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| Edited By: Ateeq Shaikh |Source: DNA |Updated: Feb 19, 2018, 05:15 AM IST
PM Narendra Modi commissioned Jawaharlal Nehru (JN) Port's fourth container terminal – Bharat Mumbai Container Terminal (BMCT) – on Sunday, which is the largest foreign direct investment in the port sector. Tan Chong Meng, group chief executive officer of Singapore-based terminal developer PSA International Pte Ltd, in an interview with Ateeq Shaikh, talks about the journey so far, growth expectations and the company's plans, among other things.
PSA was started in Singapore about more than 40 years ago. For the first 20 years, it had operations only in Singapore, both export-import as well as transshipment. After about 20 years, PSA decided to go beyond Singapore. The first country where PSA invested was in China. Very soon afterwards, in 1996-1997, we had our first investment in India at Tuticorin (Tamil Nadu). Before you know, it's 20 years, and now, we have a terminal in Mumbai (JN Port) too. We saw very successful four-five years of consecutive growth; based on our experience at other places, this kind of growth would continue. After those early years, we invested in China, South-East Asia, Latin America, etc. It really depends on the growth of the regions. Today, we have 40 terminals in quite a number of countries. We are glad to be in Mumbai; this is the gateway and reaches out to the deep and broad Indian hinterland. We are excited about the dedicated freight corridor coming up. We are also committed to completing the entire terminal at JN Port in 2022. So Mumbai will double its capacity and have more economic handling costs, more benefits; it will handle bigger ships. At BMCT, we believe that rail would be the future transport mode. This terminal is very interesting, it's right at the first maritime's location as you come off the main shipping lane before you go to the other Indian terminals.
Circumstances have changed quite a bit. And with India growing, and more recent changes in the tax laws and so on and so forth, you actually have to consider the dynamic environment. You make your choices and assessments. At that time, it was not just about the revenue-share and the partner. It was a different project. Today, we have the berth line or wharf line that is linear. In the first project, it wasn't linear. There were some issues of overlap with the perimeter and footprint of the project with Bharat Petroleum Corporation Ltd. It wasn't a case of numbers as you said, it was about whether it was executable. I think in hindsight, it was good that it was withdrawn and we again made an assessment of all those conditions. As we had to do it very quickly, we decided to make the commitment on the basis of just PSA International (and not a partnership). There's an African saying, if you want to move fast, move alone, if you want to move far, move as a team. The bid was initiated and we had to move fast to get the project and we were happy to meet the conditions.
Other terminals have different tariff regimes and environment, which are stories of their own. But in Mumbai, whatever the regime, as you know we can't charge whatever we want because there's competition. Nobody really gets an opportunity to charge what is there on paper. It's all subject to negotiations and at the end of the day, customer wins as the customer will make a choice of what makes sense to him or her. The cost has also moved over time. The investing conditions like other elements and tax have also changed. It's never a perfect fit between what you are finally exposed to and what you initially thought that you will be operating. As long as you are working within viable boundaries, that would work in short- to medium- term. In India, we have been for 20 years, so we aren't here for short or medium term, we have seen the evolution over mid- to long-term and to your point, there are things that still can be improved or normalised to put on the level playing field, especially on private ports and private operators.
Indeed, it's not just about profitability. Profitability and health of companies are important for re-investment. Container business is about 40-50 years old. A lot of the growth in Asian region on container development actually started in the in the 1990s and 2000s. If you look at India, and the curve today, India is at 15 million twenty-foot equivalent units (TEUs). But look at the curve, it's more of the last two-three decades, in fact, the last decade. Based on that, ask yourself, on an average, how old are the ports? Actually, 20-30 years old. Chennai is among the younger ones, Mundra is even younger; after that, Mumbai (JN Port) goes back to three decades. For a three-decade port, you know that the lifecycle is ageing, so you need to re-invest. So if the environment within the economy is not changing, it's a bit of a problem. Operators are always reluctant to leave the environment, loving to continue doesn't mean the environment is favourable. Sometimes we have to act on the confidence of the Indian government, the terms and conditions will catch up with the issues that are left behind. So, are we comfortable that India will continue to progress? I think the answer is a big yes. If we see the recent legislation – The Major Ports Act – these are the signals.
In the past, when the number of operators was few and port capacity was not keeping with the demand, and in terms of port rates, it was appropriate for the government to use more instructive methods of managing the tariff regimes. I think it's not just relevant for the ports but also true for some of the other more strategic or infrastructural type of industries in India where the concept of tariff and earnings rates, especially for private participation, is under the government's control. Today in the port area, India is already being served evenly. Gradually, I think it would not be a disadvantage to India to move towards a more open tariff regime like many other locations.
A port operator creates competitive operations and logistics capacity that enables customers to have a choice. Mumbai has been unlike other neighbouring locations, has a constraint on capacity, because of which movement has gone to other places. Mumbai has a very big hinterland, and certainly, I think with the addition of capacity here, customers will start to re-evaluate. India already has a lot of activity in the hinterland, it's just that it isn't connected. Mumbai had a constraint, now it creates possibilities, people should now look at it almost like a fresh page. We have added 50% of capacity and then there is a promise of adding another 50%, which makes it 100% addition in four years' time (2022). It's an opportunity to not just increase capacity, but to do things differently. That's why we are working with Container Corporation of India, and in time, when they complete the corridor (dedicated freight corridor), you can move 300+ TEUs rather than 100 TEUs. It's a big jump.
ICDs are not foreign to us, we have been involved with ICDs in a number of other countries. We are constantly exploring, India is not off the page. We are interested. When people tell us there's this opportunity, we will pursue it. I think companies have to move in a step. We have grown our presence in India organically. We didn't buy over the network from somebody else, we grew by knowing people. Without BMCT our market share is about 13-14%, with BMCT, within a few years, we have potential to reach 20% or more, that's meaningful percentage. With today's technology, presence in the hinterland will also be meaningful so as to be nearer to the destinations. It is in fact that philosophy that got us to invest in quite a number of ICDs in China. We are participants of an ICD in Thailand, we have ICDs in operations in Latin America too.
I think various options would be considered. Unlike ports which are very concession-driven and you have to work on the basis of the timetable, ICDs are a different proposition. So. there are different ways to look at ICDs.
For the next three-four years, BMCT will be our focus. We will not neglect Chennai or Kolkata, those are very important points of entry as well with their own respective growth. There's competition, we will have to ensure we are able to compete. But I think our growth for PSA International in India will certainly come from Mumbai. The first phase of BMCT took a lot of energy, we learnt a lot. People are now ready to take the second phase. At this stage, it is inappropriate to comment about new terminal.
Presently, we don't have a local partner. At BMCT concession level, we are happy to continue to be the main driver. We would and indeed have already taken onboard some financial interest parties as strategic partners at a higher level covering a few assets in India. So, as you know, different people are interested in infrastructure projects these days; there are funds, there are sovereign strategic players and so on and so forth.
There's larger share of debt than equity. Rs 7,900 crore is for the first and second phase of the project, and 60% of that is for only the first phase, which is now ready. We would like to get into a kind of mix of financing from India and abroad when we get into operations. Initially, we will be more supported by our Singapore Bank.
We have a business plan. The environment is also so dynamic. I would be very happy if during the first year of operation we can handle 500,000 TEUs.
Our total portfolio in India is spending over $2 billion; that's a big investment in one country, especially one which over time saw slightly slower growth, and then thankfully a stronger pickup recently. So we were putting money with a lot of faith in India's future. The initial stage of this partnership with India, to be frank, has not been that financially rewarding. But we continue to push forward and invest more and we hope that we would be able to see Mumbai as one of our more successful projects. It's expensive, it will take time to create a financial return, which we don't expect to be there in the first few years for such long-cycle projects. It all depends on how we are supported by the various stakeholders. We are still being seen as the new kid on the block.
We are expanding place by place. We are quite open to focusing on the developing markets; won't want to comment on which countries and regions, but if you look at our portfolio, it's already global. There are many opportunities, we keep on tracking them. Depending on how they surface on the map, we respond accordingly.
Last (calendar) year, we were very fortunate (group's volume increased by 9.8% over 2016 with 9% from PSA Singapore Terminals and 10.4% from PSA terminals outside Singapore), we had a few things in our favour. The market growth this year is not likely to be the same as last year. This year, we are expecting a dip.
