Karaikal Port Reloaded

Maritime Gateway - - Contents - By Sisir Prad­han

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.

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