ANNUM)
Total working hours = 7008 hours (365 days x 24 hours x 80%)
Total number of moves = 700800 moves (4 quay cranes x 25 moves per hour x 7008 hours)
Total number of TEUs = 1201868 TEUs
• 40’s – 43% = 301344 moves = 602688 TEUs
• 20’s – 57%
a) Twin lift moves (50% of 20’s) = 199728 moves = 399456 TEUs
b) Single lift moves (50% of 20’s) = 199728 moves = 199728 TEUs
—————————————-
= 700800 moves = 1201872 TEUs

If the quay has 4 twin lift quay cranes installed, adequately supported by RTGs, bays and gates, container handling at the terminal can be scaled up to 1 million TEUs easily. Since 2010, the throughput is ranging between 4.5 lakhs to 5.2 lakhs per annum. So, literally, the terminal can double its annual productivity.

STEP 2 –

The second step is to make it financially viable for the terminal operator for investing and replacing old equipment with new ones. This has to be done:
1) Within the framework of the PPP concession agreement signed
2) Without financial loss to the land lord i.e. VOC Port
3) Without increasing the cost pressure on the trade

It may look impossible but a careful review of each aspect would indicate that it’s actually possible.

1) Solution within the framework of the contract – The PPP concession has a provision for arbitration. Already, the arbitration process – with respect to the PSA-Sical Terminals Ltd. – has been completed and the verdict was to move from royalty to revenue share model, by benchmarking with the highest revenue share PPP prevailing in our country at that point in time i.e. 55.18% revenue share to port. This verdict was challenged by the port authorities in the Honourable Courts of Law and twice the verdict was to uphold the arbitral award i.e. moving from royalty model to revenue share model.

2) Solution without financial loss to the VOC Port – The biggest hindrances to the solution in question i.e. movement from royalty to revenue share are perceptions such as
a) The terminal operator made exorbitant profits in the initial years
b) The port would make huge profits based on royalty which keeps increasing every year
c) The port would lose if moved from royalty to revenue share

There way forward could be careful evaluation of these aspects:

a) Evaluation of the profits earned by terminal operator on royalty mode till date to see if the terminal had made exorbitant profits: A calculation based on number of containers handled, the THC charged, the royalty paid in a particular year, per TEU cost of operation etc. reveals that the profit made from Dec 1999 till March 2016 would have been around Rs. 100 crore. Operating profits to the tune of Rs. 100 Crore over 16 years of operation can be considered reasonable and not exorbitant. Thereby, the first hindrance can be removed.
b) Evaluation of the potential losses for the terminal operator if the royalty model is continued till the end of the final year of the contract: The financial losses for the terminal operator would be immense as the THC fixed in 1999 is still being charged while the royalty keeps increasing every year. If the same situation continues, the royalty payable to the port would be even more than the THC charged by terminal operator. A calculation based on the number of containers which would be handled, the THC as per current tariff, the royalty which will have to be paid to the port and per TEU operating cost reveals that the terminal operator would lose thousands of crores. Thereby, the port authority’s view that it would be making good profits is only notional as it’s not practically feasible.
c) Evaluation of the profit the port would make if it moves from royalty to revenue share model with the operator enhancing terminal infrastructure (up gradation specified in the concession agreement) and considering the increased volumes the terminal will handle: A calculation based on the number of containers that the terminal can handle, the THC that it can charge benchmarking the THC structure of DBGT terminal (as per the arbitral award), the revenue share to the port basis 55.18% on not only the THC but also on ancillary changes like ground rent, direct loading, direct discharge etc. reveals that the port would gain a profit of about Rs. 1300 Crore in the remaining years of the contract period. Further, as per the DBGT THC structure, there is provision to increase the THC based on the Wholesale Price Index (WPI) after review on a yearly basis. So, in such a scenario, the port would gain even more.

3) Solution without increasing the cost on the trade – The arbitral award and the court verdict directs the terminal to charge THC as per the structure followed by DBGT. The THC of DBGT is lesser than the THC of TCT. So, there is no increase in the cost on the trade too. The THC may increase over a period of time based on the WPI only which wouldn’t be substantial.

So, careful review of all these aspects points to the fact that a win-win situation is definitely possible within the framework of the existing concession agreement signed between the terminal operator and the port authorities.

The trade through various trade associations have already made various representations to the VOC Port Trust, the Shipping Ministry and the consultants appointed by the VOC Port on this issue.

In terms of port infrastructure in our country, there is no doubt that PPP projects have played a major role in where we are today and would definitely continue to play a major role in where we dream to be in the future too. So, it’s of paramount importance that the Government gives top priority and resolves issues in PPP projects, particularly port related PPP projects.

The takeaways of resolving the issues:

a) For the government and port: Instead of investing thousands of crores in creating new quays, drastically increasing the efficiency of the existing quay just by a prudent policy decision can substantially increase profits. Above all, a positive signal to the world that the Indian Government is committed to resolving issues in PPP projects would result in attracting not only foreign investments but also state-of-the-art technology and know-hows.
b) For the trade: As efficiency increases, the trade would actually enjoy the benefit the government wishes to provide i.e. reduction in transaction time, reduction in transaction cost and ease of doing business.
c) For the country: As trade increases, more port based industries would come up in alignment with the Government’s Sagarmala project, paving way for realisation of the Make in India program, more job creation, more foreign exchange reserves, thereby bringing in prosperity to our nation.

With so much in stake, we sincerely hope the government would move forward in the right direction.

In one of the discussions, a view which was expressed was “If an Indian terminal operator win a terminal contract in Singapore, run into a tariff related issue, will the Singapore Government allow the terminal to run in nominal efficiency for 13 years without resolving it?”. Its time our authorities gave a fitting reply to such arguments, not by words but by action.

(The views and opinions of the author are his own and not necessarily that of the company for which he works and the associations he represents)

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As India embarks on a renewed journey towards the overall improvement of its trade environment, port-led development would continue to be the fulcrum around which much of the strategic deliberations are expected to revolve. Further, cargo handling capacity of ports – a key factor determining trade volumes – would be determined to a considerable extent by the logistics supply chain they operate in. Container Freight Stations (CFS) currently form a major infrastructural component in this framework, primarily contributing towards the decongestion of ports and enhancement of handling capacity at the terminals.
A CFS, as defined in the Customs Manual (2015) by CBEC, is “A common user facility with public authority status equipped with fixed installations and offering services for handling and temporary storage of import/export laden and empty containers carried under Customs transit by any applicable mode of transport placed under Customs control. All the activities related to clearance of goods for home use, warehousing, temporary admissions, re-export, temporary storage for onward transit and outright export, transshipment, take place from such stations.”
Over the years, factors such as considerable increase in trade volumes and persistent shift towards containerization of cargo have made way for increased role of container freight stations in India. Being an extension of the Customs departments at the ports, important procedures such as stuffing/de-stuffing of cargo, aggregation/segregation of cargo and examination/clearance related activities are carried out at the container freight stations, which make them an integral part of the existing EXIM value chain. However, BRIEF’s consistent engagements at various ports in the country – including critical analysis of viewpoints of key stakeholders – have also revolved around the functional impediments faced at CFSs across the country.
The foremost concern frequently heard of is the ambiguity surrounding the selection of CFSs at ports such as the Jawaharlal Nehru Port. There have been grievances from importers and Customs House Agents (CHAs) highlighting instances wherein cargo is moved to CFSs as per the choice of the shipping lines, including cases wherein they have to be moved to CFSs empaneled with the shipping lines, in spite of there being a Customs Public Notice entitling the importers to move their cargo to CFSs of their choice. On the other hand, according to the Customs Public Notice, the CHAs are required to file the Bill of Entry with relevant details including details of containers as well as choice of CFS prior to the filing of the Import General Manifest (IGM) by the shipping lines, delays in which are also frequently reported. As per stakeholders, less than one per cent of the importers are doing it currently. In such a scenario, the importance of streamlined processes including the submission of Bill of Entry – with the CFS Code mentioned – by the importer/CHA before IGM is filed by the shipping line and seamless movement of goods to the specified CFS becomes imperative.
As far as operational aspects are concerned, delayed movement of containers from the port to the CFS continue to be a perennial problem at quite a few ports. Containers are allowed to stay on the wharf for a period of three days, post which demurrage has to be incurred on a daily basis, which boils down to considerable cost pressure for the importers. The delays in movement can be attributed to a multitude of factors, including congestion at the ports, dearth of modern container handling equipment, lack of adequate transport and insufficient number of boarding officials among others. Instances of delays at the CFS are also reported regularly by traders, owing to lack of customs officials, inadequacies in terms of facilities for examination of goods, etc. Redressal of such issues is regarded as highly essential by stakeholders. The presence of increased number of CFSs operating 24/7 is also an area that warrants considerable attention as per the traders. For instance, out of the 14 CFSs at the V.O. Chidambaranar Port, only one i.e. the CONCOR CFS ensures 24/7 operations. An increase in this number can potentially see a considerable decline in clearance related delays.
Other aspects such as standardization of rates, services and infrastructure at container freight stations coupled with enhancements in allied infrastructural facilities such as signage, buffer yards and parking lots, advancements in traffic management at ports for improved operations, etc. are also seen by traders as necessary developments that can be highly instrumental in easing operations and making trade more competitive.
To sum up, the surge in India’s EXIM trade is expected to continue, entailing persistent augmentation in container traffic in the years to come. Container freight stations form an important part of the EXIM supply chain, and their role in managing and sustaining such growth will be crucial. Enhanced infrastructural facilities, seamless and uninterrupted operations, standardised charges and transparency on crucial aspects such as selection of CFSs can potentially go a long way in improving operations at container freight stations as well as strengthening the logistics supply chain as a whole.

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The report is an outcome of a study launched in April 2015 aimed at facilitating India’s trade and improving its trading environment. The study was supported by Foreign and Commonwealth Office, British High Commission, New Delhi. The study was carried out by reviewing the current scenario at selected trade ports (Land and Sea) in the country through extensive field visits and detailed consultations with concerned stakeholders.

The release of the report will be preceded by a panel discussion involving experts on the findings of the report. This will provide a platform to discuss the possible way forward for the development of trade ports in the country to enhance trade between India and its partners.

It will be our privilege to have you at the event. Your presence will enrich the discussions.
A line of confirmation would be greatly appreciated. Kindly send your confirmation to sa****@********ia.com.

(*Invited)

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