LOGISTICALLY SPEAKING. Turn ports into ‘landlords’, not corporations

The Shipping Ministry is trying to revive its decade-old plan to corporatise all government ports. Its think-tank seems to believe that a change in the management structure –from ‘board of trustees’ to ‘board of directors’ – will make port managements more accountable and it in turn will help improve their productivity and growth.

But any successful port operator will agree that corporatisation is a worn-out idea and not a remedy for the ills plaguing the Major Ports today. Instead, a better option would be to adopt the “landlord” model being followed by the highly successful international ports such as Rotterdam, Antwerp and Singapore.

In this model government or the port authority leases the land and the waterfront and acts as a facilitator while the private parties undertake the cargo-handling operations.

By merely replacing the existing system with a “board of directors” will not make much of a difference. It will neither make the management of ports more accountable nor help improve their productivity and growth. It will be more of the same, like any other public sector undertaking run by bureaucrats.

One change could be that instead of preparing annual revenue and expenditure statements, ports will publish quarterly financial results. They could get listed on the stock exchange if the government wishes so.

However, the lack of operational freedom and red tape will continue to haunt these ports even after they become corporates. Restrictions on raising capital, making investments and hiring of talent would remain as stumbling blocks. The biggest hurdle – the flip-flops in government policy as well as the delays in getting New Delhi’s approval for any decision – will continue the same way. Here is the best example. Ennore port, the only corporatised major port built an iron ore terminal jointly with a private firm. By the time the project was completed, the Supreme Court ordered a ban on ore exports. Ennore wanted the terminal to handle other bulk cargoes, but it took two years for the port to get New Delhi’s permission.

The ₹500-crore facility idled for nearly two years.

Operating ports is a highly competitive business; to succeed they need deep-draft to handle large vessels, modern cargo handling equipment and, most important, professional management with operational flexibility and freedom. Most of the dozen government ports lack all these.

Moreover, the top management is fraught with incompetence. A civil servant from the Income Tax, Police or any other government departments can get appointed as chairman or deputy chairman of a port. By the time he learns the elementary lessons in port management, he will be either transferred or retired. Going by the experience of other PSUs, corporatisation is unlikely to change these practices at ports.

The only significant advantage of corporatisation for ports would be that they may come out of the tariff- regulation and be able to fix their own rates like their private sector counterparts. However, this alone does not guarantee better performance.

Under the landlord model, the government can ensure the best port facilities to the trade without itself being involved in the business of port-operations. The port authority will function like a regulator ensuing fair play among competing terminals within the port. Private operators bring in equipment, hire labour and may also be allowed to build warehouses and other facilities. The best part of the system will be that the market will determine the tariff.

It is a win-win plan for port users, operators and the government (which can get is share through the lease rent) that can vastly change the image of Indian ports.

The landlord model will also eliminates the flaws of the present hybrid system (which emerged after the PPP projects came in) where the government as a terminal operator competes against private operators in the same port.

Though this model may not fully eliminate bureaucracy, it would be far better to ensure better port facilities than under the corporatised ports.