ICRA reports about Port sector reforms

Port sector reforms witness traction with passage of Major Port Bill 2020; deceleration in cargo decline in Q2 FY2021 but sustainability is a concern: ICRA

Port sector reforms got a major boost with passage of Major Ports Bill 2020 in September 2020 after a long delay; should aid in improving competitiveness and faster decision making at Major Ports.

The cargo decline rate at major and non-major ports witnessed deceleration in July and August after witnessing strong decline in Q1 FY2021, but sustainability remains a concern

The Indian Port sector is witnessing deceleration in cargo decline in Q2 FY2021, with cargo at Indian ports witnessing Y-o-Y decline of ~9% each in July and August, after severe contraction of ~22% in Q1 FY2021 due to the impact of Covid-19 pandemic. The recovery has been relatively better at non major ports. The recovery trend is driven by easing of containment measures and uptick in economic activity. The major cargo segments impacted are POL, coal and containers; while fertilizers and iron ore have bucked the trend and grown during 5m FY2021.

Regarding the developments, Mr. Sai Krishna, Assistant Vice President and Associate-Head, Corporate Ratings, ICRA added: “The deceleration in cargo contraction is a favorable trend, but recovery in certain segments like POL, which was expected to be faster with easing of lockdown, has not materialized in line with expectation due to continued subdued demand. Further, the recovery in segments like coking coal and containers may be prolonged compared to other segments. Also, the recovery trend in certain segments like thermal coal has been volatile at non-major ports. Hence, the sustainability of recovery trend remains a concern at present and the sector is not out of the woods. ICRA reiterates its expectation that while general cargo throughput may witness ~6-8% contraction for full year 2020-21, the container segment may witness a decline of 12-15% during the same period.”

While, the cargo performance has been subdued, there has been traction on reform front with passage of Major Port Bill 2020 in September 2020, after witnessing long delays since its initial introduction in 2016. Commenting on the same, Mr. K. Ravichandran, Senior Vice President and Group Head, Corporate Ratings, ICRA added: “The passage of the bill is a positive for the port sector, with increased flexibility for major ports with regards to tariff setting, port infrastructure development and financial decisions. This should aid the major ports in being more competitive and nimble in the market vis-a-vis non-major ports and also boost their ability to attract more private sector investments in the medium to long term.

However, the legacy tariff disputes with various BOT players remains an overhang. The recent launch of SAROD-Ports for alternative dispute resolution and the proposed constitution of Adjudicatory Board, under the new Act, provide some new avenues for dispute resolution compared to extended and costly litigation and arbitration process. The early resolution of the long pending disputes, should help in unleashing the benefit of reforms and remains a sensitivity factor.”

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