Private port developers may also get a part of the funds to be raised through issue of tax-free bonds allocated for the port sector. The Shipping Ministry has asked private ports and terminals operators to submit fund requirements for new or the on-going projects.

The Union Budget for 2011-12 allowed issue of Rs 30,000 crore tax-free bonds for the infrastructure developments, of which Rs 5,000 crore has been earmarked for the port sector.

Mr Rakesh Srivastava, Joint Secretary, Ports, said the Shipping Ministry is looking at the possibilities of making available part of the funds to be raised through the tax-free bonds to the private sector.

“We are waiting for the Finance Ministry guidelines on issuing tax-free bonds,” Mr Srivastava told Business Line .

The Shipping Ministry has asked Indian Private Ports and Terminals Association for its feedback on the Ministry's proposal.

According to Mr S.S. Kulkarni, Secretary General of the Association, its members (who account for about 35 per cent of the total cargo handled at Indian ports) are upbeat on the proposal as several projects involving investments of thousands of crores are being planned in the private sector. Private terminal operators would be keen to have long-term funds at around eight per cent. They cannot get such long-term funds from the banks, said an analyst.

Ennore port's role

Earlier, the Ministry has mandated Ennore Port Ltd, the only corporate port among the 13 Government-owned ports, to issue the tax-free bonds.

Initially, the idea was that the entire funds raised through the bonds would be utilised by the government ports. Now with the government thinking of allocating part of the fund to private developers, Ennore Port may not be able to issue tax-free bonds for the entire amount, said a port sector analyst.

Mr Samir Kanabar, Director (Infrastructure Practice) Ernst and Young, said Ennore Port cannot raise funds for other ports through tax-free bonds unless it acts as an agent for the government. It has to set up a separate arm to issue the bonds, he said.

Tax-free bond can be issued in two ways. The Major Ports owned by the government can issue bonds directly after taking permission from the Government. Or one of the Government ports can float an infrastructure NBFC (non-banking finance company) and get the Reserve Bank of India permission to issue bonds, said an Ennore Port official. “We have informed the position to the government,” he said.

Initially, the Ministry was thinking of issuing tax-free bonds through the proposed Indian Maritime Finance Corporation.

Creation of a dedicated financial institution for the maritime sector was announced by the Shipping Ministry in its vision document for the next decade. Since the incorporation of a new institution takes time, the Ministry had given the mandate to Ennore Port. The ball is back in the Shipping Ministry's court.

Mr Srivastava said the Ministry will soon take a decision on the basis of the recommendation of the Finance Ministry.

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