The strange case of ICTT Vallarpadam

Hundreds of ships from all over the world have called on the International Container Transshipment Terminal (ICTT) at Vallarpadam, adjacent to the Cochin Port over the last three years since Prime Minister Manmohan Singh dedicated it to the nation on 11 February 2011. Hundreds, but not as many ships, as the planners of this dream project had envisaged.

The ICTT was the first of its kind in the country. A "milestone in logistic infrastructure development," is what Dr Manmohan Singh had called it. Whether it will now become a 'millstone' around the neck of the Cochin Port is the major worry now. The target of the first phase of the ICTT was handling of one million containers per year, whereas the performance was only a meagre 3.5 lakh per year.

Containerisation of goods and commodities revolutionised international trade by reducing expenses and increasing speed. Mother ships packed with containers berth at transshipment ports and the containers are transported to their ultimate destinations by road, rail or smaller ships. Therefore such ports have to be close to the international shipping lines.

Cargo ships plying between Europe and Asia, Asia and Africa and between America and Asia pass through Indian territorial waters. However the major ports of Chennai and Mumbai are 480 nautical miles away from international lines while Kochi is only 11 nautical miles off the Middle East trade route and 76 nautical miles off the Suez route. That was one of the main reasons for Kochi being chosen as the location for India's first transshipment terminal.

Potential geopolitical threats also made it imperative for India to have a transshipment terminal in its territorial jurisdiction. The Chinese network of military and commercial facilities along its sea lines, referred to as 'String of Pearls,' had been gradually strengthened by the opening of the Humpentotta port by a Chinese company. The China Port Holding already had controlling shares in the transshipment facilities at the Colombo, Karachi and Chittagong ports. The ICTT project was thought to have the potential to effectively meet this challenge.

The Public Private Partnership

ICTT was envisaged as a public-private partnership (PPP) and Dubai Ports World was selected as the private partner through a global tender process. Dubai Ports World is a giant in international marine terminal operations and development, managing at least 65 marine terminals across the globe. It has seven container terminals in India alone, including the ones in Chennai, Mundra and Nhava Sheva. As per the agreement, the government of India had to acquire and develop the necessary land, and lay four-lane road and rail connections to the nearest terminal. DP World would construct the transshipment terminal and do the marketing.

The government spent Rs.1,617 crores for the logistical support and DP World claims to have spent Rs.1,600 crores for the terminal infrastructure. (This fact, however, is disputed by the trade unions as well as several knowledgeable sources who emphasise that DP World has not spent more than Rs.900 crores).

The terminal was to come up on 49 hectares of land. DP World would operate the terminal for 30 years and then transfer it to the government. The Cochin Port in the role of a licensee has the obligation to maintain the minimum required depth of the shipping and berthing channels by dredging, so as to enable the huge mother ships to enter the Terminal. The Cochin Port would get 33 per cent of the revenue as its share for all services offered.

The signing of the Build-Operate-Transfer (BOT) agreement on 31 January 2005 was welcomed by almost all sections of the people, political parties and the media. The euphoric consensus was that Kochi is on the cusp of a huge development leap, thanks to the project. Until then, containers were being carried in small ships to either Colombo, Dubai or Singapore and then transferred to mother ships. Colombo had a share of 60 per cent, Dubai 10 per cent and Singapore 30 per cent of all such transfers. With the ICTT operational, there would be savings of approximately 180 to 300 dollars per container for the exporter/importer, as the containers could be directly loaded into the mother ships at Kochi. This would also save almost two weeks' time.

However the euphoria died down soon after the inauguration of the Terminal. Nothing extraordinary was happening at the ICTT. In fact, the activities were quite sluggish.

Dutch Consultants, Frederick R Harris had submitted the final project report in 1999; another study by Consulting Engineering Services was completed in 2003. However their assessment of 'cargo flow' had gone totally awry by the time the first phase of the project was commissioned in 2011. Massive changes had taken place in the major ports in India and neighbouring countries during the time elapsed. Several container terminals had started functioning in the major ports. Private ports with modern facilities were allowed to be set up in the proximity of major ports and they too were engaged in carrying containers directly to foreign destinations.

But the main factor that contributed to the sluggishness of the terminal initially was the Cabotage laws under section 407 of the Merchant Shipping Act 1958. According to this, goods from one Indian port to another Indian port could be carried only in Indian flagged ships. However there are only 13 container vessels in India with a combined capacity of 12,156 TEUs (Twenty foot Equivalent Unit), which is by far inadequate to cater to the needs of the Vallarpadam ICTT. This resulted in containers remaining stacked at the terminal without reaching their destinations, or being transported by rail or road.

It is incredible that those who planned the Terminal were not aware of this clause in the Shipping Act, or that they did not bother about it at the stage of planning.

By the time the Cabotage laws were relaxed in December 2012, permitting foreign vessels to carry containers from one Indian port to another, much momentum was lost. The Terminal also suffered due to the high rates charged by DP World in comparison to other Indian ports. Further, the concessions offered by Colombo and other Transshipment Terminals to the leading shipping companies, in order to subdue the competition from the new entrant, made it a losing proposition for Vallarpadam.

Marketing of the facilities at the terminal is the obligation of DP World as per the BOT agreement. With its worldwide network and association with leading shipping companies, much was expected of the private partner, but the show has been dismal. Even as the third year is about to end, there have not been any signs of acceleration in the growth chart. The contribution of DP World has been insignificant when compared to what it has received.

The rail bridge to the Container Transhipment Terminal.
Pic: Ajay Balachandran via Wikimedia

All for nothing

ICTT Vallarpadam was given SEZ (Special Economic Zone) status exempting it from all customs and duties normally levied on imports. Thus all the capital goods and equipment it imported for setting up the terminal came tax free, saving hundreds of crores. Customs and excise checks or clearances are also not required because of the SEZ status, making it the only port in India with such a 'facility'. A 17-km four-lane road and a dedicated 8.66-km rail line have been made fully operational.

Entrusting the Cochin port with the responsibility of maintaining the required 'draft' in the shipping and berthing channels is among the most important concessions offered to the terminal. Silting is a perennial problem at the port with many rivers and the Vembanad lake meeting the sea here. Round-the-year dredging is a must for the continued existence of Cochin port. However the obligation to maintain the minimum draft of 14.5 metres at the Vallarpadam channel is an additional burden that is costing the port as much as Rs.60 crores per annum.

Incidentally, the Cochin Port, which is a PSU, is in absolute doldrums. As all container traffic has migrated to Vallarpadam, its income is now limited to bulk imports and exports. In addition, there is the drain on its resources for the dredging done at the ICCT. As if none of this was adverse enough, the government of India has now demanded that the Cochin Port Trust repay the amounts disbursed to it for infrastructure development of the port. The first such 'loan' was Rs.28 lakhs granted in 1937! The total dues from the port is reportedly Rs.254 crores. And the penal interest demanded by the government, calculated from 1937, is Rs.729 crores!

Another major 'dole' to the ICTT was the handing over of the Rajiv Gandhi Container Terminal (RGCT) at Cochin Port for operation to the DP World till the commissioning of the transshipment terminal and the subsequent closure of the RGCT as mandated by the BOT agreement. This clause ensured that DP World would be the sole purveyor of containers in the vicinity.

Trade unions allege that DP World made a clean profit of Rs.400 crores in the six years that they operated RGCT, and that this was the only contribution of DP World towards the investment of Rs.900 crores that it made for the ICTT in total, the rest of it raised through bank loans. What does the DP World pay back for all these? 33 percent of the turnover, which at the present going, amounts to a meagre Rs.50 crore. [Attempts by this reporter to elicit a response from the DP World authorities proved futile and a set of email questions remain unanswered]

A big lacuna in visualizing this project, according to experts, lies in the neglect of the hinterland of the terminal. Any busy harbour is an opportunity for development of industry and business in the area surrounding it. A port and its hinterland should be mutually supportive and should gain from each other. For instance, the transshipment terminal of the Port of Tanjung Pelepas in Johor, Malaysia, began operations in 1999-2000 with only 4 lakh TEU. 724 factories were set up in its hinterland in the next three years and the terminal handled 7.7 million TEU in 2012.

It was for the planners to decide what should come up in the hinterland of Vallarpadam: residential areas and resorts, or industries that rely on export and import. Unfortunately, the planners of the Terminal either did not have a larger vision or they simply settled for the less bothersome first option. DP World cannot be held accountable for this by any stretch of imagination. Given the terms and conditions of the BOT, DP World seems to have every right to exist at Vallarpadam as if in a vacuum, unconnected to the material realities that surround it.

There is a strong point of view that a minimum guarantee of performance should have been in place in lieu of all that has been given away: for example, handling a minimum of six lakh TEUs and adequate compensation for the shortfall to be paid to the Port. That would have saved the day for the Cochin Port. However, in this too exists a counter to this line of thought: after all, this is an arrangement for 30 years, and there is every likelihood of the performance going up drastically in the long term. Any insistence on minimum performance guarantee could have resulted in a lesser share than the present 33 percent, resulting in less income in the long-term.

Two factors that are often ignored in any discussion on the ICTT are the environmental and human costs that the project has extracted. It may take a few more years for the impacts of the road and railway line that practically divide the Vembanad lake to surface. However, the human cost is there for everyone to see, written on the face of those unfortunates ones who were uprooted and are yet to be rehabilitated in the real meaning and spirit of the word. 326 families were forced out from their habitats for road and rail connectivity. About 300 families are still in the wilderness, either in rented accommodation or in makeshift hovels.

It may be a long time before we can rise above the economic malfunctioning of the project and treat these issues on priority.