Karaikal Port Reloaded
The young port in the last two years has scripted a turnaround story registering healthy cargo growth and putting a point that it is too early to write it off.
The young port hugging the coast of Coromandel, within a short span of less than a decade had its share of early success and agony. But in the last two years it had scripted a turnaround story registering healthy cargo growth and putting a point that it is too early to write it off
Fast paced industrial and economic activities of Tamil Nadu have resulted in establishment of a number of supercritical thermal power plants in the state. Being high volume coal guzzlers, these power plants have been the backbone of deep draft ports in the state as principal users. Nestled between two major ports Chennai and V.O. Chidambaranar Port, Karaikal Port has benefitted from the thermal power projects such as Cuddalore IL&FS thermal power plant. Apart from which, Karaikal is closest to central Tamil Nadu districts like Trichy, Namakkal, Salem, Karur, Tirupur Pudukkottai, Erode and Ariyalur which are traditionally vibrant with commercial activities.
Around this time in 2016, the market was abuzz with reports of Karaikal Port in look out for buyers and for long time there was news of some or other investor looking to pick up stake in the port project, including Shapoorji Pallonji Group. Investments in port sector has always been a tricky affairs for even the most seasoned investors as these capital intensive infrastructure projects are perfect ramification of chicken and egg connotation. It was the year 2009, when Karaikal was called operational and the investors were confident about the potential of the prosperous central and southern Tamil Nadu generating enough cargo for the port. All assumptions were put to rest within a year of its commissioning with the port announcing India Infrastructure Fund’s investment plan of `1,500 million into equity share capital towards the Phase II expansion, which followed by some more equity investments in subsequent years. During FY2011-12, the port handled 6.01 million tonnes of cargo as compared to 4.75 million tonnes in FY2010-11 registering a Y-O-Y growth of 26.53 per cent.
The Fall and Rise
After the initial flares, cargo projections for the port could not materialize as compared to investments made for the construction of new berth capacities. Overall economy was on a rest, and the big ticket projects especially the coal-based thermal power plant proposed in the vicinity of the port took too long to hit the ground. As a result in the subsequent years the port struggled to remain afloat. By December 2012 India Ratings issued a negative outlook to the port. But the developments in the last two years show signs of a turnaround as the port has renewed agreement with Ultratech Cements for handling of coal, pet coke and lime stone. The port’s cargo had come down to 4.89 MMT in FY2014-15 as compared to 6.23 MMT in FY2013-14, and again increased to 5.96 MMT in FY2015-16 with revenue touching `260.65 crore in FY2015-16 as against `226.86 crore in FY2014-15.
Speaking on the turnaround of the port, GRK Reddy, Promoter, Director, Karaikal Port said, “In FY2016-17, coal has recorded a significant growth of 6.17 million from 4.66 million in FY2015-16. There has been a high demand for coal because of Cuddalore IL&FS thermal power project. Coastal movement of clinker was initiated in FY2015-16 and it recorded a drastic growth in the last financial year. The upcoming power plants in the hinterland, the industrial rich region of central Tamil Nadu and our existing businesses will drive more volume in the following year with a growth of 20 per cent in the next 2 years.”
Notably, there was fall in coal import after the Union Coal Ministry’s whip on reducing import and ramping up domestic production, but Karaikal remained unaffected since Cuddalore IL&FS thermal power project imported low ash content coal from its captive coal mine in Indonesia.
Reddy said, the port has handled 9.1 MMT of cargo in FY16-17, and diversified cargo including Coal, Fertilizer, Cement, Edible Oil, Crude oil, Clinker, Iron Ore, Project Cargo, Raw Sugar, Lime Stone, Wheat, Clay, Gypsum, and Logs/ Wood Chips.
The promoter stressed, “Growth is expected to come in the back drop of increasing capacity utilization, as there is a growing demand for coastal shipping especially from power and steel firms. Mostly the growth will be through coastal cargo, RO-RO, containers, and new businesses will commence from the current financial year in addition to existing cargo volumes like coal, iron ore, limestone, fertilizer, wood chips, wood pulp and wheat.”
In scout for new businesses
Apart from existing forte in coal, the port is hopeful that container import and export will reap the advantages in the hinterland logistics as the industrial centers are closer to the port. Moreover, the port has the advantage of being closer to hub port Colombo which helps container vessels to save the voyage by 110 nautical miles compared to other ports.
The port has also received all approvals for setting up LNG terminal and it is expected to be commissioned in the next 24 months to cater to the needs of local companies. there is a significant switching demand for natural gas from the industrial customers who are presently consuming petroleum products in the central Tamil Nadu’s highly industrial 14 districts, mainly Trichy, Namakkal, Salem, Karur, Tirupur Pudukkottai, Erode and Ariyalur. Currently, these districts are not connected to gas pipelines, however they fall in 150 km radius area from the port and would be economically feasible to supply through LNG by road option in the initial years. The port officials are hopeful that there is switching demand for LNG which would be equal to 1 MMTPA. The port has plans to develop a floating LNG import terminal in next 24 months. The Initial capacity of the proposed LNG terminal will be 1 MMTPA, which will be ramped to 5.0 MMPTA over the next 5 years based on demand, and the port has secured all key statutory clearances to initiate construction and operation of the facility.
Giving details of potential for LNG business, GRK Reddy said, “We have been at advanced discussion with four foreign LNG majors for development of LNG import terminal at the port. Presently in the Cauvery Basin area, GAIL operates approximately 276 Km pipeline located in five districts of the state of Tamil Nadu and Karaikal of Puducherry Union Territory. Through this pipeline, gas supply is being made to about 53 consumers which include power plants and industries. The present gas supply is around only 3.07 MMSCMD. Due to the continuous decline in domestic gas supply in the region which is unlikely to change in the future, almost all customers are facing the gas shortages up to 70 per cent of their requirement. If the gas is made available, there will be an immediate gas demand of approx 0.8 MMTPA LNG equivalent around this pipeline. The GAIL’S pipeline network is less than 4 km distance from the Karaikal port and can be connected at two points.”
The port also looks to reap the benefit from coastal cargo, which currently involves inward coastal traffic of cotton, tiles and food grains into Tamil Nadu, and the port is in negotiation with coastal operators to bring cargo for industrial cities Trichy, Tanjore, Pudukottai, Ariyalur, Perambalur, Nammakal, Karur, Salem and Erode which are relatively closer to the port. The port is also in discussion with the car manufacturers and logistics players to explore new possibilities of coastal and international RO-RO vessel movement.
Looking at a bullish future
The delay in commissioning of the coal-based thermal power plant had severely affected earning of the port in the initial years, and based on their revamped cargo strategy to diversify cargo portfolio has certainly started to give dividends to the promoters in terms of healthy cargo growth of 53 per cent from FY2014-15 to FY201617. Nevertheless promoters of the port are optimistic about the future and they are unfazed by restriction on import coal and forecast that the ruling will increase consumption of indigenous coal which has to come by coastal route through the port to its existing customers, because compared to rail movement from coal fields, coastal movement will be economical. A diversified cargo portfolio has helped the port to de-risk from sole cargo dependency, meanwhile, it is to be seen how the port maintains its cargo handling performance in the coming years.