The steel to power to oil refinery group Essar has been at the forefront of building of new privately owned ports in India where the government with its 13 major ports continue to operate an overwhelmingly major portion of cargo handling capacity.
Essar, which in order to cut inadequacies of an important infrastructure in the country thought it wise to own ports, will be completing a host of major expansion programmes in 2014. This is done by way of adding new capacity to its existing two ports and building one berth and two dry bulk terminals at government owned ports.
In a further three years, as Essar Ports will be raising its cargo handling capacity from 88mt (million tonnes) to 158mt, the share of cargoes emanating from group business in total cargoes to be handled by it will be down to 70% from about 98% now.
Analysts say the reinvention of Essar Ports handling a substantial volume of merchant traffic earning much better revenues per unit of cargo than group traffic generates will improve the profitability of the company. Dedication of 30% and more port cargo handling capacity to commercial traffic will as a result make Essar Ports a good investment proposition for funds. Incidentally, the promoters have plans to reduce their holdings in Essar Ports to 75% coinciding with completion of expansion programmes from the present 83.71%.
Essar Ports is investing Rs93bn ($2.05bn) in building new cargo handling capacity for two reasons. First, new port capacity will dovetail with major expansion of group companies’ steel, power and refinery industries. At the same time, the extra cargo handling capacity will be giving Essar Ports an opportunity to reposition itself as a significant
handler of merchant cargoes opening up a new rich revenue stream. The Indian shipping ministry is encouraging building of port capacity at a rate which will be well ahead of cargo traffic growth.
The evolving situation will require of Essar Ports not only to arm itself with right logistics and all modern cargo handling equipment but also provide berthing on arrival of ships, that is, zero vessel waiting time. Further, in an overcapacity situation, Essar Ports will have to do some aggressive marketing to get sufficient merchant cargoes.
At this point, Essar Ports has cargo handling capacity of 88mt in its ports at Vadinar (58mt) and Hazira (30mt), both in the western coastal state of Gujarat.
Earlier this year, an extra capacity of 12mt was added to Vadinar port at an investment of Rs10.65bn. Gujarat being the hub of the group, Essar Ports is building a 20mt dry bulk terminal at Salaya.
At the same time, seeing Orissa’s emergence as the principal production centre for minerals from coal to iron ore to bauxite and metals like steel, aluminium and ferro alloys, Essar Ports has chosen Paradip in the eastern coast for building a 16mt ore berth and a 14mt coal terminal. But for the Paradip facilities to work to capacity, the company will be depending on government agencies for infrastructure support like good roads and rail connectivity.
The overall development programme also includes Hazira’s 20mt capacity expansion to 50mt. That all the projects are making good progress will be clear from the fact that the company has already spent Rs6,300 crore of the total budget of Rs9,300 crore. Essar Ports’ marketing skills will soon be tested.