"Government Utilizes Cash-Rich State-Owned Ports to Develop New Ports and Establish Maritime Fund"

The government is leveraging the substantial cash reserves of state-run ports to support the development of new greenfield facilities, including projects at Vadhavan in Maharashtra and Galathea Bay in the Andaman and Nicobar Islands. Additionally, these funds will partially finance a proposed Maritime Development Fund (MDF) due to reduced budgetary support.

For the fiscal year 2024-25, the Union Budget has allocated ₹700 crore for Sagarmala schemes, with ₹660 crore designated for revenue and ₹40 crore for capital expenditure. However, no funds have been provided for the Sagarmala Development Company Ltd.

The 12 major ports owned by the Union government collectively hold around ₹18,000 crore in cash reserves, a figure expected to grow with annual accruals. The government believes these ports, which operate as 'authorities' and thus do not pay dividends to the exchequer, should use their surplus funds for new port developments.

Key projects include the proposed international container transshipment port at Galathea Bay, which requires an investment of approximately ₹42,000 crore. Deendayal Port Authority, Paradip Port Authority, Visakhapatnam Port Authority, and V.O. Chidambaranar Port Authority have been asked to contribute to this project. These ports will form a special purpose vehicle (SPV) to develop the necessary infrastructure, with cargo handling operations to be outsourced to private specialists.

The same model is being applied to the ₹76,220 crore Vadhavan Port project, where Jawaharlal Nehru Port Authority is the majority equity partner in the SPV.

In addition to these projects, the major ports are being asked to help fund the MDF, which aims to provide low-cost, long-term capital to the sector. Some financially sound ports have expressed reluctance to deplete their reserves for new ports and the MDF due to ongoing development needs and statutory liabilities.

Questions have been raised about whether using these funds aligns with the Major Port Authorities Act, which governs these ports. An executive from one major port emphasized the need for clear norms and a structured approach to ensure investments comply with legal provisions and yield satisfactory returns.

While major ports generally aim for an internal rate of return (IRR) of 12 percent for investments, some projects with lower IRRs are also pursued if deemed beneficial to the public. The consultant advised postponing the Galathea Bay project until after the completion and evaluation of the Vadhavan Port project, suggesting that the focus should be on expanding capacity in the regions where the funds are generated to avoid potential wastage.

ET