by Kunal Bose

Contrary to its professed ‘official’ commitment to free trade across all non-farm commodities, the Indian government succumbing to relentless pressures by domestic steelmakers went on raising export duty on iron ore till it made the locally mined mineral uncompetitive in the world market. As the export-disabling 30% tax on lump ore and fines has done much harm to the country’s iron ore industry, it has at the same time caused collateral damage to quite a few ports designed to handle dry bulk cargoes. This could not be otherwise. Seeing India’s progress in production and exports of iron ore in earlier years, some new ports, including Dhamra on the east coast, were designed to handle large quantities of the mineral for export shipments.

Similarly, a surge in exports led some corporate entities like a joint venture between Sical Logistics and government owned trading house MMTC to build iron ore berths in major ports like Ennore — since renamed Kamarajar — and Paradip. Their investments in ports and special berths turned sour with the country’s iron ore exports collapsing to 15mt (million tonnes) in 2013/14 from the record amount of 118mt in 2009/10. During the same period, iron ore production fell from 226mt to 140mt. In the prevailing situation, builders and operators of iron ore berths could make attempts to redeem their investments by making suitable changes in the said berths to make them ready to handle coal of which India is becoming an increasingly big importer.

India’s coal imports rose to 168.5mt in 2013/14 from 145.78mt in the previous year. This is because, in the face of rising demand from coal-fired power plants, domestic coal production rose marginally to 565.64mt in 2013/14 from 556.4mt in the previous year. Slow production growth is because of strict enforcement of environmental regulations and the Supreme Court declaring as many as 218 coal block allocations since 2003 as illegal. The port operators have taken note of predictions by International Energy Agency and research houses that the uninspiring state of India’s coal sector and continuing rapid rise in demand for electricity would make India overtake Japan, European Union and China as coal importer.

“Strangeness of the scene involving two major commodities iron ore and coal will not be missed. India is sitting on the world’s third-largest coal reserve of over 301 billion tonnes. But bad planning, favouritism in coal block allocation and poor project execution are leaving the country with no option but to import more and more coal. Similarly even while India owns iron ore reserves in excess of 30 billion tonnes, its exports shrank at incredibly fast rate in the past few years. And as the sector is in total disarray, coast based domestic steelmakers will end up importing up to 15mt in 2014/15,” says RK Sharma, director general of Federation of Indian Mineral Industries.

What is encouraging is that a major government owned all season port Kamarajar has responded positively to Sical-MMTC JV to convert its iron ore berth into a coal handling facility. But the board of Kamarajar port accepting the proposal of the JV that it be allowed to convert the iron ore berth, which has remained idle since it was made ready in the second half of 2011 needs ratification by the shipping ministry. There just was no iron ore available for export.The JV owned 74% by Sical and 26% by MMTC has built a highly mechanized 12mt capacity iron ore berth at an investment of over Rs5 billion ($82m). It has the mandate to operate the berth for 30 years.

The changeover of the JV iron ore terminal into a coal berth of identical capacity, however, will hinge on its sharing revenue with the port at the same rate that the already operating Chettinad International Coal Terminal is paying. Moreover, as is the norm the JV will have to commit to a minimum assured revenue to the port which will yearly rise over the 30-year operational period. Assuming that the shipping ministry will vet the Kamarajar board decision on changeover, the JV will be allowed to handle coal instead of iron ore only after February 2016 when an exclusive five year coal handling right granted to Chettinad for handling coal cargoes for clients other than Tamil Nadu Generation & Distribution Corporation will end.

Interestingly, the port will not have any exclusivity coal handling arrangement with the JV. Informed circles believe this is because the port may allow other parties to build coal terminals in future keeping in view the growing demand for imported coal. “Indian coal is at least $10 a tonne cheaper than Indonesian fuel. Australian coal commands a still higher price premium over Indian coal. This is the reason why many power plants here and captive power units of several industries will rather let some capacity remain idle than import big amount of coal,” says an official of Confederation of Indian Industry.

Apart from an 8mt coal terminal built and operated by Chettinad, Kamarajar Port itself owns two coal berths of combined capacity of 12mt. These two berths are for exclusive use by Tangedco. In view of growing requirements of coal by the power company the port will be building two more coal berths for Tangedco’s use only. For other Indian ports, Kamarajar will stand an example of the correct way of bailing out stranded investors like Sical-MMTC JV.