Growth with sustainability is our mantra: Karan Adani

We were focussed on coal 3-4 years ago. But over time, we have shifted focus to containers. Coal has been significant, but containers have been the growth drivers. When you consider the last three investments we’ve made at Kattupalli, Kamarajar and Vizhinjam, they have been on the basis of containers. Five years from now, containers will form the most significant component of our business. To mitigate risks, we are also focussing a lot on gas now. With global awareness about climate change and pollution, India and the world will rely on gas for clean energy. I’m certain that LNG and LPG will be the future. Although India is committed to international agreements, our country lacks the right infrastructure at the moment. So, at APSEZ, we are creating an enabling infrastructure in anticipation of this future growth driver.

We are taking a position on LPG and LNG terminals both at Mundra and Dhamra ports. Our LPG terminal in Mundra will be ready by December and once commissioned, it will be the largest terminal in the country. Phase-I will be 1.8 MT which can be expanded to 3.2 MT. It will be the largest not only in terms of capacity, but also in terms of tank size. Historically, LPG terminals have been of 16,000 cubic metres. We are the first to come out with 24,000 cubic metres. So, our terminals can accommodate large vessels. Very Large Gas Carriers (VLGCs) can unload completely instead of discharging partially.

For the ports business, gas will be our focus. Our second focus will be on inland logistics. Our goal is to leverage the strategic advantage of our ten ports along the entire coastline of India to create a vast network of inland logistics in the country. The idea is to give an end to end logistics solution to customers using our ports. Right now, we are predominantly focussed on North India to Mundra. Now that we have increased our footprint in ports over the last four years, we want to increase that in logistics also.

So, we will be operating in ports, rail, private freight terminals and then the last mile delivery. Moreover, we will stitch all these with the right technology so that everything is seamless both operationally and commercially.

We have very ambitious targets to go from three Inland Container Depots (ICDs) to almost 20 Private Freight Terminals (PFTs) in the next four years. At the same time, we want to go from 22 trains to almost 100 trains, and from 200,000 sq. meters of warehousing to almost 5 million sq. metres.

I must say it’s a tough project. We will be ready with the terminal – berths, equipment et al. But the biggest challenge we are facing now is rock supply. The state government has been very supportive. They have taken measures in the last six months to ease up rock supply and to open and auction new mines. But because of cyclone Oki, the project suffered some damages and losses. So, it has been delayed by about a year. But we are confident of pulling through. This is another project that we are very bullish about.

Growth with sustainability is our mantra. We believe that if a site has to grow, you have to take the stakeholders along with you, whether they are fishermen, local villagers or farmers. And you can’t take them along by simply compensating them.

You have to make the effort to spend time, energy and resources in training them, improving their livelihood, creating infrastructure which is relevant and actually enhances their livelihood and enriches their future generations.

I’m talking about establishing schools, hospitals, medical systems just for them. Or, creating water treatment plants, electrifying villages. Sometimes, they already have all of that, as in the case of Dhamra. So, you create better fishing harbours where they can dry their fishes. You build cold warehouses so they can export fish out of there. Whenever we look at any new project, we actually identify the local requirement.

We focus on three aspects — training, rural infrastructure and infrastructure that enables communities to improve their livelihood. Apart from these, we are focussing a lot on the ecology.

Today, APSEZ is the country’s largest afforestation mangrove company. We have done more afforestation of mangroves than any other company in India. After we came to Mundra, the mangrove cover has increased by 250 hectares. We are also taking conscious steps to reduce our carbon footprint. A big part of that is clean energy. So, we have converted almost 6.5 MW out of 35 MW into renewable energy and by 2025, our target is to convert all electricity consumed at all our ports into renewable energy. That way, we will neutralise our carbon footprint.

We are also working on a zero-waste management policy for all the waste that is generated by the ports, whether it is human waste, industrial waste, or waste from handling. For example, in the case of waste water, we aim to treat it and reuse it for horticulture or on an industrial scale. In the case of plastics, we are looking into how we can convert that to manure. Our strategy to introduce the zero-waste initiative and renewable energy, and to create a bio-diversity eco-system at each of our ports will enable our local stakeholders to flourish. Our goal is to operate successfully by respecting the ecology around us. For us, sustainability is part of our culture and not just a project.

No. APSEZ has zero lending from Indian banks. Everything has moved to either US dollar bonds or into foreign banks. So, for us, funding is never an issue because we are an investment grade rated company by S&P, Fitch and Moody’s. For us to go into the market and raise another $1-2 billion worth of bonds is not a problem. We can do it at any time. APSEZ has free cash flows – we have almost Rs.1,700 crore of free cash flow now. So, we actually don’t need money from the banks to fund our projects.

Whenever our rupee loans expired, we just repaid them; we have not refinanced them. We have consciously taken a decision not to go to Indian banks because we find that there are cheaper alternatives of raising money and dollar bonds are one of the cheapest. Our cost of borrowings today is 5-5.5 per cent. That’s one of our strengths. There is a rupee debt, but it is not from Indian banks. Everything is from foreign banks or from dollar bonds.

When we took over Dhamra in 2014, the capacity was 25 MT. Since then, we have expanded to almost 40 MT. We have just commissioned two berths and one more is pending. By the end of this financial year, we should have almost 50 MT of capacity commissioned. Besides, we are also setting up a 5 MT LNG terminal and a 1.2 MT LPG terminal.

Apart from expanding capacity, we are also diversifying the cargo – when we took over the port, it had predominantly coking coal imports and iron ore exports. But today, we also handle agri, fertilisers and steel products. We expect to handle containers at Dhamra very soon. Diversifying cargo will further boost our growth at the port.

As part of Phase-I, we’ll do a trial from August to understand the market and assess its potential. This is likely to take 6-7 months. In the meantime, we will handle containers from existing berths. At the end of the trial period, if we find that we are likely to have sufficient container volumes, we will build a full-fledged container terminal.

It was a learning curve for us. We realised that we should not focus on capacity that is restricted to one commodity. Contracts are signed for 30 years, assets are built for 30 years. But a single commodity can change cycle for a number of reasons – it could be policy, environment, or simply a business cycle. So, that was our big learning from that asset – don’t get into single commodity projects.

We have two other projects at major ports – Tuna and Goa. In Goa, it’s a single commodity but it is not restricted to thermal coal. We can handle coking coal and pet coke as well. Tuna is open for all bulk commodities. In contrast, Vizag had only thermal coal. So, we couldn’t even do coking coal or pet coke.

One of the things which we need to include in our concessions at major ports is the ability for a player and the port to have some flexibility. Even if you are doing one commodity, how do you create a mechanism to make it flexible? At the end of the day, a terminal that doesn’t work is a loss for us as APSEZ, but a bigger loss for Vizag port and the government because you have built capacity which cannot be used productively. We must remember, these are national assets. I believe there should be a mechanism that allows flexibility in the concession so that if there is any external factor that impacts the commodity, the national asset will not be made to suffer.

Exactly. If you look at all the stressed assets in major ports owned by private players which are under PPP, 90 per cent are under stress because of the inflexibility in the concession agreements. I’m not saying that you should have flexible pricing. Markets can correct themselves there. But you should have flexibility in terms of operations.

It’s still very early to say. Yes, we have been given the LoI, but there are still many steps that the state government needs to take before they can award the concession. And even after awarding the concession, there are again a number of steps that the state government needs to take before any construction can start. For example, the state government needs to buy the land and hand it over to us, get the connectivity into the port through both rail and road and get the environment clearance. It’s too early to say when the project will start. But, I can only say that once the project is handed over to us, we will get it up and running in record time. We are bullish on that port.

Our reasons for acquiring Kattupalli and Kamarajar were very different. Although L&T had already built a container terminal at Kattupalli, we saw the potential for a large multi-purpose port there. We can’t do that at Kamarajar because there is only a container terminal. So, you shouldn’t evaluate the rationale of our acquisition from just a container point of view. Through Kattupalli, we will drive not only container volumes but also coal, fertilizer and agri among others. Chennai port is unable to handle large volumes so the cargo has moved to Tuticorin or Krishnapatnam, which are in the hinterland. This was our rationale for acquiring Kattupalli.

Similarly, we took a long-term view before acquiring Kamarajar. Chennai port used to handle 1.7 million TEUs and we believe that ports within cities will lose their significance once a new port is built outside the city. A satellite port of similar capacity will have better efficiency, better infrastructure and faster turnaround time because you avoid the congestion of the city. Besides, the city itself would prefer to focus on other types of infrastructure and not just the port.

So, when we were considering Kamarajar, we expected that the volumes from Chennai would gradually move into Kamarajar. We have taken a position for the next 10-12 years. We are not worried about 1-2 years. Historically, we have seen this play out at Mumbai and JNPT, and at Kolkata and Haldia. Even globally, we have seen that once a sister port or capacity is developed, volumes from the city port move out. So, I’m confident that Kamarajar will be equally successful. Moreover, Kamarajar has some inherent advantages that Kattupalli does not – railway line and scrap permission, for instance. So, our acquisition of both facilities had very different and equally compelling reasons.

The cabotage relaxation was already announced for Vizhinjam at the time of the ground-breaking ceremony in December 2015. That was not an issue for Vizhinjam.

Not for the next ten years because it will be a build-out stage for Adani Logistics. We will be aggressively building, expanding, and creating new infrastructure and assets. Our goal is to create value for the customers of the ports – provide end-to-end logistics solutions including last mile connectivity. And this is not only for containers but also for bulk, break bulk and all commodities. So, we aren’t considering any separation for the next ten years but then again, you can never say no in business.

There are three parts to inland waterways. One is dredging. We are aggressively looking at getting into every single tender of IWAI on dredging. Apart from this, we have also bid on two tenders for the India-Bangladesh protocol route. There is a huge opportunity in dredging and as a credible player with the largest fleet of dredgers in the country, we see ourselves playing a significant role as a partner to the government to make sure that their vision of seeing traffic movement on inland waterways becomes a reality.

The second part of inland waterways is setting up terminals and then doing the barge movement from the port into these terminals. That will take a little longer because we have assessed that there are two profitable routes – NW1 and 5.

For actual barge and cargo movement, there is still some infrastructure that needs to be created along the way. So, apart from setting up a terminal and dredging, you also have to increase the height of the bridges and make sure that some of the dams can accommodate the barges that need to ply. That will take time, but we are confident about NW1 and 5 stretches.

We look at all opportunities. As and when it comes up, we will definitely look at DCI. If we find it attractive with the kind of returns that we look for and if we believe that we can turn it around, then we will consider it. For us, it’s the value of the contracts that the company can bring to the table. We already have the equipment, so we will not look at it from an equipment point of view.

As a company, we train our communities and give them the opportunity. Then it’s up to the local people to decide if they want to work with us. If they want to work in the port, power plant or the edible oil refinery, we create the ecosystem for them. At Vizhinjam, the locals do not wish to work in construction, no matter how much training we give them. So, the most important step is to identify the aspirations of the people and create a training program to suit their needs. Moreover, we are not the only employer at our ports. A hundred other companies have created their own ecosystems there. So, we consider the complete picture and train the communities in such a way that they are empowered to join us or any of these other companies or even start their own business to create an ecosystem of their own.

The scope of Adani Foundation is defined on our three verticals of sustainability.

One is education across schools from KG to standard 12, plus running medical schools and tying up with some of the other foundations, which may not be related to our projects but would still benefit communities. One of the new tie-ups that we have done is with the KISS Foundation, based in Bhubaneshwar. The Foundation focuses on providing free education exclusively to tribal students. Nearly 1 lakh students benefit from this initiative. Recognizing the demand, KISS Foundation wanted to create one more institute at another location in Orissa. We have teamed up for this new institute even though it is not related to our Dhamra port or the mining activity. We still believe that it is a great initiative.

Apart from this, we run schools that provide free education to communities. Adani Vidya Mandir educates students whose families earn less than Rs. 1 lakh a year. Here, we not only waive tuition fee but also provide free conveyance to and from the school, free uniform, books and extra-curricular activities. It is free education end-to-end, in the truest sense because we believe that education is one of the best ways to empower society and to give back to our communities.

The second vertical that our Foundation focuses on is healthcare. We run mobile healthcare units and a hospital in Bhuj. More importantly, our strategy is to identify the predominant illnesses in a region and conduct targeted programs so that it is of maximum use to the communities. For instance, people in the Kutch region suffer from kidney stones because of the salty water. So, we ran a targeted program to treat kidney stone patients from all over the region free of cost. Irrespective of the age of the patient, we covered all costs including surgeries and medicines. These are the kinds of unique healthcare programs that we run, apart from regular clinics and hospitals.

The third vertical is rural infrastructure. We identify the needs of the people and provide the right kind of infrastructure to suit their requirements. For instance, we aim to empower farmers through technology such as drip irrigation technology. For fisherman, our focus is to train them and provide them the right ports and equipment so that they catch more fish with more efficiency. Recently, we started a new initiative for water conservation. To begin with, we will be creating a program to identify ways of raising the water table in the Kutch region.