Gangavaram port has wind in its sails

At 51, Mr D. V. S. Raju, Chairman and Managing Director of Gangavaram Port Limited (GPL), is in a bit of a hurry. He has tasted success in port operations and would, therefore, like to go the whole hog in his present capacity. Gangavaram port, the private facility promoted by him on the Andhra Pradesh coast, received its first vessel in August 2008; in 2010-11, the port, complete with five berths, handled more than 14 million tonnes of cargo, of which coal alone was approximately 10 million tonnes (mt).

Mr Raju wants to add to the port's capacity by constructing, at the earliest, four new berths - one fully mechanised coal berth and three other multi-purpose berths.

“I would like see the new berths commissioned by October 2013, to achieve a port capacity of about 44/45 mt,” he remarks. The funding, he says, will be a combination of internal generation, loans from banks and external commercial borrowing, roughly in the ratio of one-third each. There is no immediate proposal for a public issue.

THE ENTREPRENEUR

This might come as a surprise to many, particularly those who, judging Mr Raju from his past, would love to see him more as a venture capitalist than anything else. After all, Mr Raju was one of the original promoters of Satyam Computers, but got out of it at the right time. He floated his own IT company (he holds a Master's in computer engineering from Ohio University, USA) but, again, sold it.

“My first brush with port operations started in the early 2000s, when my IT firm started providing services to Dubai port and, in the process, I was drawn to port operations, its intricacies as well as huge potential, particularly for a country such as ours. That was the time when the Andhra Pradesh Government, too, was talking about a private port at Gangavaram, and I took the plunge,” he says. “We were awarded contracts through bidding in 2002 and signed in 2003 the concession agreement whose scope remains unchanged till today.”

In India, winning a contract is one thing and starting work is another. There were so many hurdles which had to be overcome before the actual work could start in 2005. So much so that Dubai Port World, that had agreed to partner with Mr Raju in the project, withdrew in the face of resistance from various quarters.

GLOBAL PARTNERSHIPS

The proposal from a Malaysian firm for partnership too didn't make much headway. The change of government in the state threw up myriad challenges which were handled deftly. Finally, a foreign private equity fund stepped in and held 30 per cent of the equity and the Andhra Pradesh Government another 11 per cent, with the majority 59 per cent being held by Mr Raju. Also, a five-year operation-and-management contract has been signed with Portia Management Services, the port consultancy arm of the Liverpool Port Authority and Mersey Docks & Harbour Company, UK.

The GPL CMD dismisses the venture capitalist theory, emphasising that he has no plans to sell his stake in GPL. The report published in this regard has no basis, he makes it clear. “The rumour was probably floated by interested groups during the long period of my absence when I was away at the US for treatment,” he says, adding, “I'm now fully in saddle with full cooperation from my son, Raj, and several senior executives and we're all fully committed to the growth of Gangavaram port.”

More importantly, he is looking into new opportunities in the port sector, both within the country and outside. Outside, it could be Australia, Europe, Southeast Asia and even Africa. “But in Africa, the regulatory framework is not properly structured; also, it is difficult to compete with China which has an overwhelming presence there,” he says.

In Europe and several other parts of the globe, there are investors who hold equity in port projects only for investment purpose. Some of them may be interested in selling their stakes. “But we would not be content with being a mere investor; we'll most certainly participate in day-to-day operations.”

PORT INVESTMENTS

In India, with the land acquisition issue becoming increasingly complex, venturing into a ‘greenfield' project is out of the question. Participation in construction and operation of port terminals is one of the options being considered. “But then, the kind of revenue-sharing being offered is not only mind-boggling but also defies all logic,” he remarks. “I'm not sure how one could make money and still carry on with normal operation on a revenue-sharing of more than 50 per cent.”

Another issue which is causing concern is the proposal to bring private ports also under a regulator. “A regulator is welcome for security and safety-related issues but certainly not for fixing the tariffs,” he says, emphasising, “let the market determine the tariffs; after all, efficient services must command efficient price.” Also, the kind of regulatory mechanism ideal for the power sector catering to millions of ordinary consumers cannot be suitable for the port sector, whose customer profile is very different.

Referring to the mushrooming of ports on the eastern seaboard, he only hopes that the promoters of these projects are aware of the challenges in port operations. The hinterland of container traffic can be vast, as the boxes to and from Punjab pass through JN port, but this need not be true about dry bulk cargo, whose onland haulage across long distance may not be cost-efficient.

The east coast ports are generally dry bulk cargo handling ports. “But then, if the economy grows at the projected eight to nine per cent, there will be more steel production and power generation and the slice of pie will become proportionately larger and hopefully there will be room for everyone to grow. I'm an optimist,” he adds.