Vizhinjam way forward Sep 7 2012 abbridged

Vizhinjam Deep water Port Project

A New Vision and Way Forward

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Agenda

•  Revisi>ng the Market •  Core ABrac>ons of the Project •  Modifica>ons to the Master Plan •  Development Structure •  Expanded Government Support

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Market Study -‐ 1 •  Current study by Drewry/IFC under-‐es>mates the poten>al of the port •  Very conserva>ve projec>on of container transshipment volumes even aPer assuming deep rate discounts

•  Benefits of deep draP and strategic loca>on to act as single stop for India for 10,000+ TEU class ships not factored in

•  Vizhinjam has been posi>oned as “just another container port” and not a regional transshipment hub

•  Lessons of successful “transshipment-‐only” hubs, such as Salalah (99.5% transshipment) or Tanjung Pelapas (95.8%), not incorporated into market forecasts

•  Poten>al for cargo such as LNG and coal ignored, ci>ng the need to be a “green port”

•  Poten>al for deep water shipyard not factored in despite clear proposal from CSL

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Market Study -‐ 2 •  Further traffic drivers need to be taken into account: •  Study cost-‐savings of using 10,000+ TEU vessels and use as a strategic driver for transshipment traffic; 18 m depth to be used as USP

•  Posi>on Vizhinjam as “the one stop in India” for 6th and 7th genera3on ships” – aBract a line such as APM or MSC that typically call at one transshipment hub per country with minimum devia>on from the shipping lanes

•  Kerala has a significant power deficit – poten>al for LNG terminal and LNG power plant

•  Shipyard and bunkering facility to be included in market study

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Market Study -‐ 3 •  Govt. of India has proposed revision of SEZ rules •  Single-‐sector/Port based SEZs will need only 40 hectares/100 acres as opposed to 100 hectares/250 acres

•  Mul>product SEZs will need only 250 hectares/625 acres as opposed to 1000 hectares/2500 acres

•  Significant dis-‐con>guity may be allowed for large SEZs as long as clear connec>ons can be established

•  The Vizhinjam market study should now factor in at least a Port-‐based SEZ; necessary for exemp>on from Customs for transshipment cargo; precedent established at Vallarpadam

•  Poten>al for Mul>-‐product SEZ to be studied – land available in the Southern (Poovar) and Eastern parts of district

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Vizhinjam Has to be Developed as a World-‐class port because it….

•  Is Strategically Located • Has Global Scale • Has the Lowest Opera>ng Costs •  Can be the Gateway to South India

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Strategic Loca>on •  Vizhinjam is less than 10 nau>cal miles from

the Suez/Gulf-‐Malacca shipping lane •  Closest Indian port to 30% of world sea traffic •  Best located port-‐of-‐call in India for container

ships, cruise vessels and tankers •  Access to large hinterland area in South India •  Also ideal for ship repair and bunkering

facili>es

Actual photo of a supertanker sailing close off the Vizhinjam shore, sans dredging

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Global Scale •  Site has a natural draP of 18-‐23 m •  With minimal capital dredging, the project will be

the only container terminal in India capable of handling container ships of > 12,000 TEUs

•  Rapid increase in container ship size – latest genera>on will carry up to 18,000 TEUs

•  Economies of scale will allow for the lowest logis>cs costs

•  Ideal loca>on for container transhipment terminal

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Compe>>ve Opera>ng Costs •  Vizhinjam needs next to nil maintenance

dredging to maintain 18-‐20 m draP •  Compe>ng ports spend hundreds of Millions of

dollars a year to maintain even 14 m of draP •  Vizhinjam has full flexibility to set tariffs to

aBract business; major Indian ports are constrained by regulators

•  New workforce; no legacy unioniza>on

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Gateway to South India •  Within 18-‐24 hours road/rail transit from Vizhinjam: •  120 million consumers •  $ 180 Bn of GSDP •  Bangalore, Chennai,

Coimbatore, Tu>corin and Tirunelveli

•  Within 36-‐48 hours road/rail distance from Vizhinjam: •  220 Million consumers •  $ 300 Bn of GSDP •  Hyderabad, Vizag and Goa

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Capturing the Hinterland •  To assume that the hinterland for Vizhinjam is constrained between

those of Tu>corin and Ernakulam is to incorrectly concede that Vizhinjam cannot import/export cargo at lower seaborne costs because it can handle bigger ships;

•  Total transport costs = sea transit + land transit costs •  Vizhinjam can move cargo at rates 30-‐50% cheaper than compe>ng

ports because it can handle much bigger ships – a 12,000 TEU vessel Vs a 6000 TEU vessel

•  Logis>cs firms will quickly shiP to the lowest total cost op>on as long as land transit can be made cost-‐efficient and fast

•  Vizhinjam can also match, if not beat, exis>ng ports’ handling >mes by minimizing conges>on and turn-‐around >me for ships

•  Such shiPs in hinterland cargo are already being seen in the case of efficient, deep water ports such as Mundra, Gangavaram and Ennore

•  However world-‐class road-‐rail connec>vity is absolutely cri>cal

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Further Development Prospects •  Vizhinjam has significant poten>al to develop into a

premier cruise port •  300 cruise ships transit on the nearby shipping lanes annually •  Trivandrum is already a top tourist des>na>on

•  Cochin Shipyard Ltd. has already announced plans to set up a VLCC-‐class ship repair and building yard at Vizhinjam

•  Poten>al for LNG terminal and power plant; significant energy demand in South India

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LNG import via Vizhinjam •  The bulk of India’s LNG demand will be met via imports – the country’s

only major NG source – the KG basin – has been underperforming •  Major suppliers will be Qatar, Australia, Africa (Mozambique) and, possibly

at a later stage, the US •  Vizhinjam is the closest port for imports from Australia, Africa and North

America (via Malacca/Cape) •  LNG import has economies of scale like in the case of any sea-‐borne trade

– such as containers: the bigger the ship, the cheaper it is! •  The largest LNG carriers – such as the 260,000 Cu.m Q-‐MAX – can be

30-‐50% more cost-‐efficient to import gas than smaller ships •  Vizhinjam can handle the biggest LNG tankers with its 18 m draP •  Ideal loca>on for a 2.5 MT/year LNG import terminal and a 1000 MW

power plant (expandable to 5 MT/year and 2000 MW) •  Can supply domes>c gas and vehicle fuel to Trivandrum, Kollam,

Tirunelveli, Tu>corin and Madurai and industrial gas to Tu>corin & Tirunelveli

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Cruise Terminal •  Hundreds of cruise ships cross the Indian Ocean and transit very close

to Indian ports •  Over 100 cruise calls were made at ports like Mumbai, Mangalore, Goa

and Kochi •  Close to 50 made calls at Kochi because of its proximity to the shipping

lane and the aBrac>veness of Kerala as a tourist des>na>on •  Vizhinjam is the closest Indian port to the interna>onal shipping lane –

a cruise ship will have to divert only an hour to call at Vizhinjam Vs about 10 hours to call at Kochi and 24+ hours at Goa

•  Vizhinjam is located right inside Kerala’s top foreign tourist aBrac>on – the Trivandrum – Kovalam – Kollam tourist belt

•  As a greenfield port, cruise ships will not encounter conges>on •  India’s first world-‐class Cruise Terminal at Vizhinjam could aBract over

100 ships and up to 100,000 premium tourists every year!

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Deep Water Shipyard •  Significant market for ship repair and construc>on •  About 1/3rd of global shipping passes close to Vizhinjam, necessita>ng

periodic maintenance and repair of tens of thousands of ships each year •  India and Asia are seeing rapid addi>on in shipping capacity – especially for

container ships and LNG tankers

•  No deep water shipyard between Dubai and Singapore •  Indian workers form a major part of the workforce at Dubai &

Singapore; India is well known for low cost, high quality engineering •  Vizhinjam has a draP of 18 m and can build any size ship •  Cochin Shipyard Limited has already expresses strong interest in a deep

water ship repair and construc>on yard at Vizhinjam; needs larger yard to complete its order book including India’s second new aircraP carrier

•  The shipyard will aBract more traffic to the port and create thousands of Crores of economic ac>vity including for small manufacturers

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Master Plan – Basic Concepts -‐ 1 •  Deep water port with a focus on container

transshipment; close to the int’l shipping lanes

•  Design emphasis should be on creaGng a world-‐class port, NOT on cuMng costs to build a mediocre port – ALL-‐IN STRATEGY!

•  Design draP in Phase I itself should be the best in India – 18 m at least – sufficient for 6th genera>on ships

•  Turning circle/breakwater length to be sufficient to handle 6th genera>on ships (10,000 TEUs)

•  Future-‐proof by Maximizing berth length within loca>onal constraints – have berths along main breakwater and allowance of two way vessel traffic in port channel

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Master Plan – Basic Concepts -‐ 2 •  Container berths need to be located on the land side of the basin since they need adjacent stacking areas for maximum opera>onal efficiency

•  Since there are constraints on the total length of coast that the project can occupy, it’ll be ideal to create another line of berths along the main breakwater

•  Cruise, LNG and liquid cargo terminals can be located along the breakwater

•  Vizhinjam Port area development including logis>cs hubs, Container Freight Sta>ons (CFS) etc to be planned

•  Addi>on of bunkering facility •  Mul>purpose/general cargo handling to be provisioned for •  Strategic Choice: Longer berth length, greater basin depth and capacity Vs increased construc>on cost

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Master Plan Modifica>ons

Phase I capacity to be at least 1.5 Mn TEUs

Phase I Design Depth to be 18 m

Turning circle to accommodate 6th Gen ships

Phase II capacity to be at least = Phase I

Move Cruise Terminal to Breakwater

Move Main Breakwater further out to sea to allow berths for non-‐container uses 16 18

Master Plan on Site

ABrac>ve Deal Structure •  The State Government of Kerala

acts as the ‘Landlord’; it pays for basic facili>es such as the breakwater, berths and road/rail connec>vity

•  Landlord invests 75% of capital cost

•  Operator/Investor develops terminal infrastructure; invests 25% of capital cost

•  Landlord can provide ‘soP debt’ support; at low interest and with a 10 yr repayment moratorium

•  Operator/Investor receives all opera>ng revenue for 30 years; op>on to share with Landlord

PORT

BASIC INFRSTRUCTURE

Landlord Invests 75% of project

cost

TERMINAL SUPERSTRUCTURE

Operator invests 25%

Opera>ng Revenue

Revenue Share

SoP Debt

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Modifying the Business Model •  Offer the private investor the op>on to set the business plan for the

en>re port as opposed to just the container terminal •  A Swiss-‐Challenge op>on to develop further container and non-‐

container terminals •  Rather than the Government geyng involved in marine services as

is envisaged in the current Landlord model, all opera>ons would be leP to the operator

•  As opposed to an op>onal revenue share, the Government could mandate a share of the overall net income(cargo handing + marine charges) above a Preferred Return earned by the private investor

•  The Investor/Operator makes an offer based on the share of revenue that it will offer to GoK above the Preferred Return •  This could be modified for later phases based on the rela>ve investment

by the public and private sectors

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Increased Government Support -‐ 1 •  Establishment of Port-‐based and Mul>-‐Product SEZs; along with road/rail connec>vity between the port and SEZs

•  Improve hinterland connec>vity for Vizhinjam; to rest of Kerala, South TN, Coimbatore and Bangalore •  New mixed use rail corridor from Vizhinjam to Coimbatore and Mangalore; high speed rail and passenger services

•  Road connec>vity to Southern TN via KoBur-‐Ambasamudram

•  Coastal passenger & freight shipping services •  Immediate decision to establish CSL’s new deep draP shipyard at Vizhinjam

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Road Connec>vity

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•  The exis>ng road infrastructure in Kerala is severely congested

•  4/6-‐laning of NH-‐66 from TN Border to Mangalore to be taken up urgently

•  Four Lane road to T i r u n e l v e l i v i a Ambasamudram to be re-‐developed

•  GoK to apply for GoI funding under port connec>vity scheme

Stretch to be upgraded to 4/6 lane Existing 4 lane

New 4 lane road

Rail Connec>vity

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•  Upgrade key rail routes to p r o v i d e h i g h s p e e d connec>vity to key ci>es like Mangalore, Coimbatore, C h e n n a i , B a n g a l o r e , Tirunelveli, Tu>corin and Kochi

•  Electrifica>on of en>re route to Chennai via Nagercoil

•  New North-‐South rail corridor needed from Trivandrum to Mangalore as current routes are at over 100% capacity

Increased Government Support -‐ 2 •  Parity with Vallarpadam on incen>ves and policies – Cabotage, Customs clearance, tax incen>ves etc

•  Preferen>al power purchase policy for an LNG power plant that sources fuel via Vizhinjam since the port is a State Government project

•  Expedite construc>on of Outer Ring Road in Trivandrum to provide more land for port-‐based industrial uses

•  Expedite 4/6 laning of NH-‐66 and connec>on to the Na>onal Highway network

•  PPP mode development of logis>cs and industrial areas including warehouses, CFS etc

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Logis>cs Zone -‐ 1

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•  World-‐class Industrial facili>es including logis>cs and light manufacturing space is a cri>cal success factor for a major port like Vizhinjam

•  World-‐wide, the concentra>on of industrial real estate is closely correlated with hub ports

•  Focus areas for value addi>on in the supply chain, such as just-‐in-‐>me inventory management, re-‐packaging of cargo for regional distribu>on and loading/unloading of containers, require world-‐class logis>cs spaces

•  These ac>vi>es will be a differen>ator for Vizhinjam Vs current ports which generally only have rudimentary warehouses

•  World-‐class logis>cs spaces will aBract global logis>cs and retail players who are currently entering India

•  Generate addi>onal employment and economic ac>vity

Logis>cs Networks and Hubs

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•  Logis>cs space is co-‐located with major ports and airports; increases importance of hubs in the supply chain

•  In the US, there is an average of 36 SF of space/TEU handled

Image Courtesy: JLL USA

Logis>cs Zone -‐ 2

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•  Considering an ini>al container terminal capacity of 1,500,000 TEUs and 80% transshipment, Vizhinjam will need up to 8,000,000 SF of logis>cs space

•  GoK should set up a Free Trade Warehouse Zone (FTWZ) on 100 acres of land close to the port and engage private developers to build and operate world-‐class logis>cs facili>es

•  Build a combina>on of storage warehouses, cross-‐docking facili>es for re-‐distribu>on opera>ons and regional distribu>on facili>es

•  Anchor tenants could include major retail players such as IKEA, Wal-‐Mart, Future Group, Carrefour, METRO, Amazon, E-‐Bay etc and logis>cs players such as global shipping lines and cargo operators like DHL, FedEx and UPS

•  On-‐site access to road and rail transport and ancillary facili>es like truck maintenance, Customs & Security etc

Key Next Steps •  Appoint consultants to update market study and to re-‐visit development and business plans

•  AECOM to prepare master plan according to updated market study and business plan

•  Govt. of Kerala & VISL to explore G2G op>ons to iden>fy a capable operator •  Under the leadership of the Hon. MP of Trivandrum •  Focused discussions with Governments that have na>onal/

regional port operators such as Barcelona, Singapore, Hamburg and Malaysia

•  Pro-‐ac>ve discussion with Liner based Operators who would be direct beneficiaries in transshipment terminals such as APM Terminals (Maersk), APL Terminals (APL/NOL), Terminal Link (CMA CGM), Ceres Global (NYK Liners), Hapag Lloyd etc

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Vizhinjam way forward Sep 7 2012 abbridged

Design

Transcript of Vizhinjam way forward Sep 7 2012 abbridged