Sarang Ip

Products / Services : Paradip is one of the Major Ports of India and is the main out-let and in-let of the sea- borne trade of the eastern part of the country spread over States such as Orissa, Andhra Pradesh, Madhya Pradesh, Uttar Pradesh, Bihar and West Bengal. The natural resources and industrial products of this wide spread hinterland are immense and the value of the Ore trade of the country passing through the Port of Paradip is considerably higher than many other Major Ports of India. The Port was opened to traffic for Iron Ore in 1966 but after three decades, the cargo profile has undergone a complete transformation. It consists of not only Iron Ore, but also Thermal Coal, Coking Coal, Chrome Ore, Manganese Ore, Semi-processed Ore cargo like Charge Chrome, Ferro Chrome, Ferro Manganese, Limestone, Hard Coke, Ingots and Moulds, Billets and Steel materials, Dead-burnt magnesite, Scrap, Fertilizer, Food- grains, Reefer cargo, and Fertilizer Raw- materials eg. Phosphoric Acid, Ammonia, Sulphur, Rock Phosphate. The Port started handling containers and transhipment of Petroleum products in 1991. One berth has been earmarked for handling POL products.The varied nature of cargo handled bears testimony to the efficient and personalised services of this Deep Water Port. We provide facilities such as Iron Ore Berth, Cargo Berths, Container Handling Facilities. Company Profile : The foundation stone of the Port was laid by Pandit Jawaharlal Nehru on the 3rd January, 1962. The construction works commenced from the 19th November, 1962 and dredging operations started from the 15th March, 1964 by the Yugoslav Dredger "VLASINA". During this period, this Port was under control of the Government of Orissa. Government of India took over the management of the Port from the State Government on 1st june, 1965. The construction of the Iron Ore Berth was completed and INS "INVESTIGATOR" had the privilege of maiden berthing in the Port on the 12th March, 1966. The Port was declared open by Mr. Peter Stambolic, Prime Minister of Yugoslavia on the same day. Government of India declared Paradip as the Eighth Major Port of India on 1804-1966 making it the FIRST MAJOR PORT in the East Coast commissioned in INDEPENDENT INDIA. Establishment Year Firm Type Nature of Business Level to Expand : 1962 : Proprietorship : Services : National Contact Information :

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Summary Port Vision o Paradip Port Trust (PPT) has a high potential to become a leading Hub Port of the Indian East Coast and an economic thrust engine for the Eastern part of India within the next 15 to 20 years. o This can be attained by leveraging core strengths and values such as the high draught potential, the rich minerals hinterland, and the developing economy. o PPT is a Public service entity, hence, adding value to the stakeholders (People of the Country) by facilitating the economic development and offering cost-effective services, should be the key mission of the Port. o For PPT, the market offers a potential volume of 130 to 190 million tonnes (MT) of cargo at a Compounded Annual Growth Rate (CAGR) of 6% to 8% in the next 20 years. This would place the Paradip as a leading bulk terminal Port in the world. o The Port will have a stable and sustainable growth during 2017 to 2027 at a CAGR of 4% to 6%. Past Trends o The traffic growth of PPT is analyzed in two phases viz, Phase I (19962000) and Phase II (2001-2006). During Phase I, PPT grew at a CAGR of 6% and in Phase II, PPT demonstrated a healthy CAGR of 11%. o An interesting trend which could be observed in the last five years is that the share of overseas cargo grew from 50% in 2001 to 70% in 2006. The main export destination is China which attracts more than 54% of total exported cargo in 2006. o During the last five years, the share of iron ore in the total traffic has almost doubled from 16% to 31%. The imported coal share grew from less Business Plan Development for the Paradip Port Trust – Final Report 8

than 1% to 10% in 2006 and the export coal share dropped from 41% to 21%. o The major drive for last years growth was imported cargo which grew by 35% to 11.42 MT from 8.44 MT. With this, the share of import cargo has shown a growth from 27% in 2003 to 34% in 2006. o In 2005-06, vessel traffic grew by 10% to 1,330 vessel calls from 1,209 in 2004-05; however, this growth was less than last year, where a 14% growth was registered. Constraints and Threats o Long decision making processes and land expansion constraints are the key challenges for the Port to be competitive and reactive to market demands. o Vizag was rated the best Port in the Eastern corridor by the customers, however they expressed high potential for PPT in the coming future. o Dependency on five customers (five customers share more than 60% of total volume), cyclic pattern in commodity structure trends and policy level linkage (coal linkage) are the key threats for the Port’s future growth. Competitive Factors o Efficient and effective internal logistics systems, capability to handle larger vessels (180,000 to 250,000 dwt), flexible Port planning with logistics parks (specific to the steel industry) or SEZ’s, and high speed and dedicated supply

chain connectivity with industrial clusters are the key differentiators for the Port in the coming future. o Being proactive to the market demands and key customers, simplified processes and procedures by introducing IT with a focus to reduce the customers’ total supply chain costs will ensure the Port a competitive position. Business Plan Development for the Paradip Port Trust – Final Report 9

Iron Ore Supply Chain o China and India will drive the world bulk market during the next 20 years. China’s and India’s steel industries will drive the world’s iron ore and coal commodity markets respectively. o China’s steel production will touch one billion tonnes by 2020 at a CAGR of 6% to 8% and will demand 1.2 billion tonnes iron ore from foreign countries. o The capacity expansion constraints of Indian mines, Australia’s massive capacity expansion and the increase in domestic iron ore demand will restrict India’s export growth to only at CAGR of 4% to 6% during the next 20 years. India’s iron ore export volume will touch 180 MT with a 90% share destined for China by 2020. o PPT has the potential to handle 23 to 31 MT iron ore by 2027 taking due consideration to new hinterland connectivity projects and competitive factors from other Ports. Coking Coal Supply Chain o The Indian steel industry production will hit 140 to 180 MT, at a CAGR of 6% to 8% by 2027 and will demand coking coal of about 110 to 140 MT during the same period. o Indian steel industry’s share of import coking coal will reach 85% and import about 100 to 120 MT. SAIL will be the major importer and will drive the coking coal import. o Even in the competitive environment, PPT has the potential to handle about 20 to 25 MT of coking coal by 2027. Non Coking Coal Supply Chain o India’s coal demand will touch 1.5 billion tonnes, with a CAGR of 6% in the 2020’s from a current demand of about 470 MT. Business Plan Development for the Paradip Port Trust – Final Report 10

o The power industry is the major driver for coal demand consuming 75% of total consumption and it will grow at CAGR of 4% to 5% during the next 15 years. o Coal India Limited (CIL) is the monopoly in coal production in India. CIL reached its maximum production capacity, allowing power plants and electricity boards to import coal as a short term strategy. o Customers are not clear about the CIL strategy. CIL may be able to satisfy power plants for a while, but in the longer term, India will import coal as the Indian reserve per GDP is very low. o India will import about 40 to 60 MT of non coking coal based on the realistic and optimistic scenarios respectively, and PPT’s share will be about 10 to 25 MT in the next 10 to 20 years. Thermal Coal Supply Chain o CIL coal production constraints has also impacted the Tamil Nadu (TN) coal

imports from the Talchar fields, which are routed through PPT. CIL has encountered resource constraints, and cannot supply both NTPC’s new power plant at Kanika as well as TN. o Hence, the Coal linkage Committee diverted some volume from Eastern Coal fields via Haldia and Vizag respectively. This has in effect meant that PPT has lost about 5 MT of potential cargo to its competitors. o TN coal demand will only touch 20 to 25 MT by the 2020’s. Thermal coal handling at PPT, will touch 18 to 20 MT during the next 10 to 15 years. Other Commodity Supply Chain o Fertilizer volume will reach 8 to 12 MT by 2020. In the realistic case scenario it will reach 8 MT. o Chrome ore and concentrate volume will have a high export potential volume, but it will reach only 3.5 MT 2020 as it is fully controlled by Government of Business Plan Development for the Paradip Port Trust – Final Report 11

India with a ceiling level of only 400,000 tonnes per year. Hence, volumes depend entirely upon the Government’s future plans on export of chrome ore. o New business Opportunities o Indian Oil Corporation Ltd (IOCL) is planning to set up its new Single Buoy Mooring (SBM) along with a petrochemical complex with vision to be a market leader in polymer production in India. o PPT crude oil volume will reach 30 MT by 2027 with initial projects from IOCL planning a first phase capacity of 11 MT and 15 MT in the next 10 years. o Indian steel exports will touch 23 to 29 MT in the early 2020’s and PPT will take a share of 3 to 5 MT; however, this to a great extent depends upon South East Asia’s future demand for steel. o PPT has a potential to become a container terminal hub for the Eastern part of India with its high draught potential in the coming future. In the realistic scenario, the estimated volume would be 350,000 TEU by 2027. In the optimistic scenario, the volume is estimated to be 1.5 million TEU. However, it would require an aggressive market and investment strategy to attract a 2% to 4% share of the Indian container market to PPT in the next 20 years. Business Plan Development for the Paradip Port Trust – Final Report 12

Capacity Requirements o The projected parcel size will grow from 40,000 tonnes per ship to 100,000 tonnes per ship in the next 10 to 15 years. The Capesize vessels in the range of 180,000 to 250,000 dwt will become common visitors as they currently share 34% of total tonnage in the world. Future Additional Berth Requirements 2007 to 2027 - Realistic Scenario

o The market demands three mechanized berths (iron ore, coking and non coking coal) during 2007 to 2010 and one fertilizer berth and container terminal during 2011 to 2013. o After 2020, the Port will need massive investment again if volumes grow as expected. One more iron ore and coking coal berth will be needed at the beginning of 2020. A dedicated container terminal with a capacity of about 1.0 million TEU is required during the same period.

Port Planning Strategy o The Port is currently occupying 70% of the land area for the existing dock and harbour area, reaching this level over the past forty years. o Hence, the optimal utilization of land and water in the coming years is the key for the Port development. Otherwise, the Port will be forced to disturb the Business Plan Development for the Paradip Port Trust – Final Report 13

township area even earlier than planned to meet Port expansion requirements in another 20 years. o The following top two scenarios have been selected and the detailed Port Planning has been developed for the Southern Dock system scenario: o The expansion of the southern side with one long, straight southern quay wall, from west to east o Southern Dock system aligned with the predominant wind direction Rank 1 Recommended Rank 2 Selected Rank 3 Alternative Existing Port Layout Proposed and Ranked Layouts

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o The prevailing wind direction from South to North, which will impact the vessels from the side, is the major concern from the Port to go ahead with this Port layout. The Port is convinced with a Southern Dock system aligned with the prevalent wind direction of the Port. o The future Port planning has been proposed in a phased manner, as follows: problem with only minimal disturbance to the township area. A Business Plan Development for the Paradip Port Trust – Final Report 15

dedicated rail link from the railway station to the planned container terminal has been proposed with a loop concept. o During Phase I and Phase II development, the existing General Cargo berths will be free. o Hence, the existing Multi Purpose Berths (MPB) and Central quay should be used for handling clean cargo. The existing Western side of the Port should be used as a back reach area for clean cargo and other general cargo. Land Use Plan o At the end of planning cycle, 83% of total harbour area will be used. The unutilized areas will be in the Western part of the Port. However, these areas can not be efficiently utilized for Port development due to draught restrictions and other logistics planning constraints. o Hence, TransCare strongly recommends the Port to have an aggressive land acquisition strategy for the long term Port development. o The Port should find a suitable area to where the existing township area can be relocated. The estimated land area for the township relocation is about 500 to 700 acres. It is very critical for the Port to consider this issue which

otherwise would become a major constraint in Port development after 2027. o Logistics Park’s and CFS’s, not requiring waterfront access, can be developed outside of the Port premises in the future. The estimated land required to develop an integrated steel logistics park would be 2500 to 5000 acres depending upon the scale of logistics activities which will be undertaken in that park. Business Plan Development for the Paradip Port Trust – Final Report 16

Report 17

BOT / PPP Model Evaluation o The private operators are expected to bring about US$ 396 million or Rs. 14934 million over the next 20 years, excluding fertilizer terminal. PPP/BOT Evaluated Projects for PPT - 2007-27 Projects Investment by Operator NPV IRR PPP/BOT Revenue share to PPT m.US$ m.Rs +/- % 1 Iron Ore Berth Phase I BOT 25% 73 3304 + 15.7% 2 Coking Coal Berth Phase I BOT 25% 55 2485 + 15.9% 3 Non-Coking Coal BOT 25% 68 3040 + 15.1% 4 Iron Ore Berth Phase II BOT 30% 46 2066 + 15.3% 5 Coking Coal Berth Phase II BOT 25% 33 1474 + 15.8% 6 Container Terminal Phase I BOT 20% 122 2565 + 15.1% Total 396 14934

o All projects are found to be financially viable. o The Port should invest in infrastructure like dredging, quay wall construction and tugs. o The private operator should invest in cargo related investments like superstructure, terminals. o Accordingly, the infrastructure related revenue should go to the Port and the cargo related revenue should go to the operator. o The expected revenue share would be in the range of 20% to 30% depending on that particular project’s characteristics and the risk involved. Financial Projections o The total projected revenue will touch US$ 280.2 million or Rs. 12609 million by 2026-27 from US$ 114.1 million or Rs. 5134 million in 2005-6. Over the next 20 years, the projected growth is expected to display a CAGR of 4.5%. o The Port is expected to maintain its operational profit margin at 50% to 53% from the current level of 40% to 45%. Business Plan Development for the Paradip Port Trust – Final Report 18

o The operational expenses will decrease, due to the increased introduction of privatization. The Port can expect a net profit margin in the range of 35% to 40% during the planning period. o The Port’s key strategic project implementation will increase the total asset addition during the next 20 years. o During the same period, the net fixed assets will increase from US$ 258.6

million or Rs. 11,637 million to US$ 480.4 million or Rs. 21,618 million. The return on asset will be maintained at 4% to 4.5%. Commercial Strategy o Continue to be a leading and competitive bulk cargo terminal, with 80% of the hinterland bulk market share. o Attract clean cargo and general cargo from Eastern hinterland industries and neighboring hinterlands. o Explore new business opportunities in petrochemical, alumina, food grains and containers. o Brand the Port as a bulk terminal hub with integrated steel logistics parks and industrial hub. o Develop a Customer Relationship Cell and key account personnel to manage key customers. o Attract a large steel/iron Industry player to be a long term customer or partner (possibly SAIL). o Ensure a mechanized plant for coking coal and iron ore before 2010. o Develop one or two clean cargo berths for steel export and container handling by 2012-15. Organizational Planning and IT implication o The organizational structure should be process based and system driven rather than people driven. Horizontal integration of the organization Business Plan Development for the Paradip Port Trust – Final Report 19

through IT system would give visibility in the process and reduce the paper work, and consequently, improve the process time and efficiency. o The following IT projects are proposed to integrate the process and expedite the decision making process: o Horizontal Integration through Enterprise Resource Planning (ERP) system o Vertical Integration through EDI o Operational processes improvements through Project Management Tools Port Management Tools Vessel Traffic Management Asset Management Business Plan Development for the Paradip Port Trust – Final Report 20

1. Introduction 1.1 Trade and Logistics Logistics and supply chain excellence influences trade effectiveness and attractiveness while ensuring that goods reach the customers on time at a desired cost level. Cost and time are key drivers to determine the competitiveness of a firm or a product. The seaport is a nodal point in the end to end global supply chains integrating the upstream and downstream movements of cargo in the value chain. Within these supply chains, the seaport adds value to both immediate and end customers while ensuring a seamless flow of goods and information from off-shore to onshore or vise-versa. Logistics cost is a key competitive factor in today’s business to decide the place

of source and distribution hubs. The logistics cost, as a percentage of total import/export value, is 4-4.5% in the developed countries. The logistics cost in India, is more than 10% of total imported or exported value. The following key competitive factors give the competitive advantage to other lead developing countries like China, Thailand and Malaysia over Indian products: • Capability and logistics processes efficiency at the ports • High-speed multi-mode corridors • Maximization of assets through mechanization • Transparent and flat organization structure • Information systems and value added services through logistics parks • Balanced Supply-Demand panning on capacity addition • Level Playing field for the private operators • Process or Activity driven cost structure Business Plan Development for the Paradip Port Trust – Final Report 21

Modern sea ports should see beyond the four walls of the ports and should have a holistic view and proactive strategies to target the market demands, in order to be competitive and sustain in the competitive market place. They should add value continuously to their customers’ competitiveness by being an integral part of end to end logistics solutions. Today, ports are becoming a key business hub rather than purely being a transformation point. Indian Ports, terminal operators and logistics service providers should align their Business Plan and Strategy according to the above mentioned key factors to provide the services at an optimal cost and time while maximizing their assets and resources.

1.2 World Maritime Overview The world seaborne trade grew by 4.3% to 6.76 billion tonnes in 2004 against 5.8% growth in 2003. Dry bulk cargo grew by 4.4% to 4.4 billion tonnes against 6.9% in 2003, which slowed down the overall growth though the tanker cargo grew by 4.2% against 3.6% to 2.3 billion tonnes in 2004. The five major dry bulk cargoes shared 24% of total seaborne trade and grew by 7.6% to 1.59 billion tonnes. Coal, iron ore and grain are the major commodities, which control the dry bulk cargo growth. Steel and power sectors are the major drivers for the iron and coal trade in the world. World steel production increased to more than a billion tonnes, which influenced the iron ore market which reached to 590 million tonnes (MT) with 13.4% growth. China is the major steel producer in the world and its volume reached 348 MT in 2005-06 and their steel production demand boosted the world iron ore shipment to 650 MT. Australia and Brazil are the key exporters and share more than 70% of world seaborne trade market. Australia and Brazil export volume grew by about 10% Business Plan Development for the Paradip Port Trust – Final Report 22

and 8.5% respectively over the year. World coal market also grew by about 5% and reached 650 MT. Australia is the major exporter of coal and shares about one third of world seaborne trade volume.

1.3 India Maritime Market India has 12 major ports and 187 minor ports which are scattered across the vast coastline of nearly 7,517 km. This coastline borders the Arabian Sea, Bay of

Bengal and the Indian Ocean. The world market trend, especially the China effect, also influenced the Indian market. Indian maritime (only major ports) traffic grew by 10% to 423 MT against 11.6% growth in 2004-05. This slowdown in growth is mainly attributed by loss of cargo to minor ports. Indian maritime trade is driven by liquid bulk with share of 34% of total volume and it reached 142 MT. Iron ore trade volume in major ports grew only by 4% to 79 MT against 29% last year, which was mainly due to a cargo shift to minor ports and capacity constraints at the Indian mines. Overall, India exported nearly about 92 MT of iron ore including minor ports. High grade coal import grew by 20% and reached 21 MT in 2005-06 against 18 MT in 2004-05. Thermal coal grew only by 3% to 14 MT, which was mainly coastal shipping. Thermal coal flow happens only between Paradip hinterland and Tamil Nadu, who is the major importer of thermal coal via sea. The Indian container market volume increased to 62 MT at a growth rate of 13% over the year and reached 4.6 million TEUs in the same period. The East coast of India is mainly driven by bulk cargo traffic with a share of 51% and the West coast of India is mainly driven by container traffic with a share of 69%. However, the west coast container market grew only by 7% against a growth of 13% of the east coast container market. JNPT took share of 83% in Business Plan Development for the Paradip Port Trust – Final Report 23

west coast volume and Chennai shared 52% of east coast volumes during the same year. The East coast share of container handling has been increasing over the period from 26% in 2002-03 to 31% in 2005-06. Tamil Nadu drives the East coast container trade with nearly one million TEU. For example, Chennai and Tuticorin handled 74% of total volume in the east coast and Kolkata complex handled about 23%. The East coast handled 99% of thermal coal and 88% of coking coal during the same period. Major ports on the east coast shipped 44 MT of iron ore against 41 MT in 2004-05 and shared 56% of total volume. Major ports on the west coast shipped about 34.6 MT against 43.9 MT last year. The East coast continues to have bulk cargo driven ports while having a good growth in the container traffic also, especially Chennai and Tuticorin ports. Minor ports of India shipped about 145 MT in 2005-06 with 6% growth against 15% in 2004-05. Gujarat Maritime Board dominates the minor ports trade volume with 71% share and grew by 7% over the year. POL and iron ore are the key commodities that dominate the majority of traffic with 46% and 18% share respectively. Thermal coal and building materials share about 10% each during the same period. Business Plan Development for the Paradip Port Trust – Final Report 24

2. Paradip Port Trust The Port of Paradip, governed by Paradip Port Trust (PPT) is one of the 12 major ports in India and located at 20° 16’ North and 86°41’ on the east coast of India and strategically located between Kolkata and Visakhapatnam (Vizag). The port was built in 1962 with an artificial lagoon to support solely the Orissa export trade, especially for iron ore export. It gradually moved to a multi commodity handling port over period of time with its penetration into other commodities,

especially thermal coal, coking coal, fertilizers and iron & steel. Figure 1.1. Major Ports in India Fig.2.1 Major and Intermediate Ports in India

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The Port of Paradip is considered as a modernized bulk port terminal in India with mechanized coal and iron handlings. It has been growing at more than 10% over the last four years and reached 33 MT from merely less than 9 MT in the early 1990’s. PPT has a vast hinterland with more than 3.06 thousand sq.km, with boundary lines with the states of Uttar Pradesh, Jharkhand and Madhya Pradesh. This hinterland covers the country’s richest minerals mines and steel industry setup.

2.1 Paradip Port Status Quo 2.1.1 Existing Volume Paradip is one of the fastest growing ports with a CAGR of 11% reaching 33.1 MT in 2005-06 from 19 MT in 2000-01. In 2005-06, 21.6 MT of cargo was loaded and 11.42 MT of cargo was unloaded at PPT. Import grew by 35% over the year, mainly due to non coking coal growth from 1.2 MT to 3.6 MT. Export growth was almost static with just 0.1% grwoth. This is mainly due to the decrease in volume of thermal coal export and iron ore volumes growing only by 1.5 MT over the year. Import and export share stood at 34% and 66% last year. Overseas cargo trade grew at a CAGR of 16% over the last five years and increased its share from 48% in 2000-01 to 70% in 2005-06. Coastal trade has been growing at less then 1% as the coastal cargo to Tamil Nadu (TN) has been coming down due to alternative sources of supply. 2.1.2 Commodity structure Iron ore and coal are the major commodities at PPT with a share of about 31% and 49% of the total volume. The five major commodities share 92% of the total Business Plan Development for the Paradip Port Trust – Final Report 26

volume. The iron ore share increased from 15% in 2000-01 to 31% in 2005-06, and the absolute volume of iron ore export increased from 1 MT in the late 1990’s to 10.3 MT in 2005-06. As explained before, there is a slow down in the thermal coal coastal export volume and its share came down to 28% from 41% in 2005-06. Commodity Share at PPT 2000-01 2005-06 in mt % share In mt % share Iron ore 2.992 15% 10.273 31% Thermal Coal 8.208 41% 9.193 28% Coking Coal 1.691 8% 3.758 11% Non Coking 0 0% 3.336 10% FRM 3.37 17% 2.496 8% Ch Ore/Con 0.707 4% 1.355 4% POL 2.199 11% 0.91 3% Others 0.735 4% 1.788 5% Total 19.902 100% 33.109 100% Table 2.1 Major commodity Share

Non coking coal volume grew from 0% to 10%, which in turn boosted the import trade. The share of coking coal also increased from 8% to 11% in 2005-06. However, it has been growing steadily over the last five years. 2.1.3 Commodity Origin - Destination

China and Australia are the major trading countries with 54% and 42% of total export and import market volume respectively. Indian steel industry are mainly importing high grade coking coal from Australia and China imports iron ore from India. China shares 90% of over all overseas trade and Tamil Nadu shares 95% of coastal shipping trade. Business Plan Development for the Paradip Port Trust – Final Report 27 Export Destination Share 2000-06 Volume (in MT) % Share 2000-01 2005-06 2000-01 2005-06 Overseas China 3.201 11.423 24.7% 54% Japan 0.495 0.1 3.8% 0.5% Coastal 9.259 9.585 71.5% 45% TNEB (TamilNadu) 9.259 9.585 Table 2.2 Export Destination Share

Iron ore was the single commodity which dominated the export trade with China from Paradip and the future of overseas export also depends on China growth. Australia and Indonesia are the major import destinations with a share of 42% and 31% respectively in 2005-06. Coking coal is mainly imported from Australia and non coking coal from Indonesia. 2.1.4 Customer Profile The top four importers share more than 60% of import volume each with volume more than a million ton per year. SAIL is the leading importer of coking coal with a volume of 1.5 MT followed by TATA STEEL with 1.2 MT. NTPC and NINL are the major non coking coal importers with a 10% share each. Importer Share in 2005-06 Volume (in MT) Share (in %) SAIL 1.5 18.83% TATA STEEL 1.2 14.35% NTPC 1.1 13.88% NINL 1.1 13.03% Total* 4.9 60.09% Others* 3.3 39.91% Total 8.2 * excluding FRM and other cargo Table2.3 Import Share in 2005-06

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The top five exporters share more than 64% of total export volume with more than a million tonnes per year. Tamil Nadu electricity board (TNEB) shares about 34% of total volume. Top Exporter in 2005-06 Commodity Volume (in MT) Share (in %) 1 TNEB T.Coal 7.3 34% 2 RMIL Iron Ore 2.0 9% 3 ESSEL Iron ore 1.7 8% 4 JINDAL Iron Ore 1.5 7% 5 KPCAL T. Coal 1.4 7% Total 13.8 64%

Others 7.6 36% O.Total 21.4 100% Table 2.4 Top Exporters in 2005-06

RMIL, ESSEL and JINDAL are the other major iron ore exporters with more than a million ton per year each. Paradip mainly depends on main five customers under both import and export category. Paradip future volume growth mainly depends upon these players strategic decisions in the future 2.1.5 Vessel Traffic The vessel traffic at PPT has been increasing over the last three years with a growth rate of over 10% p.a. In 2005-06, the vessel traffic grew by 10% to 1,332 vessel calls from 1,207 in 2004-05; however, this growth was less than that of last year, which displayed a 14% growth rate. Business Plan Development for the Paradip Port Trust – Final Report 29 Type of Vessel 2001-02 2002-03 2003-04 2004-05 2005-06 Share in 2006 Share in 2001 No of Vessel 909 928 1037 1207 1322 100.0% 100% Container 0% Cellular 5 17 23 10 14 1.1% 1% Break Bulk 8 4 85 144 102 7.7% 1% Dry Bulk (Con) 421 363 415 530 578 43.7% 46% Dry Bulk (Mech) 215 306 342 352 423 32.0% 24% Liquid Bulk 0% Product 190 148 108 75 73 5.5% 21% Chemicals 43 48 53 60 66 5.0% 5% Others 27 42 11 36 66 5.0% 3% Table 2.5 Vessel Traffic in 2001-06

Dry bulk mechanical and conventional vessel traffic grew by 20% and 9% respectively from 2004/5 to 2005/6. The dry bulk mechanical vessels growth almost doubled over the last five years. The share of dry bulk carriers grew from 68% to 74% during the same period. Type of Vessel 2002-03 2003-04 2004-05 2005-06 No of Vessel 2.1% 11.7% 16.4% 9.5% Container Cellular 240.0% 35.3% -56.5% 40.0% Break Bulk -50.0% 2025.0% 69.4% -29.2% Dry Bulk (Con) -13.8% 14.3% 27.7% 9.1% Dry Bulk (Mech) 42.3% 11.8% 2.9% 20.2% Liquid Bulk Product -22.1% -27.0% -30.6% -2.7% Chemicals 11.6% 10.4% 13.2% 10.0% Others 55.6% -73.8% 227.3% 83.3% Table 2.6 Vessel Traffic Growth Rate 2002-06

2.1.6 Vessel Size Development The share of vessels in the 50,000 to 80, 000 DWT category increased from 33% in 2005 to 37% in 2006. The major contribution comes from dry bulk conventional carriers, increasing from 150 to 246 in the same period. Business Plan Development for the Paradip Port Trust – Final Report 30

The trend shows that the large size bulk career vessels will be calling at PPT in the coming years as the vessel sizes at the Chinese ports has been increasing. There are regular services, mainly, available for China, Australia and Indonesia. DWT

SIZE DRY BULK (MECH) DRY BULK (CONV) LIQUID BULK BREAK BULK CONT. OTHERS TOTAL % Distribution -10000 0 16 13 131 1 33 194 16% -20000 0 72 28 4 6 0 110 9% -30000 19 97 40 5 3 1 165 14% -40000 36 75 33 1 0 0 145 12% -50000 57 119 14 0 0 0 190 16% -80000 241 150 8 0 0 0 399 33% -100000 0 0 0 0 0 0 0 0% Above 1 Lakh 0 0 0 0 0 0 0 0% Grand Total: 353 529 136 141 10 34 1,203 100%

Table 2.7 Vessel Size Distribution for the year 2004-05 DWT SIZE DRY BULK (MECH) DRY BULK (CONV) LIQUID BULK BREAK BULK CONT. OTHERS TOTAL % Distribution -10000 0 19 12 96 1 66 194 15% -20000 0 80 12 4 12 0 108 8% -30000 30 59 42 2 1 1 135 10% -40000 61 52 42 0 0 0 155 12% -50000 91 120 27 0 0 0 238 18% -80000 241 246 11 0 0 0 498 37% -100000 1 1 0 0 0 0 2 0% Above 1 Lakh 0 0 0 0 0 0 0 0% Grand Total: 424 577 146 102 14 67 1,330 100%

Table 2.8 Vessel Size Distribution for the year 2005-06

The average parcel size was 27,702 tonnes during the last financial year and it has decreased by 3% due to decrease in dry mechanical bulk carrier parcel size. Otherwise, over the last five years the average parcel size has increased by 24% to 27,702 from 22,356 tonnes. Mechanical dry bulk carrier has the maximum parcel size which is in the range of 35,000 to 44,000 tonnes. Business Plan Development for the Paradip Port Trust – Final Report 31 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 % Increase Y-O-Y

Container Cellular 2560 602 1614 2497 3136 3392 33% 8% ships Combination - - - - - Break Bulk Cargo 7,738 1,604 3,624 6,941 3,331 3,912 -49% 17%

Dry Bulk Mechanical 35,271 38,946 41,500 40,602 44,526 37,466 6% -16% Conventional 22,983 23,938 23,039 22,448 23,134 25,228 10% 9% Liquid Bulk 11,995 10,593 12,867 12,193 12,235 12,829 7% 5% Total 22,356 23,618 26,650 26,523 28,565 27,702 24% -3% Table 2.9 Average Parcel Size – Trend Analysis

2.1.7 Modal Split Analysis Rail is the major mode of hinterland transport for the Port of Paradip, which is clearly displayed in the modal split analysis. In 2005-2006, the rail share recorded 64% and the road and dedicated conveyor system (DCS) shares were 26% and 10% respectively. Table 2.10 Modal Split share in 2005 and 2006

There is a decline in DCS and road share due to focus on rail and these shares are expected to decease further (IOCL plans aside) in the near future as well, as PPT has been preparing a master plan for increasing future rail capacity for other than coal transport. Modal Split Road Rail DCS Total 2006 26% 64% 10% 100% 2005 27% 59% 14% 100% Figure 2.1 Modal Split in 2005-06 26% 64% 10%

Road Rail DCS

Business Plan Development for the Paradip Port Trust – Final Report 32 Inbound Commodity 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 % CAGR % Y-O-Y (Year on Year)

% Share 01 % Share 06 Iron Ore 1,974,526 2,362,920 2,623,186 2,536,992 3,547,580 5,473,714 23% 54.3% 19% 36% Thermal Coal 8,312,525 8,973,001 9,387,321 10,310,635 10,162,401 9,548,414 3% -6.0% 81% 62% Hinterland to Port Pig iron/ Steel 0 0 0 97,560 290,758 289,515 72% -0.4% 0% 2% Total 10,287,051 11,335,921 12,010,507 12,945,187 14,000,739 15,311,643 8% 9.4% 100% 100% Outbound Commodity 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 % CAGR % Y-O-Y % Share 01 % Share 06 Coking Coal 1,478,581 1,411,856 1,793,062 2,467,538 2,052,655 2,493,391 11% 21% 84% 44% Lime Stone 258,051 166,009 213,996 157,771 168,625 269,151 1% 60% 15% 5% Coke 14,071 206,221 425,501 650,450 307,500 461,485 556% 50% 1% 8% CP Coke - 40,212 9,373 33,643 76,000 4,880 -41% -94% 0% 0% Port To Hinterland Non Coking Coal - 1,095,660 2,491,546 0% 127% 0% 44% Total 1,750,703 1,824,298 2,441,932 3,309,402 3,700,440 5,720,453 27% 55% 100% 100% 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 % CAGR % Y-O-Y % Share 01 % Share 06 Inbound 10,287,051 11,335,921 12,010,507 12,945,187 14,000,739 15,311,643 8% 9% 85% 73% Outbound 1,750,703 1,824,298 2,441,932 3,309,402 3,700,440 5,720,453 27% 55% 15% 27% Total Traffic – Rail 12,037,754 13,160,219 14,452,439 16,254,589 17,701,179 21,032,096 12% 19% 100% 100% Total Traffic – Port 19,900,556 21,130,939 23,901,177 25,310,901 30,103,659 33,108,763 Rail Share 57% 62% 60% 64% 59% 64%

Table 2.11 Rail Performance Analysis

Business Plan Development for the Paradip Port Trust – Final Report 33

Rail Performance Analysis

Rail handled nearly 21 million tonnes of the cargo during the last financial year and this represents 19% growth over the previous year. Rail traffic has been growing at a CAGR of 12% over last five years. The rail share has increased from 57% in 2001 to 64% in 2006. Period No of Wagons Received No of Wagons Dispatched Loaded Empty Total Loaded Empty Total 2001-02 75,330 978 76,308 11,524 64,783 76,307 2002-03 81,473 2,492 83,965 17,142 66,822 83,964 2003-04 83,586 2,714 86,300 23,410 62,890 86,300 2004-05 96,457 1,196 97,653 24,906 72,468 97,374 2005-06 101,510 12,867 114,377 45,782 68,596 114,378 Table 2.12 Rail Utilization Analysis Inbound– Outbound flow

In 2005-06, PPT received nearly 114,377 wagons with 89% loaded and the rest empty and dispatched the same number with 40% loaded and 60% empty. The share of empty wagons drastically reduced to 60% from 74% due to the increased demand for coking coal distribution by rail. Period Wagons Received Wagons Dispatched Loaded Empty Total Loaded Empty Total 2001-02 99% 1% 100% 15% 85% 100% 2002-03 97% 3% 100% 20% 80% 100% 2003-04 97% 3% 100% 27% 73% 100% 2004-05 99% 1% 100% 26% 74% 100% 2005-06 89% 11% 100% 40% 60% 100% Table 2.13 Rail Utilization Analysis Inward – Outbound flow (in %)

Road Performance Analysis Though the share of rail traffic has been increasing, the road with 26% percent share creates high traffic congestion on the NH-5 route, which connects the mines and other industrial clusters with PPT via Cuttack. Truck traffic is nearly 2,500 to 3,000 trucks per day (observed based on different interaction with PPT and customers). Business Plan Development for the Paradip Port Trust – Final Report 34

However, PPT can handle only 700 to 800 trucks per shift and the remaining trucks are lining up in the queue on NH-5 road. The queue length goes about 25 km and makes the road highly congested incurring a high social cost (as it is rendered basically not available for use by the public). Iron ore is the major commodity that drives the truck movements between the mines and PPT. In 2005-06, 50% of the iron ore traffic was handled by road. PPT has a capacity constraint at its Iron ore mechanized plant to handle more number of Rakes per day. It can handle up to 5~6 rakes per day only, where as the demand is about 9~10 rakes, which led the road to dominate the Iron ore movement.

2.2 Paradip Existing Facility and Utilization The Port of Paradip is an artificial lagoon type harbor, protected by rubble mound breakwaters. The south breakwater is 1,210 m long and the north breakwater is 510 m long. The approach channel is dredged and is 2,200 m long and 190 m wide. The entrance channel is 500 m long and 160 m wide. The port has one turning circle with a diameter of 520 m. It allows only one way navigation, and the Port offers all year service for the vessels. PPT Harbour Dimension South breakwater 1,210 m Length North breakwater 510 m Length Approach Channel 2,200 m Long , 190 m wide Entrance Channel 500 m Long, 160 m wide

Turning Circle 520 m diameter Draft 11.5 m to 13.2 m Max.Vessel Size 75, 000 DWT Table 2.14 Port Harbour Dimensions

Business Plan Development for the Paradip Port Trust – Final Report 35

Though the soft soil bed under sea makes the port suitable for dredging to any depth, the approach channel is maintained at 13.2 m draft. This requires annual dredging of about nearly 2.2 million cbm, which includes dredging of the basin side and along side berth and it is mainly carried out by Dredging Corporation of India. With this existing configuration, PPT handles maximum vessel size ranges between 50,000 to 75,000 DWT (PANAMAX). Indian Port Association (IPA) prepared a Master Plan for the Port of Paradip in 1986 and updated it in 1998 for the Port requirements to 2012. As per the plan, recommendations were given to create two turning circles as well as another additional 12 berths by end of 2012. 2.2.1 Existing Docks and Quays Port of Paradip has two wet docks viz. Central and Eastern. The western and eastern docks are planned for the future development. The eastern dock is planned for one Iron ore berth and one coking coal berth. The western dcok is planned for clean and other general cargo. The configuration of the existing quays and their current status as follows: Eastern Quay – General Cargo Berth (G.C.B) It has a quay length of 686 m and contains three berths viz. East quay I, East Quay II and East Quay III. East Quay I and II can handle 40,000 DWT vessels with a draft of 11.5 m and East Quay III can handle 60,000 DWT vessels with a draft of 12.5m. All quays are multi purpose berths handling mainly chromium ore and other bulk cargos. During the year 2005–06, it also to a minor extent handled iron ore and containers. Eastern Quay alone handled nearly 4.4 million tonnes of cargo which is 13.25% of total cargo handled during 2005–06. Chromium and iron are the main commodities, which were handled during last year. Business Plan Development for the Paradip Port Trust – Final Report 36 Figure 2.2. Existing and Planned Dock Facility by Port IOB – Iron Ore Berth CHB – Coal Handling Berth NQ – North Quay GCB – General Cargo Berth SQ – South Quay WQ – Western Quay CQ – Central Quay EQ – Eastern Quay FB – Fertilizer Berth CC – Clean Cargo TC – Turning Circle MCB – Multi Commodity Berth

Existing Docks Future/ Planned Dock EQ II EQ I EQ III CQ I CQ II CQ III

Business Plan Development for the Paradip Port Trust – Final Report 37

Central Quay (CQ) Central Quay has a length of 755 m with a draft of 13 m. Central Quay consists of three multipurpose berths and can accommodate vessel sizes of 60,000 to

65,000 DWT. It handled 6.8 million tonnes of cargo which equals 20.58% of total cargo. South Quay (SQ) South Quay has 12.5 m draft and 265 m quay length. It is a single berth and handled nearly 1.5 million tonnes of cargo which is nearly 4.67% of total cargo. It is also a multi- purpose berth and handled iron ore, POL and coking coal during last financial year. Fertilizer Berths (FB) PPT has two fertilizer berths viz. FB I and FB II, with quay lengths of 252m and 230 m respectively with a draft of 13 m. Fertilizer berths (together) handled nearly 2.5 million tonnes of cargo which is 7.54% of total. It already reached 90% of utilization. These berths are captive and leased to private parties. Iron Ore Berths (IOB) The iron ore berth is one of the oldest and first berths of PPT and has draft of 13.2 m and the length of the Quay has been extended from 150 to 230 m during the last financial year. The large rise in iron ore demand put a capacity constraint on iron ore berth. The designed capacity is only 4 million tonnes but it in fact handled more than 6.4 million tonnes, which is 19% of total cargo handled during 2005-06. However, the total iron ore handled at the Port was nearly 10 million tonnes with the remaining quantities being handled conventionally at General Cargo or other berths. Business Plan Development for the Paradip Port Trust – Final Report 38 S.NO Name of Berth Type of Berth Designed/ Actual depth (Mtrs) Quay length (Mtrs) Maximum Size of Vessel that can be accommodated Length Overall (Mtrs) DWT 1 I.O.B Jetty 13.2 230 260 60,000-75,000 2 East Quay-I Berth 11.5 } 260 40,000MT 3 East Quay-II Berth 11.5 } 686.6 260 40,000MT 4 East Quay-III Berth 12.5 } 230 60,000MT 5 South Quay Berth 12.5 265 230 50,000MT 6 Central Quay - I Berth 13 } 7 Central Quay - II Berth 13 } 755 230 60,000-65,000 8 Central Quay- III Berth 13 } 9 Fertilizer Berth-I Berth 13 252 230 60,000-65,000 10 Fertilizer Berth-II Berth 13 230 230 60,000-65,000 11 Multipurpose Berth Berth 13 250 190 40,000-45,000 12 Coal Berth - I Jetty 15 } 520 260 60,000-75,000 13 Coal Berth – II Jetty 15.0 14 Oil Jetty Jetty 14.0 Dolphin to Dolphin 290 mtr 260 65000 Table 2.15 Existing Docks & Quays Detail

Business Plan Development for the Paradip Port Trust – Final Report 39 Figure 2.3 Existing Docks – Capacity Utilization Analysis Volume Handled in m.tons (% Share) 8.3,( 25%) 2.5, (8%) 0.7, (2%) 6.4, (19%) 15.3, (46%)

Designed Capacity in m.tons (% Share) 4, 10%

2.6, 7% 20, 51% 4.9, 13% 7.5, 19%

Capacity Utilization in % Share 159.04% 96.03% 41.39% 311.46% 9.48% Fertilizer

Berth Multi Purpose Berth Coal Berth Iron Ore Oil Jetty Business Plan Development for the Paradip Port Trust – Final Report 40

Coal Handling Berths (CHB) The Port has two mechanized coal jetties with state of the art technology. Each jetty has a draft of 15 m and 260 m quay length. It can accommodate vessel sizes up to 75,000 DWT. It has a designed capacity of nearly 20 million tonnes but handled volumes amounting to only 46% of its total capacity. POL Jetty PPT has an oil jetty with a draft of 14 m and 260 m length with dolphin to dolphin facility. Though, the designed capacity is 7.5 million tonnes it handled less than a million tonnes during last year, which accounts only 2.15 % of over all volume. 2.2.2 Berth Utilization The iron ore berth occupancy rate is currently more than 80% and it is already crossed its maximum capacity. The over capacity utilization and berth utilization indicates the constraints for iron ore capacity in the coming future. The coal berth occupancy is 35%, reduced from 40% in 2004-05. The Fertilizer Berth II is occupancy is only 12% during the last financial year. Last year, Oswal Fertilizer, who was operating this berth sold off the company to IFFCO. There was a lay-off for a brief period of time. Hence, the occupancy rate of Fertilizer Berth II fell sharply. However, the overall port’s berth occupancy rate is about 63%. Sl. No Name of the Berth Type of Berth 200001 200102 200203 200304 200405 200506 1 Oil Jetty Mechanized NA NA NA NA NA 13 2 Iron Ore Berth Mechanized 70 73 71 68 70 81 3 East Quay-I Semi-Mech 72 62 51 64 63 69

4 East Quay-II Semi-Mech 78 71 67 60 68 74

Business Plan Development for the Paradip Port Trust – Final Report 41 5 East Quay-III Semi-Mech 78 77 50 53 69 73 6 South Quay Manual 69 65 51 49 51 64 7 C.Q – I Manual 73 83 40 52 66 59 8 C.Q – II Manual 76 70 54 60 70 76 9 C.Q – III Manual NA 35 59 66 79 80 10 Fertilizer Berth- I Mechanized 43 18 48 56 52 73 11 Fertilizer Berth – II Mechanized 66 52 28 22 33 12 12 C. B. – I Mechanized 25 21 52 76 48 13 C. B. – II Mechanized 25 48 37 11 26 14 MPB Manual 54 29 43 70 81 Table 2.16 Berth Occupancy (All values in %)

2.2.3 Handling Equipment The Port equipment inventory profile shows the lower utilization. The reason behind this is that the existing equipments are old and stevedore companies are not willing to hire the equipment due to frequent breakdowns, which is reflected in the poor utilization factor. Equipment Nos Capacity Utilization Wharf Crane 3 13.2 T 43.0% Pay Loader 3 4.7 cum (2), 3.4 (1) 12.0% Mobile Crane 2 18T(1), 20T(1) 4.8% Fork Lift 6 6T 13.6% Diesel Loco 7 NA 55.0% Table 2.17 Cargo Handling Equipments Utilization in 2005-06

Business Plan Development for the Paradip Port Trust – Final Report 42

The Port does not have any container handling cranes (Quay Cranes) due to inadequate volume of containers. Containers are in fact to a great extent moved from nearby hinterland to JNPT, Vizag, and other container terminals due to lack of handling equipments at PPT. The private stevedoring companies are allowed to bring their own equipment which has kept the invested capital in handling equipment from the ports side to a minimum. JNPT and Vizag are the competitive ports for containers originating from and destined for Orissa. However, the volume which goes to either JNPT or Vizag is not in significant numbers. 2.2.4 Storage Yard Area PPT has a storage capacity of 15,00,000 sq.m nearly tripling from 6,66,000 sq.m in 2001. The coal storage alone displays a 72% share of total capacity, of which, 1,25,000 sq. m is a mechanized coal plot. The iron ore share of total capacity is 20% and the rest is shared by others. The storage plots are leased in most cases, either to third parties or customers who have considerable amount of volume flow. All the plots are bonded plots within the port boundaries. Plots Commodities Area ( in Sq m) % share Siding Plots Coal 5,00,000 33% Siding (Construction) Coal 1,60,000 11% Road bound plots Coal 3,00,000 20% Manual IO Plots Iron Ore 2,00,000 13% Mech. IO Plots Iron Ore 1,00,000 7% MCHP Plots Coal 1,25,000 8%

CON Plots Other goods 70,000 5% Common plots Common 45,000 3% Total 15,00,000 Table 2.18 Commodity Storage Yard Area share in 2005-06

Business Plan Development for the Paradip Port Trust – Final Report 43

2.2.5 Rail Infrastructure PPT owns and operates the rail infrastructure on the port premises. It consists of 9.8 km route km’s and 73 km of track length. The rail terminal consists of 15 yard lines and 25 sidings inside its main terminal. PPT has excellent rail handling facilities at its premises. PPT has an open and closed wagon handling facility for coal handling (bottom discharge) and wagon tipplers facilities for iron ore handling. However, the existing rail network doesn’t have signaling, so shunting and rail operations are being done manually. The PPT rail infrastructure has two main lines. One line is reserved for mechanized coal handling, the other line accommodates mechanized iron ore handling as well as transport of other commodities. The coal rail line has a capacity of 20 rakes per day and the iron ore line has a capacity of only 6 rakes per day. Key Indicators In Units Total Route Length 9.8 KM Total Yard Lines 15 Total Sidings 25 Total Rakes Capacity per day (Coal) 20 Total Rakes Capacity per day (Others) 10 to 13 Total No of Wagons Handled 114, 377 (one time) Note: 58 wagons/ rake Table 2.19 Rail Infrastructure Status in 2005-06

However, the coal rail line currently handles only 10 rakes per day, hence it is being utilized only 50%. The existing line for iron ore is not sufficient to accommodate the current demand, and the same applies to other commodities. The handling time is 120 minutes for one full rake coal wagons and 2.5 hours for one rake of iron ore wagons processed through the wagon tipplers. Business Plan Development for the Paradip Port Trust – Final Report 44

The existing Rail hinterland connectivity and proposed plans are discussed in detail in the Hinterland Connectivity Chapter. 2.2.6 Road Infrastructure • PPT is connected with all major National Highways through Cuttack, which is one of the major cities in Orissa. • Cuttack and Paradip are connected by NH-5A and this existing road network is currently not sufficient to cater for the increasing demand. • All road way cargo goes via NH-5A, NH-200 and NH-215 to/from mines • Pipelines are used to transport finished crude oil products and raw fertilizer materials, in total 3.1 million tonnes a year. Business Plan Development for the Paradip Port Trust – Final Report 45 SH-12 NH-5A NH-5

Mine cluster Figure 2.4 Existing Road Network

Business Plan Development for the Paradip Port Trust – Final Report 46

2.3 Past Operational Performance The effectiveness of the port operations are mainly measured based on the ship turn around time (TRT) and pre-berthing time (PBT) parameters and these determine the effectiveness of both infrastructure and superstructure. The ship TRT was reduced from 3.08 days in 2001 to nearly 2.57 days during the last financial year. However, the ship TRT for coking coal and chromium is close to 4 days due to the inadequate infrastructure and semi-mechanized handlings. The pre-berthing time has come down from 1.4 day in 2001 to 1.05 day in 2006. Year Avg TRT time (no of days) Avg pre-berth time (no of days) Port Account Overall Port Account Overall Avg tonnes per shift berthday Berth Occupancy (in %) Productivity per hook-shift (in metric tonnes) 1990-91 7.82 8.15 1.25 1.58 4181 66 363 1991-92 6.01 6.13 1.07 1.19 4924 60 443 1992-93 5.98 6.09 1.25 1.36 5134 67 491 1993-94 5.69 5.78 0.94 1.03 5263 70 507 1994-95 5.53 5.65 1.24 1.36 5564 79 529 1995-96 5.55 6.29 1.75 2.49 5929 85 560 1996-97 3.92 4.94 0.61 1.63 6405 65 632 1997-98 4.11 5.12 0.66 1.67 6252 65 663 1998-99 3.22 4.11 0.31 1.2 7012 67 798 19992000 3.02 3.88 0.27 1.14 7106 63 743 2000-01 3.08 4.16 0.33 1.41 8503 70 800 2001-02 3.26 3.99 0.46 1.19 8831 56 783 2002-03 3 3.37 0.43 0.8 10763 48 838 2003-04 2.88 3.42 0.21 0.74 10256 53 839 2004-05 2.72 3.41 0.07 0.75 11048 60 826 2005-06 2.57 3.56 0.06 1.05 11316 60 874 Table 2.20 Operational Performance Indicators during 2005-06

Though the berth occupancy is more than 75% at the iron ore berth and the multi-propose berths, the over all occupancy rate is around 60% due to less utilization of mechanized coal berths and oil jetty, which are utilized less than 40%. Business Plan Development for the Paradip Port Trust – Final Report 47 Commodity 2000 2001 2002 2003 2004 2005 2006

TRT TRT TRT TRT TRT TRT TRT Iron Ore (Mech) 4.79 4.16 4.86 4.65 3.05 1.87 1.74 Iron Ore (Conv) 2 - 1.97 3.36 2.72 2.95 2.63 Thermal Coal (Mech) 2.01 1.91 2.46 1.87 1.98 2.13 1.34 ThermalCoal (Conv) 4 3.63 3.64 2.71 2.53 2.68 2.86 Coking Coal 4.33 3.72 3.87 3.5 3.29 3.65 3.62 FRM 4.62 7.8 4.36 2.91 6.42 2.55 2.85 Ch. Ore/ Ch Con/ Fe Mn etc., 4.45 5.02 5.85 4 4.55 4 3.97 POL 3.32 2.94 1.35 1.35 1.42 1.55 1.23 Overall 3.89 4.16 3.99 3 2.88 2.72 2.57 Table 2.21 Commodity wise Turn around time (TRT) in days (2000-2006)

The berth output per day has been increased from 8,500 tonnes in 2001 to 11,316 tonnes in 2006. 200001 200102 200203 200304 200405 200506 Container Cellular 2256 548 1230 2026 2507 2796 ships Combination - - - - - Break Bulk Cargo 2,669 904 1,345 1,108 1,165 961 Dry Bulk Mechanical 12,033 16,253 18,392 17,202 20,709 21,535 Conventional 7,255 6,639 6,820 6,823 7,218 7,714 Liquid Bulk 8,450 8,173 10,275 9,540 8,979 10,414 Other - - - - - Total 8,503 8,831 10,763 10,256 11,048 11,316 Table 2.22 Berth output per day (2000-06)

The average output per hook is also steadily increasing from 800 tonnes per hook to 874 tonnes in last five years. The ship down time is more than 45% for the bulk dry mechanized cargo and nearly 26% for other bulk carriers, except containers. The high preparation time at the mechanical loading plants contributes to the high idle time. The customs procedures and surveying time also contribute to the high idle time both at mechanized plant and semi mechanized plants. Business Plan Development for the Paradip Port Trust – Final Report 48

Customs department team at Paradip Port Trust belongs to the Central Excise Department and they have been posted at Paradip under deputation except the Deputy Commissioner (IRS Officer). They do not belong to Sea Customs department. As the Customs team does not belong to Sea Customs, they are not well equipped to handle the Customs process efficiently. This causes delay in clearing the cargo. They do not work on Saturdays and Sundays. Hence, on these days the concerned party has to send a requisition letter, and pay the overtime charges during holidays. Alternatively, the concerned party needs to get the required documents cleared in advance. Also, customers are generally not satisfied with the process as it is still driven through manual interventions and paper work and clearance. High number of holidays (including Saturdays and Sundays), lack of

professionals and manual intervention adversely affects the customs process at Paradip, which was also expressed by the customers. The Port security is managed by CISF (Central Industrial Security Force) under the guidelines of PFSO (Port Facility Security Officer). Paradip Port Trust is compliant with ISPS (International Ship and Port Facility Security) norms as per IMO regulations. The Port has a well prepared security plan PFSP (Port Facility Security Plan) in place, which is being approved by the Directorate General of shipping every year. Directorate General of shipping acts as the inspection agency for the Port’s security plan. PFSO is supported by four Deputy PFSO’s and CISF team in coordinating the security aspects of the Port. Business Plan Development for the Paradip Port Trust – Final Report 49

Conclusion • Port performance has been increasing over period of time, However, it is been still below the world standard. • Though the over all Berth occupancy rate is only 60%, the key berths are already reached more than 80% of utilization rate. • An optimal berth utilization as per the world standard, defined by UNCATD (United Nations Conference on Trade and Development) is about 65 to 70%. Figure 2.5 Bulk Port Benchmark

• The world benchmark for through put per day is about 30 to 40,000 tonnes per day. The turn round time for such high productivity ports is in the range of 1.8 to 2.4 days. The parcel size is about 120,000 tonnes. (Source: Australian Port Association and other bulk Ports in the world). Performance Analysis Summary Berth Occupancy Rate 56% 60% Throughput / day 8,508 t/day 11,316 t/day Ship Turn Round Time 3.4 days 2.6 days 12,033 t/day (Mech) 7,255 t/day (Conv.) 21,535 t/day (Mech) 7,714 t/day (Conv.)

1.8 days (Mech)

2000-01 2005-06 65% 30~40,000 t/day 2.4 days

World Standard 60-70,000 t/day (Mech)

Parcel Size (Mech) 37,000t (Avg.)

Parcel Size (Mech) 120,000t (Avg.)

Business Plan Development for the Paradip Port Trust – Final Report 50

• The world benchmark for Ports which are on similar scale to PPT as follows: The overall through put per day is estimated about 18 to 25,000 tonnes. For mechanized berths, the throughput per day is about 25 to 35 tonnes per day. The estimated turn around time for such ports is in the range of 1.5 to 2.1 days. The parcel size for vessels which are calling at such ports is about 60 to 80,000 tonnes. Business Plan Development for the Paradip Port Trust – Final Report 51

3. PPT Competitive Mapping PPT has been losing its potential volume to the competitors irrespective of the fact that the Port is located closer to the rich mineral mines and steel plants. Hence, it is of strategic importance to evaluate the strength and weakness of PPT against its competitors.

3.1 Approach TransCare has developed a “Matter-of-Fact” competitive mapping model, which determines the position of the Port based on the following key parameters: • Past facts and performance • Customers feedback and their future plans • Competitor’s future plans and their customers feedback • New Market Entrants The entire competitive mapping is covered under five major areas which determine the choice of port by the customers and each area has its sub areas upon which each port is being evaluated and measured against each other. Here we considered three major ports viz. Haldia (H), Vizag (V) and Paradip (P) as these three are the main gateways to the Eastern parts of India, along with the proposed new ports of Dhamra, Gopalpur and POSCO. Business Plan Development for the Paradip Port Trust – Final Report 52 Map 3.1 Port Hinterland and Its Competitors Iron Ore Mines Coal Mines Steel Plants Power Plants

Paradip Dhamra Posco Gopalpur Business Plan Development for the Paradip Port Trust – Final Report 53

Port Competitive Mapping Geographical Position

(Hinterland Base) Bulk Commodity High value Goods Handling Capability Cargo Handling Vassal Draught Availability Berth Availability Productivity Wharfage

Labor Evacuation

WTAT TTAT Hinterland Connectivity Road Network Rail Network Cost Warfage

and labour Port dues Other Services Responses Marine and customs Value added Environmental Security Fig 3.1 Port Competitive Mapping Model – TransCare Approach

Business Plan Development for the Paradip Port Trust – Final Report 54

Facts and Market Based Research: TransCare designed tailor made research questionnaires based on a competitive mapping model, PPT’s core business and its future plans. The team also met all the stakeholders of the Port (railways, State Government officials and key customers) as their inputs are important in developing PPT for the future. All these analyses have been done mainly for primary supply chain, which was already discussed in the previous chapter. Matter of Fact Based Model Past Performance o Past market loss o Performance and other data based on 2004-05 Market Survey o Customer Feedback and their rankings o 40 interviews and more than 15 filled

questionnaires Future Plans and New market Entrants and their Plans Sector Ranking – Excellent, Good, Moderate, Low Final Ranking - Ranked based on over all performances Fig 3.2 ‘Matter-of-Fact’ Competitive Mapping Model for PPT

Business Plan Development for the Paradip Port Trust – Final Report 55

3.2. Geographical Position • PPT ranks high in geographical position as it is closely located to the rich mineral mines and steel plants. However, it was ranked low as PPT could not exploit much of its hinterland for its growth. • PPT hinterland has rich mineral deposits nearby like iron ore, coal, alumina and bauxite. In terms of bulk cargo, it ranks high and in terms of high value goods, it ranks very low. • There is no high value goods based industry in the closer proximity. The urbanization rate is very low in the State of Orissa and its neighboring states, when compared to other states in India. Orissa and its neighboring states’ urbanization level stands at 14% (2005).

E G M

L HP

E G M

L HP Hinterland Base High value Hinterland Base Exploitation Hinterland Base Bulk

E G M

L PHVV V Business Plan Development for the Paradip Port Trust – Final Report 56

• PPT has lost already about 54.5% of potential iron ore cargo and 40% potential thermal coal to Haldia and Vizag. • Chhattisgarh hinterland based cargo is also attracted by Vizag; the estimated volume is about 4 MT of coking coal.

3.3 Handling Capability

3.3.1 Draught and Vessel Size Iron Ore • PPT ranks high in high draught potential, but ranks low in terms of exploitation of it. PPT has potential to have a depth about 16 to 19 m but the Port has only about 12.5m draught. However, the iron berth has a depth of 13.2m. • Chennai and Vizag have a draught about 16.5m. However, Haldia has a draught restriction which limits the bigger vessels to call at the port. Iron Ore berth Depth

E G M

L PH 16.5 13.2 8-10

C/V Excellent Good Moderat

Low C P H 120-150,000 65 -80,000 65 -80,000 Vessel Size in dwt Business Plan Development for the Paradip Port Trust – Final Report 57

• For iron ore, customers rate Vizag higher for its higher draught at berth to handle bigger vessels. They expressed that they will prefer higher capacity vessels sizes (120,000-150,000 DWT) for the iron ore export to China. • Vizag and Chennai have already deployed higher handling capacity with fully mechanized iron ore terminals to handle larger vessels sizes (more than 150,000 dwt). • Chennai and Vizag do not have immediate iron ore hinterland but each handles more than 9 MT p.a. due to its handing capability. Thermal Coal • PPT ranks high in coal handling capability. PPT has a high draught of about 13 m at its coal berths and handles the vessels sizes about 60,00075,000 dwt. The average parcel size is estimated to be 55,000-65,000 tonnes per trip. • Haldia and Vizag rank low in thermal coal handling capability. Customer rated them with a ‘Not Satisfied’ note.

E

G M

L PH 12.5 10.5 8-10

V Thermal Coal berth Depth Excellent Good Moder

Lo H/V

P 60-75000 65 -80000 Vessel Size in DWT Business Plan Development for the Paradip Port Trust – Final Report 58

• About 6.2 MT of cargo is being diverted to Haldia and Vizag due to policy level constraints. • However, the customer is quite satisfied with the coal handling and vessel turn around time at PPT. Coking and Non-Coking coal • Vizag has a slight competitive advantage over others in coking/ non coking coal handling. Vizag is the leading import gateway for coking coal. SAIL is the biggest customer for Vizag, followed by Vizag Steel Ltd. • In Vizag, the coking coal is handled at general cargo berth (GCB). The berth has a depth about 14.5m with a maximum capacity about 3 MT per annum. But the demand is 8 MT per annum. The rest is handled through other general cargo berths. • In PPT, coking coal is mainly handled at Central Quay and Multi Purpose Berth. Both these berths depth is limited to 12.5 m.

E G M

L PH 14.5 12.5 8-10

V Excellent Good Moderate Low

P/V

H 65 -80000

65 -80000 Beth Depth for Coking/ Non-coking coal Vessel size for Coking/ Non-coking coal Business Plan Development for the Paradip Port Trust – Final Report 59

• Haldia has draught and quay length constraints at its coking handling berth. The coking coal handling quay length is limited to 190 m against Vizag’s 270 m and PPT’s 225 m. • However, all these Ports are not equipped enough to handle the higher capacity vessels for coking coal import. • As coking coal is going to be mostly imported by the steel plants in the coming years, the ports who want to be competitive should ensure an adequate mechanical handling facility at their terminals. 3.3.2 Berth Availability • The berth availability for thermal coal is quite high at PPT but more than 80% berth occupancy rate at iron ore, coking and non-coking coal berth.

E G M

L P

H 70% 90%

V Iron Ore

E G M

L 70% 90%

PV

H Thermal Coal

E G M

L V/H/P

Coking and non Coking Business Plan Development for the Paradip Port Trust – Final Report 60

• PPT has a berth occupancy rate of about 81% for iron ore and handled about 4.3 MT against the total traffic about 10 MT in 2005-06. • Vizag is comparatively better with its two iron ore berths and handled about 16 MT during the same year.

• TATA is having its captive berth at Haldia. SAIL is in a good relationship with Vizag. • PPT should develop a good relationship with SAIL and encourage them to have a captive berth at PPT.

3.4 Cargo Handling 3.4.1 Ship Turn Round Time (STRT) • PPT dominates with better turn round time for thermal coal and Vizag for iron ore.

E G M

L PH 2.6 days

V 3.5 days 5.5 days

Iron Ore

E G M

L PH 2.8 days

V 3.3 days

Thermal Coal

E G M

L HVP 4 days

Coking and Non-coking Business Plan Development for the Paradip Port Trust – Final Report 61

• Vizag has only 2.5 days of Vessel Turn Round Time with high productivity and an optimal berth occupancy rate. • PPT is more competitive in thermal coal than others with 2.8 days of TRT. • All three ports are rated low for coking and non-coking coal handling facility. However Vizag has better productivity rate for the same. • Growing coking and non-coking coal import demand would put more pressure on ports to upgrade facilities. 3.4.2 Evacuation • The inbound and outbound evacuation turn round time is quite high at PPT. Customers expressed that rakes are not dispatched on time. • Rakes availability is quite high at Haldia and Vizag for outbound movement. Customers are quite satisfied with the facilities which are

provided by Haldia and Vizag.

E G M

L V/H P Outbound Evacuation

E G M

L V H/P Labour Productivity

E G M

L V/H P Inbound Iron ore Business Plan Development for the Paradip Port Trust – Final Report 62

• The labour productivity is rated at moderate level at PPT. Customers are more concerned about the effective hours per day at PPT. • Customers rated Vizag for higher labour productivity and Haldia for lower labor productivity.

3.5 Hinterland Connectivity • Hinterland connectivity needs special attention. PPT has been losing its market share to Haldia and Vizag due to inadequate rail and road network. • Inefficient handling at the handling terminals lead to a longer rake turn round time at PPT, which in-turn leads to non-availability of rakes on time for the customers. • SAIL imports about 4 MT of Coking coal through Vizag for its steel plant in Chhattisgarh, which is closer hinterland for PPT as well. • The direct rail link between Raipur industrial cluster and Paradip would attract this cargo to PPT.

E G M

L P Rail Connectivity

VH

E G M

L

P Road Connectivity

VH Business Plan Development for the Paradip Port Trust – Final Report 63

3.6 Handling Cost • PPT has low wharfage charge for iron ore handling (mechanical) but high costs for manual handing compared to Vizag. • Vizag has low handling charges for the import of coking coal. It is 2.5 times less than PPT. This low charge for the coking coal in Vizag led SAIL to ship their cargo via Vizag than PPT. • Coking coal import charge at Haldia is quite high. Thermal coal handling charge is quite high at PPT but this charge is for mechanized handling.

E G M

L P Iron Ore

VH

E G M

L P Coking Coal

VH

E G M

L P Thermal Coal

VH Business Plan Development for the Paradip Port Trust – Final Report 64

3.7 Other costs • PPT is rated ‘Moderate’ on total port charges and Vizag is rated ‘Good’. Total landed transportation costs for coking coal and iron ore are quite high at PPT when compared to Haldia and Vizag, as rated by customers. • This is mainly because of longer truck TRT and more dependency on truck for iron ore transport. And, the higher demurrage charges for rakes due to poor turn round time for the rakes. • However, over all, the port charges at PPT is rated at ‘Moderate’ level compared to Haldia but still Vizag has a competitive charge.

3.8 Other Services • Generally in other services, all ports are rated equally except Marine

services (High in PPT) and Customer responses (High in Vizag). • Customers are quite satisfied with the marine service with PPT but they complained about the inefficient customs process.

E G M

L P Landed Cost

VH

E G M

L P Total Port Charges

VH Business Plan Development for the Paradip Port Trust – Final Report 65

• PPT does not have a Sea Customs department. The customers are more concerned about the higher number of customs holidays, which delays the customs clearance processes and procedures. Customer’s Rating on Other Services PPT Vizag Haldia Customer Responses 4 2 4 Customs Process 4 3 3 Marine Services 1 2 4 Value added services 4 4 4 Environmental Safety 4 4 4 Security 3 3 3 4 - Low, 3 - Moderate, 2 - Good, 1, Excellent Table 3.1. Customer’s rating for other services

• Customers also rated the ports very low in terms of IT systems and security aspects. • As such there is not much value added services at all these ports for bulk terminal; hence customers rated the service at ‘Moderate’ level at all ports.

3.9 Current and Future Competitive Mapping 3.9.1 Current Competitive Mapping • PPT is having a competitive position in terms of hinterland base load for bulk cargo. • PPT is not a competitive port in terms of handling costs (wharfage and labour cost) when compared to other key competitive ports. Business Plan Development for the Paradip Port Trust – Final Report 66

• But PPT ranked low in hinterland connectivity and handling productivity at the port, especially against Vizag. • Vizag would be the key competitor for PPT for coking coal and iron ore traffic. • Haldia is less competitive than Paradip but it has advantages over hinterland connectivity and proximity to major steel plants in India.

• However, Halida is having its own natural restrictions; hence, TransCare expects, in the short run, Haldia will be competitive, but not in the long run. 3.9.2 Future Competitive Mapping • Dhamra, Gopalpur and POSCO are the newly proposed ports near by PPT. POSCO will be a captive port for its steel plant. • Dhamra will be a neutral, private port and located norrth of Paradip Port. It is a joint venture between L&T and Tata Steel. Tata Steel is one of the major steel producers in India. The port is expected to handle about 13.5 MT in the first phase and 25 MT in the second phase. • It is expected to be operational by 2008, however, there is reason to believe that it will be ready only by 2009-10. Plans are to construct one berth with 17m depth and a capacity to handle up to 180,000 dwt vessels. • The port will be able to handle 150,000 dwt vessels all the time, but will be restricted to handle larger than 150,000 dwt vessels at only 45% of their total operations time in a day. Business Plan Development for the Paradip Port Trust – Final Report 67

Port Competitive Mapping Geographical position (Hinterland Base) Handling Capability Hinterland Connectivity Cost Other Services Iron Ore Thermal Coal PPT VIZAG VIZAG PPT VIZAG PPT PPT PPT/VIZAG HALDIA/VIZAG PPT PPT/HALDIA VIZAG/PPT VIZAG/HALDIA VIZAG/PPT HALDIA/VIZAG VIZAG PPT V/P/H Over All Fig 3.3 Port Competitive Mapping – Existing Condition

Cokiing Coall Business Plan Development for the Paradip Port Trust – Final Report 68

Port

Competitive Mapping Geographical position (Hinterland Base) Handling Capability Hinterland Connectivity Cost Other Services Iron Ore Thermal Coal DP/PPT VIZAG/DP/PPT DP/PPT DECIDING FACTOR DECIDING FACTOR

PPT PPT PPT/VIZAG HALDIA/VIZAG PPT PPT/DP/HALDIA PPT/DP PPT/DP DECIDING FACTOR

PPT/DP DP/PPT PPT PPT/DP Over All Fig 3.4 Final Competitive Mapping with New Entrants

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• Dhamra port will pose a stiff challenge to Paradip Port Trust in terms of attracting cargo as this port would be closer to the mines and the proposed steel plants in Orissa and Jharkhand. • Tata Steel is also planning to setup a 6 MT steel plant at Duburi in Orissa. • The port is situated at a distance of about 187 km from the proposed steel plant and 387 km from the existing Tata Steel plant in West Bengal. The port is strategically located to cater to both its steel plants. • Based on TransCare estimation, Dhamra will be a key competitive port in the future for PPT. By the time Dhamra comes into operation, PPT should be ready with its new iron ore and coking coal berths with mechanized systems to overcome the competition. • PPT will also be ready with its new hinterland projects, (connectivity projects: Banspani – Daitari and Haridaspur – Paradip lines) that will connect the mines cluster to Port with the shortest distance possible. • In the future, the competition would be based on differentiating factors like service level and costs etc. Hence, PPT should be in a competitive

position to offer cost effective service with a customer driven approach. Business Plan Development for Paradip Port Trust – Final Report 70

4. Traffic Estimation for Paradip Port Trust 2007-2027 TransCare has developed a pragmatic approach model “NBA (Network Based Analysis)” to arrive at the final traffic flow through PPT for 2007 to 2021. NBA considers not only the key drivers that influence the commodity trend but also considers the sub-factors which influence the macro factor. The model has three phases, which are explained as follows: Phase-I: o Identification of key drivers based on historical trend and identification of current and future influence factors. o Rank the drivers which have high influence on the future growth and arrive at an optimistic growth factor and a realistic growth factor. Phase-II: o Arrive at Global projections and National level projections based on the identified and ranked growth factors. o The growth factors are further vetted with Market research and experts’ opinion on the commodity growth and port competitiveness. Phase-III: o Port share is arrived at based on its past and future competitive factor to attract the cargo; the competitive factors mainly hinterland land costs, capacity, and capability and handling facility at the port. o Risk and mitigation are also considered on all projected forecast. . Business Plan Development for Paradip Port Trust – Final Report 71

Demand Projection Model by TransCare Analysis Past Trends • Historical Growth • Influence Factors analysis • Policy level analysis • Competition / Market share • others, if there is any Key Drivers Identification and their future impact and growth Rank and Weigh the main drivers Market Survey and Experts input Demand Projection (1st Level) Total Market Potential Arrival and PPT Share Final Projection I) Optimistic Scenario iii) Realistic Risk and

Competition Analysis Fig 4.1 Network Based Analysis (NBA) model – TransCare Approach

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4.1 Methodology TransCare also segregated the entire analysis under two broader supply chains viz. primary supply chain which contributes more than 92% of total Paradip volume, and secondary supply chain, which contributes the rest and future business opportunity o Each supply chain is mapped with current volume flows o Identification of bottlenecks and constraints o Competitive analysis of each flow o Then, arrive at the demand forecast for each supply chain

4.2 Iron Ore Supply Chain The main market driver for iron ore, at least for next 8 to 12 years, is going to be China’s steel consumption and production rate. Indian iron ore market also depends upon China’s import growth of iron ore. Hence, we decided to arrive at China’s steel demand, for which we considered two planning horizons viz. short term period between 2007 to 2012, and long term period of 2012 to 2027. The following steps are adopted to arrive at China’s future iron ore consumption: o The sub key drivers for steel consumption for China are identified and their future growth perspectives are studied as well as industry expert views and opinions on the market trends. o Past trends have also been considered and the major influencing factors are identified along with its growth rate. o Finally, two growth scenarios were derived, viz. Optimistic and Realistic. For the demand estimation, the Realistic trend forecast is considered. Business Plan Development for Paradip Port Trust – Final Report 73

Three major drivers for the China steel industry have been identified being construction, shipbuilding and automobile industries. Chinese GDP has been growing at more than 8% to 10% over the last 10 years and it is expected to grow at an annual average growth rate about 7% to 8% in the Realistic scenario, which was observed from various studies (World Bank and IMF). • Chinese steel demand will cool down and stabilize and sustain for next five to 8 years at least. • China Steel Industry would grow at CAGR of 6% to 10% during 2007 to 2021 period – Possible or Optimistic • China Steel Industry would grow at CAGR of 5% to 8% over the planning period – Conservative or Realistic • Iron ore demand is 1.6 times of steel production (1 ton steel requires 1.6 tons of iron ore) • Import share of iron ore will increase to 70% during the projection period as domestic share will keep reducing. • Chinese demand will touch 385 to 392 MT during this year and it is projected to touch 564, 828, 1057 MT by 2011, 2016 and 2021, respectively. • China market will grow at a CAGR of 8%, 6% and 5% during the forecasted period. • Indian share will come down to 16% from 17% during the forecasted periods due to the following reasons:

• The capacity expansion rate will not be at the same rate of the growth of Chinese demand. • Local iron ore demand increases but only to some extent as India Steel industries do not use iron ore fines, which is being exported to other countries. Business Plan Development for Paradip Port Trust – Final Report 74

• India’s overall iron ore export would reach 100 MT by 2007 and it will reach 125, 152, 172 MT by 2011, 2016 and 2020 respectively. • The Chinese share of iron ore exports will increase from 83% to 92% during the forecasted period. Projected demand for India Assumptions

• 80% share goes to China • The rest goes to Japan mainly

• China share, Long run, 80 goes up to 90% Realistic Projection • 2007 – 101 MT • 2011 – 125 MT • 2016 – 152 MT • 2021 – 172 MT Optimistic Projection • 2007 – 103 MT • 2011 – 138 MT • 2016 – 183 MT • 2021 – 217 MT Fig 4.3 India iron ore export- Projection China’s import of Iron ore from India Assumptions

• Current Market Share 25% & come down to 21% by 2014 and 17 % by 2016 - 2020

• Aus and Brazil heavily invested on plant capacity expansion

• India capacity expansion is limited

• Domestic Iron ore demand Increases Realistic Projection • 2007 – 84 MT • 2011 – 110 MT • 2016 – 140 MT • 2021 – 159 MT Optimistic Projection

• 2007 – 86 MT • 2011 – 121 MT • 2016 – 168 MT • 2021 – 201 MT Fig 4.2 China’s import of iron ore from India –Projection

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The traffic forecast for PPT is mainly arrived from the total demand flow through both Indian minor and major ports in the forecasted period, based on the following assumptions: Optimistic Scenario based on Optimistic about China demand and PPT will keep their hinterland share and New iron ore handling facility during 2011-12 Realistic Scenario based on • Realistic opinion on China demand and • PPT will grow at the same rate with stable growth • New iron ore handling facility during 2011-12 Based on the above scenarios, TransCare expects that PPT has the potential to attract 26 MT of iron ore traffic by 2020. However, looking at port investment Projected demand for PPT Assumptions

• 80% share goes to China • The rest goes to Japan mainly

• China share, Long run, 80 goes up to 90% Optimistic Projection • 2007 – 12.4 MT • 2011 – 18.0 MT • 2016 – 24.9 MT • 2021 – 26.1 MT • 2027 – 31.1 MT Realistic Projection • 2007 – 12.2 MT • 2011 – 15.1 MT • 2016 – 18.2 MT • 2021 – 20.7 MT • 2027 – 23.3 MT Fig. 4.4 PPT Iron Ore Export Projection

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constraints, capacity constraints and hinterland network, PPT will reach only 20 MT by 2020.

4.3 Coal Supply Chain Coal is one of the key energy resources for the power sector, and the steel and cement industries. Hence, these are are the key drivers for coal consumption. To arrive at coal demand (Coking, Non-coking, Thermal coal) for PPT, the following

analysis has been made: • Indian coal production and consumption trends are observed. • The key influencing drivers are identified, studied and their future consumption is being projected. • The sub drivers which influence the major drivers are also studied and its future influences are observed. • Consequently, the impact of these trends on Indian ports’ traffic is also studied. • Based on Indian mines production in the future and the plans for capacity addition, corresponding port initiatives and competitive factors are also considered to arrive at the market share for PPT. • In total, the power sector consumes 75% of total coal production, followed by industrial segments with 13% share. The rest is consumed by commercial and residential users. • Indian coal production grew by 5% to 405 MT against demand growth of 6% to 446 MT and more than 40MT of coal left unfulfilled and imported. • Power sector, Steel and Cement industries are the major drivers for the coal demand in India. Domestic coal demand has been increasing more than planned production over the years. • Coal production is fully controlled by Government of India. Coal India Limited (CIL) is the major subsidiary of Government of India, which produces nearly 85% of total production in the country. Business Plan Development for Paradip Port Trust – Final Report 77

• Coal demand has been increasing at a CAGR of 6% over the last six years against production growth rate of 5% during the same period, which left the gap in the coal supply. • Non coking coal shares 90% of total coal production and the balance is coking coal. Coking coal production is stagnated at 30 to 32 MT. • The steel industry is the major consumer of coking coal and now they have to depend fully on import market. • Non coking coal demand has been increasing especially from the power sector which consumes 75% of total thermal coal production in India. 4.3.1 Coking Coal Demand Projection • India’s thermal based power generation capacity would touch 104,000 MW with 7% growth by 2012 or during 11th year plan. As per the Government plan, the capacity addition would grow at 7% and the corresponding demand for coal would grow at 8%. • These assumptions are mainly based on an Indian GDP growth rate of 8% and power consumption demand of 6%. • Coal India was not prepared for this sudden increase in demand. Hence the market has opened to private sector and encouraged captive mines to fill up the supply-demand gap. Based on the past trend in the steel consumption rate of core sectors consuming nearly 80% of steel production in India, TransCare arrived at the following assumption for the steel production in India. • Steel demand in India will grow at a healthy rate along with GDP growth of 7% to 8% pa over the next 6 to 8 years. • Based on core sectors such as construction, power plants and auto industry and considering India’s low steel consumptions rate, TransCare

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predicts the growth at CAGR of 6% to 8% for Realistic case and 8% to 10% for Optimistic scenario. • Iron ore demand is 1.6 times of steel production (1 ton steel requires 1.6 tons of iron ore) • Coking coal demand is 0.8 times of Steel Production (1 ton steel requires 0.8 ton of coking coal) • India doesn’t have sufficient coking coal reserve and it is allowed to import without any excise duty, so domestic share will keep decreasing • Coking coal demand will follow only with production and consumption rate and not capacity addition. Hence, coking coal demand is derived based on production and consumption trend. • India will touch 110 MT of production in the Realistic scenario and 130 MT in the Optimistic scenario. The major thrust would come from construction industry and power plants. • Coking coal is the major constraint, as Indian coking coal production by CIL has reached its full capacity India Coking Coal Demand Assumptions (only for import)

• 1 ton steel = 0.8 tons of Coking coal

• Import continued to increase and touch 85% by 2015-2020 Realistic Projection • 2007 – 25 MT • 2011 – 38 MT • 2016 – 54 MT • 2021 – 74 MT • 2027 – 94 MT Optimistic Projection • 2007 – 26 MT • 2011 – 41 MT • 2016 – 62 MT • 2021 – 89 MT • 2027 – 120 MT Fig 4.5 India Coking Coal - Demand Projection

Business Plan Development for Paradip Port Trust – Final Report 79

• Hence, all the steel players, especially, big players like SAIL fully depend on import market. SAIL is already importing 80% of their coking coal demand. SAIL will be the key drive for coking coal import in the coming future as well. • The Indian steel industry coking coal import volume will reach 88 to 120 MT. The current year volume will touch to 23 to 25 MT. By 2016, it will touch 49 to 57 MT. • Based on historical trends, current steel clusters and future competition, PPT will have a potential to handle up to 20 MT by 2020. However, competition and new player’s entry will limit the coking coal import traffic

through PPT to about 10 to11 MT only. 4.3.2 Thermal Coal Supply Chain • Rail dominates the thermal coal distribution in India. About 48.8% of thermal coal was transported by rail in 2005-06. • Road shared 22.2% and Merry Go Round (MGR) systems shared 23%. Rail cum sea and other (belt & conveyor system) shared 5.9% of total PPT Coking Coal Demand Assumptions (only for import)

• 1 ton steel = 0.8 tons of Coking Coal

• Import continue to increase and touch 85% by 2015-2020 Realistic Projection • 2007 – 4.6 MT • 2011 – 6.8 MT • 2016 – 11.9 MT • 2021 – 16.3 MT • 2027 – 20 MT Optimistic Projection • 2007 – 4.7 MT • 2011 – 7.4 MT • 2016 – 13.6 MT • 2021 – 19.7 MT • 2027 – 26.4 MT Fig 4.6 PPT Coking Coal - Demand Projection

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thermal coal transport in India. Sea cum rail is estimated to be about 4% of over all coal transportation. • Tamil Nadu (TN) is the only state, located in southern India, served by the sea cum rail system. TN’s major sources of coal are Orissa and West Bengal. • TN is planning to install three thermal power stations with each 1000 MW capacity in the next 5 to 8 years. • However, the power addition is at a very low rate in TN during last two five years plans, hardly about 1500~1600 MW. TN is one of the self sufficient power states in India, even with a high power consumption growth rate of 8% per annum; the peak demand was 8500 MW during 2005-06. • New thermal power plant with 1000 MW (2*500MW) will be commissioned in Tuticorin by 2008-09 and it would be in operation by 2012 or 2013 with a demand of another 2.3 MT of coal. The main thermal coal consumer via sea is TN, which is the base assumption upon which the traffic forecast for PPT is arrived at for the following two scenarios basis: • Optimistic Scenario based on • Optimistic opinion on TN new projects and that they will consume from Orissa hinterland mines • Even if TN decides to choose captive mines, it will be routed through only via PPT, as the customer is more convinced with PPT than Ennore route.

• Realistic Scenario based on • Coal linkage plays major role to allocate the coal distribution • CIL production constraints • Project delays based on previous experiences • Alternative sourcing (Import). Business Plan Development for Paradip Port Trust – Final Report 81

Thermal coal traffic will be 19 MT and it will reach 9.8, 12.9 and 16.5 MT of cargo by 2007, 2011 and 2016 respectively. This is quite optimistic, provided, CIL agrees to distribute the required amount of coal to TN via PPT. This would be fair to assume as the Government and the Port have invested heavily in mechanical coal handling facilities at the Port which currently are about 50% utilized, with 10 MT capacity unused. In the Realistic case scenario, the cargo traffic will be 15.8 MT by 2021 and reach 9.7, 13.6 and 15.8 MT by 2007, 2011 and 2016 respectively. 4.3.3 Non Coking Coal Supply Chain To estimate the non coking coal traffic via PPT, TransCare has followed the following approach: Coking Coal Demand Projection Assumptions

• TN dependency on Coastal movement • Thermal Power plants drive the coal demand • One 210 MW needs one MT of thermal coal • All power plant projects in TN are considered • Only 500 MW project is commissioned • Other 2*500 MW will be in 2008-09 • The rest are not yet fully materialized out of 3000 MW planned • Project growth rate would be 2~3% • Coal source constraints Optimistic Projection • 2007 – 9.8 MT • 2011 – 12.9 MT • 2016 – 16.5 MT • 2021 – 19.1 MT • 2027 – 22.8 MT Realistic Projection • 2007 – 9.7 MT • 2011 – 11.7 MT • 2016 – 13.6 MT • 2021 – 15.8 MT • 2027 – 20 MT Fig 4.7 India Coking Coal - Demand Projection

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o The coal demand for India during the forecast period was derived by considering the core sector growth viz. power, steel and cement.

o Based on CIL future production plan, capacity addition and privatization, the team arrived at two scenarios: Optimistic Scenario (Import will increase) • Only Realistic production growth of CIL production of thermal coal till 2014 and later high production growth • Import duty is relaxed (5% only) • Major drive is power sector • However, since CIL has resource constraints, Government may tend to encourage more imported coal Realistic Scenario • Everything goes according to CIL plans • Power sector is the first preference and Government may try to satisfy power sector needs • If CIL satisfies the demand, then import comes down and then import is only a short term remedy. • There is a sudden peak on imported non coking coal. The power sector and electricity boards all expressed that they still prefer to consume only from CIL. • They all expressed that it is only a short term plan. In the long term, they all plan to have their own captive mines. • TransCare believes that non coking coal demand will keep growing but whether it is high or moderate growth depends on CIL production constraints. Government may encourage other industries to import, as it may tend to preserve the domestic coal resources for power production. • Though the cement industry is growing at a fast rate, it may not depend much on non coking coal as they are planning to use lignite as an alternative. Business Plan Development for Paradip Port Trust – Final Report 83

• Indian coal demand will reach 475 to 477 MT and it will touch one billion by 2017-18. By 2015-16, the demand will touch 840 MT in the Realistic projection and about 900 MT in the Optimistic projection. • PPT’s non coking coal volume will reach 18 MT in the Optimistic scenario by 2020 if CIL continues to have production constraints; otherwise, the volume will touch only 9 MT by 2021. • In 2007, the volume will be in the range of 4.5 to 5 MT and it will reach 8 to 10 MT by 2011. The import will come down during 2012 to 2016, as CIL will have an additional capacity and NTPC will be having its own mines in operation. Supply Demand GAP PPT Assumptions • The key importer would be NTPC for its new plants • There is no concrete agreement for NTPC’s new plants though CIL promised but only 85% supply • However, NTPC continues to import to maintain its stock level Optimistic Projection • 2007 – 4.9 MT • 2011 – 10.9 MT

• 2016 – 16.8 MT • 2021 – 14.1 MT • 2027 – 25.0 MT Risk and Mitigation • NTPC is the major player • CIL fulfills NTPC demand with its new plans • Import is not at higher rate • PPT share would be 22 to 25% on total import non-coking coal Fig 4.8 Import of Non-coking coal through PPT- Projection Realistic • 2007 – 4.5 MT • 2011 – 7.9 MT • 2016 – 8.0 MT • 2021 – 9.3 MT

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4.4 Fertiliser Supply Chain • World fertiliser consumption surged in 2003-04 and 2004-05, with growth rates of 3.7% and 4.7% respectively. Because of declining agricultural commodity prices and higher fertiliser prices, global demand contracted slightly in 2005-06. • Consumption is estimated at 154.1 MT nutrients, compared to 154.8 MT the year before. After this temporary dip, world fertiliser demand is projected to increase again in 2006-07. • Demand is expected to increase steadily in West Asia and North-east Africa and rise moderately in Central Europe and in Eastern Europe and Central Asia • Agriculture accounts for about one-fourth of India’s GDP. Demand for fertiliser raw materials (FRM) is proportional to the growth rate of agriculture. The growth rate of the agricultural sector for the last years was around 2.4%. • India manufactures three types of chemical fertilisers. Nitrogen based (Urea), Phosphate based (DAP) and complex fertilisers. • India is self-sufficient in terms of raw materials for nitrogen, whereas it totally depends on imported raw materials like rock phosphate and sulphur for phosphate based fertilisers. • The installed capacity as on 30.10.2005 reached a level of 120.61 lakh toonnes of nitrogen (inclusive of an installed capacity of 205.12 lakh tonnes of urea after reassessment of capacity of which the non-functional capacity is estimated at 3.30 lakh tonnes) and 56.20 lakh tonnes of phosphatic nutrient, making India the 3rd largest fertilizer producer in the world • In a five-year perspective, world fertiliser demand is projected to grow steadily, reaching 171.9 Mt in 2010-11. This would represent an 11.6% increase over 2005-06, or a 2.2% average annual growth. Business Plan Development for Paradip Port Trust – Final Report 85

• This arises from expectations that China and India will promote balanced fertilisation, and nitrogen use efficiency will continue to improve elsewhere.

• In the medium term, most of the increase in demand is expected to come from Asia. South Asia and East Asia, together accounting for more than half of total growth. • Regional demand is anticipated to remain strong in South Asia with 3.3% p.a., while the growth of fertiliser demand is projected to slow down in East Asia to 2.0% p.a. • FRM is a captive cargo for PPT. PPL and IFFCO are the phosphate based fertiliser units (DAP) and they mainly depend upon imported raw material for their plants. • PPL is importing about 6 chemicals that include 3 solid and 3 liquid chemicals. Current volume is about 2.4 lakhs tonnes pa. This is going to be increased by 20% in the next fiscal year. • Sulphuric acid is one of the main by-products of steel production. With the proposed arrival of new steel plants in and around Paradip, more sulphuric acid will be generated. This would attract many small fertilizer plants, for which sulphuric acid is one of the main raw materials. • IFFCO has a captive berth – a leasing agreement signed between the Port and Oswal, when Oswal was running this plant starting 1999. This agreement is valid till 2014. According to the agreement, IFFCO has a Minimum Guarantee Throughput (MGT) with the port at 2.5 MTPA. • Currently, the plant is running at 40% of its total capacity of 1.9 MTPA of fertilizers. One unit of DAP (final product) requires about 2.5 units of FRM. IFFCO would be importing about 5 MTPA of FRM through the Port at its full capacity. • The main driver for IFFCO’s business is agriculture. IFFCO is not exporting any finished product as Government has banned the exports of DAP (due to shortage in the local market). Business Plan Development for Paradip Port Trust – Final Report 86

• IFFCO is planning to reach 1.5 MT this financial year 2006-07 and full capacity (1.9 MT) by the year 2007-08. IFFCO will increase its capacity by 50% in the next two to three years (2009-10). • IFFCO imports FRM like Rock phosphate, Sulphur, Sulfuric Acid, Ammonia. IFFCO’s berth is currently equipped to handle about 5 MTPA of FRM. • Deepak Fertiliser is planning to setup its manufacture units and utilize the facilities of Paradip port for importing the raw material and exporting the finished product. More than 1,00,000 tonnes of liquid ammonia will have to be imported annually. • Fertilizers & Chemicals Ltd is keen to set up in the port area an ammonium nitrate fertiliser plant with an estimated capacity of 2,50,000 to 3,00,000 tonnes annually. • Based on the assumptions explained in the figure, FRM import will touch 8.6MT by 2020. In the Realistic scenario it will reach 7.7 MT. Fertilizer Import Projections Risk and Mitigation

• It is captive cargo and it depends upon the individual players’ growth

• Govt. has also sealed maximum import of FRM. • Hence, it would not be in the range of 6 to 8% Assumptions

• Fertilizer market would grow at 6 to 7%

• FRM import would grow at 7 to 8% • These growth factors are verified with Interview with Industry experts Fig 4.9 Fertilizer Import Projection for PPT

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• Overall the developing countries’ consumption rate will increase by 3% CAGR, while the developed countries would have a decreasing growth rate. Table 4.10 Fertiliser Commodity Projection

4.5 Chrome Ore Supply Chain • Chrome ore and Chrome concentrate grew at a CAGR of 6% and reached 1.35 MT. It adds export share of nearly 6%. Orissa is the main hinterland for Chrome ore and Chrome concentrate. • The export of Chrome ore purely depends on the Government control, which has ceiling level of only 400,000 tonnes every three years. The growth of Chrome ore purely depends upon Government control. Orissa has about 98% of India’s chrome ore reserves. • TATA and OMC are the major exporters of chrome ore with a share of almost 75%. India exported nearly 440,000 tonnes last year. • Chrome concentrate is potential export volume from Orissa hinterland, however, volumes are low. • Chrome concentrate is the main input to stainless steel products which is a high value added product. It is mainly exported to China and gets value added and exported from there to Japan. Fertiliser Projections – Optimistic 2006 2011 2016 2021 2027 1 RAM 2.5 5.3 7.3 10.1 11.4 2 Finished 0.0 0.6 1.3 1.7 2.3 3 Fertiliser(1+2) 2.50 5.9 8.6 11.9 13.7 Fertiliser Projections – Realistic 2006 2011 2016 2021 2027 1 RAM 2.5 4.1 4.7 5.5 6.4 2 Finished 0.0 0.5 0.8 1.0 1.3 3 Fertiliser(1+2) 2.50 4.6 5.6 6.5 7.7

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• Based on the above assumptions, the chrome ore and chrome concentrate volume would touch 1.5 MT by 2007. However, it all depends on Government policy changes on export of Chrome ore.

4.6 Container Supply Chain • India shares almost 1.15% of world market in 2005-06 with 4.6 million TEU throughput at all its major ports. It is neglible when compared to India’s share of world population at about 17%. In comparison, China’s share of world container throughput is more than 17% with a share of

world population of 20%. • Indian container market grew at a CAGR of 14% over the last ten years from 1.4 million TEU to 4.6 million TEU. In the last six years, it grew at a CAGR of 13% only, whereas the world average growth was about 12% to 14% during the same period. Chrome ore and concentrate Risk and Mitigation

• Govt. would control the Chrome ore export Realistic Projection 2007 – 1.5MT 2011 – 2.2MT 2016 – 3.0MT 2021 – 3.5MT Optimistic Projection 2007 – 1.5 MT 2011 – 2.4MT 2016 – 3.5MT 2021 – 4.7MT Assumptions

• High demand of chrome ore and Concentrate

• India is the major sourcing Location

• TATA plant expansion • Exporters are demanding increase in ceiling of chrome ore to 1.5 MTPA Fig 4.10. Chrome Ore/ Conc. - Demand Projections

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• The world average growth rate also came down to 11%. But China continued to grow with more than 18% since last 10 years. • India’s containerized cargo is currently only at 48% against the global benchmark which is more than 75%. • The west coast shares 70% of total throughput, the east coast 30%. JNPT shares 58% of total container volume and 85% of total west coast volume in India. • Chennai Port Trust (CPT) shares 16% of total volume and 52% of total east coast volume. CPT and JNPT are the high growth ports in India with more than 18% over the last five years. The new container capacity additions to CPT and JNPT will further boost the trade at these ports. • The southern parts of India generate almost 1.3 million TEU and shares 28% of total container market in India. • The major clusters are Chennai (automobile, leather goods, textile and garments), Coimbatore (textile and machineries), Thirupur clusters (textile and garments), Bangalore (automobile, vegetables and electronic goods) and Cochin hinterland (raw cashew and tea). • South India market grew at a CAGR of 14% over the last five years against 11% growth of North. It grew by 13% over the last year against only 9% growth by Northern India.

• East bound cargo grows faster than West bound cargo, especially to Far East and inter Asia movement is increasing. East coast gateways volume grew at a CAGR of 15% against 13% by West. It grew over 13% against only 7% growth by West. • JNPT and CPT alone share more than 74% of total container market, along with Tuticorin, the share is 81%. JNPT and Chennai are the fastest growing terminals in India with 18% and 16% growth rate respectively. • Rail container traffic grew at a CAGR of 17% over six years and reached 1.5 m TEU in 2005-06. It is growing more than the over all container market growth rate in India. It grew by 13% over the year against 9% of Business Plan Development for Paradip Port Trust – Final Report 90

total container market in India. This consistent growth boosted the over all share of rail from 29% in 2001 to 34% in 2005-06. • India has more than 184 terminals but predominately CONCOR only has inter-modal terminals spread mainly in north and south. CONCOR alone has more than 54 terminals for both EXIM and Domestic distribution. • Tughlakhabad is one of the biggest terminals in India and also in South Asia with a share of more than 35% of total EXIM volume in India. It is currently closing with 600,000 TEU. It is located at the outskirts of Delhi region and it is the hub terminal for northern region cargos. • Indian container market is mainly driven by G3 countries viz. EU, USA and Japan. The Indian market is also export driven and not balanced. • The world container market is projected to grow at a CAGR of 9% to 10% and estimated to touch more than 600 million TEU before 2011-12 (estimated based on various studies). • This trend is mainly going to be driven by Asian markets with strong manufacturing related economic growth. The Indian container market is under transformation change in terms of growth and commodity structure. • The growth is mainly coming from export rather than import with 7:3 ratio and this trend may change when the Indian domestic market starts to consume more high value goods. • The current containerisation level would increase from 48% to 75% over period of time (planning horizon is 20 years). • East bound traffic will grow more than west bound traffic. • Growth factors are derived for each port hinterland clusters while considering the current hinterland growth rates and future hinterland growth. • South India will have a high potential growth rate but North India will still dominate with high volume penetration but will grow less than the south Indian market. Business Plan Development for Paradip Port Trust – Final Report 91

• Current trade policies on key commodities are considered especially on textile and agricultures, as these two commodities boosted the China container market. o The quota on textile was removed and it may boost the trade growth but only moderate growth achievable in the short term and high growth in the long term. o The current capacity at the textile industry and port capacity will

restrict the high growth rate. o The US has started to outsource more from India than China as it has put restriction on China textile imports. o It is uncertain whether and when India will enter into WTO on agriculture products. It is not likely to happen in the next 3 to 5 years. • In the near future, India has no chance to have hub port terminals like Singapore or Hong Kong. • The Indian container market growth would come from domestic market consumption rather than from export market demand generation in the long run. • TransCare assumes that the world container market will still grow in the next 10 years at a growth rate between 7% to 9% and to cool down from 2018 with a growth rate about 5% to 6.5%. • When the Chinese market cools down, the Indian market will start to dominate, but not at the scale of China. India starts to import more high value goods and core products like paper, electronics, raw material, raw cotton and semi-finished auto and machineries. • The Indian container market is expected to grow at 15% to 18% over the next five years. Chennai and JNPT would grow more than country average growth by 18% to 20% potential. Business Plan Development for Paradip Port Trust – Final Report 92

PPT Container Market Potential PPT handled only 3400 TEU containers last year and grew from 67 TEU in 2000. PPT is not located near any major industrial cluster and also its hinterland does not have high value consumer goods production centers. PPT hinterland comprises less urbanized area, only 12% when compared to national average about 40%. However, TransCare feels that there is a huge potential for export containers in terms of finished steel, alumina final products, Chrome concentrate products, papers and food grains. Based on two scenarios, TransCare evaluated the future container potential for PPT, which has described below: • Realistic Scenario o Since PPT is not located near any major high value production clusters, it is less competitive to attract the containerized cargo though it has high draught potential to berth mother vessels. o However, the existing hinterland with finished steel and related industry would grow. It will boost the volume but at not par with other Indian ports. o The share of over all will remain even less than 1%. • Entrepreneurial Scenario o Since PPT has core strength of deep draught potential, it has a potential to be a container distribution center to East and North parts of India for the East bound cargo. o Delhi is a land locked cluster; the current volume is moved by rail and road to JNPT and west coast. However, JNPT can not cater Business Plan Development for Paradip Port Trust – Final Report 93

the future volume and it will touch the maximum capacity even by 2014-15.

o The other potential competitor for the Northern cargo is Kolkata but it has draught restriction (less than 10 meter). It can not accommodate bigger vessels. In the future scenario, even the feeder vessels size would be in the range of 1500 to 2500 TEU capacity. Hence, Kolkata, with its current draught, cannot accommodate. o These scenarios give a clear potential for PPT. Developing rail corridors between key industrial clusters, especially as follows, would ensure a competitive advantage for PPT. Delhi – PPT Nagpur – PPT Kolkata - PPT o However, PPT needs to follow the below strategy if it all it has to capture this potential: Market its core strength (Deep Draught) and bring a competitive operator. Try to tie up with the rail operators who could route its block trains from Delhi, Kolkata and Nagpur via PPT. Volume matters when a green field terminal is planned to attract the shipping lines. Develop ICD/CFS with leading service providers. Business Plan Development for Paradip Port Trust – Final Report 94

• Based on this scenario, TransCare estimates a share of 2.5% by 2017 and 3.5% by 2021 of total volume in India. • PPT will touch about 440.000 TEU by 2017 and 1.6 million TEU by 2027 based on these assumptions. It is very optimistic but if the Port is aggressive and follows above mentioned strategy, PPT can be developed as a JNPT of the East Coast.

4.7Steel Supply Chain • India’s steel export grew at a CAGR of 12% over the last five years against production growth of 9%. However, there was one peak export year which influenced this growth; otherwise, growth has been almost flat for the last three years. Risk and Mitigation

• Dhamra Port is also planning for container Terminal

• Urbanization would be still low by 2021(21%) Realistic 2007 – 5,000 TEU 2011 – 16,000 TEU 2016 – 51,000 TEU 2021 –120,000 TEU Container Demand Projection Optimistic 2007 – 5000 TEU 2011 – 80,000 TEU 2016 – 320,000 TEU 2021 – 984,000 TEU

Assumptions

• PPT has high potential since it is only 3400 TEU

• Current cargo flows to Calcutta and Vizag Cargo can be attracted

• Hinterland is Orissa, Jharkhand, Chhattisgarh

• Strategic implementation to divert cargo from JNPT to PPT and distribute to Northern India. Fig. 4.11 Container – Demand Projection

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• China, USA and United Arab Emirates, together take more than one third of India’s export volume. The Far East accounts for nearly 40% of total exports followed by Middle East and Europe with 15% and 17% share. • Mumbai Port exported about 1.5 MT with 33% market share and Haldia exported about 0.85 MT with 18% share followed by Vizag and Paradip with 0.65 MT and 0.33 MT of total volume. • Paradip shares nearly 7% of total market share, with potential to reach 10% to 12%. However, the POSCO entry will again bring it down to same percentage in the next 15 years. • Indian steel production will touch 29 MT if India shifted its market strategy and export destinations as India mainly depends on the US and EU. The demand of these countries is stabilizing and the US is trying to regulate Indian steel imports to protect their local steel market. • Based on historical trend and new investments in PPT hinterland, PPT has the potential to touch about 1 MT by 2011, 2 MT by 2016 and 3 MT by 2021. • In the stable scenario, India can reach 21.3 MT as the new players like POSCO will boost Indian export market. In a worst case scenario, the market will touch 13 MT. • It is quite optimistic, given the competitive factors like POSCO and TATA’s new port Dhamra. Hence, TransCare estimates about 1 MT of steel export via PPT by 2013 at 14% growth rate, provided the facilities are in place. Table 4.12 Steel Demand Projections PPT Share (2007-2021) All figs in MT 2007 2011 2016 2021 CAGR Optimal 0.46 0.95 1.99 2.93 14% Real 0.46 0.81 1.49 2.13 12% worst 0.46 0.74 0.99 1.33 8%

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4.8 POL Supply Chain (Product and Crude) PPT handled less than a million tonnes of POL with a negative CAGR about 16% over the last five years. PPT has an oil jetty with a draught of 14 m and 260 m length with dolphin to dolphin facility. Though the designed capacity is 7.5 MT, it handled less than a million tonnes during last year, which accounts for only 2.15 % of over all volume. • IOCL, HPCL and BPCL are the three major customers who pump the oil from the port premises to their local storage tanks. From there, they distribute to the hinterlands of Orissa by trucks and wagons.

• IOCL has installed its own facilities / pipelines at the port and the others use the IOCL facilities / pipelines and pay IOCL. • These players mainly import petrol, diesel, kerosene, black oil, furnace oil and light diesel from their own refiners in Vizag or Mumbai and distribute to the local retail shops. • HPCL and BPCL receive only 2 to 3 vessels per month and they also expressed that even in the future it would be only 3 to 4 vessels per month. The oil jetty was installed mainly to have IOCL’s POL traffic flow via PPT to other parts of the country, but the project got delayed. • In the future, IOCL plans to reduce their freight cost by using bigger tanks in the range of 180,000 to 220,000 DWT, which cannot be accommodated at Haldia due to the tidal wave and draught restriction. • Hence, IOCL decided to have a terminal at Paradip and pump the oil from here to Haldia where they have their petrochemical plant. • IOCL is planning to complete its 11 MT SBM and pumping facility from Paradip to its refinery at Haldia through an underwater pipeline by March, 2007. • It would give an additional load about 11 MT in the span of next 4 to 5 years (conservative figure) for Paradip which would boost POL traffic as Business Plan Development for Paradip Port Trust – Final Report 97

well as over all volume at the Port. IOCL will add another SPM with 15 MT capacity by 2014 along with a petrochemical refinery plant. • In the future Paradip will be the transshipment hub for the East Coast of India for other gateways. • Paradip is going to have high potential to be a World Standard Petrochemical Hub in Asia with IOCL’s plan of 15MT SBM capacity along with Petrochemical plant plan by 2015-16. The pre-feasibility study has been done and IOCL is going ahead with its plan, already starting implementation work. • IOCL is a new entrant in the polymer market in India. Polymer is a byproduct of petrochemical and its demand has been increasing in India. • The polymer market is growing at 4% to 5% at the global level and it is growing at 5% to 6% in India. • Reliance and IOCL alone share more than 70% of total. IOCL is coming up with a huge investment in the polymer segment. • India’s polymer consumption per capita is 4.5 kg, whereas the world polymer consumption per capita is at 18 to 21 kg per head. • It offers a huge opportunity for Indian market. Indian Polymer Industry is expected to grow at 10% to 14% in the next five years. • Indian polymer capacity would reach 12-13 MT by 2010 and India would reach 3rd position in polymer production during the same period. Polyethylene (PE) and Polypropylene (PP) are the major contributors among the polymer products at global level, as well as at Indian level • IOCL will be the key player in next 6 to 10 years in the polymer market. ICOL production will give an additional volume about 0.1 to 0.25 MT in the next 10 to 20 years if the IOCL polymer plant is realized in the hinterland of Paradip port. Business Plan Development for Paradip Port Trust – Final Report 98

4.9 Total Forecast Summary o TN coal demand will touch 20 to 25 MT only by the 2020’s, which can be accommodated at PPT with existing facility. Thermal coal demand, at PPT, will touch 18 to 20 MT during the next 10 to15 years. o The Indian steel Industry’s share of import coking coal will reach 85% and imports about 100 to 120 MT during the same period. SAIL will be the major importer and will drive the coking coal import. o Even in the competitive environment, PPT has a potential to attract 20 to 25 MT of coking coal by 2027. o The Indian mines’ capacity expansion constraint, Australia’s massive capacity expansion and increase in domestic iron ore demand will restrict India’s export growth to only 4% to 6% during the next 20 years. India’s iron ore export volume will touch 180 MT with a 90% share destined for China by 2020. o PPT has the potential to reach 23 to 31 mt of Iron ore by 2027 while considering new hinterland connectivity projects and competitive factors from other ports. Business Plan Development for Paradip Port Trust – Final Report 99 Table 4.3 Total Demand Projections – Realistic -I PPT - Demand Projection - Realistic Scenario - I Commodity Structure Ex/Im [mt] 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Iron Ore Ex [mt] 10.3 12.2 12.8 14.0 14.6 15.1 16.1 16.3 17.1 17.8 18.2 T. Coal Ex [mt] 9.2 9.7 10.1 10.6 11.2 11.7 12.1 12.4 12.8 13.2 13.6 Coking Coal Im [mt] 3.8 4.6 5.1 5.5 6.1 6.8 8.0 8.6 9.4 11.1 11.9 Non Coking Coal Im [mt] 3.4 4.5 5.3 6.1 6.8 7.9 7.6 8.0 8.4 7.6 8.0 Fertilizer Im [mt] 2.5 3.5 3.7 4.0 4.5 5.0 5.3 5.7 5.9 6.0 6.2 POL Im [mt] 0.90 1.0 1.1 1.2 1.3 1.5 1.6 1.7 1.9 2.0 2.2 Others Containers Ex/Im [mt] 0.05 0.06 0.08 0.11 0.15 0.20 0.3 0.3 0.4 0.5 0.6 Containers in TEUs Ex/Im [TEU] 3420 5063 6835 9228 12457 16817 21022 26277 32846 41058 51322 Ch Ore / Con Ex [mt] 1.5 1.6 1.8 2.0 2.2 2.3 2.4 2.6 2.7 2.9 Others (ex Ch ore/Con) Ex/Im [mt] 2.9 1.4 1.6 1.7 1.9 2.1 2.3 2.5 2.7 3.0 3.2 Total Others [mt] 3.0 3.0 3.3 3.6 4.0 4.5 4.8 5.2 5.7 6.2 6.7 Total Ex/Im [mt] 33.1 38.4 41.5 45.1 48.5 52.4 55.6 58.0 61.2 63.9 66.8 POL - Crude Ex/Im [mt] 0.0 0.0 4.2 10.0 11.0 15.0 16.0 17.0 18.0 21.0 24.0 Over all Total Ex/Im [mt] 33.1 38.4 45.7 55.1 59.5 67.4 71.6 75.0 79.2 84.9 90.8

Business Plan Development for Paradip Port Trust – Final Report 100 PPT - Demand Projection - Realistic Scenario - II Commodity Structure Ex/Im [mt] 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Iron Ore Ex [mt] 18.4 19.9 19.6 19.9 20.7 21.1 21.5 21.9 22.4 22.8 23.3 T. Coal Ex [mt] 14.0 14.4 14.9 15.3 15.8 16.1 16.4 16.7 17.1 17.4 17.8 Coking Coal Im [mt] 12.8 13.4 14.5 15.2 16.3 17.0 17.7 18.4 19.1 19.9 20.7 Non Coking Coal Im [mt] 8.4 8.6 8.3 8.0 8.7 9.0 9.4 9.8 10.1 10.5 11.0 Fertilizer Im [mt] 6.4 6.6 6.8 7.0 7.1 7.3 7.4 7.6 7.7 7.8 7.9 POL Im [mt] 2.3 2.5 2.6 2.8 2.9 3.1 3.2 3.4 3.5 3.7 3.9 Others Containers Ex/Im [mt] 0.7 0.9 1.1 1.3 1.5 1.8 2.1 2.5 3.0 3.5 4.1 Containers in TEUs Ex/Im [TEU] 61587 73904 88685 106422 127706 150693 177818 209825 247593 292160 344749 Ch Ore / Con Ex [mt] 3.0 3.1 3.3 3.4 3.5 3.6 3.7 3.7 3.8 3.9 4.0 Others (ex Ch ore/Con) Ex/Im [mt] 3.5 3.8 4.1 4.4 4.7 5.0 5.2 5.5 5.8 6.1 6.4 Total Others [mt] 7.2 7.8 8.4 9.1 9.8 10.4 11.0 11.7 12.5 13.4 14.5 Total Ex/Im [mt] 69.6 73.2 75.1 77.1 81.2 83.9 86.6 89.5 92.5 95.6 98.9

POL - Crude Ex/Im [mt] 27.0 27.0 28.0 28.0 28.0 30.0 30.0 30.0 30.0 30.0 30.0 Over all Total Ex/Im [mt] 96.6 100.2 103.1 105.1 109.2 113.9 116.6 119.5 122.5 125.6 128.9 Table 4.4 Total Demand Projections – Realistic -II

Business Plan Development for Paradip Port Trust – Final Report 101 Table 4.5 Total Demand Projections – Optimistic -I PPT - Demand Projection – Optimistic Scenario - I Commodity Structure Ex/Im [mt] 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Iron Ore Ex [mt] 10.3 12.4 13.3 14.8 15.7 16.5 18.0 18.6 19.8 21.0 21.9 T. Coal Ex [mt] 9.2 9.8 10.5 11.3 12.1 12.9 13.5 14.2 14.9 15.7 16.5 Coking Coal Im [mt] 3.8 4.7 5.3 5.8 6.6 7.4 8.9 9.6 10.6 12.6 13.6 Non Coking Coal Im [mt] 3.4 4.9 6.2 7.5 8.9 10.9 11.4 13.5 15.8 16.0 16.8 Fertilizer (Ram, Import) Im [mt] 2.5 4.0 4.4 4.8 5.3 5.9 6.3 6.8 7.4 8.0 8.6 POL Im [mt] 0.90 1.0 1.2 1.3 1.5 1.6 1.8 2.0 2.2 2.4 2.6 Others Containers Ex/Im [mt] 0.05 0.1 0.1 0.3 0.6 0.8 1.5 1.6 2.0 2.9 3.4 Containers in TEUs Ex/Im [TEU] 3420 5632 4874 31081 58722 80008 140876 153555 191286 278002 321961 Ch Ore / Con Ex [mt] 1.5 1.7 1.9 2.1 2.4 2.6 2.8 3.0 3.2 3.5 Others (ex.Ch ore / con) Ex/Im [mt] 2.9 1.5 1.7 1.9 2.1 2.4 2.6 2.9 3.1 3.5 3.8 Total Others [mt] 3.0 3.1 3.4 4.1 4.8 5.6 6.6 7.2 8.1 9.6 10.7 Total Ex/Im [mt] 33.1 39.9 44.2 49.6 54.8 60.8 66.6 71.9 78.8 85.3 90.7 POL - Crude Ex/Im [mt] 0.0 0.0 4.2 10.0 11.0 15.0 16.0 17.0 18.0 21.0 24.0 Over all Total Ex/Im [mt] 33.1 39.9 48.4 59.6 65.8 75.8 82.6 88.9 96.8 106.3 114.7

Business Plan Development for Paradip Port Trust – Final Report 102 Table 4.6 Total Demand Projections –Optimistic -II PPT - Demand Projection - Optimistic Scenario - II Commodity Structure Ex/Im [mt] 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Iron Ore Ex [mt] 22.4 24.5 24.3 24.8 26.1 26.9 27.7 28.5 29.4 30.2 31.1 T. Coal Ex [mt] 16.9 17.5 18.0 18.5 19.1 19.6 20.2 20.8 21.5 22.1 22.8 Coking Coal Im [mt] 14.8 15.7 17.1 18.1 19.7 20.6 21.7 22.8 23.9 25.1 26.4 Non Coking Coal Im [mt] 17.7 18.3 17.1 15.5 14.1 15.5 17.1 18.8 20.7 22.7 25.0 Fertilizer (RAM, Import) Im [mt] 9.1 9.7 10.2 10.9 11.5 11.9 12.2 12.6 13.0 13.3 13.7 POL Im [mt] 2.9 3.1 3.4 3.7 4.0 4.4 4.7 5.1 5.5 5.9 6.4 Others Containers Ex/Im [mt] 4.6 6.6 7.4 8.2 9.2 10.2 12.7 13.6 14.4 15.4 16.4 Containers in TEUs Ex/Im [TEU] 438672 626579 702428 785490 876383 975773 1212397 1291203 1375131 1464515 1559708 Ch Ore / Con Ex [mt] 3.7 3.9 4.1 4.4 4.7 4.8 5.0 5.2 5.4 5.7 5.9 Others (ex.Ch ore / con) Ex/Im [mt] 4.1 4.4 4.8 5.2 5.6 5.9 6.3 6.6 7.0 7.5 7.9 Total Others [mt] 12.4 8.3 8.9 9.6 10.2 10.8 11.3 11.9 12.5 13.1 13.8 Total [mt] 96.2 97.1 99.1 101.1 104.7 109.7 114.9 120.4 126.3 132.6 139.2 0.0 0.0 0.0 0.0 0.0 0.0 POL - Crude Im [mt] 27.0 27.0 28.0 28.0 28.0 30.0 30.0 30.0 30.0 30.0 30.0 Over all Total Ex/Im [mt] 123.2 124.1 127.1 129.1 132.7 139.7 144.9 150.4 156.3 162.6 169.2

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5. Capacity Bottlenecks and Proposed Projects 5.1 Iron Ore Flow 5.1.1 Capacity and Productivity In 2005-06, PPT handled 10.6 MT of iron ore cargo. PPT has one mechanized iron ore plant to handle iron ore. The existing plant has shipped only 6.4 MT in 2005-06 but the ship loader capacity is 2500 tonnes/hour. The remaining iron ore cargo is being handled at other general cargo berths. Hence customers face low productivity, high turn around and evacuation times. o Central Quay I - 3%

o Central Quay II - 4% o Central Quay III - 3% o MPB - 6% o South Quay - 6% o Eastern Quay I - 2% o Eastern Quay II - 3% o Eastern Quay III - 11% o Iron Ore Berth (IOB) - 62% The cargo from the PPT hinterland grew at 15% from 2001 to 2005 but PPT could not install the required capacity on time to meet this demand. Due to this delay, potential cargo for PPT went to other port gateways. Paradip planned for 10 MT capacity addition in 2002 but it has been deferred till now. Business Plan Development for Paradip Port Trust – Final Report 104

Internal Logistics o The existing plant is connected with two wagon tipplers with a capacity of 1500T/ Hr or 25 wagons per hour. o PPT has tippler constraints which limits the capacity to 3.5-4 rakes (54 wagons per rake) per day and iron ore is also handled manually from a different iron ore siding with an average of 1-2 rakes/ day. o The tippler capacity is 25 wagons per hour and there are two tipplers that can together handle about 50 wagons per hour. o According to this designed capacity, even 60% efficiency and 15 hours of effective work, the tippler should handle at least 10 MT. In other words, it should handle at least 10 rakes per day. o These constraints have forced exporters to move the rest of cargo by road, which accounted for nearly 1250 trucks per day or 404,888 trucks in 2005-06. 55% of total iron ore volume is being transported by rail and the rest by road to PPT in 2005-06. o Last year, 1212 wagons were tippled equaling nearly 4 MT out of 5.4 MT of rail bound cargo. The rest, 1.4 MT of cargo were unloaded manually from the wagons at a different siding and moved later to the conventional manual plots. o Further 2.4 MT of cargo out of 6.4 MT of total mechanized cargo was moved by trucks to the mechanized plant, which equals to 660 trucks movement per day inside the plant. The following key operational constraints were also observed: o The number of engines is not adequate for handling the rakes at the tippler point. At least three or four engines are required at the tippler plant (two for placing the wagons in the tipplers, one for clearing the empty wagons and one for haulage purpose). Business Plan Development for Paradip Port Trust – Final Report 105

o The total availability of the engines for the tippler per day is only two. These engines are also not powerful enough to handle the rakes alone. o Locomotives allocated for empty line clearing is being engaged for other purposes also. Hence, there is a delay in tippling. o Conveyors often need to be stopped to clear the foreign particles that come along with iron ore and gets jammed in the conveyor.

o Stackers at the plot area will wait to position at the right plot. This will add some delay in the tippling process. o The mechanical plots are not allocated in an optimal manner in order to maximize the utilization of the mechanized system. Bottlenecks and Constraints impact on Business o The tippler constraints forced the customers to dispatch the iron ore in trucks and to other port gateways especially Vizag and Haldia. o During the market survey, the majority of the customers have expressed their concern that they could send only one rake against the requirement of 2 to 3 rakes per day. They have to send it either by truck or to other gateways o The mechanized plant can only handle 800 to 1000 trucks per day but the shippers send about 1200 to 1500 trucks per day. The mechanized plants are mainly designed to handle only through tippler via conveyor system. Hence, the truck handling is limited. o It is been observed from market survey interviews that the total truck turn around time is 7 to 9 days from mines to PPT and back to mines. The average waiting time at PPT is 4 to 5 days. o This in turn reveals that 2300 to 3000 trucks on average stand on the road, which approximately equals 20 to 22 km of queuing (one truck equals to 15m). Business Plan Development for Paradip Port Trust – Final Report 106

o Since trucks are getting locked on the road, shippers face truck non availability at their plant. The availability of number of trucks limits the queue in the loop. One can observe from the above analysis how PPT has lost some market share or its piece of the cake to others due to delay in capacity investment and handling constraints at the port. Hence the following actions need to be taken immediately, to ensure the market share and also remove the queuing problems: o The above findings emphasize the need for investment in one more iron ore berth with at least 6000 to 8000 tonnes per hour capacity ship loader. o Until new investment comes, the iron ore handling plant should be optimized with adequate availability of engines and reliable conveyor systems. o Optimize the mechanical plot arrangement according to the conveyor constraints or remove that bottleneck at the conveyor. 5.1.2 Future Port Capacity Planning – Investment on Additional Berths PPT will continue to lose its potential cargo to its competitor unless the current bottleneck at the plant is removed and add additional 2 to 3 MT of capacity handling, especially at the tippler plant and conveyor systems at the iron ore plant. The average parcel size will be in the range of 80,000 – 120,000 tonnes at PPT in the future. To achieve an effective turn around time of less than two days, Port should need at least 50,000 to 55,000 tonnes per day through put. According to different mechanical scenarios, only 55% to 60% of capacity utilization is possible at any mechanized plant. Hence, the following factors are considered for the capacity planning: Business Plan Development for Paradip Port Trust – Final Report 107

• Maximum peak hour load of 4 to 5 hours, with ship loader capacity of 6,000 to 8,000 tonnes per hour • Hence, PPT can handle at least 8 to 10 MT of volume with 65% berth occupancy rate. • The berth occupancy is always 70 to 80% range under Indian scenario. The International standard is 65% occupancy rate. It is recommended for the port to adhere to the international standards. To support 6,000 to 8,000 tonnes per hour ship loading capacity, Port should need at least 2 reclaimers and 2 stackers with capacity of 3,000 to 4,000 tonnes per hour each. One reclaimer may be needed to have flexible operation and to avoid down time during loading. Wagon tippler station with 4,000 tonnes per hour capacity needs to be installed. It could be a system with 2,000 tonnes per hour with full rake handling with engine on train. PPT needs to have additional handling facility of about 7 to 15 rakes during the forecasted period. The storage capacity of 1,500,000 tonnes should be required with an assumption of stock of 10 to 15 days annual demand per day. Business Plan Development for Paradip Port Trust – Final Report 108

Iron Ore Capacity Planning - Export Mechanical Plant 2007 2011 2016 2021 2027 Projected Parcel Size [tons/ship] 40,000 55,171 81,064 116,904 145,050 Projected Demand [MT/year] 12 15 18 21 23 No. of Vessels [ships/year] 304 273 225 177 160 Projected Through Put [Tons/day] 35,000 55,000 55,000 55,000 55,001 Turn around Time [days] 1.1 1.0 1.5 2.1 2.6 No of Berths with 65% [No] 1.6 1.3 1.5 1.8 2.0 Additional Berth [No] 1.0 0.0 0.0 1.0 0.0 Back Reach and Logistics Requirements No of Rail Requirements Per Day [No] 12 14 17 20 22 Storage Capacity Requirement [tonnes] 774,568 958,216 1,158,465 1,314,801 1,480,680 Facility Requirements Ship Loader (1) [t/Hr] 6,000-8,000 Reclaimer (3) [t/Hr] 4,000 Stackers (2) [t/Hr] 4,000 Twin Tippler [t/Hr] 3,000 Table 5.1 Iron Ore Capacity Planning

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5.2 Coking Coal Flow PPT does not have any mechanized plant for handling coking coal import and it is mainly handled at the following berths with percentage distribution. o Central Quay I - 18% o Central Quay II - 22% o Central Quay III - 20% o MPB - 21% o Eastern Quay I - 13% Nearly, 60% of total volume of 3.7 MT is handled at Central Quay and 21% is

handled at Multi Propose Berth (MPB) and other 13% is handled at Eastern Quay. Commodity 2000-01 2004-05 2005-06 % CAGR Coking Coal Volume (in MT) 1.47 2.05 2.49 11% Table 5.2 Coking Coal volume by Rail

In 2005-06, 2.5 MT of coking coal is transported by rail and it is mainly dispatched to the larger players at their plant sidings. About 75-80% of total volume is being moved by rail. Coking coal rail movement grew at a CAGR of 11% over the years and in 2006 it shared about 44% of total outward rail movement from PPT. It has 84% of total rail share in 2001 and reduced to 44% due to increase in non coking coal, which is also moved by rail. Business Plan Development for Paradip Port Trust – Final Report 110

5.2.1 Bottlenecks and Constraints Productivity o The productivity is reasonable at 11,000 tonnes per day. There are two new cranes each with 20 T capacity which have been installed to handle both coking coal and non coking coal at Central Quay III. o It has been observed that the productivity is still low and the operators are not skilled enough to exploit it. Internal Logistics System o Inbound evacuation is the major constraint at the plant. Customers are not able to evacuate the cargo on time due to non-availability of engines on time to clear the rakes. o Loaded rakes wait for a long time (5 to 8 hours) to be moved, for which customers need to bear the wagon demurrage charges. Handling Capability o With existing general cargo berths (GCB’s), the Port can not handle the projected volume and also customers are planning to reduce their costs by increasing parcel sizes and making fewer trips. o The number of wharfage cranes is not enough to unload the cargo at GCBs. PPT needs to exploit its existing new cranes with skilled operators and need to install additional new cranes, at least another 2 to 4 harbour cranes to attract the cargo. Otherwise, customers and the Port will depend heavily on ships with own gears only. Business Plan Development for Paradip Port Trust – Final Report 111

5.2.2 Future Port Capacity Planning – Mechanize Coking Coal Handling Coking coal is one of the main commodities, which assures healthy growth rate in the coming years and the growth path is clear. Hence, PPT should build the required capacity that will reduce the Customer’s total supply chain cost and subsequently, keep the port competitive enough. The following key factors are considered for the capacity coking coal capacity calculation: o PPT is going to have tough competition between the new emerging port Dhamra, which is going to have a dedicated facility with more than 6000 tonnes per hour capability, and already well established ports like Haldia and Vizag port.

o Steel industry in India is going to import the coal, mainly from Australia where the cape size vessels are very common on longer route. o During market survey, customers also expressed that they will go for larger vessels provided ports are having enough facilities to cater to it. Even if the land cost is high, the cargo can still be attracted with a total lower supply chain cost. Based on already existing trend on coking coal import at Indian ports, we have simulated the required capacity needed for PPT to handle coking coal during the next 15 years. Business Plan Development for Paradip Port Trust – Final Report 112

Coking Coal Capacity Planning - Import Mechanical Plant 2007 2011 2016 2021 2027 Projected Parcel Size [tons/ship] 40000 56454 90919 121381 144935 Projected Demand [MT/year] 5 7 12 16 21 No vessels to be called [ships/year] 114 120 131 135 143 Projected Through Put [Tons/day] 25000 45000 45000 45000 45001 Turn around Time [days] 0.9 1.3 2.0 2.7 3.2 No of Berths with 65% [No] 0.5 0.7 1.2 1.7 2.1 Additional Berth Required [No] 1.0 0.0 0.0 1.0 0.0 Back Reach and Logistics Requirements No of Rail Requirement Per Day [No] 4 8 11 16 20 Storage Capacity Requirement [000'tonnes] 211680 336485 620178 893779 1197749 Back Reach Area Requirement [tonnes] Facility Requirements Ship Unloader / Grab Crane (2) [t/Hr] 2500 -3000 Reclaimer (3) [t/Hr] 2500 - 3000 Stackers (2) [t/Hr] 3000 Wagon loader (2) [t/Hr] 2000- 2500 Table 5.3 Coking Coal Capacity Planning

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According to the capacity calculation, PPT needs to have two mechanized berths during next 15 years time, one during 2008 to 2011 and the other one during 2016 to 2020, to cater to the growing coking coal import. The mechanized coal import berth should have at least 4,000 tonnes per hour unloading capacity with conveyor system from shore to yard (it should be two stream layer system). The installing stacker should have the same rated capacity as the grab unloader does, with rated capacity of 2000 (2) tonnes per hour. The critical logistics in coal loading is wagon loading as it involves synchronization between wagon loader and rake movements. The standard designed loading rate is 1.25 hours per rake, however, the service time is the biggest constraint, which limits the efficiency of the system. We propose to have a facility for loading two full rakes with two wagon loaders having capacity of 2000 tonnes per hour.

5.3 Non Coking Coal Flow PPT does not have any mechanized plant for handling non-coking coal import as well, and it is mainly handled at the following berths with percentage distribution. o Central Quay I - 7%

o Central Quay II - 25% o Central Quay III - 31% o MPB - 15% o Eastern Quay II - 12% o Eastern Quay I - 4% Nearly, 60% of total volume 3.3 MT is handled at Central quay and 15% is handled at Multi Propose Berth (MPB) and another 12% and 4% is handled at Eastern Quay II & I. Business Plan Development for Paradip Port Trust – Final Report 114 Non-Coking Coal by Rail in 2001-2006 Commodity 2000-01 2004-05 2005-06 CAGR Growth Share in 2005-06 Non-Coking Coal (in MT) NIL 1.09 2.49 127% 127% 44% Table 5.4 Non-Coking Coal volume by Rail

In 2005-06, 2.5 MT of non coking coal is transported by rail and it is mainly being dispatched to NTPC, Talchar, which is located 200 km away from the Port. About 75-80% of the total volume is being moved by rail. Non coking coal imports started only during the year 2004-05 with more than one million tonnes and it is mainly consumed by NTPC. Rakes arriving with thermal coal for unloading are used for back loading with non coking coal to the Talchar plant. 5.3.1 Bottlenecks and Constraints o The productivity is reasonable at 11,500 tonnes per day but the parcel size is always large with more than 60,000 tonnes per vessel (observed from the last 4 months data sheet from the Port). o Since Central quay is mainly used for handling both coking and non coking coal, the newly installed crane with 20 MT capacity is used. The same issues and challenges which are observed in the coking coal are applicable to non coking as well. Business Plan Development for Paradip Port Trust – Final Report 115

5.3.2 Future Port Capacity Planning – Mechanize Non-Coking Coal Handling Non-Coking coal traffic growth seems to be largely uncertain, as even the customers are not clear whether they are going to import coal in the future due to the shortage of domestic coal and corresponding policy changes in the future. However, Government is encouraging the users to import the deficit coal in the short to medium term. This is quite evident with the reduction in the Customs duty in the last budget. Otherwise, the state electricity boards are already planning for captive mines to satisfy their needs in the future. Hence, during next five years, we expect the traffic to grow as it takes time for CIL to respond to the needs of power plants and state electricity boards. But it is clear that other customers are willing to go for import as it is quite tough get the preference from CIL. Non coking coal will grow in the short to medium term, but it is totally uncertain about long term. But, looking at Indian reserve per capita, after 2020, India may face the coal crisis again though it will survive with short term measures for a while. Hence, Coking coal and non-coking coal would dominate the trade in the long run and it may change the entire logistics flow after 2020. We simulated with above discussed facts while arriving at the projections for

PPT. The following factors were considered for the non coking coal capacity planning, o The major customers would be NTPC or trading bodies like MMTC or STC and they would be importing at larger quantities. o The parcel size assumptions and design parameters are all same as Coking coal. Business Plan Development for Paradip Port Trust – Final Report 116

Non Coking Coal Capacity Planning - Import Mechanical Plant 2007 2011 2016 2021 2027 Projected Parcel Size [tons/ship] 40,000 70,567 102,726 133,508 175,506 Projected Demand [ton/day] 5 8 8 8 10 No vessels to be called [ships/year] 98 155 164 106 142 With Current Through Put [Tons/day] 45,000 50,000 50,000 50,000 50,000 Turn around Time [days] 1 2 2 3 3 No of Berths with 65% [No] 1 0 0 0 0 Additional Berth Required [No] 1 0 0 0 0 Back Reach and Logistics Requirements No of Rail Requirement Per Day [No] 5 8 16 13 24 Storage Capacity Requirement ['000 tonnes] 223,559 496,049 765,612 641,550 1,136,545 Facility Requirements Ship Unloader (2) [t/Hr] 2500 -3000 Reclaimer (3) [t/Hr] 2500 - 3000 Stackers (2) [t/Hr] 3000 Wagon loader (2) [t/Hr] 2000- 2500 Table 5.5 Non Coking Coal Capacity Planning

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o Hence, whatever proposed for coking will applicable to non coking coal as well. o In the short term, PPT can use the coking coal facilities, wait till 2009 and then start thinking creating facility for non coking coal. o If the power plants continue to suffer from coal sourcing constraints, then PPT would need two berths before 2020. o This is a transition period for non coking coal, which makes it really difficult to project the future trend. Hence, TransCare arrived at the projections based on very realistic scenario.

5.4 Container Terminal Planning PPT does not have a dedicated container terminal facility. The existing volume, which is less than 5000 TEU per year, is not justifiable to have a dedicated terminal. However, Port should exploit its core strength of deep draught and attract the containers from the East and North India clusters. Since, Haldia has a draught restriction; PPT can be developed as an alternative feeder port for East bound cargo from East and Northern parts of India. These assumptions are considered and projected about 350,000 TEU and 1.5 million TEU during next 20 years under realistic and optimistic scenario. However, Consultants convinced that even 350,000 TEU is quite optimistic as

Port has to start container business from the scratch though there is market a good potential. It needs an aggressive market focus and entrepreneurial strategy to tap this business opportunity. Consultants assumed realistic scenario for the container capacity planning. Though projected volume is 350,000 TEU, consultants propose a container module with 450,000 TEU capacity, with a flexible to reach up to 700 to 850,000 TEU per year in the future (After 2027). Business Plan Development for Paradip Port Trust – Final Report 118

The following assumptions are made for the container capacity planning: • The terminal is considered to be an import and export terminal • The terminal is planned as a feeder terminal for the East and North India market, to the South East Asia hubs like Singapore and Malaysia • An average 850 TEU /quay meter/ year is assumed as it is a feeder terminal. Table 5.6 Crane Capacity Planning

• The estimated through put per quay crane is about 89,100 TEU / year/ crane. • The estimated throughput per RTG crane is about 36,432 TEU / year / crane. • For quay crane, 9-hour is considered as a peak period during which 80% of volume per day will be handled. • For RTG cranes, 4-hour is considered as a peak period during which 80% of moves per day will be handled. RTG Capacity Planning Moves / Hr 23 Peak Hours (80%) 4 Total Moves/Day 110 Working Days 330 Moves/year/Crane 36432 Quay Crane Capacity Planning Moves / Hr 25 Peak Hours (80%) 9 Total Moves/Day 270 Working Days 330 Moves/year/Crane 89100 Business Plan Development for Paradip Port Trust – Final Report 119

Container Terminal Capacity Planning 2007-27 Design Parameter Units Realistic Planned Module in TEU 450,000 Quay Crane No 5,0 RTGs No 12 Quay Length in m 529 Back Reach in m 500 Total Area in Ha 26 Assumed Dwell Time In days 14 Through Put TEU/Ha 17000 Through put/Quay length TEY/m 850 Table 5.7 Container Terminal Capacity Planning

Based on the above assumptions, the estimated container terminal area is about 26 ha, with a quay length about 530 m and back reach about 500 meter. The required quay cranes and straddles are estimated to be 5 cranes and 12 cranes, respectively. Business Plan Development for Paradip Port Trust – Final Report 120

Conclusion o The projected parcel size will be in the range of 40,000 tonnes per ship to 100,000 tonnes per ship in next 10 to 15 years. The Cape size vessels in the range of 180,000 to 250,000 dwt vessels will be common as already it shares 34% of total tonnage in the world. o Market needs highly mechanized berth with high turn around time with less number of trips. Table 5.8 Facility Requirement Summary

o Market demands three mechanized berths (Iron ore, coking and non coking coal) during 2007 to 2008 and one fertilizer berth and container terminal during 2011 to 2013. Container berth with a 0.45 million TEU capacity is required by 2016. o After 2020, Port will need a massive investment if the volume grows as expected. One more Iron ore and coking coal berth are required at the end 2021. Additional Berth Requirement from 2007-27 Commodity 2007 2011 2016 2021 2027 Total Iron Ore 1 0 0 1 0 2 Thermal Coal 0 0 0 0 0 0 Coking Coal 1 0 0 1 0 2 Non Coking Coal 1 0 0 0 0 1 Fertilizer 0 1 0 0 0 1 Containers 0 1 0 0 0 1 Others 0 0 0 0 0 0 Total 3 2 0 2 0 7 * Mech Berth 1 = 8 to 12 MT, 1 Container Terminal = 0.5 m TEU Business Plan Development for Paradip Port Trust – Final Report 121

6. Hinterland Connectivity PPT hinterland is divided into three main layers for the future development. The following hinterlands should be focused under these layers: Layer I – Orissa and its immediate Hinterlands – coal and iron ore • This layer mainly covers all the mines, especially, coal, iron ore, alumina and other minerals. • Five high value goods production locations are also covered. • Here PPT has a quite competitive position though it has been losing its hinterland cargos to Haldia and Vizag due to direct missing links from the Port to mines. Layer II – Jharkhand, Chhattisgarh, North-West Andrapradesh, WestBengal • This layer covers mainly the steel industry and iron ore mines. The WestBengal cluster is the key for the high value goods • Layer II is divided into two parts viz. Layer A and B. Layer A consists of mainly West Bengal and Layer B includes Jharkhand, Chhattisgarh and

North-west Andra Pradesh. • Paradip is not a competitive port to attract cargos which are produced in these clusters. Haldia is competitive in Layer A and Vizag is the key player in Layer B. Layer III – Northern and Central Indian cluster • Layer III is mainly considered for high value goods production clusters. 60% of Indian container market clusters are located in this layer. Business Plan Development for Paradip Port Trust – Final Report 122

• Currently, PPT attracts hardly any cargo from this cluster and it is a quite competitive cluster as well. • JNPT takes almost 90% of the total volume which is produced in these regions. • In the market analysis, the future Eastern Corridor has a higher growth potential than the Western. • PPT needs to be aggressive on marketing its core strength of Deep Draught and proximity to Eastern Market. • PPT should gain market share at the cost of JNPT’s poor service and establish a dedicated corridor which will link Central India (Nagpur Cluster), Northern India (Delhi cluster), Western India (JNPT Cluster) and Paradip. • Though it is optimistic, this is the future potential target market for PPT. It can be achieved only by excellent multimodal connectivity.

6.1 Iron Ore Supply Chain Link • Banspani and Daitari are the key iron ore clusters in layer I. Banspani is the major iron ore producing cluster. • This cluster generated about 40 MT in 2005-06. About 16 MT was exported and the rest went to domestic consumption by the steel plants. • Though Banspani is located 300 to 320 km from the Port, it is not served with a direct link to the Port. The cargo has take to take a circle route from the mines to the Port via TATA Nagar, Kharragpur and Cuttack. It equals more than 650 km. • Banspani is served with a direct link with Haldia. However, Haldia attracted 5 MT. However, it was almost nil five years back from this cluster to Haldia. PPT could attract only 9 MT out of these 16 MT. Business Plan Development for Paradip Port Trust – Final Report 123 Network Map 6.1. Paradip Hinterland connectivity by rail and road IRON ORE MINES ROAD LINK RAIL LINK

PARADIP BANSPANI SECTOR DAITARI, 1.2 MT 310 Kms 4.5 MT 650 Kms 4.5 MT

10.2 MT (EXPORT)

Business Plan Development for Paradip Port Trust – Final Report 124

400 Kms 5 MT

IRON ORE MINES EXISTING RAIL LINK PROPOSED RAIL LINK IRON ORE FOR EXPORT IRON ORE – DOM. CONSUMPTION

BANSPANI 40 MT 700 Kms 2 MT 650 Kms 9MT PARADIP 475 Kms 5 MT HALDIA VISAKHAPATNAM 16 MT (Export) 8.1 MT (Export) 10.2 MT (Export) BELLARY / HOSPET, 9 MT 18MT 5 MT 24MT 16 MT

CHAIBASA, 3.1 MT BAILADILA 23 MT Network Map 6.2. Iron ore Export from PPT’s Hinterland

Business Plan Development for Paradip Port Trust – Final Report 125

• However, if the Port brings high handling capability and an efficient internal logistics system, the potential cargo from these clusters could be attracted. • The customer focus would be on Total Supply chain cost optimization. Hence, the lower competitiveness on hinterland for this cluster could be compensated by capability and logistics systems at the Port itself.

6.2 Thermal Coal Supply Chain • Thermal coal mainly originates from the Talcher mines at Mahanadi Coalfields, and is destined for TN and Karnataka. • Thermal coal is mainly transported to State Electricity boards in TN and Karnataka, which account for nearly 99% of total PPT thermal coal export volume. • Talcher is the main coal mine for these boards, which is located nearly 200km from PPT. • Rail cum Sea was the most optimal model chosen by TNEB, which imported about 7.9 MT during 2005-06 and KPCL imported nearly 1.4 MT in 2005-06. Thermal coal volume decreased by 12% to 9.1MT from 10.4 MT in 2004-05.

• TN’s requirement for thermal coal is about 14 MT per annum for its 3200 MW coal based thermal power plants. The source of coal for TN is MCL (Talcher, main source and IB valley). • The cheapest route distribution of coal from Orissa to TN is Paradip to Ennore. The detail cost analysis is as follows: o The existing routes to TN (with landed cost) - Talcher – Paradip – Tuticorin ( Rs. 1450/t) - IB valley – Vizag – Tuticorin (Rs. 1,874/t) - Talcher – Paradip – Ennore (Rs. 1,350/t) - IB Valley – Paradip – Ennore (Rs. 1750/t) Business Plan Development for Paradip Port Trust – Final Report 126 Network Map 6.3 Coastal Movement of Thermal Coal Tuticorin 6.1 MT Haldia 3.4 MT Vizag 2.8 MT Paradip 9.2 MT Ennore 8.4 MT Chennai 1.9 MT Haldia – Ennore 2.4 MT Haldia – Chennai 0.4 MT Haldia – Tuticorin 0.6 T PPT – Ennore 5.9 MT PPT – Chennai 0.5 MT PPT – Tuticorin 2.7 MT Vizag – Tuticorin 2.8 MT Exiting Rail Link

IB Valley Talcher Raniganj Mettur

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• Though routes are cheap, coal is being distributed from other routes because o CIL gives the first preference to NTPC plant at Talcher during the coal allocation process. Talcher could supply 18 rakes only against the demand of 24 rakes/ day. o Rake availability is higher on Vizag routes from MCL than on the PPT route. o Though coal mines clusters come under Layer I itself, the full cargo potential could not be attracted due to other policy level constraints. o Coal India Ltd linked 3.4 MT of TN demand via eastern coal mines at the cost of PPT share, which reduced 100% potential share to 80% o Talcher plant could not supply the full demand of TN. Hence, coal shipped through Paradip is only 7.9 MT, which reduced

market share to 50%. o IB valley is another coal mine region of MCL, which is located in Orissa and 2.74 MT is linked from these mines through Vizag port. o Though IB valley to PPT is the cheapest route, coal is being diverted via Vizag to TN due to high availability of rakes on this route. Though, PPT and Ennore thermal coal facilities are built for TN to handle 20 MT of thermal coal, capacity is not being utilized completely due to the above factors. Business Plan Development for Paradip Port Trust – Final Report 128

6.3 Coking Coal and Non Coking Coal Supply Chain • Indian steel companies imported nearly about 21.8 MT of coking coal through major ports. Coking coal import has been growing at a CAGR of nearly 12% over the year, which is more than GDP growth. • Vizag leads the coking coal import with 35% share and reached 7.52 MT during 2005-06. Paradip shares with 17% and reached 3.75 MT. Goa and Haldia are the other major ports which imported the coking coal. • Major driver for the coking coal are the steel plants, importing 60% of total coking coal from China and Australia. • About 65% of trade happened through eastern parts of India as major steel plants are located there. • Chhattisgarh and Jharkhand are the key clusters for the steel plants. These clusters come under Layer II, where Vizag and Haldia enjoys high competitive advantage. • Bhilai, Roukela, Bokaro, Durgapure, TATA Nagar are the key steel plants located within Layer II. • Nearly 78% of coking coal is being imported through PPT, Vizag and Haldia. SAIL is the major importer of coking coal with a share of almost 45%, which is about 9.8 MT. • SAIL imported nearly 4 MT through Vizag to its Bhilai steel plant in Chhattisgarh. Vizag doesn’t have any major steel plants in its hinterland except Vizag steel Plant. • This hinterland along with Orissa generates nearly about 14 to 15 MT. PPT has got only 28% of total cargo which was generated in this hinterland and potential is there for another 4 to 5 MT from Vizag. • However, the competition would be very tough against Vizag as it has an excellent hinterland network. Business Plan Development for Paradip Port Trust – Final Report 129 Network Map 6.4 Non- Coking Coal hinterland distribution EXISTING RAIL LINK

NTPC, 1.6MT NALCO, 0.2 MT TATA, 0.08 MT 220 Kms 511 Kms

PARADIP 3.3 MT 211 Kms HALDIA VIZAG 1.2 MT 1.1 MT NTPC, 1 MT Business Plan Development for Paradip Port Trust – Final Report 130 Network Map 6.5 Coking Coal Hinterland Distribution

• Developing inter-connected multimodal rail link between these steel clusters and high handling capability at the Port would ensure a competitive advantage for PPT. • Non Coking coal is mainly destined for NTPC plants in the Orissa cluster. There are new power plants being additions as well under NTPC projects. It comes under Layer I where PPT is already having a competitive advantage. 3.7 MT 7.5 MT 5.4 MT ROURKELA TATA NINL

BHILAI VISAKHAPATNAM DURGAPUR PARADI P HALDIA BOKARO 554 Kms

4 MT 120 Kms,

1 MT 515 Kms

1.5 MT 511 Kms, 0.7 MT 2.5 MT VSP 305 Kms,

0.6 MT 454 Kms,

3.7 MT Steel Plants Existing Rail Link

Business Plan Development for Paradip Port Trust – Final Report 131

6.4 Container Supply Chain • PPT hinterland is not driven by high value goods though the Port has a

good potential to develop a container terminal on its core strengths (deep draught and closer to Eastern markets). • Market survey also concluded that there is not much scope for high value goods in the short and mid term. • However, finished steel and alumina may give some potential volume, though not enough to justify a dedicated container terminal. The Port must therefore start to expand its focus to the Layer III clusters.

6.5 Master Hinterland Connectivity Plans The projected potential volume through rail would be 82 MT in 2027 from the current volume of about 21 MT in 2006. About 43 MT would be an outbound cargo flow while the inbound cargo flow would be 39 MT. The outbound and inbound volume would get balanced over period of time. The rest will be carried by road, especially from the near by hinterlands. A 3-pronged-strategy has been proposed for the Port of Paradip to be a Lead hub port on the Eastern corridor: • Strengthen the hinterland connectivity competitiveness with already planned projects in the Layer I • Establish a link between all the steel plant hubs with the Port through Public Private Partnership. The key focus is on Layer II. • Develop a win-win strategy partnership with rail operators to bring a multimodal connectivity to divert cargo from Northern and Central India viz Paradip. It relates to Layer III. Business Plan Development for Paradip Port Trust – Final Report 132

Strengthening Layer I & II Category Daitari - Banspani rail link • This rail link of 155 km will upon completion link the port with iron ore mines. This will dramatically reduce the distance and freight cost for export iron ore. • The work is estimated to cost Rs. 590 crores. The anticipated date of completion of this work is February 2007. It is under progress by RVNL. The following cargo streams are expected on this route • Iron ore for export • Iron ore for steel plants and • Coking coal for steel plants in Jharkhand area. Business Impact • The current flow from the mines to Paradip is via TATA Nagar, Kharragpur and Cuttack, which is a distance of 663 km. • This new link will make the distance from the mines to Paradip via Cuttack only 328 km. It will give a competitive advantage to the Port as the cheapest route to move the cargo. • However, only the rake availability and handling capacity will determine to what extent Paradip will be able to benefit from this project. Haridaspur - Paradip rail link • This link of 78 km will upon completion link the port with iron ore mines and steel plants as a dedicated corridor. This will also shorten the distance of the proposed steel plants from the port. Business Plan Development for Paradip Port Trust – Final Report 133

• The project with an estimated cost of Rs. 441 crores will be executed by

RVNL. A SPV has been signed on 24.05.05 for equity of Rs. 180 crores between the following players: Table 6.1 Investment share

• The anticipated year of completion is 2008. The cargo stream on this route will be iron ore for export, coking coal for steel plants and limestone, fluxes for steel plants. Business Impact • The reduction in distance and freight cost for export of iron ore after completion of the rail connectivity projects will be as below: Via Tata-KGPCuttack Via DaitariCuttack Via DaitariHaridaspur Barbil-Paradip Distance in km 661 383 341 Freight in Rs. 555.70 340.10 309.30 Nuamundi- Distance in km 645 359 317 Paradip Freight in Rs. 540.30 317.00 286.20 Banspani- Distance in km 663 328 286 Paradip Freight in Rs. 555.70 293.90 263.10 Table 6.2 Cost Benefit analysis on different routes

• As of now, the cargo flows to PPT via Cuttack. With these proposed new rail links, the total distance from the mines and steel clusters will decrease. It will give a clear competitive edge to Paradip. Investment Share by Different Entities RVNL: 30% Govt. of Orissa: 1% PPT: 10% Essel: 24% Rungta: 24% Jindal: 11%

Business Plan Development for Paradip Port Trust – Final Report 134

Doubling and Electrifying Cuttack - Paradip rail link • This link of 90 km connecting the Port with Howrah-Chennai main line at Cuttack has been doubled and is currently being electrified. Originally, it was a single broad gauge line and it is now completely doubled. Electrification of this line will be done in one or two years. • This will increase the capacity to 40 MT inward and 40 MT outward per annum. Hence the estimated rakes per day would be 35 to 37 rakes each way. That would clear the rail link as a bottleneck in the whole logistics chain, leaving the other parts of the chain, i.e. the internal logistics systems, to be optimized. The Port should work on internal logistics design and ensure faster turn around time of rakes. Rakes are restricted on PPT routes as railways are not able to get the rakes back on time, which in turn leads to the non availability of rakes on the route. Four laning of Chandikhol-Paradip road (NH-5A) This existing two lane link with a distance of 77 km connects the Port to the mines via Chandikhol is being four laned. It is being implemented by NHAI at a total cost of Rs. 428 crores and work has commenced in Feb’ 04. The anticipated date of completion is February 2007. A SPV has been formed called Paradip Port Road Company Ltd (PPRCL) for the above purpose and an agreement has been signed between NHAI and PPRCL for the above purpose in July 2004. PPT’s contribution to this project is about Rs. 40 Crores. PPT has contributed Rs. 20 Crores till date.

Business Plan Development for Paradip Port Trust – Final Report 135

Four laning of Cuttack-Paradip road (SH-12) This existing two lane road is intensively used for infrastructure development activities and construction of projects. The total distance is about 82 km. MOSRTH has sanctioned Rs. 26.46 crores for improvement of the existing road. • PPT has agreed to pay Rs.15 crores and the balance will be funded by Govt. of Orissa and other stake holders. The 4 laning will be taken up later on BOT basis. • This is mainly going to used for public transport as the Chandikhol – Paradip road is always congested with truck movements. Even if there is a four laned road, the length of queue may come down, but not the congestion. This will only happen if there is a strategic shift to rail or internal logistics system re-engineering. The project is getting delayed. Hence the day to day life is affected as people are not able to go on the main way due to truck congestion. Although the Port wants to solve it, the Government takes its own time to implement it. Four laning of Keonjhar-Panikoili road (NH-215) • This two lane link of 269 km distance connects the port to the iron ore mines. The cargo stream on this route consists of iron ore for export. DPR for this is being prepared by NHAI. • The estimated cost is Rs. 1076 crores and the work will be taken up on a BOT basis. It is only in the pre-feasibility phase and it will take time to get materialized. Business Plan Development for Paradip Port Trust – Final Report 136

• N

V S

P H S T SS I I

JNPT Proposed Rail Links Existing Rail Links D - Delhi , H – Haldia, JNPT – Jawaharlal Nehru Port Trust, P- Paradip Planned Rail Links V – Vizag, S- SAIL Plants, T – Tata Plant, C- Coal mines, I – Iron Ore mines Rail Links – Under Cons.

Master Network Map.6.6

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Four laning of Chandikhol-Duburi (NH-200) • The existing two lane road of 39 km links the port with steel plants and coal mines. The cargo stream on this road consists of coal for steel plants and finished steel for export. DPR for this is being prepared by NHAI. • The estimated cost is Rs. 160 crores and the work will be taken up on a BOT basis. This is also under process and it will take time to get

materialized. Layer III – Integrated North, Central and Eastern Clusters Delhi and Paradip Corridor • JNPT is quite congested and Kolkata has a draught restriction to accommodate bigger vessels. Hence, Paradip can be developed as a future satellite port for JNPT or Kolkata for container distribution. • Developing rail corridors between key industrial clusters, especially as follows, would ensure a competitive advantage for PPT. Delhi – PPT Nagpur – PPT Kolkata - PPT Business Plan Development for Paradip Port Trust – Final Report 138

7. Future Port Layout and Land Use Plan 7.1 Proposed Future Port Layout Plan The Port is currently occupying 70% of the land area for the existing dock and harbour area, reaching this level over the past forty years. However, the Port has experienced high growth only during the last 8 years, and according to the market analysis, the Port is expected to grow at 6% to 8% during the next 20 years. • The Port is currently using 70% of its total available land for dock and harbour areas. It is about 1981 acres, of which, 371 acres or 150 ha is being used for stacking purposes (including mechanical and manual storage). • The mechanized plots occupy only 22% of total stacking area, but handled about 15.5 million tones of cargo. The utilization factor is about 700,000 tonnes per Ha. • The remaining storage area is occupied by manual handling for iron ore (manual handling), coking and non coking coal. The utilization factor is only about 140,000 tonnes per ha. • The Port has only about 200 ha for any further industrial development activities in the future • The land availability for the future expansion is mainly located at the following locations: o The south and west side of the Port. o Near the north break water or east side of the Port Since 70% of the existing area is already been used, the optimal utilization of land and water in the coming years is the key for the Port development. Business Plan Development for Paradip Port Trust – Final Report 139

Otherwise, the Port has to disturb the township area, which the Port will be forced to do anyway in another 20 years to meet Port expansion requirements. • The Port will touch about 129 MT by 2027, which is almost 4 times the current throughput. The available land, however, is limited. • The Port’s future growth is also driven by minerals, mainly coal and iron ore, but the Port has an opportunity to also attract high value goods. • The mineral traffic always depends upon the supply and demand scenarios of domestic market. Hence, the traffic flow is vulnerable to the changing market dynamic conditions and competition. The Port should have a flexible Port planning in place to adopt any kind of market

dynamics and risks. TransCare has evaluated different scenario possibilities for the Port’s future expansions. The different alternatives have been presented to the Port, not only for next 20 years, but also beyond 2027. Many discussions and workshops have taken place between the Port and TransCare (Ref. Interim Report, Port Planning section). The following top two scenarios have been selected and the detailed Port Planning is developed for Southern Dock system scenario: • The expansion of the southern Side with a long southern quay wall, from south west to east • Southern Dock system aligned with wind direction 7.1.1 Southern Quay Expansion Layout The prevailing wind direction from South to North, which will impact the vessels from the side, is the major concern from the Port to go ahead with this Port layout. It is not a major issue as far as bulk vessels are concerned, rather for Business Plan Development for Paradip Port Trust – Final Report 140

container vessels it may tend to be a challenge. Tug operations may also be presented with challenges with winds charging the vessels from the side. Current and future mooring technologies would, however, enable the vessels to be stable at the berths, even given the wind impact. The case study on Rotterdam Port was also placed for the Port. The new terminal is designed opposite to the prevalent wind direction. Moreover, these terminals are for container vessels, which have high vulnerability to the wind. Indeed, some of the key Australian bulk ports are highly vulnerable to hurricanes but they are able to manage the marine and nautical issues with their sophisticated mooring and navigation tools. However, a detailed simulation study is what is required for the Port to have a final decision on the same. 7.1.2 Southern Dock system with aligned wind direction Port is convinced with a Southern Dock system aligned with the prevalent wind direction of the Port. The following key inputs have been considered for the final Port Planning layout: • The current planned Dry dock should not be disturbed as the work is already started. • Minimal disturb to the existing township area. • The planned Western dock system should be removed as the proposed project is not financial viable. • Reserve berths for oil terminal. • Develop a dedicated rail link to the southern dock. Business Plan Development for Paradip Port Trust – Final Report 141

7.1.3 Facility Requirement TransCare has projected future facility requirements based on realistic scenario for the Port planning, which are the followings: o Two iron ore mechanized berths o Two coking coal mechanized berths o One non-coking coal mechanized berth o One container terminal o One fertilizer berth No need for general cargo terminals if the existing eight multi purpose berths are

used with high productivity. At least 8000 to 10000 tonnes per day would ensure minimum 2 MT per annum, which would give 14 MT capacity from current capacity about 4.9 MT. Even in the optimistic scenario, other cargo is projected to be only 14 MT by 2027. Hence, TransCare is not envisaging any additional berths for other cargos if the Port upgrades the existing general cargo facilities. The following design criteria have been considered while developing the future Port planning: Deep draught berths • Vessel size – 150 to 220,000 dwt • Draught – 17 meter • Quay – 350 meter • Beam – 52 meter Container Terminal • Vessel size – 40,000 to 90,000 dwt • Draught – 17 meter • Quay – 700 meter • Back reach – 500 meter Business Plan Development for Paradip Port Trust – Final Report 142

7.1.4 Development in Phases Based on the realistic scenario, 7 berths need to be accommodated within the available land and water areas, along with rail and road connectivity. The future Port planning has been proposed in a phased manner, as follows: Phase I Development - BOT Complex The first phase expansion plan starts with Eastern side of the Port. This dock system is called to be a BOT Complex. It was already proposed by the Port for deep draught Iron ore and coking coal berths. However, TransCare revised the plan with more number of berths per dock along with modifications in logistics flow and rail connectivity for the proposed dock. The following key design criteria have been considered: • Number of berths versus adequate back reach area for rail terminal planning and storage. • Number of berths versus different types of cargos (iron ore, coking coal and non coking coal). Dock Design Planning The dock with 700 meter length and 250 meter width is planed in the identified area. Two berths at each side of the dock with a length about 350m can be accommodated. The following berth allocation is planned in the BOT complex: • Two Iron Ore berths on the western side of complex • One Non coking coal and Coking coal berth on the Eastern side of complex • The BOT complex can be developed in the following sequence: Two berths at the beginning of Phase I Two more berths at the end of Phase I Business Plan Development for Paradip Port Trust – Final Report 143

Back reach area Planning Two locations are identified for the back reach areas: • Immediate back reach area with 200 meter width and 700 meter length • The existing CSF area with 250–300 meter width and 700 meter length

The back reach requirement for each deep draught berth is 250×700 sqm. This includes at least 30 to 40 meter rail terminal for loading or unloading. Hence, four berths will not possible. • TransCare therefore proposes a dock system with 400×250 sqm with sufficient back reach area for the long run. • The proposed coking coal quay could be used for both coking coal and non coking coal in the short term until the next phase development is realized. Hence, the investment for non coking coal could be postponed for a while and it would give a high utilization rate of the coking coal berth, thus improving the return on investment. • The CISF residential area should be moved to another location. For which, the existing vacant area, behind the Jaganath Temple in Sandhakud village could be used. Logistics Planning • The current wagon load terminal should be extended to the current chrome ore stacking area. • The immediate back reach of the proposed dock should be used for iron ore stacking and the proposed wagon unloading system for tippler operations. Business Plan Development for Paradip Port Trust – Final Report 144

• The identified CISF area should be used for coking coal and non coking coal stacking with a wagon loading system. Rail terminal Planning • The rail terminal should be developed in the Chrome yard area for the Iron ore • Once the iron ore is unloaded, the same rake should be cleaned and sent to coking coal yard for coking coal loading to the CFS area. • Engine on Head (EOH) concept should be exploited for the logistics operations. • The proposed rail lines could be linked to the ADB lines or can be developed as a new line along ADB sidings. The ADB line can not be used in the long run as the line will be congested if thermal coal movement is increased. TransCare therefore proposes a new line along the current ADB line and offset the existing road. • In total, 3.2 km rail track length and 6 km road length with 4-way has been proposed. Road and Gate Planning • The chrome ore yard should be moved to the central dock area. • Once the iron ore and coal cargos handlings are mechanized, the need of road movement would drastically come down. Hence, the need of Gate No. 1 is not necessary. • Hence, Gate No.2 which is mainly used for iron ore trucks can be used for other cargo trucks as an out going Gate. • Gate No.3 should be used for incoming trucks for all other cargos. Business Plan Development for Paradip Port Trust – Final Report 145

Phase II Development - Southern dock Complex As discussed in the previous chapter, the Port should start its next phase expansion plan with south quay extension or Southern dock system

Dock Design Planning The dock with 1050 meter quay length in the south west and 700 meter quay length in the south east side is proposed. The proposed dock width should be 250~300 meter. The following proposal has been made for the south dock complex: • 17 meter draught • One container terminal module with a 700 meter quay length and back reach about 500 meter with a rail terminal, on the West side of the complex. • Two berths are reserved for the future expansion on the Eastern side of the complex, mainly for deep draught vessels. The projected container traffic is about 350,000 TEU and it is only in the optimistic scenario. Hence, the proposed container terminal could be used both for clean cargo as well as container volume. The back reach for the south west side of the dock is not a problem with minimal disturbance to the town ship area. There is flexibility in the proposed design as the panned dock can be also developed as clean cargo or break bulk cargo terminals. Logistics Planning • To serve the Southern dock complex, a dedicated rail service line system has been proposed. Business Plan Development for Paradip Port Trust – Final Report 146

• The container terminal has been proposed with a dedicated rail yard. • A dedicated rail link from the Railway station to the planned container terminal has been proposed with a loop concept. o The train can take a turn at 250 meter radius from the station, just before the existing flyover and go via the existing Golf area to the terminal. o The marshalling yard or parking area for the Rail terminal has been proposed in the golf area as well. o The existing golf area can be developed as CFS area within the Port premises. The estimated area is about 300 acre, which is sufficient for the planned terminal capacity. o A loop concept or MGR system is proposed with a radius of about 260 m between golf area and container terminal area. o Hence, the train does not need to be shunted; rather, it can come directly to the terminal through a loop system, which has been proposed at both end of the terminal, and move to the marshalling yard or main line, as a block train. o The estimated land requirement is about 1 km from the existing boundary wall to the township. o The other option is a rail link with a shunting system. • Both options can be developed in a phased manner o Phase I - Rail link with a shunting system o Phase II - Loop System, when South dock handles high traffic volume • With a loop system, the planned South dock complex can be served efficiently and effectively.

• The existing road which leads to the IOCL refinery from the proposed south dock complex zone will be a key corridor to link the Port to the Industrial zone in the future. This corridor passes through the existing Sandhakud village near by Port premises. Hence, the existing settlement in the Sandhakud village should be relocated outside the port limit in the Business Plan Development for Paradip Port Trust – Final Report 147

coming future. Since oil tankers and other trucks movement will have frequent movements on this road in the future, it will not be a safe place for the residential zone. • The disturbed facilities in the township area during south dock phase development could be moved to the Sector 4. Recent Development Port has recently received a requisition from its Oil customer, IOCL, for the relocation of its existing pipe line from the oil terminal to its marketing terminal. For which, Port has come up with the following suggestions for the IOCL’s requisition and also an intensive discussion was held with TransCare on the same. • The proposed western dock complex (opposite to the container terminal) can be used for the oil terminals development in the near future. • The existing oil terminal could be moved to the proposed area along with an additional oil terminal and convert the existing oil terminal into a coal jetty for the imported coal. Since, the requisition came just three days before the submission of the final Business Plan report; TransCare couldn’t give any a solid recommendation on the above mentioned suggestions by the Port. However, TransCare is fully agreed and convinced the Logistics advantage that could be achieved by moving the Oil terminal to the Southern dock complex, provided, the proposed suggestions meet the financial viability criteria and environmental standards by having oil terminals opposite to the clean / container cargo terminal. Business Plan Development for Paradip Port Trust – Final Report 148

7.2 The Future Land Use Plan Development 7.2.1 The Existing Land Use Plan Status PPT has about 6383 acres of land in Paradip which comes under Jagatsinghpur district in Orissa. The split of the existing land use is as follows: • Dock and Harbour area occupies about 1981 acres of land. • The township which was built around the Port occupies about 2188 acres of land. The Existing Land Use Plan Split Up by Zones Existing Zones Area (in acres) Zone I Dock& Harbour (including ADB Project area) 1981 Zone II Township (Township and administrative area) 2188 Zone III Sector – 21 (Fishing Harbour, Resettlement site, Ecologically fragile area) 604 Zone IV Oil Industry, Utility& Transportation (include SE railway terminal) 1611 Total 6384 Table 7.1 Existing Land Use Plan Status

The township shares almost 34% of total land area of the Port. Dock & Harbour

shares about 32% of land. Industry and other related activity except the fishing harbour shares 25% of the total land. Fishing harbour share is about 9%. The Port developed the existing township area since its commencement of operations in 1966. The entire support to the township such as power, water, road and drainage systems are provided by the Port. The township is very close to the harbour area; hence, it is the biggest bottleneck for the future development. Existing land use status under Zone I – Dock and Harbour Area As discussed earlier, the Port uses about 1382 acre already for the Port development. The western side of the Port, where Western dock system was Business Plan Development for Paradip Port Trust – Final Report 149

planned by the Port, has free land of about 314 acre. The rest of the free areas are available in the Southern and Eastern side of the port. Zone 1 - Port Area (Dock & Harbour, including ADB Project area) A Total allocated Land 1981 B Total Available Land 599 Western Dock Area 314 Near South Break Water 140 Near North Break Water side 145 C Used Land 1382 % Used 70% Table 7.2 Existing Land Use Plan Status – Zone I

7.2.2 The Future Land Use Plan Status The following areas will be transferred during Phase I and Phase II planning to the Port development from other Zones: A. Areas will be transferred from Zone IV to Zone I Area (in acres) Warehouse Area 145 Area near Kalinga Engg. Works 45 Central Stores Area 60 Total 250 B. Area will be transferred from Zone III to Zone I Area (in acres) CISF Area for Phase I development 124 Total 124 C. Area will be transferred from Zone II to Zone I Area (in acres) Golf Area and others for Phase II development 630 Total 630 Total transferred areas to Zone I (A+B+C) 1004 Table 7.3 Land Use Plan Changes – Zone I

During Phase I and Phase II, the total transferred areas to the Port development is proposed to be 1004 acres. The following table explains how much land will be used under Zone I for the Port development, after transferred of lands from other zones. Business Plan Development for Paradip Port Trust – Final Report 150 Zone 1 - Port Area Updated after Phase I & II Activity Area (in acres) 1 Used Land Already Used before Phase I&II 1382 North Break Water used for BOT complex 145 South Break water used for Clean cargo Complex 140 Central Store Area used for Clean Cargo Complex (Rail Yard and CFS) 124 CISF Area used as Back reach for BOT complex 60 Golf and other Areas from Zone II used for Clean cargo complex 630 Total Used Land will be 2481 2 Available Land

Western Dock Area 314 Areas transferred from Zone IV 190 Total Land Availability 504 3 Total Land at the End of Planning Cycle under Zone I 2985 4 Land Utilization at the End of Planning Cycle under Zone I 83% Table 7.4 Future Land Use Plan Update – Zone I

The existing free area nearby Northern breakwater will be used for the BOT complex development, which comes under phase I development. CISF area will be used as a back reach area for the BOT complex. This back reach area will also be used as a stacking area for imported coal. The land availability near the south break water will be used for Phase II development. The existing township area will be disturbed for an efficient logistics planning and back reach area for Phase II development. The estimated area reclaimed from the township would be 630 acres. At the end of planning cycle, only western dock area and the transferred area from Zone IV will be available. However, these areas can not be used for the Port development due to draught restrictions and other logistics planning constraints. Hence, TransCare strongly recommends the Port to have an aggressive land acquisition strategy for the Long term Port development. Business Plan Development for Paradip Port Trust – Final Report 151 Updated after Land use after Phase I & II Zones (in acres) % Share Zone I Dock& Harbour (including ADB Project area) 2985 47% Zone II Township (Township and administrative area) 1558 24% Zone III Sector – 21 (Fishing Harbour, Resettlement site, Ecologically fragile area) 480 8% Zone IV Oil Industry, Utility& Transportation (include SE railway terminal) 1361 21% Total 6384 100%

The overall land area will remain the same except the share of each zone during next 20 years unless the Port buys new areas during the same period. At the end of the planning cycle, the total land area under Zone will be 2985 acre with a share about 47%. The Port will anyway be forced to disturb the township to a great extent after 20 years, possibly even earlier if the projected volume outperforms the expectations. Hence, the Port should find a suitable area to where the existing township area can be relocated. The estimated land area for the township relocation is about 500 to 700 acres. It is very critical for the Port to consider this issue which otherwise would become a major constraint in Port development after 2027. Business Plan Development for Paradip Port Trust – Final Report 152

8. Corporate Planning and Structure 8.1 Corporate Planning Corporate structure, planning, strategy and control mechanisms are the key vehicles for any organization to drive and achieve its vision. The following are the key objectives of the corporate planning: • To achieve the organization’s vision and goals while satisfying the stake holders’ interests. • According to the corporate vision, mission and goals, drive the long term, mid term and short terms plans and draw the road map for the

implementation by each business unit in the organization. • Measure the targets and meet the gaps through operational, organizational and service efficiency. • Develop flexible and proactive strategies to win over the competition Although the organization should not be people driven, but rather process driven, it is the people and their knowledge as assets which is the key element taking the organization along the right path. Moreover, the right people at the right place and at the right time make the organization more proactive and highly reactive to the market needs. Hence, updated knowledge, motivation and decision making skills are vital skills required from the people in the organization. Here the current corporate planning and decision making processes are mapped and analyzed. Business Plan Development for Paradip Port Trust – Final Report 153

Key Observations Planning • Though planning is done for 20 years and 5 years with a break up of each year, the detailed corporate planning is not in place. • The Corporate Plan should include the organizations long and mid term goals and strategy along with detailed traffic and revenue projections. Objective and strategy of each department should be drawn up in detail. This is however not followed by the Port. • The Master planning (done by IPA) is not updated regularly. The traffic projection by IPA for 2006-07 is 64 MT whereas the Port is only handling 33 MT by 2005-06. Many market changes took place during the last ten years, but it was not updated in the plan. • The sudden rise of iron ore demand and the drastic fall of predicted coal demand have caused supply-demand issues for which the Port was not prepared. The Master Plan predicted less than 2 MT of iron ore, a far cry from the actual 10.3 MT handled in 2005-06. Decision Making • The Port does not have full autonomy to decide and take its own decision for the key projects which are critical for the Port competitiveness. • Ministry (GoI) has full control over the Port’s critical projects such as dredging, port expansion (berths, jetties and terminals). The planning and approval process takes not less than 3 years, a period for which the Business Plan Development for Paradip Port Trust – Final Report 154

market is not prepared to wait, rather, the market finds alternative routes for its cargo flows, i.e. competitors profit from this inaction. • PPT planned deep draught berths both for iron ore and coking coal by 2001-02 but it has not yet materialized. It is almost 6 years since it was planned, on the other hand, iron ore markets are now stabilizing. • Even if the Port can manage to finance investments from its own internal resources, it has to wait for the Ministry approval. • Once the policy has been drawn at the central level, it is not being clearly communicated to the Ports and its concerned departments. Hence, the Port goes through a long learning cycle before fully adapting to the new policy level changes.

• Tariff fixation is not under Port control. Tariff Authority for the Major Ports (TAMP) controls the tariff fixation based on some key parameters. Hence, the Port can not fix its own tariff entirely flexibly. Even if the Port decided to cut its prices, it has to go through a rigorous process. Implementation Process • The long tendering process further accentuates the delay of projects, which are already delayed due to the planning and approval stages. • Many times, the Port has to go through a re-tendering process as the suppliers or consultants’ proposed cost estimation would not match with the planned estimation by the Port. It is understandable that, the market value changes very often depending upon the supply and demand. • The value of a project will change by the time the Port gets the final approval from the Ministry. Hence, the concerned project team needs to Business Plan Development for Paradip Port Trust – Final Report 155

appraise the Committee or Chairman or Ministry on the changes and then go through a new tendering process. • A tendering process takes from not less than six months (best case) to 1.5 years (normal case). • There is no IT based project management system in place and also there is no measure on planning and administration costs on the projects. • All the projects are being managed and monitored manually through paper files. Control or Feedback Mechanism • There is no clearly defined Corporate Performance Measurement system in place. • Corporate Performance Measurement system helps the organization to measure its goals / objectives against its actual achievements. And consequently to find the gap and its business impact. • However, the actual results are measured against the planned results and the reasons are being discussed. However, based on the financial projection gaps only would not lead to the actual cause of the problem. • Hence, the goals should be clearly defined and measured to rectify the strategy, and accordingly to develop new alternative strategies.

8.2 Internal Organization Structure For any Port in the world, the key business objective is to facilitate the trade and economic development of a country while maximizing its assets and people resources. Organizational structure should be designed in such a way that itfulfills the corporate objectives and goals in an efficient and effective way. The business Business Plan Development for Paradip Port Trust – Final Report 156

process time and cost should be optimized while meeting the targeted achievements on time. Once the business process activity is triggered from the market, there should be a seamless flow of information, communication and workflows, till it achieves its purpose. PPT organization structure is functionally driven rather than process driven. A functionally driven hierarchy leads to a silo-minded approach and less interaction between each department, and consequently, a long decision making process. Key Observations

High processing time on the project planning and estimations (internal process planning only) is a key concern for the Port as it impacts its ability to be highly reactive to the market needs. • The organizational structure is functionally driven rather than process driven. Hence, each department acts based on its functional requirement rather than the requirement of the process. • There is no horizontal integration within the processes, which leads to communication gaps between different process owners. • There is no cross functional planning, rather each department plans based on its own needs and constraints and then it is being communicated to the other departments. • The objectives for each department are not well defined. A Performance Measurement and Control mechanism is not in place. • All communication happens only through paper documents or files. Each document needs to be signed by at least 5 to 6 functional heads. In the worst case, up to 12 to 14 signatures are required per document. It is not an efficient way of managing communication. • The Port does not even have an email communication system and people are lacking in IT skills. Business Plan Development for Paradip Port Trust – Final Report 157

• Marketing and finding new business opportunities plays a smaller role in the overall planning. Marketing function comes under Traffic department. It has been observed that the marketing activity within this department shares less than 5% of overall functions of the department. • There is no real market research report upon which to base a five year planning and annual planning. Master Port Planning is only a macro level strategy tool and it needs to be validated according to the market changes regularly. • The key observation is that, there is no real project management tool in place; rather, all the projects are managed in papers / files. Hence, the project management, updating and monitoring is all driven manually by individuals, rather than by an IT system. • The financial department also manages all its accounting and financial transactions in Excel sheets and papers.

8.3 Human resource Management People are the greatest asset for any organizational improvements. Hence, the quality of people and their motivation, commitment and knowledge put the organization in the right path. Paradip Port has about 3,901 employees as on 31.03.2006 against its total cargo volume of about 33 MT in the same year. This works out to be 8500 tonnes per employee. Key Observations • As discussed, the Port does not have a well established Human Resource department in place, which is really an area of concern which the Port needs to address in the coming years. Business Plan Development for Paradip Port Trust – Final Report 158

• The skill set of people, especially, from 2/3rd layer levels, are not up to the mark. People need to be updated with world standards, best practices and

processes in the Port industry. • People also lack skills in IT systems which is essential in today‘s environment where all information exchanges are online. • Performance appraisal system is not based on quantitative performance assessment; rather, people are assessed based on the concerned heads’ individual perception about that employee under him/her. • Promotions are based on the past five years best performances and seniority basis. Promotions should be based on the concerned post’s roles and responsibilities. Accordingly the required parameters need to be developed, such as people management, project management and technical capability for that post need to be defined and assessed against the prospective candidates. • Training and development department is not in place though it is being taken care of by the administration department. • The attitude of labour (cargo handling labour) is not at a satisfactory level and it was rated below average by all the customers during the market survey. It leads to moderate productivity at the terminals. • The Port has the potential to increase its productivity more than 10% to 15% if the workers work at least 80% of their allocated time during the handling process. Long meal breaks (more than 2 hours) and tea breaks make for less productivity at the terminals. Business Plan Development for Paradip Port Trust – Final Report 159

9. Business Plan Elements 9.1 Vision and Mission Development The Port, especially being a Public Port, has a mission to facilitate the trade with cost effective services while maximizing the taxpayers’ funds. On the other hand, the demand pressure on Ports for higher capability has been increasing from the customers due to technology changes in the international trade. Hence, Ports like PPT, are under pressure to perform while addressing the budgetary constraints. The mission and vision of the Port have been developed based on the following key parameter Inputs: • Ports current Strength and Weakness • Challenges and Threats from the market places • Opportunities • Customer and Stakeholder Perspective • Internal Business Processes and Organizational issues 9.1.1 SWOT Analysis The Strength, Weakness, Opportunities and Threats are summarized as follows: PPT Core Strength • Mineral Reserves: PPT is strategically located near main mineral reserves of the country. Iron ore, coal, alumina and chrome ore are the key minerals from India and which are mainly located near PPT hinterland clusters. Business Plan Development for Paradip Port Trust – Final Report 160

• Deep Draught Potential: Deep Draught potential up to 20m is the core strength of the Port and currently PPT is one of the deepest ports on the East Coast of India, with an average draught of about 13.2m. • Steel Industry Hub: All lead steel plants are located within a 600km

range of the Port. New steel plants are proposed for development in the same hinterland in another five to ten years. The proposed steel plants capacity goes more than 70 MT compared to the current Indian steel plant capacity of about 45 MT. • Mechanization: PPT has a dedicated mechanized State of Art Handling facility for thermal coal. The designed capacity is about 20 MT/pa. The dedicated iron ore plant has a capacity about 4.5 MT/pa. • Strategic Gate for Land-locked Location: PPT is strategically located on the line along with Nagpur (Central India) and JNPT (Western India). High potential for a strategic gateway for Northern India cargo via PPT to Eastern markets. Key Challenges / Weakness • Supply Chain Connectivity: Though the Port is strategically located very close to mineral reserves and steel hubs, it is not well connected on the last mile by Rail and Road with key mines and industrial hubs. • Land Constraint: The Port has already used 70% of its existing land and manual handling cargo occupies the largest part of the land. The mechanized plant utilization factor is 700,000 tonnes per Ha and the manual handling utilization factor is about only 140,000 tonnes per ha. • Internal Logistics System: Port handling capacity is not aligned with the market demand. The bottleneck at the iron plant impacts the service level and loss of market share to the competitors. • Capacity Addition: Long processes and delay in capacity addition which leads to the loss of potential market share to competing ports. Business Plan Development for Paradip Port Trust – Final Report 161

• High Cost of Operations: The cost of operation is quite high when comparing to the competitors, especially, the labour cost is very high. • Organizational Structure and Labour Issue: The organization is driven by functional silos rather than being process driven. o Labours are not working effectively (long meal break, unskilled operators and high cost). o There is no Corporate or Strategic planning team established to oversee the Strategic vision of the Port. • Horizontal Integration with IT System: Organization is not integrated through a well defined ERP (Enterprise Resource Planning) system. The customer, Port and customs interfaces are not fully established. • Project Management approach: PPT does not have any project management system to monitor and manage the tendering process and implement the projects. • Mechanization: Coking coal and non coking coal handling are not yet mechanized, which leads to lower productivity and higher handling costs. • High Value Goods: The Port hinterland is not served with high value goods. • Customs Process: No sea customs at the port. Saturdays and Sundays are holidays for the customs at the port, which delays the customs process. Threats to the Port • Competition: Dhamra is the key competitive Ports. o Vizag is the key competitive port for both iron ore and coking

coal through its cost effective operations and hinterland connectivity. o Among new entrants (Dhamra and Gopalpur), Dhamra Port would be the emerging competitive player for PPT with its deep draught berths and commitment to world class services. Business Plan Development for Paradip Port Trust – Final Report 162

o Other minor ports which are proposed viz. Gopalpur, BaliHarichandi (Puri), Astarang (Puri), Bahuda Muhan (Ganjam) and Chudamani (Ganjam), would not be serious competition for PPT. • Customer Dependency: The Port is fully dependant on five customers. o The top five exporters share more than 64% of total export volume, each exporting in excess of 1 MT/pa o The top four importers share more than 60% of import volume each with a volume more than 1 MT/pa o If these customers shift their volume to new emerging ports, then the Port will be challenged to replace or substitute those volumes. • Market Dynamic and Policy Constraints: o Non coking coal demand pattern is not certain due to import policy level changes at NTPC (Import is only a short term not long term). o Thermal coal linkages. Coal is being routed through other ports rather than PPT based on linkage committee recommendation, not based on customer preference. • Customer loyalty / Bargaining Power: o Customer loyalty level is moderate. o The bargaining power of the customer will increase in the near future if the new ports are developed in the PPT hinterlands. o If new ports are developed with the same facilities, customers are ready to shift their cargo due to labour attitude and other service level issues. Opportunity • A Leading Bulk Port in the world: o If the Port’s core strategic projects are realized (deep draught berths with mechanized handling), it can be developed as a leading bulk port in the world in next 20 years, with growing energy demand from domestic (power and steel industry) as well as international demand (China). Business Plan Development for Paradip Port Trust – Final Report 163

o Supply Chain connectivity would play a major role to support that • Hub for Liquid Bulk and Petrochemical: o The Port will become a leading liquid bulk hub in the East Corridor if the IOCL plans are realized in the coming future. • Clean cargo and Container Hub of East Coast: o Emerging new steel plants like Arcelor Mittal Steel o PPT can be developed a leading distribution center for land locked regions for the containers. Especially for the Northern and Central regions. West-Bengal Cluster should be a target market as well for

the Port, as Haldia Port can not accommodate feeder vessels in the range of 1500 to 2000 TEU capacity. Business Plan Development for Paradip Port Trust – Final Report 164

9.1.2 VISION Statement • PPT has a good opportunity to become a hub port of East Coast based on its core strengths that others do not have viz deep draught, proximity to mineral reserves and land locked regions. • The Focus should be dry bulk in the short term, liquid bulk in the mid term and containers in the long term. • The Target Market should be o Be competitive in Layer I Category - Short Term o Strengthen the competitive position in Layer II Category – Short and Mid Terms o Strategic Initiatives to attract cargo from North, Center and NorthEast cargo clusters – Mid and Long term

To become a Lead Hub Port of the East Coast and an Economic Thrust Engine for Eastern India Short Term - Dry Bulk Mid Term - Liquid Bulk Long Term - Containers / Clean Cargo Business Plan Development for Paradip Port Trust – Final Report 165

9.1.3 MISSION Statement • PPT is a Public service entity, hence, adding value the stakeholders (People of the Country) by facilitating the economic development and offering cost-effective services, should be the key mission of the Port.

To offer World Class Marine and Operational services, while adding value to Stakeholders (Public) • Through cost-effective operations, • Deep draught, Highly mechanized, and cargo dedicated handling facilities • Superior supply chain connectivity and dedicated corridors • Continuous improvements through IT implementation and process reengineering • Maximization of Port assets and value • Offering a competitive place to work and share knowledge • Strategic partnership with investors (Private Players) while offering a level playing field. • World class service may contradict to the cost-effective operations; however, it can be achieved through economics of scale. • Though it is not mentioned in the mission statement, it is quite important that the Port should reduce the burden on taxpayers and create internal funds to support the future growth. Business Plan Development for Paradip Port Trust – Final Report 166

9.2 Goals and Strategy Development To achieve the mission and vision that have been developed, the Port should

have a balanced perspective, and accordingly, Goals and Strategy should be developed. The basics of the Goals and Strategy development is based on the Balanced Score Card (BSC) approach developed by a MIT professor in the early 1990s. However, it has here been modified to a Public entity and tailor made to Port Operations. Fig. 9.1 Balanced Score Card

According to the Model, the Port should have four perspectives on how ports should be developed. Each perspective is important to reach the mission and vision in next 20 years. Mission and Vision Who do we define as our customer? How do we create value for our customer? Customer Perspective To satisfy customers while meeting budgetary constraints, at what business processes must we excel? Internal Business Processes How do we enable ourselves to grow and change, meeting ongoing demands? Employee: Learning and Grow How do we add value for customers while controlling costs? How do we raise the funds necessary to support operations? Financial Perspective Business Plan Development for Paradip Port Trust – Final Report 167

9.2.1 Customer Perspective To achieve the mission of becoming the lead hub port in the East Corridor, the sort of goals and strategy that the Port should need to establish from Customer Perspective are as follows: Tdo become a Lead Hub Port of East Coast ….Customer Perspective • Retain and Increase the Market Share in Iron Ore, Thermal Coal, Coking Coal and Non Coking Coal Iron Ore o Current Share » 13 % o Target Share » 25 % Coking Coal o Current Share » 17 % o Target Share » 30 % Non Coking Coal o Current Share » 17 % o Target Share » 25% Thermal Coal o Current Share » 60 %

o Target Share » 80 % Liquid Bulk (Excluding POL Product) o Current Share » 0 % o Target Share » 60 % Goals to achieve for Bulk Cargo Vision Goals to achieve for Container & Clean Cargo Vision • Increase Clean Cargo and Container Market Share Containers and Clean Cargo o Current Share » Less than 0.1% o Target Share » 5% Business Plan Development for Paradip Port Trust – Final Report 168

9.2.2 Internal Business Process Perspective To satisfy the market or customers demands, while meeting budgetary constraints, at what business processes must port should excel? Commercial and Marketing Strategy • Develop Target Market and Customer Driven Approach • Build a Long Term Partnership with Customers • Develop Deep Draught Berths • High Speed and Dedicated Rail Corridors • Promote Special Economic Zone or Logistics Parks for Steel or clean cargo Industry What Market Demands – Value Addition to Customer • Superior Supply Chain Connectivity • Cost effective services – Total Supply Chain Cost Reduction • Higher vessel handling capability and Faster turn around time • Dedicated Berths • Efficient documentation and customs processes • Faster Evacuation Rate of cargo • Friendly Attitude from the Labour and Port Officials Key Measures • Customer Satisfaction Survey • % of Retained Customers - Increase / Loss • % of Market share - Increased / Loss • % of new customer addition with volume increase Business Plan Development for Paradip Port Trust – Final Report 169

9.2.3 Internal Organizational Growth Perspective How do Port should enable themselves to grow and change, meeting ongoing demands? To become a Lead Hub Port of East Coast ….Business Process Perspective • Safe and Reliable Marine Services • An optimal Utilization of Land • Faster, Efficient and Effective Cargo Operations o Faster Evacuation of Cargo (Inbound and Outbound) • Faster Documentation Process Internal Business Processes Goals Operational Strategy

• Mechanized Handling • Flexible and Effective Port Planning • Integrated Rail cum Off-shore handling system • IT enabled Processing Systems (EDI Integration) • IT enabled Vessel operations Systems Key Measures • Ship Turn Round Time • Down time • Truck / Wagon Turn Round Time • Productivity per quay length or Day • Productivity per Ha Business Plan Development for Paradip Port Trust – Final Report 170

To become a Lead Hub Port of East Coast ….Organizational Growth • Develop a Customer-Process Oriented Organization • Ensure a Competitive Place to work and share knowledge Organizational Growth Perspective Goals Organizational Improvement Strategy • Process Driven Structure rather than Functional • Continuous Improvements of Employee Skills sets • Customer oriented Process Planning Structure • Project Management Approach Key Measures • Employee Satisfaction Survey • Employee Skill Set Level • No of Training days per year • Project Lead time measurements Business Plan Development for Paradip Port Trust – Final Report 171

9.2.4 Financial Perspective How Port would add value for its customers while controlling costs? How do we raise the funds necessary to support operations? To become a Lead Hub Port of East Coast ….Financial Perspective • Offer Cost Effective Services • Maximization of Return on investments Financial Perspective Goals Financial Improvement Strategy • Activity Based Costing Implementation • An Effective Public Private Partnership Implementation • Continuous Cost Reduction through process Reengineering Key Measures • Cost per tonnes • Return on Investment • Cash Flow measures Business Plan Development for Paradip Port Trust – Final Report 172

10. Business Plan - Financial Projections 2007-2027 10.1 Financial Model

To be competitive and tap the market potentials, TransCare along with PPT have come up with many project concepts and ideas for the next 20 years. However, projects are selected based on market demand estimation. All facility requirements are based on the realistic market demand estimation. The developed financial model has four major steps, which are the following: Step 1: Project Selection All projects proposed by PPT were considered as well as projects which are based on market demand projection. The technical specifications and detailed investment requirements are derived at each identified project, along with the expected additional volume generated by these projects. Step 2: Financial Evaluation The financial viability of each project has been evaluated at 15% IRR (Internal Rate of Return). However, for essential infrastructure projects like deepening of the channel, the IRR need not to be 15%. Even less than 6% to 8% IRR could be acceptable, as the future port development, traffic projections and competitive advantages are based on this key infrastructure project. The revenue projection for each project has been derived based on competitive tariffs, and the financial viability of the project has been evaluated over a 30-year time horizon. The projects which are financially viable are selected for the next step. Sound reasoning and risks that Port may face on financially not viable projects has been given. Business Plan Development for Paradip Port Trust – Final Report 173

Project Selection based on Market demand Evaluation of Projects (Investments, Revenue, IRR @15%) Viable? Yes

PPP Model Evaluation Investment – Balance Sheet Revenue – P&L Port Share Operator Share Revenue Share and Financial Viability No Reasoning and Recommendations

Financial Model Fig. 10.1 Financial Model

Business Plan Development for Paradip Port Trust – Final Report 174

Step 3: Investment Model / PPP Model Evaluation The sourcing of funds for all selected projects has been defined based on the following

criteria: • The Port should invest in all infrastructure related projects like deepening of channel and berth constructions. For this, the Port should get loans either from the government or banks or use its internal resources. • Hence, the infrastructure revenue, like Port dues and pilotage and towage should go to the Port account. • The private operator should bring the investment in plants like iron ore, coal plants and terminals like container. The cargo related revenue should go to the operator along with berth hiring charge. In conclusion, the Port will invest in all infrastructure related elements under any project and the private operator will invest in cargo related investments. The cargo related investments are allocated to the Operator and the infrastructure related investments are allocated to the Port. All projects, except deepening of channel project, are based on Build Operate and Transfer model (BOT). The following criteria have been assumed for the BOT model: • All the selected BOT model projects are financially evaluated at an IRR about 15%. • The time horizon for all BOT model projects is 30 years. • Only additional volume has been considered for all projects. • The revenue share model has been followed for all the projects. • An optimal revenue share percentage between Port and Operator has been derived. The optimal revenue share is the rate (revenue share) at which, the operator would get better return on investments. Business Plan Development for Paradip Port Trust – Final Report 175

Step 4: Financial Elements Projection (Balance Sheet, P&L and Cash flow) Once the investments and revenue shares are defined under Port account, the detailed balance sheet, profit and loss account and cash flow statement are projected for the next 20 years. Discount Rate Calculation The cost of Capital employed is calculated based on TAMP (Tariff Authority for Major Port Trust) guidelines as follows: • The Risk Free Rate (Rf) based on the transaction - weighted yields on Govt. of India Bonds having a residual maturity of 10 years considered over the period July - Dec., 2004, viz, 6.35%. • The Market Risk Premium (Rm -Rf) based on the a review of the various methods for calculating the risk premium in India's context, presently estimated at 7.15%; • The Equity Beta (Be) based on the review of the asset Betas of port sector and other domestic sector companies, presently estimated at 0.84; • The Debt Risk Premium (Rd) based on the risk profile of the port sector as assessed, presently considered at 5.55% as 'investment grade'; • The Debt : Equity ratio for the industry, presently factored as 1 :1; and • The Corporate tax rate applicable as per the Income Tax Act and rules there under. • The rate so fixed, 15% per annum, is used for all the Investment

calculations. Business Plan Development for Paradip Port Trust – Final Report 176

10.2 Financially Evaluated Projects The following projects have been proposed by PPT. Most of these projects are at the stage of finalization except the western dock project. 1. Deepening of Channel to handle 1,25,000 to 1,85,000 dwt vessels • Tendering process is over and the project is at the final stage 2. Construction of Deep Draught Iron Ore berth on BOT basis • In principle approval by the Government 3. Extension of break-water • Works to be taken up after conclusive model studies and presently being studied by CWPRS, Pune, and IIT, Chennai The following projects have been proposed by TransCare based on the realistic scenario. The investment plans and financial viability for these projects have been calculated along with the client related investment planning. 1. Two iron ore mechanized terminals 2. Two coking coal mechanized terminals 3. One non-coking coal mechanized terminal 4. One container terminal 5. One fertilizer terminal 10.2.1 Deepening of the Channel PPT has proposed to deepen the entrance and approach channel to accommodate the increase in traffic of larger vessels in the coming years. At Business Plan Development for Paradip Port Trust – Final Report 177

present, the Port handles Panamax size vessels up to 90,000 dwt. On the east coast, PPT is the only Port having high draught potential. The bulk cargos, mainly iron ore and coal, demand higher capacity vessels in the mid term as well as in the long term. Hence, the Port decided to exploit its core strength and go for deepening of its channel and deep-draught berths. The break water construction is also proposed to provide necessary stopping distance for the larger vessels and support the maintenance dredging process during the monsoon (south-west). The Port has two alternative proposals for the breakwater constructions, which are the following: • The extension of south breakwater from 600 m to 2100 m o Onshore extension with an addition of about 1500 m • Off shore island break water with a length about 1600 m o 600 m away from the onshore However, the Port has not yet decided on these alternatives. The Port has been working on economic feasibility of the project. For the full technical details of the project please refer to the interim report. Investment Calculations: The estimated capital cost for the deepening channel would be Rs. 2430 million in the first phase and Rs.1125 million in the second phase. The dredging cost per cbm is estimated at US$ 5 and US$ 6 during the first and second phase of the project respectively. The total project costs are estimated to be about Rs. 3555 million. Business Plan Development for Paradip Port Trust – Final Report 178

The extension of the break water would cost about Rs. 1500 million. The construction cost of onshore breakwater is Rs.1 million per meter with a depth range of 10 to 12 m. The offshore breakwater cost is estimated to be Rs. 3500 million. Since the Port has not yet decided on the proposed alternatives by various consultants, it was decided for this exercise to take the higher side of the investment, i.e. the off-shore breakwater, into consideration for the financial viability. Financial Evaluation: The proposed deep draught berths during the next 20 years will get the direct benefit from the deepening channel project. Hence, the marine revenues, which would be generated by the bigger vessels calling at the proposed berths, are considered. Since the proposed breakwater investment is to provide the safer navigation for the bigger vessels at the channels, the breakwater investment is being considered under deepening channel project. The following proposed projects are considered as projects benefiting from the deepening channel project: • Two iron ore berths • Two coking coal berths • One non coking coal berths Business Plan Development for Paradip Port Trust – Final Report 179 Deepening of Channel Project Investment Calculation Phase I Phase II Total (I+II) Quantity m. cbm Cost in m.US Rs. m Quantity m cbm Cost in m.US Rs.m in m.US$ in. m.Rs 1 Capital Dredging 7.5 45 2025 4 20 900 65.0 2925.0 2 Mobilization and Equipments LS 2.8 126 LS 1.6 72 4.4 198.0 3 Sub Total 47.8 2151 21.6 972 69.4 3123.0 4 Contingencies at 12% 5.7 258 2.8 126.36 8.5 384.5 5 Project Management 1% 0.48 22 0.2 9.72 0.7 31.2 6 Total (3+4+5) 54 2430.63 0 25 1108.08 78.6 3538.7 Table 10.1 Table 10.2 Off-shore Break water Construction Cost Estimation Quantity/m3 US$/unit m.US$ 1 Mobilization and De Mobilization 20.01 3 Armour 118 35 6.61 4 Core 1085 25 43.40 5 Secondary 168 15 4.03 6 Sub Secondary 104 15 2.50 7 Toe 45 5 0.36 9 Bedding Layers 36 5 0.29 m.US$ 77 m.Rs 3474

Project Management 1% 3509

Business Plan Development for Paradip Port Trust – Final Report 180 Financial Viability on Deepening Channel Project Year Investments Revenue Generation Cash Flow Dredging Breakwater Maintenance Due P&T Total Net flow in. mln Rs in. mln Rs in. mln Rs in. m.Rs in. m.Rs in. m.Rs in. m.Rs 2007 1944 360 0 0 0 0.0 -2304.0 2008 486 1440 0 0 0 0.0 -1926.0 2009 0 1800 0 0 0 0.0 -1800.0 2010 0 0.0 506 275 596 870.6 364.4 2011 0 0 506 302 654 956.0 449.7 2012 0 0 506 329 715 1043.9 537.6 2013 1125 0 506 343 743 1086.0 -545.3 2014 0 0 506 368 799 1167.0 660.8 2015 0 0 608 389 844 1233.4 625.9 2016 0 0 608 409 887 1295.3 687.8 2017 0 0 608 427 926 1353.2 745.7 2018 0 0 608 508 1101 1608.7 1001.2 2019 0 0 608 510 1107 1617.2 1009.7 2020 0 0 608 515 1118 1632.9 1025.4 2021 0 0 709 566 1229 1795.5 1086.7 2022 0 0 709 624 1353 1977.0 1268.3 2023 0 0 709 651 1412 2063.4 1354.7 2024 0 0 709 679 1473 2152.7 1443.9 2025 0 0 709 708 1537 2244.9 1536.1 2026 0 0 709 738 1602 2340.1 1631.4 2027 0 0 709 769 1669 2438.5 1729.8 2028 0 0 709 789 1711 2500.0 1791.2 2029 0 0 709 799 1734 2532.8 1824.1 2030 0 0 827 818 1775 2592.6 1765.7 2031 0 0 827 818 1775 2592.6 1765.7 2032 0 0 827 818 1775 2592.6 1765.7 2033 0 0 827 818 1775 2592.6 1765.7 2034 0 0 827 818 1775 2592.6 1765.7 2035 0 0 827 818 1775 2592.6 1765.7 2036 0 0 827 818 1775 2592.6 1765.7 2037 0 0 827 818 1775 2592.6 1765.7 Financial Figures mln Rs Discount Rate Pay back Period 13 to 14Years NPV (1678) 15% IRR 11.1% Table 10.3

Business Plan Development for Paradip Port Trust – Final Report 181

The financial evaluation is calculated with a discount rate of 15%, usual when considering Port infrastructure investment in India. The net cash flow is generated for next 30 years. The Internal Rate of Return (IRR) is 11.1%. The project is financially feasible. However, it is the key strategic project as far as Paradip Port is concerned, in order to be competitive in the bulk port business. The Port should not delay the project and maximize its core strength (deep draught) through this project. 10.2.2 Deep Draught Iron ore and Coking Coal Berths Phase I

Motivation The project envisages construction of integrated cargo handling facilities for 20 MT of coal and iron ore at Paradip. The project includes a berth for handling ships of 125,000 dwt in the initial stage and 185,000 dwt in the final phase. Iron Ore Berth The existing iron ore mechanized berth could handle a maximum of 7 MT, against its designed capacity about 4.5 MT. Last year, PPT handled about 10 MT of iron ore but the Port could handle only 6.4 MT at their existing mechanized plant and the remaining quantity was handled at the general cargo berths. The size of vessels has been increasing as the customers prefer to have larger vessels with quick turn around time. This can only be possible if the Port has deep draught mechanized berths. Business Plan Development for Paradip Port Trust – Final Report 182

Coking Coal The coking coal berth is another key and high potential commodity for PPT in the near future. The volume has been increasing at a CAGR of 8% and the steel plants are already facing coking coal supply constraint from the domestic market, hence, they will depend on coking coal imports in the future. The Port currently handles 3.3 MT of cargo and it is expected to grow at 11% to reach 20 MT by 2020. To gear up the facility to suit the above projected demand, PPT has already initiated this plan. However, it is still getting delayed due to the long planning process at the Ministry of Shipping. The project is necessary for PPT to be a key player in coking coal import market in India. Iron Ore Berth Phase I The capital cost is estimated to be US$ 99.5 million or Rs. 4477 million. The major capital cost drivers are handling equipments and electrical power installation. The annual operational and maintenance costs are worked out to be US$ 21.6 million or Rs. 973 million per year. The project is estimated to generate a NPV of Rs. 5160 million at a discount rate of 15%. The IRR of the proposed project would be at 16.4% over a 30 year project period. A sensitivity analysis was also done on the estimated operational costs. The cost of the operations increased every year from 1% to 4% over the period of the project cycle. However, the project is financially viable. Business Plan Development for Paradip Port Trust – Final Report 183 Capital Cost Estimation for Iron Ore Dimensions Volume Cost/Unit Total Total Unit in m.US$ In m.US$ In m.Rs 1 Cut and Cleaning - LS 0.25 11 2 Berth Construction M 350 0.015 5.25 236 3 Yard Cleaning and Construction (Civil Work) M2 56000 0.00 0.34 15 4 Road Connectivity km 6 0.1 0.60 27 5 Rail Connectivity Km 1.5 0.3 0.45 20 6 Electrical, Mechanical and other civil LS 40 1800 7 Floating Crafts No 1 8 8 360

9 Handling Equipments 0 Stackers No 4 3 12 540 Ship-unloaders No 2 2.5 5 225 Reclaimers No 2 2 4 180 Wagon Tippler No 2 3 6 270 10 Dredging m3 1071000 0.000008 9 386 11 Total (1 to 10) in m US 90.45 4070 12 15% contingencies 9.0 407 12 Final Total in m.US 99 4477 Table 10.4 Operations Cost Estimation Per Year for Iron Ore Cost in m.US$ Cost in m.Rs 1 Maintenance work (Dock, P&T) 6.0 269 2 Depreciation (Civil) 0.2 10 3 Maintenance Work (Mechanical) 9.0 81 4 Other Utility and Energy Cost 1.3 60 5 Energy 1.5 68 6 Manpower 3.6 117 7 Over all annual cost per year 21.6 585 Table 10.5

Business Plan Development for Paradip Port Trust – Final Report 184 Financial Flow Evaluation for Iron ore Berth Phase I Year Investment O&M Traffic Revenue Cash Flow m.RS m.RS m.t m.RS m.RS 2007 895 0 0.0 0 -895.5 2008 2239 0 0.0 0 -2238.7 2009 895 0 0.0 0 -895.5 2010 448 973 8.6 1539 118.4 2011 0 993 9.1 1626 633.2 2012 0 1013 10.1 1816 803.7 2013 0 1033 10.3 1851 817.6 2014 0 1054 11.1 1992 938.5 2015 0 1075 11.8 2120 1045.0 2016 0 1096 12.2 2191 1094.7 2017 0 1118 12.4 2234 1116.4 2018 0 1140 13.9 2503 1362.4 2019 0 1175 13.6 2450 1275.4 2020 0 1210 13.9 2489 1279.3 2021 0 1246 12.0 2154 908.0 2022 0 1284 12.0 2154 870.6 2023 0 1322 12.0 2154 832.1 2024 0 1362 12.0 2154 792.4 2025 0 1403 12.0 2154 751.6 2026 0 1445 12.0 2154 709.5 2027 0 1488 12.0 2154 666.2 2028 0 1533 12.0 2154 621.5 2029 0 1579 12.0 2154 575.6 2030 0 1626 12.0 2154 528.2 2031 0 1675 12.0 2154 479.4 2032 0 1725 12.0 2154 429.2 2033 0 1777 12.0 2154 377.4 2034 0 1830 12.0 2154 324.1 2035 0 1885 12.0 2154 269.2 2036 0 1941 12.0 2154 212.7 2037 0 2000 12.0 2154 154.4

0 Financial Investment NPV 5,160.8 m.RS IRR 16.4% Table 10.6

Business Plan Development for Paradip Port Trust – Final Report 185

Coking Coal Berth Phase I The capital cost is estimated to be US$ 79 million or Rs. 3555. The annual operational and maintenance cost is calculated to be Rs. 800 to 1800 million per year during the project cycle. Capital Investment Cost Estimation - Coking Coal Dimensions Volume Cost/Unit Total Total m.US$ m.Rs 1 Cut and Cleaning - LS 0.25 11 2 Berth Constructon M 350 0 0 0 3 Yard Cleaning and Construction (Civil Work) M2 56000 0.00 0.34 15 4 Road Connectivity km 6 0.1 0.60 27 5 Rail Connectivity Km 1.5 0.3 0.45 20 6 Electrical, Mechancial and others LS 30 1350 7 Conveyor System KM 6 0.05 0.3 14 9 Handling Equipments Stackers No 4 3 12 540 Ship-loaders No 2 3 6 270 Reclaimers No 2 1.8 3.6 162 Wagon Loader No 2 0.8 1.6 72 Floating Craft No 1 8 8 360 10 Dredging m3 1071000 0.000008 9 386 11 Total 72 3227 12 10% contingencies 7 323 13 Final Total in m.US 79 3549 Table 10.7 Operations Cost Estimation Per Annum m.US$ m.Rs 1 Operational and Maintenance Work (Dock, P&T) 6 284 2 Depreciation (Civil) 0.0 2 3 Maintenance (Mechanical) 7.7 70 4 Other Utility and Energy Cost 1.0 45 5 Energy 1.5 68 6 Manpower 4.0 112 7 Over all annual cost per year 19.9 562 Table 10.8

Business Plan Development for Paradip Port Trust – Final Report 186

The major cost drivers are electrical and mechanical systems apart from dredging costs. Financial Flow Evaluation for Coking Coal Berth Phase I Year Capital O&M Traffic Revenue Cash Flow m.Rs m.Rs m.t m.Rs m.Rs 2007 710 0 0 0 -710 2008 1775 0 0 0 -1775 2009 710 0 0 0 -710 2010 355 896 6.1 1073 -177 2011 0 914 6.8 1191 277 2012 0 932 8.0 1416 484

2013 0 951 8.6 1515 564 2014 0 970 9.4 1663 694 2015 0 989 11.1 1958 969 2016 0 1009 11.9 2095 1086 2017 0 1029 12.8 2256 1227 2018 0 1060 13.4 2369 1309 2019 0 1092 14.5 2549 1458 2020 0 1124 15.2 2677 1552 2021 0 1158 12.0 2116 957 2022 0 1193 12.0 2116 923 2023 0 1229 12.0 2116 887 2024 0 1266 12.0 2116 850 2025 0 1304 12.0 2116 812 2026 0 1343 12.0 2116 773 2027 0 1383 12.0 2116 733 2028 0 1424 12.0 2116 691 2029 0 1467 12.0 2116 648 2030 0 1511 12.0 2116 604 2031 0 1556 12.0 2116 559 2032 0 1603 12.0 2116 512 2033 0 1651 12.0 2116 464 2034 0 1701 12.0 2116 415 2035 0 1752 12.0 2116 364 2036 0 1804 12.0 2116 311 2037 0 1859 12.0 2116 257 Financial Investment NPV 420.11 m.Rs IRR 16.9% Pay Back 9.0 Year Table 10.9

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The project is financially feasible with a positive NPV of US$ 9.34 million or Rs. 420 million at a discount rate of 15%. The project IRR is 16.9%. The project was found to be financially viable and would attract investors. 10.2.3 Deep Draught Non-Coking Coal Berth TransCare proposes a non-coking coal terminal (fully mechanized) to cater to the future expected non coking coal traffic. The forecast of future traffic considered here is conservative. In the optimistic scenario, three non coking coal terminals are proposed, however, TransCare is convinced with one terminal for the realistic scenario. If the traffic goes as per the optimistic scenario, the Port should consider additional terminals as discussed in the capacity planning section (Interim Report). The estimated traffic through the proposed terminal would be 6 MT by 2010 and 12 MT at the end of the project cycle. The proposed module will have 12 MT capacity per annum. The estimated capital cost would be US$ 97 million or Rs. 4350 million. The operation costs are estimated to be US$ 19.3 million or Rs. 869 million per annum. The project is proposed to be implemented in two phases. The first phase module would be 8 MT capacity and the second phase module would be 6 MT. The project would give an IRR of 18.8% with an NPV value at US$ 11.16 million or Rs. 499 million. Business Plan Development for Paradip Port Trust – Final Report 188 Capital Cost Estimation for Non Coking Coal

Volume Cost/Unit Total Total Unit in m.US$ In m.US$ In m.Rs 1 Cut and Cleaning - LS 0.25 11 2 Berth Construction M 350 0.015 5.25 236 3 Yard Cleaning and Construction (Civil Work) M2 56000 0.00 0.34 15 4 Road Connectivity km 6 0.1 0.60 27 5 Rail Connectivity Km 1.5 0.3 0.45 20 6 Electrical, Mechanical and others LS 35 1575 7 Floating Crafts No 1 8 8 360 9 Handling Equipments Stackers No 4 3 12 540 Ship-unloaders No 2 3 6 270 Reclaimers No 2 2 4 180 Wagon Loaders No 2 0.8 1.6 72 Other warfrelated equipments LS 2 90 10 Dredging m3 1071000 0.000008 9 386 11 Total (1-10) 84 3782 12 15% contingencies 13 567 12 Final Total 97 4350 Table 10.10 Operations Cost Estimation Per Year for Non Coking Coal Factors Cost in m.US$ Cost in m.Rs 1 Operations and Maintenance (Dock, P&T) 0 8 348 2 Depreciation (Civil) 1.5 1.5 66 3 Mechanical Plant Handling 1.1 5.4 243 4 Other Utility and Energy Cost 1.5 1.5 68 6 Manpower 3.2 145 7 Over all annual cost per year 19.3 869 Table 10.11

Business Plan Development for Paradip Port Trust – Final Report 189 Financial Flow Evaluation for Non Coking Coal Year Capital O&M Traffic Revenue Cash Flow m.Rs m.Rs m.t m.Rs m.Rs 2007 870 0 0.0 0 -870 2008 870 0 0.0 0 -870 2009 217 0 0.0 0 -217 2010 217 869 6.8 1353 267 2011 0 895 7.9 1566 671 2012 0 922 7.6 1521 599 2013 0 949 8.0 1592 642 2014 0 978 8.4 1665 687 2015 0 1007 7.6 1514 506 2016 870 1038 8.0 1597 -310 2017 1305 1069 8.4 1672 -702 2018 0 1101 8.6 1888 787 2019 0 1145 8.3 1830 685 2020 0 1191 8.0 1745 555 2021 0 1238 7.7 1698 460 2022 0 1288 9.0 1978 691 2023 0 1339 9.4 2058 718 2024 0 1393 9.8 2140 747

2025 0 1448 10.1 2225 777 2026 0 1506 10.5 2314 808 2027 0 1567 11.0 2407 840 2028 0 1629 11.5 2524 894 2029 0 1694 11.5 2524 829 2030 0 1762 12.0 2633 871 2031 0 1833 12.0 2633 801 2032 0 1906 12.0 2633 727 2033 0 2001 12.0 2633 632 2034 0 2101 12.0 2633 532 2035 0 2206 12.0 2633 427 2036 0 2317 12.0 2633 317 Financial Investment NPV 499.51 m.Rs IRR 18.8% Table 10.12

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10.2.4 Container Terminal Phase I & II Port should exploit its high draught potential to attract the container market especially from Eastern and Northern parts of India. The projected volume would be 1.53 million TEU by 2027. This is very optimistic as the Port has to start this business from scratch. Hence, all the proposed terminals are based on only optimistic scenario. Otherwise, it is recommended to use the existing general cargo berths with additional cranes for the container operations. One container module is proposed with 650,000 TEU capacity on the south side of the Port. The proposed quay length is 700 m with a draught of 17 m. It is proposed at the south side of the Port. The back reach would be about 500 meter with rail sidings. The project also envisages additional rail links and roads to the project site. Capital Investment on Container Terminal Units Quantity m.US$ m.Rs 1 Dredging m.cu.m 1785000 14 643 2 Quay Wall Construction M 700 14 630 3 No of Ship to Shore Cranes No 5 48 2138 4 No of Mobile Cranes No 14 35 1575 5 Yard Area and Other Site Preparation LS 15.8 709 6 Rail Network connections and Sidings KM 5 12.5 563 7 Site Preparation and Cleaning M2 210000 2 76 8 Total 141 6332 9 Total with % 10 contingency 155 6965 Table 10.13

The estimated capital investment would be US$ 155 million or Rs. 6965 million in a phased manner. The estimated operational costs would be US$ 11~20 million per year during 30 years period. It is proposed to implement the project in two phases as the projected volume is less than 0.5 million TEU in the realistic scenario. Phase I should start by 2012-13 and phase II should be in 2022-23 if the projected traffic exceeds 0.5 million TEU. Business Plan Development for Paradip Port Trust – Final Report 191 Operating cost per annum Estimation m.US$ m.Rs 1 Maintenance and Operations (P&T, Dock) 4.2 190 2 Maintenance Civil 0.99 45

3 Maintenance (Mech, Electrical, Equip) 5.36 241 4 Human Resource 0.65 29 5 Total 11.2 505 Table 10.14 Financial Flow Evaluation for Container Year Capital O&M Traffic Revenue Cash Flow m.Rs m.Rs m.TEU m.Rs m.Rs 2011 2438 0 0.08 0 -2438 2012 2438 0 0.14 0 -2438 2013 0 505 0.15 668 163 2014 0 505 0.19 832 327 2015 0 515 0.28 1209 693 2016 0 525 0.32 1400 874 2017 0 536 0.44 1907 1371 2018 0 547 0.44 1907 1360 2019 0 563 0.44 1907 1344 2020 0 580 0.44 1907 1327 2021 0 597 0.44 1907 1310 2022 0 615 0.44 1907 1292 2023 2090 634 0.44 1907 -816 2024 0 653 0.44 1907 1254 2025 0 672 0.44 1907 1235 2026 0 693 0.44 1907 1215 2027 0 720 0.44 1907 1187 2028 0 749 0.44 1907 1158 2029 0 779 0.44 1907 1128 2030 0 810 0.44 1907 1097 2031 0 843 0.44 1907 1065 2032 0 876 0.44 1907 1031 2033 0 911 0.44 1907 996 2034 0 948 0.44 1907 959 2035 0 986 0.44 1907 921 2036 0 1025 0.44 1907 882 2037 0 1066 0.44 1907 841 2038 0 1109 0.44 1907 798 2039 0 1153 0.44 1907 754 Financial Investment NPV 200.05 m.Rs IRR 15.6% Table 10.15

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The project found to be financially viable with a positive NPV about US$ 4.5 million or Rs. 200 million and an IRR at 15.6%. The competitive market rate is assumed for the project at US$ 74 or Rs. 3330 per TEU (Including all terminal charges) during the forecasted period. 10.2.5 Fertilizer Terminal The fertilizer market is expected to expand during the forecasted period. The Indian players are expected to dominate in the export market as well, but only on a small scale, as the Government of India would keep the domestic market protected. Fertilizer is a captive market for PPT, hence the growth of PPL and IFFCO would determine the fertilizer volume. According to the market survey, three terminals are estimated for fertilizer, an optimistic estimate. Hence, TransCare proposes only one terminal addition during the forecasted period.

However, the Port should work on bringing more players to the Port. The proposed terminal will handle both export and import traffic. It is envisaged to be a captive berth. So, the Port need only to incur dredging and construction investment costs and the rest will be invested by the operator. The estimated capital cost investment for the Port is US$ 11.4 million or Rs. 513 million and it is envisaged to be completed by 2015-16. The estimated annual operational costs would be in the range of Rs. 12.6 to 22.5 million. The major revenue comes in terms of lease and wharfage charges. The project was found to be financially feasible with a positive NPV about US$ 4.34 or Rs. 195.6 million and an IRR of 19.9%. The estimated payback period is 7 years. For details, please refer to the Interim Report (Section 12). Business Plan Development for Paradip Port Trust – Final Report 193

10.2.6 Iron ore and Coal Project Phase II Iron Ore Berth Phase II The Phase I iron ore berth is expected to reach its maximum capacity by 202021. Hence, an additional mechanized iron ore berth is proposed. The estimated additional volume would be 2.7 MT by 2023 and 6.6 MT by 2027. The capacity of the Phase II iron ore module is designed to be 12 MT per annum. The detailed technical description has been discussed in the capacity planning section. The estimated capital cost would be US$112 or Rs. 5040 million and the operational cost per annum is estimated to be between US$20 or Rs. 900 million to US$30 or Rs. 1350 million over during a 30-year period of project cycle. The project was found to be financially infeasible over period of time with a negative NPV value as the projected volume would be saturated after 2027. The IRR is estimated to be only 4% and the payback period is 20 years. However, the project is financially feasible if the project is implemented in two phases. During the first phase, the 8 MT module should be developed followed by the second module with another 6 MT. This scenario was simulated and the project was found to be financially feasible with an IRR of 15.2% and an NPV value of Rs. 42.2 million or Rs. 1899 million. Business Plan Development for Paradip Port Trust – Final Report 194 Financial Flow Evaluation for Iron ore Berth Phase II Year Capital O&M Traffic Revenue Cash Flow m.Rs m.Rs m.t m.Rs m.Rs 2018 1476 0 0 0 -1476 2022 1181 0 0 0 -1181 2023 295 0 0 0 -295 2024 0 596 2.7 824 228 2025 0 596 3.1 948 352 2026 0 602 3.5 1020 418 2027 0 608 3.9 1094 486 2028 0 614 4.4 1170 555 2029 0 621 4.8 1246 626 2030 0 627 5.3 1325 698 2031 0 639 5.7 1403 764 2032 0 652 6.2 1482 829 2033 767 665 6.6 1560 128 2034 511 678 6.6 1595 405 2035 0 692 6.6 1630 938 2036 0 706 6.6 1665 959

2037 0 720 6.6 1700 980 2038 0 734 6.6 1735 1001 2039 0 756 6.6 1770 1013 2040 0 779 6.6 1805 1026 2041 0 803 6.6 1840 1037 2042 0 827 6.6 1875 1048 2043 0 851 6.6 1910 1059 2044 0 877 6.6 1945 1068 2045 0 903 6.6 1980 1077 2046 0 930 6.6 2015 1085 2047 0 958 6.6 2050 1092 2048 0 987 6.6 2085 1098 Financial Investment NPV 42.55 m.Rs IRR 15.2% Table 10.16

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Coking Coal Project Phase II The Phase I coking coal berth is expected to reach its maximum capacity by 2019-20. Hence, an additional coking coal mechanized berth is proposed. The estimated additional volume would be 4.3 MT by 2021 and 8.7 MT by 2027. Financial Flow Evaluation for Coking coal Berth - Phase II Year Capital O&M Traffic Revenue Cash Flow m.Rs m.Rs M.T m.Rs m.Rs 2018 1091 0 0 0 -1091 2019 1091 0 0 0 -1091 2020 545 0 0 0 -545 2021 0 968 4.3 1198 230 2022 0 978 5.0 1297 320 2023 0 987 5.7 1401 413 2024 0 997 6.4 1508 511 2025 0 1017 7.1 1620 602 2026 0 1038 7.9 1736 698 2027 0 1058 8.7 1857 798 2028 0 1079 8.7 1857 777 2029 0 1112 8.7 1857 745 2030 0 1145 8.7 1857 711 2031 0 1180 8.7 1857 677 2032 0 1215 8.7 1857 642 2033 0 1251 8.7 1857 605 2034 0 1289 8.7 1857 568 2035 0 1328 8.7 1857 529 2036 0 1367 8.7 1857 489 2037 0 1408 8.7 1857 448 2038 0 1451 8.7 1857 406 2039 0 1494 8.7 1857 362 2040 0 1539 8.7 1857 317 2041 0 1585 8.7 1857 271 2042 0 1633 8.7 1857 224 2043 0 1698 8.7 1857 158 2044 0 1766 8.7 1857 90 2045 0 1837 8.7 1857 20 2046 0 1910 8.7 1857 -54 2047 0 1987 8.7 1857 -130 2048 0 2066 8.7 1857 -209 Financial Investment

NPV 8.62 m.Rs IRR 15.1% Table 10.17

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The capacity of Phase II Iron ore module is designed to be 8 MT pa. The estimated capital cost would be US$ 60 or Rs. 2700 million. The operational cost per annum is estimated to be between US$ 20 or Rs. 900 million to US$ 34 or Rs. 1530 million over a 30 year period of project cycle. The project was found to be financial feasible over the project period with a NPV value of Rs. 8.62 million. The IRR is estimated to be 15.1%. 10.2.7 Western Dock System This is a new dock system at the Western side of Port, adjacent to the existing central dock. PPT is planning for two clean cargo berths and general cargo berths, expecting the new proposed steel plants near by PPT hinterland to generate finished steel traffic. The following traffic volume is forecasted by the Port for the Western dock system. Additional Traffic Projections for Paradip Port Trust in MT Year Steel Other General Cargo Total 2011-12 2.7 5.22 7.92 2015-16 3.8 7.32 11.12 2019-20 6.0 10.27 16.27

The project is planned in two phases as follows: • Phase 1 (2011-12) – Four berths • Phase 2 (2015-16) – Two berths (additional) The expected vessel size is 60,000 dwt (bulk carrier), accordingly the Port considered 240m width for the dock basin with berths on both side. The dredged depth would be 11.8 m in the initial stage and then it will be increased to 12.75 m to accommodate 60,000 dwt vessels in the future. Table 10.18

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The Port is having 7 general cargo berths with total estimated capacity about 4.9 MT. Hence, the Port has decided to go for the Western side Port to accommodate the future general cargo and steel traffic. All the proposed berths would have the designed capacity of 2.5 MT per annum. Investment Cost Calculation Estimation Quantity m.US$ m.Rs 1 Dredging 455000 5.5 246 2 Quay Wall Construction 250 2.5 113 3 Site Preparation and other work LS 1.0 45 4 Equipments (2 mobile cranes) 2 1.6 72 5 Total 1 12.7 570 6 Contingency @ 5% 0.6 29 7 Total 2 24 1074 8 Six Terminals (Total 3) 143 6444 Table 10.19

Investment, Operations Cost and Financial Calculation The capital cost is estimated to be US$ 143 or Rs. 6444 million. The operational cost is estimated to be US$ 10~20 million or Rs.450~900 million for the entire dock. The dredging costs are allocated to each berth construction. The berths should have a maximum of two multi purpose mobile cranes. Operational Cost Estimation per Year per terminal

m.US$ m.Rs 1 Maintenance and Operations (Dock,Chennel) 1.5 68 2 Civil Maintenance 0.1 5 3 Mechanical Maintenance (Equip) 0.3 14 4 Human Resource 0.4 17 5 Total I 2.53 114 Table 10.20

The additional volume traffic reference is from the current forecast. The optimistic scenario volume is considered for the financial viability. The project was found to Business Plan Development for Paradip Port Trust – Final Report 198

be financially not viable. The project would give a negative NPV value of Rs. 4410 million with a 15% discount factor. The IRR of the project is estimated at 2.2%. The Port is expecting to add about 15 MT additional capacity but the cargo traffic is not aligned with the planned capacity. Financial Flow Evaluation for Western Dock Year Capital O&M Traffic Revenue Cash Flow m.Rs m.Rs m.t m.Rs m.Rs 2009 2148 0 0.0 0 -2148 2010 2148 0 0.0 0 -2148 2011 0 456 0.0 0 -456 2012 0 465 0.0 43 -422 2013 0 475 0.0 123 -351 2014 0 484 0.3 211 -273 2015 1074 494 0.7 306 -1262 2016 1074 504 1.2 410 -1168 2017 0 514 1.8 498 -15 2018 0 565 2.4 593 28 2019 0 571 2.9 695 124 2020 0 576 3.4 804 227 2021 0 582 4.0 921 338 2022 0 594 4.7 1011 417 2023 0 606 5.3 1105 500 2024 0 618 5.9 1205 587 2025 0 630 6.4 1310 680 2026 0 643 7.0 1420 778 2027 0 656 7.6 1537 881 2028 0 675 8.2 1537 862 2029 0 696 8.9 1537 841 2030 0 716 8.9 1537 820 2031 0 738 8.9 1537 799 2032 0 767 8.9 1537 769 2033 0 798 8.9 1537 739 2034 0 830 8.9 1537 707 2035 0 863 8.9 1537 674 2036 0 898 8.9 1537 639 2037 0 934 8.9 1537 603 Financial Investment NPV (4,410) m.Rs -198465 IRR 2.2% Pay Back 23.0 Year Table 10.21

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Conclusion The total investment for Paradip Port Trust is estimated to be US$500-700 million

in next 20 years, excluding the western dock project. Deepening channel, deep draught iron ore and coking coal projects are critical for the Port’s future growth and competitiveness. These projects are financially viable with an IRR of more than 15%. Proposed and Evaluated Projects for PPT - 2007-27 Projects Proposed by Capacity Investment NPV IRR in MT in m.US$ in m.Rs +/- % 1 Deepening Channel Project PPT/TC 159 7155 (-ve) 11.1% Channel Deepening (Two Phase) PPT/TC 79 3555 Offshore Break water PPT/TC 80 3600 3 Iron Ore Berth Phase I PPT/TC 12 99 4455 + 16.4% 4 Coking Coal Berth Phase I PPT/TC 12 79 3555 + 16.9% 5 Western Dock PPT 15 143 6435 (-ve) 2.2% 7 Non-Coking Coal TC 12 97 4365 + 18.8% 8 Iron Ore Berth Phase II TC 8 66 2952 + 15.2% 9 Coking Coal Berth Phase II TC 8 61 2727 + 15.1% 10 Container Terminal Phase TC 0.5* 155 2565 + 15.6% 12 Fertilizer Terminal TC 3 11.4 513 + 19.8% Total all 869.6 34722 + Total (Excluding Western Dock) 726.6 28287 * in million TEU, PPT - Paradip Port Trust, TC - TransCare Table 10.22 Total Investment Overview

The proposed Western Dock project is found to be financially not viable. Though the proposed container terminal projects are financially viable with high returns, it is very optimistic. It can not be realizable unless the Port is very aggressive on container market. Business Plan Development for Paradip Port Trust – Final Report 200

10.3 Selected Project and PPP Model Evaluation The sourcing of funds is the key for any business plan projections with a long term focus. Though the Port has different options to fund the projected investments in the next 20 years, an ideal mix of funding is the best way to maximize the asset investments while addressing the budgetary constraints. The following projects are selected and considered for the PPP/BOT model, based on financial viability which was evaluated in the previous chapter. • Iron Ore Berth Phase I • Coking Coal Berth Phase I • Non – Coking Coal Berth • Iron Ore Berth Phase II • Coking Coal Berth Phase II • Container Terminal Phase I Only the above mentioned projects are recommended along with deepening channels project for the Port’s future development. 10.3.1 Iron Ore Berth Phase I The project envisages a total investment of US$ 99.5 million or Rs. 4478 million. The investment from the private operator is estimated to be about US$ 75.22 million or Rs. 3385 million. The Port should bring the rest of investment in terms of infrastructure creation (dredging, civil construction and tugs). The operator will receive only the cargo related revenue such as mechanical handling and berth hire charges. The annual operational cost for the operator is estimated to be US$ 13~20 million during the 30 year operational period. The net Business Plan Development for Paradip Port Trust – Final Report 201

cash flow is discounted at 15% and the project is expected to generate positive cash flow with an IRR of 15.3%, while sharing the revenue with port by 25%. Operations Cost Estimation Per Year for Iron Ore Cost in m.US$ Cost in m.Rs 1 Mechanical Maintenance and Operation 7 329 2 Depreciation (Civil) 0.0 0 3 Yard Maintenance and Others 1.0 45 4 Other Utility and Energy Cost 1.3 57 5 Energy 1.5 68 6 Manpower 1.7 75 7 Over all annual cost per year 12.5 598 Table 10.23

The project is financially viable and attractive for the private operator as well and the investor can expect an IRR at 16~18% with price inflation and operational efficiency. Financial Flow Evaluation for Iron ore Berth Year Investment O&M Traffic Revenue Cash Flow m.Rs m.Rs m.Rs m.Rs m.Rs 2007 535 0 0 0 -535 2008 1789 0 0 0 -1789 2009 713 0 0 0 -713 2010 267 573 8.6 940 99 2011 0 576 9.1 992 417 2012 0 579 10.1 1108 530 2013 0 581 10.3 1129 548 2014 0 584 11.1 1216 631 2015 0 587 11.8 1294 706 2016 0 590 12.2 1337 747 2017 0 593 12.4 1364 770 2018 0 605 13.9 1527 922 2019 0 617 13.6 1495 878 2020 0 629 13.9 1519 890 2021 0 642 12.0 1315 673 2022 0 655 12.0 1315 660 2023 0 668 12.0 1315 647 2024 0 681 12.0 1315 633 2025 0 695 12.0 1315 620

Business Plan Development for Paradip Port Trust – Final Report 202 2026 0 709 12.0 1315 606 2027 0 723 12.0 1315 592 2028 0 738 12.0 1315 577 2029 0 752 12.0 1315 562 2030 0 767 12.0 1315 547 2031 0 783 12.0 1315 532 2032 0 798 12.0 1315 516 2033 0 814 12.0 1315 500 2034 0 831 12.0 1315 484 2035 0 847 12.0 1315 467 2036 0 864 12.0 1315 450 2037 0 881 12.0 1315 433 Financial Investment NPV 127.15 m.Rs IRR 15.7%

Table 10.24

10.3.2 Coking Coal Berth Phase I The estimated total project investment is about US$ 79 million or Rs. 3555 million. The investment from the private operator is estimated to be about US$ 55.22 million or Rs. 2485 million. The Port should bring the rest of investment in terms of infrastructure creation (dredging, civil construction and tugs). Operations Cost Estimation Per Annum m.US$ m.Rs 1 P&T and Maintenance (Channel and Dock) 0 0.0 2 Depreciation (Civil) 0.1 4.5 3 Mechanical Maintenance 7.7 346.5 4 Other Utility and Energy Cost 1.0 45.0 5 Energy 1.5 67.5 6 Manpower 2.5 111.2 7 Over all annual cost per year 12.4 556.2 Table 10.25

Business Plan Development for Paradip Port Trust – Final Report 203 Financial Flow Evaluation for Coking Coal Berth II Year Capital O&M Traffic Revenue Cash Flow m.Rs m.Rs m.Rs m.Rs m.Rs 2007 284 0 0 0 -284 2008 1418 0 0 0 -1418 2009 569 0 0 0 -569 2010 213 556 6.1 663 -107 2011 0 562 6.8 735 173 2012 0 567 8.0 874 307 2013 0 579 8.6 935 356 2014 0 590 9.4 1027 437 2015 0 602 11.1 1209 607 2016 0 614 11.9 1293 679 2017 0 626 12.8 1393 766 2018 0 639 13.4 1462 823 2019 0 652 14.5 1574 922 2020 0 665 15.2 1653 988 2021 0 678 12.0 1306 628 2022 0 692 12.0 1306 614 2023 0 705 12.0 1306 601 2024 0 727 12.0 1306 579 2025 0 748 12.0 1306 558 2026 0 771 12.0 1306 535 2027 0 794 12.0 1306 512 2028 0 818 12.0 1306 488 2029 0 842 12.0 1306 464 2030 0 868 12.0 1306 438 2031 0 894 12.0 1306 412 2032 0 920 12.0 1306 386 2033 0 948 12.0 1306 358 2034 0 977 12.0 1306 330 2035 0 1006 12.0 1306 300 2036 0 1036 12.0 1306 270 2037 0 1067 12.0 1306 239 Financial Investment NPV 140.1 m.Rs

IRR 15.9% Pay Back 9.0 Year Table 10.26

Business Plan Development for Paradip Port Trust – Final Report 204

The operator will receive only the cargo related revenue such as mechanical handling and berth hire charges. The annual operational cost for the operator is estimated to be at US$ 13~20 million during the 30 year operational period. The net cash flow is discounted at 15%. The project is expected to generate a positive cash flow and an IRR of 15.9%, while sharing the revenue with the Port by 25%. The project is financially viable and attractive for the private operator as well and the investor can expect IRR at 18~20% with price inflation and excellent operational efficiency. 10.3.3 Non Coking Coal Berth Phase I The total estimated project investment is US$ 96.66 million or Rs. 4485 million. Port should invest in infrastructure and the operator will invest on superstructure and terminal. The estimated investment from the private operator is about US$ 68 million or Rs. 3060 million. The annual operational cost for the operator is US$ 9~18 million during the 30 year operational period. The net cash flow is discounted at 15%. The project is expected to generate a positive cash flow with an IRR rate of 15.4%. The proposed revenue share is 25% to the Port by the operator. Operations Cost Estimation Per Year for Non Coking Coal Cost in m.US$ Cost in m.Rs 1 Maintenance Cost (Dock & P&T) 0 0 2 Depreciation (Civil) 0.0 0 3 Mechanical and Operations 6.8 307 4 Other Utility and Energy Cost 1.5 68 6 Manpower 1.2 56 7 Over all annual cost per year 9.6 431 Table 10.27

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The project is financially viable provided the operator implemented the project in a phased manner. The operator can expect even more than 16~17% IRR with price inflation and operational efficiency. Financial Flow Evaluation for Non Coking Coal Year Capital O&M Traffic Revenue Cash Flow m.Rs m.Rs m.Rs m.Rs m.Rs 2007 347 0 0.0 0 -347 2008 695 0 0.0 0 -695 2009 173 0 0.0 0 -173 2010 130 431 6.8 664 104 2011 0 435 7.9 769 334 2012 0 440 7.6 747 307 2013 0 444 8.0 781 337 2014 0 453 8.4 817 365 2015 0 462 7.6 743 281 2016 651 471 8.0 784 -338 2017 1044 481 8.4 821 -704 2018 0 490 8.6 863 372 2019 0 539 8.3 836 297

2020 0 545 8.0 797 253 2021 0 550 7.7 776 226 2022 0 556 9.0 904 348 2023 0 561 9.4 940 379 2024 0 572 9.8 978 405 2025 0 584 10.1 1017 433 2026 0 595 10.5 1057 462 2027 0 607 11.0 1100 492 2028 0 626 11.5 1153 528 2029 0 644 11.5 1153 509 2030 0 664 12.0 1203 540 2031 0 684 12.0 1203 520 2032 0 704 12.0 1203 499 2033 0 725 12.0 1203 478 2034 0 747 12.0 1203 456 2035 0 769 12.0 1203 434 2036 0 792 12.0 1203 411 Financial Investment NPV 5.88 m.Rs IRR 15.1% Table 10.28

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10.3.4 Iron Ore and Coking Coal Berths Phase II The estimated total project cost for the second phase iron ore berth is about US$ 59 million or Rs. 2655 million. The private operator is expected to bring about US$ 45.9 million or Rs. 2065 million. Financial Flow Evaluation for Iron ore Berth II Year Capital O&M Traffic Revenue Cash Flow m.Rs m.Rs m.Rs m.Rs m.Rs 2018 885.6 0.0 0.0 0.0 -885.6 2022 943.2 0.0 0.0 0.0 -943.2 2023 237.6 0.0 0.0 0.0 -237.6 2024 0.0 348.1 2.7 609.0 260.9 2025 0.0 348.1 3.1 646.2 298.1 2026 0.0 358.5 3.5 677.2 318.7 2027 0.0 369.3 3.9 708.9 339.6 2028 0.0 380.4 4.4 741.1 360.8 2029 0.0 391.8 4.8 774.0 382.3 2030 0.0 403.5 5.3 807.6 404.1 2031 0.0 415.6 5.7 841.2 425.6 2032 0.0 428.1 6.2 874.7 446.7 2033 0.0 440.9 6.6 908.3 467.4 2034 0.0 454.2 6.6 943.3 489.2 2035 0.0 467.8 6.6 978.3 510.5 2036 0.0 481.8 6.6 1013.3 531.5 2037 0.0 496.3 6.6 1048.3 552.0 2038 0.0 511.2 6.6 1083.3 572.2 2039 0.0 531.6 6.6 1118.3 586.7 2040 0.0 552.9 6.6 1153.3 600.4 2041 0.0 575.0 6.6 1188.3 613.3 2042 0.0 598.0 6.6 1223.3 625.3 2043 0.0 621.9 6.6 1258.3 636.4 2044 0.0 646.8 6.6 1293.3 646.5 2045 0.0 672.7 6.6 1328.3 655.7 2046 0.0 699.6 6.6 1363.3 663.7 2047 0.0 727.6 6.6 1398.3 670.8

2048 0.0 756.7 6.6 1433.3 676.7 Financial Investment NPV 40.86 m.Rs IRR 15.3% Pay Back 20.0 Year Table 10.29

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The cargo related revenue will go to the operator and the infrastructure related revenue will go to the Port. The project is expected to generate a positive cash flow, and an IRR 15.3%. Port will get a revenue share about 30% from the cargo related activities. The project is found to be financially viable and would give more than 16% IRR with price inflation and operational efficiency for the operator. Financial Flow Evaluation for Coking coal Berth - Phase II Year Capital O&M Traffic Revenue Cash Flow m.Rs m.Rs m.Rs m.Rs m.Rs 2018 491.4 0.0 0.0 0.0 -491.4 2019 655.2 0.0 0.0 0.0 -655.2 2020 327.6 0.0 0.0 0.0 -327.6 2021 0.0 482.8 4.3 522.0 39.3 2022 0.0 492.4 5.0 600.7 108.3 2023 0.0 502.3 5.7 682.6 180.4 2024 0.0 512.3 6.4 767.8 255.5 2025 0.0 522.6 7.1 856.3 333.8 2026 0.0 533.0 7.9 948.4 415.4 2027 0.0 543.7 8.7 1044.2 500.5 2028 0.0 554.5 8.7 1044.2 489.7 2029 0.0 565.6 8.7 1044.2 478.6 2030 0.0 576.9 8.7 1044.2 467.3 2031 0.0 594.3 8.7 1044.2 450.0 2032 0.0 612.1 8.7 1044.2 432.1 2033 0.0 630.4 8.7 1044.2 413.8 2034 0.0 649.4 8.7 1044.2 394.9 2035 0.0 668.8 8.7 1044.2 375.4 2036 0.0 688.9 8.7 1044.2 355.3 2037 0.0 709.6 8.7 1044.2 334.6 2038 0.0 730.9 8.7 1044.2 313.4 2039 0.0 752.8 8.7 1044.2 291.4 2040 0.0 775.4 8.7 1044.2 268.8 2041 0.0 806.4 8.7 1044.2 237.8 2042 0.0 838.6 8.7 1044.2 205.6 2043 0.0 872.2 8.7 1044.2 172.0 2044 0.0 907.1 8.7 1044.2 137.1 2045 0.0 943.3 8.7 1044.2 100.9 2046 0.0 981.1 8.7 1044.2 63.1 2047 0.0 1020.3 8.7 1044.2 23.9 2048 0.0 1061.1 8.7 1044.2 -16.9 NPV 73.51 m.Rs IRR 15.8% Table 10.30

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The total estimated investment cost for coking coal second phase project is about US$ 66 million or Rs. 2970 million. The private operator is expected to bring about US$ 53 million or Rs. 2385 million. The project is expected to generate a positive cash flow at IRR 15.8%.

Port will get a revenue share about 25% from the cargo related activities. The project is found to be financially viable and would give more than 16% IRR with price inflation and operational efficiency for the operator. 10.3.5 Container Terminal Berth (I&II) The total project cost is estimated to be US$ 155 million or Rs. 6975 million. The project is proposed for a single private operator, who can build the terminal in two phases based on cargo estimation. The estimated investment for a private operator is about US$ 121 million or Rs. 5445 million in two phases. Capital Investment by Private Operator Units Quantity m.US$ m.Rs 1 Dredging m.cu.m 1785000 0 0 2 Quay Wall Construction M 700 0 0 3 No of Ship to Shore Cranes No 5 48 2138 4 No of Mobile Cranes No 14 35 1575 5 Yard Area and Other Site Preparation LS 15.8 709 6 Rail Network connections and Sidings KM 5 10 450 7 Site Preparation and Cleaning M2 210000 2 76 8 Total 110 4947 9 % 10 contingency 121 5442 Table 10.31

The rest of the investment would be brought by Port on infrastructure such as dredging and quay wall construction. The estimated operational cost would be US$ 8 to 10 million per year as the terminal is not expected to cross more than 0.45 million TEU traffic. Business Plan Development for Paradip Port Trust – Final Report 209 Operating cost per annum Estimation m.US$ m.Rs 1 Mechanical (P&T, Dock) 0.0 0 2 Maintenance Civil 0.53 24 3 Maintenance (Mech, Electrical, Equip) 5.36 241 4 Human Resource 0.47 21 5 Total 6.4 286 Table 10.32 Financial Flow Evaluation for Container Year Capital O&M Traffic Revenue Cash Flow m.Rs m.Rs m.Rs m.Rs m.Rs 2011 1632 0 4 0 -1632 2012 1905 0 6 0 -1905 2013 0 286 7 429 143 2014 0 286 9 535 249 2015 0 292 13 777 485 2016 0 298 14 900 602 2017 0 304 20 1226 923 2018 0 310 20 1226 917 2019 0 316 20 1226 911 2020 0 322 20 1226 904 2021 0 329 20 1226 898 2022 0 335 20 1226 891 2023 1980 342 20 1226 -1095 2024 0 349 20 1226 878 2025 0 356 20 1226 871 2026 0 363 20 1226 864 2027 0 366 20 1226 860 2028 0 370 20 1226 856 2029 0 374 20 1226 853 2030 0 378 20 1226 849

2031 0 381 20 1226 845 2032 0 385 20 1226 841 2033 0 389 20 1226 837 2034 0 393 20 1226 834 2035 0 397 20 1226 830 2036 0 401 20 1226 826 2037 0 405 20 1226 822 2038 0 409 20 1226 818 2039 0 413 20 1226 814 Financial Investment NPV 16.17 m.Rs IRR 15.1% Table 10.34

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The terminal handling charges along with berth hire charge should go to the operator. The infrastructure charges should go to the Port. The operator would achieve an IRR of 15.1% at 20% revenue share with the Port. Since the operator has start to the business from scratch, it involves high risk. Hence, the revenue sharing of 20% is quite optimal and it is a win-win strategy for both parties. Conclusion The private operators are expected to bring about US$ 396 million or Rs. 14934 million over the next 20 years excluding fertilizer terminal. Since the fertilizer terminal is a captive berth, it comes under PPP model as well. BOT/PPP Evaluated Projects for PPT - 2007-27 Projects Investment by Operator NPV IRR PPP/BOT Revenue share to PPT in m.US$ in m.Rs +/- % 1 Iron Ore Berth Phase I BOT 25% 73 3304 + 15.7% 2 Coking Coal Berth Phase I BOT 25% 55 2485 + 15.9% 3 Non-Coking Coal BOT 25% 68 3040 + 15.1% 4 Iron Ore Berth Phase II BOT 30% 46 2066 + 15.3% 5 Coking Coal Berth Phase II BOT 25% 33 1474 + 15.8% 6 Container Terminal Phase I BOT 20% 122 2565 + 15.1% Total 396 14934 Table 10.35 Overview of BOT Projects Evaluation

All the projects are found to be financially viable. The Port should invest in infrastructure like dredging, quay wall construction and tugs. The private operator should invest in cargo related investments like superstructure, terminals. Accordingly, the infrastructure related revenue should go to the Port and the cargo related revenue should go to the operator. The expected revenue share would be in the range of 20 to 30% depending on that particular project’s characteristics and the risk involved. Although the container terminal project is found to be financially viable, it has high risk since it is to be started from scratch with aggressive customer and market targets. Business Plan Development for Paradip Port Trust – Final Report 211

10.4 Financial Projection and Analysis 10.4.1 Past Performance • The operating revenue grew by 9% to Rs. 5135 million in 2005-06 over

the last financial year, with a CAGR of 10% for the last four years • The net profit margin for the year 2004-05 reached to 28% with a Rs. 1143 million surplus against 12% in 2004-05. • The operating margin has been maintained at 44-48% over the last four years and the operating expenditure increased by 9% to Rs. 2620 million. • Cargo handling and storage is the major revenue center with more than 66% of the operating revenue in 2005-06. The costs of dock and berths maintenance have been increasing over the years. • The Port has been paying back the Asian Development Bank (ADB) loan, which had been received for the Thermal Coal project. • The loans from ADB and GOI stand at Rs. 1113 million and Rs. 1000 million during 2005-06, respectively. • PPT has deposited almost 99% of its investment in fixed deposit in the banks and the closing cash balance is nearly Rs. 1344 million growing more than 1.7 times in the last four years. • There has not been a big investment by the Port over the last four years as the net asset addition has come down by 7%. • The current ratio is less than 0.5, excluding the Pension Fund. The return on equity and assets stand at 9.3% and 4.8% in 2005-06. Business Plan Development for Paradip Port Trust – Final Report 212

10.4.2 Financial Model Assumptions The financial model reflects the Port’s vision and action plans for the next 20 years. The following assumptions are considered for the business plan: Traffic Projections The financial model is based on realistic scenario projections. Whenever a project or terminal is handed over to the BOT operator, the corresponding traffic, in terms of revenue and costs, for that project or terminal is removed from the Port account and transferred to the operator account. Investment Overview The estimated total investment is about US$ 750 million or Rs. 33,748 million over the next 20 years. Investment Plan 2007-27 450 3626 2209 2452 1829 936 819 2877 1155 1099 3050 1818 1300 1347 1107 1125 1125 1125 1535 1289 1477

0 500 1000 1500 2000 2500 3000 3500 4000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Year Rs.in millions

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The investments are divided under two categories viz. project related investments and other investments. The project related investments come from all proposed projects. For BOT projects, only PPT’s share of investment is transferred to the Port account. For other investments, a particular portion of money is allocated for the Port as investment in other than the proposed projects during next 20 years. For example, the financial model allocated about US$ 10 million or Rs. 450 million per year for next five years. The Port should retain these funds for investments in especially dredging, channel deepening, docks and support infrastructure like road and rail. Source of Funds The model assumes that the Port should get at least one third of total investment per year from the external resources like bank borrowings, to keep the debt to equity ration at an optimal level. The rest of the investment comes from Port’s internal resource. Since, most of the investments come from private operator, the investment burden on the Port will be reduced. Depreciation The model assumes an overall deprecation rate of 3~3.5% pa based on past performance. In the past, Port infrastructure has been depreciated by 2~2.8% pa and the plant and machineries have been depreciated by 3~4% pa. Since the Port investments are mainly focused on infrastructure, the depreciation rate at 3% is reasonable. Business Plan Development for Paradip Port Trust – Final Report 214

Capital Reserves Three essential funding categories are mainly defined in the financial model, which are the following: A. Replacement and Modernization of Existing Assets B. Developments and Repayment of Loan and Contingencies C. Pension Fund (PF) The funds are allocated each year from the surplus under above mentioned

categories. Pension fund goes as an investment in the balance sheet and the rest goes under capital reserve. The funds are created, except Pension Fund, under appropriations in the P&L statement at 21% of surplus and moved to Categories A and B. The rest of the surplus in the P&L statement goes into balance sheet under the revenue reserve category. Tax and Interest Paid The corporate tax structure is considered for the Port and it is estimated to be at 32% (each year). Loans are paid back each year with a specified percentage of total amounts to be paid. For example, the model assumes 10% payment of total amount to be paid, till 2011. For the remaining financial years, 25% payment of total amount to be paid is assumed. The assumed interest rate for the financial income is 9% pa. Business Plan Development for Paradip Port Trust – Final Report 215

Current Liability The major liability for the port is Pension Fund to their employees. The funds are allocated each year for the Pension Fund as an investment in the balance sheet. The model also assumes payment from the Pension Fund to the employees every year at some specific amount. Revenue Categories The following revenue centers are considered for the financial model: • Marine charges, which includes the port dues, berth hire and pilotage and towage • Wharfage services • Stevedoring • Storage • Concession fee from the Operators • Other Incomes o Rail services o Real estate The competitive tariff structure is assumed for all cargos based on the market inputs and past performance of the port. The charges are kept at a constant level without many changes as the revision of tariff is not frequent. The defined charges are derived while considering the future price fluctuation in the market. Cost Centers The following cost centers are considered in the model and the costs are simulated based on past performance and future expected strategic changes like BOT model implementation. Business Plan Development for Paradip Port Trust – Final Report 216

• Running Cost o Cargo handling and Storage o Port and Dock facility o Railway workings • Other costs o Salaries o General Administration o Real Estate maintenance The following assumptions are made under each cost centers:

Cargo handling and storage cost • The cost per tonne is US$ 0.654 based on past records • The fluctuation of 4% is considered for next four years • For the remaining financial years, it is projected to decrease with a fluctuation of 2 to 4% • The cost of cargo handling will come down as the key terminals are transferred to the private operators • The cost of operation will come down to US$ 0.45 per tonne at the end of business plan • Though cost is assumed based on per tonne basis for the future as well, it is simulated with different fluctuation ranges to adopt the future changes. The cost can not be reduced at the same rate at which cargos are moved to private operator. Costs related to Port and dock facilities • The cost per tonne is US$ 0.384 based on past records • A fluctuation of 3~7% is considered for all the financial years • The Port’s major investments comes on core infrastructures projects during next 20 years Business Plan Development for Paradip Port Trust – Final Report 217

• Hence, the cost of operations is also expected to rise. The cost per tonne will go up to US$ 1 per tonne at the end of business plan Railways • The cost per tonne is US$ 0.15 based on past records • A fluctuation of 2~3% is considered for all the financial years • Since the port will still handle railway operations, the cost of operations will also rise • It is expected to touch about US$ 0.25 per tonne at the end of business plan Salaries and Management Cost • The cost per tonne is US$ 0.35 based on past records • A fluctuation of 1~3% is consider for all the financial years • Though cargo traffic will be moved to the private operator, a drastic reduction in manpower is not expected • However, the cost will be reduced over the period, but not at the same scale of cargo handling reduction by Port • The estimated cost per tonne would be US$ 0.28 per tonne • Since there is no separation between salaries and general administration cost in the past, the administration cost is assumed to be 12% of over all management and administration cost • The real estate costs will also rise in the range of 0.5% to 4% and is expected to touch US$ 0.40 per tonne from US$ 0.25. Business Plan Development for Paradip Port Trust – Final Report 218

10.4.2 Financial Model Projections Revenue Projections The total projected revenue will touch US$ 280.2 million or Rs. 12609 million by 2026-27 from US$ 114.1 million or Rs. 5134 million in 2005-6. The projected

growth is at a CAGR of 4.5% over the next 20 years. Marine service Revenue Marine service revenue is the major revenue center for the Port. It is projected to increase at a CAGR of 6% over the period from US$ 26.5 million or Rs. 1192 million in 2005-06, to US$ 95.5 or Rs. 4297 million in 2026-27. The projected bigger vessels and high infrastructure investments would drive marine service revenue growth. Stevedoring and Wharfage Stevedoring and cargo handling revenues are expected to reduce and will be quite stable at the end of business plan period. • Since, all the key cargos like coal and iron ore are mechanized, there would not be much demand for stevedoring operations in the coming years except for general cargo. • The wharfage revenue will be also come down as the cargo related revenues will go under private operator. • The projected wharfage revenue would be US$ 72.6 million or Rs. 3267 million in 2026-27, from US$ 55.4 million in 2005-06. • The SBM or Crude oil cargo will boost the revenue during 2008 to 2011 and this peak will come down to a stable condition after BOT implementation. Business Plan Development for Paradip Port Trust – Final Report 219

Concession Fee The Port will earn cargo revenues from the private terminals in terms of revenue sharing model which was discussed in the BOT evaluation chapter. The expected revenue from this revenue center would be US$ 31.6 million or Rs. 1422 million at the end of business plan period. Operational Margin and Net Profit The Port is expected to maintain its operational profit margin at 50% to 53% from the current level of 40% to 45%. The operational expenses will come down as discussed earlier due to privatization. Profit Margin Analysis 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Year in % Operational Profit Margin Net Profit Margin

However, the expenses on infrastructure related facility will keep increasing. Only the cargo related expenses will come down. Hence, the cost of operations will grow at CAGR of 3% only. The Port can expect the net profit margin in the range of 35 to 40% during the planning period. Business Plan Development for Paradip Port Trust – Final Report 220

Financial Position The total assets will increase at a CAGR of 8% from US$ 513 million or Rs. 23,085 million in 2005-06 to US$ 2500 million or Rs. 112,500 million by 2006-27. The Port’s key strategic project implementation will increase the total asset addition during the next 20 years. The net fixed assets will increase from US$ 258.6 million or Rs. 11,637 million to US$ 480.4 million or Rs. 21,618 during the same period. The current ratio will improve from 0.37 to 20.9 during the same period. The net working capital ratio will also improve from -0.27 to 0.52 over the period. The positive cash flow from the business activities at less cargo related expense and investment would improve the current ratio and net working capital drastically. Working Capital and Current Ratio 0.00 5.00 10.00 15.00 20.00 25.00 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Year in % -0.40 -0.20 0.00 0.20 0.40 0.60 Current Ratio Net working Capital Ratio `

The return on asset could be maintained at 4 to 4.5% over the planned period. However, the asset turn over will decrease to 0.12 from 0.22 during the planned period. The reason is the vast asset addition during the period. Business Plan Development for Paradip Port Trust – Final Report

221

The debt ratio will come down to 1.5% from 9.8% during the same period due to repayment of all loans. The Port will have enough internal resources to fund or invest on its own without depending on external resources. The net cash flow will increase from US$29.2 or Rs. 1314 million to US$ 1217 million or Rs. 54765 million during next 20 years. Since it is not a manufacturing industry, the net cash flow is on the higher side as it does not need to invest on raw materials every year. Rather, the Port has one time infrastructure investments. However, the Port should look into any other business opportunity to invest the accumulated cash flows to ensure efficient management of the cash flow. Business Plan Development for Paradip Port Trust – Final Report 222

Projected P & L Statement for PPT 2006-16 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1. Revenue Marine Services (Port Dues & P&T) 1185 1378 1584 1805 1835 1994 2124 2241 2406 2559 2712 Wharfage Services 3388 2491 2729 3028 1984 2145 2257 2277 2365 2474 2592 Stevedoring Services 0 675 815 848 912 489 519 542 586 629 503 Storage 0 203 219 238 255 274 291 302 318 333 347 Concession Fee 0 0 0 0 484 536 597 730 808 938 1009 Other Income Rail handling 458 590 724 801 931 1070 1151 1233 1368 1485 1605 Others (Estate) 104 79 90 98 82 80 84 87 93 98 101 Total Revenue 5135 5417 6161 6819 6483 6588 7023 7412 7945 8516 8869 2. Cost of Operations Running Cost Cargo Handling& Storage Charges 974 1221 1511 1895 1269 1411 1442 1456 1489 1578 1666 Port& Dock facilities 519 638 710 795 491 535 582 623 671 721 777 Railway workings 236 279 335 408 287 336 361 383 408 450 494 Total 1728 2138 2555 3098 2047 2281 2385 2463 2568 2749 2938 Others (Estate) Rentable lands& buildings 371 435 475 521 315 340 363 382 403 425 453 Salaries 520 529 577 634 384 410 425 433 444 454 465 Administration expenses 0 86 94 103 62 67 69 70 72 74 76 Total Cost of Operations 2620 3188 3701 4356 2808 3098 3242 3348 3488 3701 3932 3. Operating Surplus 2515 2229 2460 2463 3674 3490 3781 4064 4457 4814 4937 4.Financial and Other Incomes 391 758 816 875 942 1017 1088 1161 1240 1326 1417 4. EBITA 2906 2987 3276 3338 4617 4507 4869 5224 5697 6140 6354 5. EBTA 1913 2761 2964 2969 4187 4047 3740 4296 4713 5286 5604 6. EBT 1413 2356 2529 2534 3578 3457 3194 3671 4028 4519 4792 7. EAT 913 1602 1720 1723 2433 2351 2172 2496 2739 3073 3259 Net Profit Margin 18% 30% 28% 25% 38% 36% 31% 34% 34% 36% 37% Table. 10.36

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Projected P & L Statement for PPT 2007-27 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 1. Revenue Port Dues 2852 3030 3146 3274 3412 3532 3681 3827 3979 4139 4295 Wharfage Services 2706 2790 2886 2967 3006 3022 3064 3119 3174 3217 3265 Stevedoring Services 518 543 553 564 597 612 627 642 659 677 695 Storage 361 380 388 397 418 430 443 456 470 483 498 Concession Fee 1134 1186 1222 1251 1231 1272 1301 1330 1358 1390 1424 Other Income Rail handling 1673 1774 1828 1864 1975 2022 2072 2124 2179 2237 2298 Others (Estate) 105 110 113 116 120 122 124 127 130 132 135

Total Revenue 9349 9814 10136 10432 10758 11011 11311 11625 11948 12276 12611 2. Cost of Operations Running Cost Cargo Handling& Storage Charges 1750 1747 1771 1747 1821 1825 1800 1717 1690 1661 1632 Port& Dock facilities 835 906 982 1062 1258 1332 1452 1497 1627 1762 1908 Railway workings 540 562 598 627 694 738 773 783 819 854 891 Total 3125 3215 3351 3435 3772 3895 4026 3996 4135 4278 4432 Others (Estate) Rentable lands& buildings 482 514 546 579 673 699 741 742 783 833 884 Salaries 476 487 498 502 556 549 554 527 524 520 515 Administration expenses 78 79 81 82 90 89 90 86 85 85 84 Total Cost of Operations 4161 4295 4476 4599 5091 5233 5410 5351 5529 5715 5915 3. Operating Surplus 5188 5519 5659 5834 5668 5778 5902 6274 6420 6561 6696 4.Financial and Other Incomes 1512 1611 1715 1824 1935 2048 2164 2285 2411 2541 2674 4. EBITA 6700 7130 7375 7658 7602 7826 8065 8559 8831 9101 9369 5. EBTA 5832 6297 6620 6957 6966 7236 7511 8030 8281 8560 8816 6. EBT 4987 5386 5663 5952 5959 6191 6425 6871 7086 7325 7544 7. EAT 3391 3662 3851 4047 4052 4210 4369 4672 4818 4981 5130 Net Profit Margin 36% 37% 38% 39% 38% 38% 39% 40% 40% 41% 41% Table 10.37

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Projected Balance Sheet for PPT in Rs. Million 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Asset 1. Fixed Asset Gross Asset 13995 14774 15583 19209 21418 23869 25698 26634 27453 30330 31484 Asset Addition 779 450 3626 2209 2452 1829 936 819 2877 1155 1099 Depreciation 3497 4011 4645 5351 6139 6987 7866 8772 9773 10812 11887 Net Asset 11637 11572 14565 16066 17730 18711 18768 18681 20557 20672 20696 2. Liquid Means 7789 8420 9064 9724 10472 11296 12088 12899 13779 14730 15744 3. Current Asset 3667 4803 4307 5146 6485 8228 10148 12465 13866 16556 19488 Total Asset 23092 24795 27936 30937 34687 38235 41004 44044 48201 51958 55928

Liability Loan and other Debt 2255 2029 2805 3320 3870 4142 3387 2786 2952 2561 2250 Current Liability 9936 9711 9711 9756 9711 9711 9486 9261 9036 8721 8406 Total Liability 12190 11740 12516 13076 13581 13853 12873 12047 11988 11282 10656

Capital Reserve and Surplus Capital Reserve 7161 8912 10857 12864 15586 18263 21445 24725 28285 32023 35829 Loan and Other Investment Reserve 81 81 81 81 81 81 81 81 81 81 81 Employment welfare Reserve 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Statutory Reserve Fund for Replacement of Asset 2213 2416 2633 2851 3155 3450 3723 4036 4378 4761 5167 Fund for Development and Loan Payment 1442 1645 1848 2065 2282 2587 2882 3155 3467 3810 4193 Total Equity 10902 13055 15420 17861 21106 24382 28132 31997 36213 40677 45272 Total Liability Plus Capital 23093 24795 27937 30937 34687 38235 41005 44044 48201 51958 55928 Table 10.38

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Projected Balance Sheet for PPT in Rs. Million 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Asset 1. Fixed Asset Gross Asset 32583 35634 37452 38751 40098 41205 42330 43455 44580 46115 47404 Asset Addition 3050 1818 1300 1347 1107 1125 1125 1125 1535 1289 1477 Depreciation 13063 14299 15578 16901 18261 19658 21092 22563 24085 25649 27262 Net Asset 22570 23153 23173 23197 22945 22673 22364 22018 22030 21755 21619

2. Liquid Means 16798 17901 19060 20267 21499 22750 24040 25388 26790 28230 29709 3. Current Asset 21472 24370 27797 31421 35230 39211 43377 47860 52057 56595 61205 Total Asset 60840 65424 70031 74885 79673 84634 89781 95265 100877 106579 112533

Liability Loan and other Debt 2603 2497 2263 2101 1908 1769 1664 1585 1649 1624 1661 Current Liability 8091 7641 7191 6741 6291 5841 5391 4941 4266 3591 2916 Total Liability 10694 10138 9454 8842 8199 7610 7055 6526 5915 5215 4577

Capital Reserve and Surplus Capital Reserve 39875 44136 48493 52977 57402 61926 66563 71452 76499 81686 87024 Loan and Other Investment Reserve 81 81 81 81 81 81 81 81 81 81 81 Employment welfare Reserve 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Statutory Reserve Fund for Replacement of Asset 5590 6046 6524 7027 7531 8054 8596 9176 9774 10391 11027 Fund for Development and Loan Payment 4599 5021 5477 5956 6459 6963 7485 8028 8608 9205 9823 Total Equity 50146 55285 60577 66043 71474 77025 82726 88739 94962 101365 107956 Total Liability Plus Capital 60840 65424 70031 74885 79673 84634 89781 95265 100877 106580 112533 Table 10.39

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Projected Cash Flow Statement - All in Rs. Million - 2006-16 Cash flow from Operations 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source Of Fund Operational Profit 2515 2229 2460 2463 3674 3490 3781 4064 4457 4814 4937 Depreciation 454 514 634 707 788 848 879 906 1001 1039 1075 Financial Earnings 391 758 816 875 942 1017 1088 1161 1240 1326 1417 Loan /Borrowing 0 0 1088 883 981 732 374 327 1151 462 440 Other Capital Resources 0 0 0 0 0 0 0 0 0 0 0 Profit/Loss on sales of Asset 0 0 0 0 0 0 0 0 0 0 0 Total Source of Fund 3360 3501 4997 4928 6385 6086 6122 6458 7849 7641 7869 Application of Fund Asset Addition 779 450 3626 2209 2452 1829 936 819 2877 1155 1099 Interest Paid 993 225 312 369 430 460 1129 929 984 854 750 Tax Paid 0 802 868 869 1259 1215 1117 1295 1429 1612 1714 Current Asset Change (Inventory and Receivable) 225 225 135 180 90 135 180 225 270 135 360 Change in Current Liability 108 450 225 180 270 225 450 450 450 540 540 Long Term Investment 648 405 434 435 609 589 546 625 685 767 812 Total Source of Application 2753 2558 5600 4242 5110 4453 4358 4342 6695 5062 5276 Total Cash Flow 607 943 -602 686 1275 1633 1765 2116 1154 2578 2593 Cash Balance (Opening) 707 1314 2257 1654 2340 3615 5248 7013 9129 10283 12862 Cash Balance (Closing) 1314 2257 1654 2340 3615 5248 7013 9129 10283 12862 15455 Table 10.40

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Projected Cash Flow Statement - All in Rs. Million - 2017-17 Cash flow from Operations 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Source Of Fund Operational Profit 5188 5519 5659 5834 5668 5778 5902 6274 6420 6561 6696 Depreciation 1176 1236 1279 1323 1360 1397 1434 1471 1522 1564 1613 Financial Earnings 1512 1611 1715 1824 1935 2048 2164 2285 2411 2541 2674 Loan /Borrowing 1220 727 520 539 443 450 450 450 614 516 591 Other Capital Resources 0 0 0 0 0 0 0 0 0 0 0 Profit/Loss on sales of Asset 0 0 0 0 0 0 0 0 0 0 0 Total Source of Fund 9096 9093 9173 9520 9405 9673 9949 10480 10967 11181 11573 Application of Fund Asset Addition 3050 1818 1300 1347 1107 1125 1125 1125 1535 1289 1477 Interest Paid 868 832 754 700 636 590 555 528 550 541 554 Tax Paid 1787 1936 2040 2148 2151 2238 2326 2492 2573 2662 2744

Current Asset Change (Inventory and Receivable) 405 225 180 270 315 360 135 135 135 270 180 Change in Current Liability 540 675 675 675 675 675 675 675 900 900 900 Long Term Investment 845 911 958 1006 1007 1046 1085 1159 1195 1235 1272 Total Source of Application 7495 6398 5907 6147 5891 6033 5900 6115 6887 6897 7126 Total Cash Flow 1601 2695 3267 3373 3514 3640 4049 4365 4080 4284 4447 Cash Balance (Opening) 15455 17056 19750 23017 26390 29904 33544 37593 41958 46038 50322 Cash Balance (Closing) 17056 19750 23017 26390 29904 33544 37593 41958 46038 50322 54769 Table 10.41

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Financial Ratio 2006-16 Financial Ratio 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Operational Profit Margin 49.0% 41.1% 39.9% 36.1% 56.7% 53.0% 53.8% 54.8% 56.1% 56.5% 55.7% Net Profit Margin 17.8% 29.6% 27.9% 25.3% 37.5% 35.7% 30.9% 33.7% 34.5% 36.1% 36.7% Return on Asset 4.8% 6.7% 6.5% 5.9% 7.4% 6.4% 5.5% 5.9% 5.9% 6.1% 6.0% Return on Equity 9.3% 13.4% 12.1% 10.4% 12.5% 10.3% 8.3% 8.3% 8.0% 8.0% 7.6% Asset Turn over 0.22 0.23 0.23 0.23 0.20 0.18 0.18 0.17 0.17 0.17 0.16 Current Ratio 0.37 0.49 0.44 0.53 0.67 0.85 1.07 1.35 1.53 1.90 2.32 Net working Capital Ratio -0.27 -0.20 -0.19 -0.15 -0.09 -0.04 0.02 0.07 0.10 0.15 0.20 Debt to Equity Ratio 21% 16% 18% 19% 18% 17% 12% 9% 8% 6% 5% Debt Ratio 9.8% 8.2% 10.0% 10.7% 11.2% 10.8% 8.3% 6.3% 6.1% 4.9% 4.0% Table 10.42

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Financial Ratio 2007-27 Financial Ratio 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Operational Profit Margin 55.5% 56.2% 55.8% 55.9% 52.7% 52.5% 52.2% 54.0% 53.7% 53.4% 53.1% Net Profit Margin 36.3% 37.3% 38.0% 38.8% 37.7% 38.2% 38.6% 40.2% 40.3% 40.6% 40.7% Return on Asset 5.8% 5.8% 5.7% 5.6% 5.2% 5.1% 5.0% 5.0% 4.9% 4.8% 4.7% Return on Equity 7.1% 6.9% 6.6% 6.4% 5.9% 5.7% 5.5% 5.4% 5.2% 5.1% 4.9% Asset Turn over 0.16 0.16 0.15 0.14 0.14 0.13 0.13 0.13 0.12 0.12 0.12 Current Ratio 2.65 3.19 3.87 4.66 5.60 6.71 8.05 9.69 12.20 15.76 20.99 Net working Capital Ratio 0.22 0.26 0.29 0.33 0.36 0.39 0.42 0.45 0.47 0.50 0.52 Debet to Equity Ratio 5.2% 4.5% 3.7% 3.2% 2.7% 2.3% 2.0% 1.8% 1.7% 1.6% 1.5% Debt Ratio 4.3% 3.8% 3.2% 2.8% 2.4% 2.1% 1.9% 1.7% 1.6% 1.5% 1.5% Table 10.43

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Conclusion o The total projected revenue will touch US$ 280.2 million or Rs. 12609 million by 2026-27 from US$ 114.1 million or Rs. 5134 million in 2005-6. Over the next 20 years, the projected growth is expected to display a CAGR of 4.5%. o The Port is expected to maintain its operational profit margin at 50% to 53% from the current level of 40% to 45%. o The operational expenses will decrease, due to the increased introduction of privatization. The Port can expect a net profit margin in the range of 35% to 40% during the planning period. o The Port’s key strategic project implementation will increase the total asset addition during the next 20 years. o During the same period, the net fixed assets will increase from US$ 258.6 million or Rs. 11,637 million to US$ 480.4 million or Rs. 21,618 million. The return on asset will be maintained at 4% to 4.5%.

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11. Detailed Action Plans PPT has a good opportunity to become a hub port of the Indian East Coast based on its core strengths that others do not have, i.e. deep draught, proximity to mineral reserves and land locked regions. • The focus should be Dry Bulk in the short Term, Liquid bulk in the mid term and Containers in the long term. • The following Action plans have been proposed for the Port to realize its vision and mission in the next 7 to 20 years. 1. Develop Targeted Market and Customer Driven Approach • The Target Markets should Be o Be competitive in Layer I – Short Term o Strengthen the competitive position in Layer II – Short and Mid Terms o Strategic initiatives to attract cargo from North, Center and NorthEast cargo clusters – Mid and Long term • Build a Long Term Partnership with Customers o Develop a partnership with newly emerging steel plants in Layer I and Layer II hinterlands. o SAIL and Arcelor Mittal Steel are the key attractive customers. o Develop strategy initiatives with these players. TATA will not be an attractive customer as they will shift their volume to Dhamra Port. Business Plan Development for Paradip Port Trust – Final Report 232

• Have a clearly defined and dynamic marketing team. It should be in a place in the coming years. The key objectives of the team are: o Retain and ensure the immediate hinterland customers by addressing their needs and facilities. o Develop a closer relationship with big customers and strive for longer relationship tie-ups. o Identify and initiate new business opportunities and tie ups. It could be captive customers through industrial parks, logistics parks and steel processing units. o Brand the Port as a deep draught and integrated bulk terminal Port • Develop a Customer Relationship Cell and key account positions under the Marketing Teams 2. Develop Superior High Speed Dedicated Corridors • Strengthening Layer I & II – with following projects (target) o Daitari - Banspani rail link (2006-07) o Haridaspur - Paradip rail link (2007-08) o Electrification Cuttack - Paradip rail link (2007-08) o Four laning of Chandikhol-Paradip road (NH-5A) (2007-08) o Four laning of Cuttack-Paradip road (SH-12) (2007-08) o Four laning of Keonjhar-Panikoili road (NH-215) (2008-09) This is a key project initiative as Arcelor Mittal Plant is planned for development in Keonjhar Districts o Four laning of Chandikhol-Duburi (NH-200) (2008-09) • Layer III – Integrated North, Central and Eastern Cluster

o Delhi and Paradip Corridor • JNPT is quite congested and Kolkata has draught restrictions, unable to accommodate bigger vessels. Hence, Business Plan Development for Paradip Port Trust – Final Report 233

Paradip can be developed as a future alternative port for JNPT or Kolkata for container distribution. • Developing rail corridors between key industrial clusters, especially as follows, would ensure a competitive advantage for PPT. PPT – Delhi PPT – Nagpur PPT – Kolkata 3. Improve Internal Logistics System and remove the existing bottlenecks • Remove the current handling bottleneck at the iron ore handling plant o Increase the productivity of cranes with skilled labour o Ensure availability of engines and adequate handling facilities for imported coal 4. Maximize the Core Strength of Deep Draught Potential The Port should maximize its core strength to beat competition. The following facilities should be implemented based on the realistic projection and high mechanized capability: Phase I 2007-2012 o Iron ore mechanized terminal Phase I (2009-10) o Coking Coal mechanized terminal Phase I (2009-10) o Non-Coking Coal mechanized terminal Phase I (2012-13) o One container terminal (2012-13) o One fertilizer terminal (2012-13) Business Plan Development for Paradip Port Trust – Final Report 234

Phase II 20018-2027 (If traffic out performs than expectation) o Iron ore mechanized terminal Phase II (2018-19) o Coking coal mechanized terminal Phase II (2018-19) 5. Maximization of Land Utilization - Flexible Port Planning & Mechanization The Port is currently occupying 70% of the land area for the existing dock and harbour area, reaching this level over the past forty years. Hence, the optimal utilization of land and water in the coming years is the key for the Port development. Otherwise, the Port has to disturb the township area, which the Port will be forced to do anyway in another 20 years to meet Port expansion requirements. The following top two scenarios have been selected and the detailed Port Planning is developed for Southern Dock system scenario: • The expansion of the southern Side with a long southern quay wall, from south west to east • Southern Dock system aligned with wind direction The prevailing wind direction from South to North, which will impact the vessels from the side, is the major concern from the Port to go ahead with this Port layout. Port is convinced with a Southern Dock system aligned with the prevalent wind direction of the Port. Based on the realistic scenario, 7 berths need to be accommodated within the

available land and water areas, along with rail and road connectivity. The future Port planning has been proposed in a phased manner, as follows: Business Plan Development for Paradip Port Trust – Final Report 235

Phase I Development - BOT Complex The first phase expansion plan starts with Eastern side of the Port. This dock system is called to be a BOT Complex. The following berth allocation is planned in the BOT complex: • Two Iron Ore berths on the western side of complex • One Non coking coal and Coking coal berth on the Eastern side of complex • The BOT complex can be developed in the following sequence: Two berths at the beginning of Phase I Two more berths at the end of Phase I Phase II Development - Southern dock Complex Port should start its next phase expansion plan with Southern dock system. The following proposal has been made for the south dock complex: • 17 meter draught • One container terminal module with a 700 meter quay length and back reach about 500 meter with a rail terminal, on the West side of the complex. • Two berths are reserved for the future expansion on the Eastern side of the complex, mainly for deep draught vessels. • The back reach for the south west side of the dock is not a problem with minimal disturbance to the town ship area. A dedicated rail link from the Railway station to the planned container terminal has been proposed with a loop concept. At the end of planning cycle, the 83% of total Harbour area will be used. The unutilized areas will be in the western part of the Port. However, these areas can Business Plan Development for Paradip Port Trust – Final Report 236

not be used for the Port development due to draught restrictions and other logistics planning constraints. Hence, TransCare strongly recommends the Port to have an aggressive land acquisition strategy for the Long term Port development. Port should find a suitable area, where, the existing township area can be moved. The estimated land area for the township relocation is about 500 to 700 acre. It is very critical for the Port, otherwise, Port development will be a big question mark after 2027. 6. Mechanize the Existing General Cargo Berths with Harbour Cranes and use it for clean cargo • After Phase I and Phase II, the manual coal and non coking coal storage areas will be free. The area is estimated and is marked in the land use plan. • The existing MPB (multi purpose berth) and Central quay should be used as clean cargo. The existing western side of the Port should be used for a back reach area for clean cargo and general cargo. • If there is need any need for an additional clean cargo berth in the future, the existing quay, which is in the west side of current central dock, can be extended further from the PPL berth by another 300m. • The vacant land along the rail siding should be used in such a way that it

should not affect the railway lines. 7. Develop a Logistics Parks, specific to the Steel Industry, along the Steel Industry cluster to Port corridor • Many leading steel Industry players are proposed to set up steel plants in the Port hinterland. It is estimated to generate more than 70 MT of cargo during next 10 to 15 years. Though, these plants are focused on domestic front, there is good potential for export market as well. Business Plan Development for Paradip Port Trust – Final Report 237

• If these proposals are realized in the coming years, there will be a huge demand for last mile logistics services such as consolidation of load, packaging, labeling, temporary storage and distribution. • Hence, developing a consolidation center or a Logistics Park with a focus on steel industry, near the Port premises would create a highly competitive advantage and help to tap the clean cargo volume as well. • The Logistics Park should be developed with an integrated intermodal terminal with excellent access to the Port and industry Zones. • The following key activities could be defined under such a Logistics Park a. Warehousing Zones b. Consolidation or Cross docking centers c. 3PL and 4PL service Zones d. International Banks and Customs e. Packaging & Barcoding and Containerization centers f. Final value addition centers (not the core manufacturing) g. Intermodal terminals h. Sourcing platforms • Based on TransCare experience, the estimated land area for such a logistics park development would be in the range of 2500 to 5000 acres based on the level of activities to be performed and the industry cluster segment size. • Since the Port does not have enough land to develop such a Park, it has to locate a suitable site anywhere along the corridor between the industry Business Plan Development for Paradip Port Trust – Final Report 238

cluster and the Port. However, the Port should take up a detailed study to tap this potential before its competitors. 8. Develop a Corporate Planning Culture within established Organization Structure The objective of Corporate Planning is to develop the organization’s long term vision, goals, objectives and strategies. The corporate planning team should be in a place to carry out the following objectives: • Develop a long term planning with detailed financial and market risk implications (competition and market changes). o Forecasting the long term business scenarios o Develop a detailed competitive road map o Develop Financial and Investment / capital implications o Risk and Mitigation scenarios o Translate the corporate vision and mission to the bottom line of the company or organization. • Derive short and mid term plans from the long term plan.

• Develop strategies to achieve short and mind term plans, consequently, long term plans. The strategies are many fold: o Market / Business Strategy o Organizational Strategy (How the organization should be structured to achieve these plans) o Port Planning Strategy o Land use plan Strategy o Operational / Supply Chain Strategy o Financial Strategy o HR Strategy • Continuous measurement of the developed strategies and identifying the gaps for continuous improvements. Business Plan Development for Paradip Port Trust – Final Report 239

Hence, the continuous measurement mechanism and flexible corporate strategies to the changing competition scenarios and market dynamics will enable the Port to be on right path to achieve the organization’s vision and goals. 9. Develop Corporate Planning Cell (CPC) or Cross Functional Team Set-up A Corporate Planning Cell (CPC) has been proposed. At present, the Port plan is based on the Government’s five year plan. The projection for the five years and the corresponding capacity addition and financial implications are communicated to the Government. However, it is not based on a detailed business plan and market research. Based on the targeted demand or projection, each department gives its plans and estimations for the future. Finally, the consolidation plan is communicated. CPC team should be developed as a separate entity to take care of the corporate planning and monitoring. The objectives of the team as follows: • Develop and define the organization’s goals and objectives both for long and mid terms. • Prepare a detailed or updated Business Plan for at least every five years based on rigorous market research and competition scenarios analysis. • Co-ordinate with all the departments and finalize the plan and communicate to the Chairman. • Develop the detailed objectives/plans for each department. This should be drawn by co-coordinating with their Head of the Department (HOD). • Continuous monitoring and updating the plans as and when there is delay in implementation or changes in the market places. Business Plan Development for Paradip Port Trust – Final Report 240

• Develop a well defined Performance Measurement System which can evaluate the organization performance at a balanced level, not only based on financials and throughputs. The system should measure the value created to the stakeholders, country and customers, while addressing the internal improvements. • Update the Chairman on the planned activities and take his valuable inputs. The corporate planning team structure should be as follows: • The team should be either headed by the Deputy Chairman or next senior

most person of the organization along with the following team members: o Marketing (1) – Part time o Operations (1) – Part time o Financial (1) – Part time o Marine (1) – Part time o Infrastructure Team (1) – Part time o Business Analyst (2) – Full Time These two analysts should be analytically strong and should support the team for all kind of analysis. Analysts should be selected from the existing employees, no new recruit. 10. Develop a Marketing and New Business Initiative (MBI) Team Set-Up It is proposed for the Port to have a clearly defined and dynamic marketing team to be in a place in the coming years. The key objectives of the team are: • Retain and ensure the immediate hinterland customers by addressing their needs and facilities. Business Plan Development for Paradip Port Trust – Final Report 241

• Develop closer relationship with big customers and look for longer relationship tie-ups. • Identify and Initiate new business opportunities and tie ups. It could be captive customers through industrial parks, logistics parks and steel processing units. • Updating the market dynamics to Chairman, operations Head, CPC and other concern departments. The proposed team structure for the marketing and new business initiative team is as follows: • Core Business Team ( 5 to 8 persons) o Vertical Focus Coal, Iron ore, Coking coal and Fertilizer • New business Initiative Team ( 2 to 4 persons) o Core focus is on identifying new business opportunities, for example, container business initiatives • Market Intelligence Team (2 to 4) o It should provide all the necessary market information and analysis to the core teams. • Customer Cell (6 to 10) o It should understand and process the customer complaints and their feedback and communicate to the concern department. 11. Develop Personal Department and Learning Center Cell (PLC) It is proposed that a well established and defined HR department should be in place along with a Learning Center Cell. The objectives of the department are as follows and all the HR activities should come under this department: o Human Resource Planning, It should be based on the needs of each process and function of the organization Business Plan Development for Paradip Port Trust – Final Report 242

o Develop standard recruitment criteria and responsibility chart for newly identified or vacant positions

o Right sizing the people strength if the there any department has a higher number of people than required. o Develop performance based appraisal systems and promotion schemes. o Facilitate the employees’ welfare and their related issues. o Manage the employees’ salaries, working hours and provident fund details by coordinating with financial department and ministry. 12. Develop a Process Based and IT enabled Organization structure As discussed, the organization should be process based and system driven rather than functionally driven. Horizontal integration of the organization through an IT system would give visibility in the process and reduce the paper work, consequently, increase the process time and efficiency. The following processes are defined for PPT and the responsible departments are mentioned under the defined process. Demand and Infrastructure requirement Planning Demand Planning The marketing and new business opportunity team should be responsible for the demand planning. • A solid market research and expert opinion report on the market should be prepared along with potential new business opportunities. • This report should be sent to the corporate planning cell (CPC) team. Once it has been agreed within the corporate team, it should be communicated to the Operations Management team for the infrastructure requirement planning. • The demand planning should also include the vessel size developments and expected trends in shipping and Port industries in the world. The process owners Business Plan Development for Paradip Port Trust – Final Report 243

• Marketing and New business Initiative Team (MBI) • Corporate Planning Cell (CPC) Business Plan Development for Paradip Port Trust – Final Report 244

Finance Admin HR Corporate Planning and Demand Planning Project and Tender Management System Resource Planning Vessel Traffic Management Navigational Systems Asset Management Customers Customs Banks TAMP Ministry Planning Fig.11.2 Process Integrated System for PPT EDI

Operations Supporting Business Plan Development for Paradip Port Trust – Final Report 245

Investment Size IOHP Handling Handling Productivity Deepening berth (Iron ore and C/NC Coal) 2007- 2010 2010- 2015 IT Implication Hinterland Missing Links and Roads

Fig 11.3 Action Plans Summary Container / Clean Cargo Criticality to the Business

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Annexure I – List of Abbreviation • • • • • • • • • • • • • • • • • • • • • • • •

BALCO – Bharat Aluminium Company Limited BPCL – Bharat Petroleum Corporation Limited BOT – Build, Operate and Transfer BOOT – Build, Own, Operate and Transfer CAGR – Compounded Annual Growth Rate CIL – Coal India Limited CONCOR – Container Corporation of India Limited CWPRS – Central Water and Power Research Station DWT – Dead Weight Tonnage DPR – Detailed Proposal Report EXIM – Export / Import FB – Fertilizer Berth FDI – Foreign Direct Investment FRM – Fertilizer Raw Material FY – Financial Year GCB – General Cargo Berth HINDALCO – Hindustan Aluminium Company Limited HPCL – Hindustan Petroleum Corporation Limited IFFCO – Indian Farmers and Fertilizer Cooperative Ltd IOCL – Indian Oil Company Limited IOHP – Iron Ore Handling Plant KPCL – Karnataka Power Corporation Limited JNPT – Jawaharlal Nehru Port Trust m TEU – Millions of Twenty Feet Equivalent

• MCHP – Mechanical Coal Handling Plant • MCL – Mahanadi Coal Limited • MT – Million Tonnes • MW – Mega Watts Business Plan Development for Paradip Port Trust – Final Report 247

• NALCO – National Aluminium Company Limited • NBA – Network Based Analysis • NH – National Highways • NINL – Neelachal Ispat Nigam Limited • NMDC – National Mineral Development Corporation • NMDP – National Maritime Development Project • NTPC – National Thermal Power Corporation • PBT – Pre Berthing Time • PPL – Paradip Phosphates Ltd • PPT – Paradip Port Trust • RBI – Reserve Bank of India • RINL – Rashtriya Ispat Nigam Limited • RMIL – Rungta Mines India Limited • RVNL – Rail Vikas Niganm Limited • SAIL – Steel Authority of India Limited • SEZ – Special Economic Zone • SH – State Highways • SPM – Single Point Mooring • STAT – Ship Turn Around Time • STC – State Trading Corporation Limited • TAMP – Tariff Authority for Major Ports • TEU – Twenty Feet Equivalent • TN – Tamil Nadu • TNEB – Tamil Nadu Electricity Board • TRT – Turn Round Time • VIZAG – Visakhapattinam • VSP – Vizag Steel Plant Business Plan Development for Paradip Port Trust – Final Report 248

Annexure II - Long Term Extension of Port - 2050 To show the potential future development earliest after 2050, a possible layout for long term expansion has been developed also. Principally, it is feasible to extend the port area step by step towards the township if the handling volume will further increase in which case the township would have to be re-located. It is possible to install either an additional dock parallel to the coast as demonstrated in fig 16. The second main solution would be an extension parallel to the planned South quay wall. The following layouts are just to visualize that an even further development is feasible for the recommended layout as well as for the alternatives. Here the long quay wall would allow for flexibility in accommodating various vessel sizes, and maneuverability is easy. The long term extension layout no. 3 – parallel coast would enable the port to include a vast area dedicated to a SEZ, a logistics park, an intermodal terminal should the container market exceed all expectations, or any other value adding or revenue generating activity.

This long term extension layout no. 3 – orthogonal coast, will “spare” part of the township, however, it will create maneuverability issues as well as the previously mentioned nautical challenges with the wind making berthing and unberthing activities difficult. Long term extension layout no. 5 – parallel coast, will alleviate the nautical challenges and also, similar to long term extension layout no. 3 – parallel coast, create an area made available to utilize for a SEZ, logistics park, intermodal terminal or other value adding services. Business Plan Development for Paradip Port Trust – Final Report 249

Phase V Fig. 1: Long term Extension Layout No. 3 - South Quay parallel port border - parallel coast

Business Plan Development for Paradip Port Trust – Final Report 250

Phase V Fig. 2: Long term Extension Layout No. 3 - South Quay parallel port border - orthogonal coast

Business Plan Development for Paradip Port Trust – Final Report 251

Phase V Fig. 2: Long term Extension Layout No. 3 - South Quay parallel port border - orthogonal coast

Business Plan Development for Paradip Port Trust – Final Report 252 Fig. 3: Long term Extension Layout No. 5 - Mirroring Dock aligned SW - parallel coast

Business Plan Development for Paradip Port Trust – Final Report 253 Fig. 4: Long term Extension Layout No. 5 - Mirroring Dock aligned SW - parallel coast

SEZ/LOGISTICS PARK Business Plan Development for Paradip Port Trust – Final Report 254 Fig. 4: Long term extension Layout No. 6 - “Copying” existing Dock system

Business Plan Development for Paradip Port Trust – Final Report 25 5

Annexure III – Final Report Comments and TC’s response

Review of Final Business Plan Comments and TransCare Response Port – Paradip Port Trust February 2007 Business Plan Development for Paradip Port Trust – Final Report 25 6

Review of Final Business Plan by RPA (Rotterdam Port Authority) Port: Paradip Consultant: Transcare Submission date: February 2007 The team from the Port of Rotterdam, as Advisor to the Indian Port Association, has monitored the activities of the Consultant in the preparation of the Business Plan for the Port of Paradip. In line with the agreement with IPA, the regular activities of the Advisor consisted of reviewing the various reports submitted by the Consultant: • Inception Report, • Interim Report,

• Draft Final Business Plan, • Final Business Plan. Other regular activities were the participation in the discussions in India during meetings and presentations of the results of findings by Consultants. In addition the Advisor provided - where needed – recommendations and suggestions with respect to various issues of the project, such as long term masterplanning, port land use, calculation reviews on cargo handling operations, logical sequencing in the set up of the business plan, reviews of calculation financial feasibility, relation between the projects and the financial accounts, consistency of financial data etc. The Consultant has performed his scope of work as outlined in the briefing to the Consultants by IPA and Advisor at the start of the project, to a satisfactory level. Although the Advisor could not be involved in the day-to-day co-operation between the Consultant and the Port Trust, the Advisor is of the opinion that counterpart personnel of the Port Trust has been sufficiently involved. Furthermore the Advisor considers that the Financial Model as prepared by the Consultant can serve as a management tool to adjust the Business Plan in the future where needed. With the submission of the Draft Final Business Plan, the Consultant already provided a reasonable basis for the development of the port in the coming 7 years. With the subsequent submission of the Final Business Plan by the Consultant and this review made by the Advisor, Advisor considers that both parties have now completed their work related to the Port of Paradip. The Final Business Plan forms a sufficient basis for implementation of the related projects in the coming 7 years. The Advisor recommends that the Port Trust will take the following suggestions, as final remarks made by the Advisor, into account before commencement of the implementation of the Final Business Plan. Business Plan Development for Paradip Port Trust – Final Report 257

MAJOR REMARKS ON DRAFT FINAL REPORT REMARKS ON FINAL REPORT TransCare Reply to RPA Remarks Format of report is more or less in line with format provided by the Advisor. The extensive part on major results of Interim and Inception phase (up to page 138) includes many relevant aspects from the earlier project phases, however could have been more condensed and balanced As in Draft Final Report, which is good in general. Suggestion for improvement of readability has not been followed up. As per the Port recommendation, the Report has been submitted with full blown analysis. TC did not condense the report, rather, followed the Port recommendation. In the Interim phase Consultants have prepared transparent background considerations, analysis and estimates on competitive mapping (chapter 6) and forecast (chapter 3). Much of these considerations and the related Interim Report text have been copied to the Draft Final Report. Advisor would have preferred a summary of the findings and references to the Interim Report where applicable. Furthermore the above subjects need to be described in the correct sequence; first competitive mapping and then forecast as in the Interim Report. Summary has not been prepared as suggested. Sequence of subjects has been improved and is more logical RPA asked to prepare summarize the Chapter 3 and 6, but, TC followed the Port comments (the full blown analysis report) Port maps have been included in the summary of the existing situation and considered master plan(s), as well as overview of throughput per commodity. This is appreciated although the map of the existing port as a base of all development projects should be more pronounced and clear, at least at the level of the revised Interim Report.

Suggestion has not been followed up. Map on existing and planned situation (page 127 of DFR) has been left out rather than improved. The existing Port map has been included in the hard copy for the Port but it was not attached to the RPA copy in the email. (file too big for email) Since, it is only hard copy, we couldn’t send in the email. The existing port layout and facilities are explained under chapter 2.2 with Port map already. The summary provides a lot of figures and growth percentages. Tables and in particular graphs would be more illustrative. Figures indicating same elements in tables and text need to be consistent and should be expressed with significant number of digits only. Ensure that abbreviations are explained and that in all Suggestion has not been followed up. Since TC provided the Report with full flown analysis, the figures can not be avoided.

Business Plan Development for Paradip Port Trust – Final Report 258 tables it is clear in which unit the figures in the tables are expressed. Interesting observations on institutional aspects have been included in section 8. As in Draft Final report, which is good. No comments The translation from forecast to required port facilities has been made in tables in the Interim Report. No references have been made in the Draft Final Report to these tables, with the result that in chapter 7 required port facilities come out of the blue Suggestion has not been followed up. POL imports are growing strongly however no facilities have been projected/evaluated. It was misinterpreted. POL crude is only growing, not POL products. For POL crude, TWO SBMs are planned already by IOCL. However, two berths have been proposed if the POL products grow more than expected. Please Ref Page No. (147) The assumptions and summaries of the economic and financial analysis have been described in the Interim Report. No references have been made in the Draft Final Report to these important background data with the result that in chapter 10 the findings of the analysis come out of the blue. Introduction to financial analysis have been added. No comments Advisor is missing a clear relation between bottlenecks encountered, resulting projects proposed, action plan, investments, cost benefit analysis, proposed public related and client related projects. Part of this remark is related to the remarks above on Section 7 up to the action Plan. For the stages beyond the action plan (financial items) improvements have been made. No comments

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Financial Remarks Draft Final Report Paradip Financial Remarks Final Report TransCare Reply to RPA Remarks In the report two scenarios have been worked out: • Internal resources and borrowing • PPP These scenarios are worked out for PPT as a whole. The financial coverage of the individual projects follow the PPT scenarios. The character of the individual projects is different (entrance channel or terminal), so an individual approach seems appropriate. A BOT scenario is not evaluated, where it seems appropriate for terminals. If these options are not appropriate due to circumstances it should be motivated in the report.

Remark has been followed up in FR 1 scenario where deepening of channel and berths constructions is funded with internal resources and investment in plants by BOT No comments Projected financial accounts (annexes IV V and VI) The statement of accounts is not in line with the information outline, especially the format for the projected profit and loss account deviates. Remark has been followed up. Extra lines have been added in P&L to provide missing information No comments The details for: Fixed assets, Categories of revenues, Categories of costs, Long term liabilities, Equity and reserves as required in the information outline are missing. Information has been added (table 2.22 and 2.23) No comments The details for the fixed assets should include an overview of the investments in fixed assets per year and per project. The investments in the fincial accounts Information has been added (table 2.24 and No comments

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Financial Remarks Draft Final Report Paradip Financial Remarks Final Report TransCare Reply to RPA Remarks (additions to fixed assets) seem to be far out of line with the investments in the projects (see revised interim report). 2.25) For the period 2007-2016 the investments in the projects are Rs 24 billion, for the internal and borrowing scenario it is Rs 33 billion and for the PPP scenario it is Rs 16 billion. The differences between the 2 scenarios with regard to revenues, costs and investments are selfexplanatory; consultants are requested to explain. Not applicable anymore as the two scenarios have been deleted and a new one has been added. No comments The assumptions for the 2 scenarios are missing; the text in the report only handles the results In FR there is only 1 scenario with extensive description of assumptions Ref the first financial comment, only one scenario was adopted in the Final report, for which the detailed description has been given. Since two scenarios are no more valid, TC gave description for only one scenario. The relation between the selected projects and the financial accounts is missing Still missing, especially the PPT investments for BOT projects is unclear It was clearly explained or discussed during the draft final presentation that PPT would bring the investment in the form of infrastructure and BOT operator will invest in superstructures. Page 156 and 157: Explain how deepening of channel (basic infrastructure project) can be a stand alone feasible project. The financial viability for all projects is evaluated on the basis of an IRR of 15% for all projects. For essential infrastructural projects a much lower IRR is acceptable and normal. The IRR for this project is above the 15% standard. The A Cash flow calculation has been added, however the assumptions regarding revenue are still dubious. The IRR is 11,1% where the NPV at a discount rate of 15% is positive. This cannot

TransCare already explained how the revenues are calculated to the Port. It was explained and discussed during the final draft presentation in Mumbai.

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Financial Remarks Draft Final Report Paradip Financial Remarks Final Report TransCare Reply to RPA Remarks assumptions in the interim report regarding the revenue for this project are dubious. It is recognised that this project is essential for all other projects and should be seen in connection with the other projects, regardless the doubts on the IRR calculation. be correct. (page 181) Regarding, IRR & NPV, the correction has been made.

Major Remarks related to Financial model in the Draft Final Report Paradip Major Remarks related to Financial model in the Final Report TransCare Reply to RPA comments The financial model has not been received. The Financial Model has been received and is adequate for the calculations of the projected financial accounts. The figures in the Financial model are in line with the figures in the financial accounts in the latest version of the Final Report. This version has been received on 26th February. No comments

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Indian Port Association Comments (IPA) and TransCare Response IPA Comments TransCare Response There are variations in the projection of Iron ore traffic by different consultants. Govt. policy, demand for iron ore for steel production in domestic market etc may impact export of Iron – ore. These aspects may be duly considered, if not considered so far. The issue has been considered during our demand planning for the Iron ore market. The consultants have given world standards in port productivity parameters. The source of this information, if possible, may be given. The comparison is to be made with similarly placed ports also so that conclusions are meaningful. This aspect may be covered. Incorporated: Ref page No: 49.

Industrial park, steel city, unless port has sufficient land, can be developed outside port area so that precious land area available with the port can be used for Port development in future. Incorporated: Ref page No: 236-237. The impact of deep draft port coming up in west Bengal should be factored in one of the scenarios. It was considered under realistic scenario. The suggested layout does not keep provision for future growth of container terminals in the port. The layout has been modified and new layout has been proposed. Ref page no: 145 – 146 along with the Proposed Port Master Plan. A proper land use plan indicating zoning with details of land area available with the port, leased, utilized for Port infrastructure vacant land etc may be given. Incorporated: Ref page No: 151 Business Plan Development for Paradip Port Trust – Final Report 263

The consultant has shown almost the entire capital expenditure during 2007-2008. This may be reexamined with reference to the need and period to create the assets to meet the demand as per traffic projections. It has been reexamined. However, the investment was distributed according to the needs. Since, Port has planned to complete the entire deepening channel project in a year, the investment during 2007-08 is quite high than other years. It was also agreed under the contract with the selected dredging company by the Port. The consultants may examine whether CFSs are to be developed within the port area or outside the Port area. Examined and proposed locations for CFS area under container terminal planning. Please ref page No: 146. Consultant has assumed the WACC as 15%. The basis for this may be explained duly indicating the cost of debt and equity and debt equity ratio. Incorporated ref page no: 175. The consultant shall adhere to the agreed date of submission of Final report and the port after examination of the report should

transmit it to the advisor and IPA by 1602.07 The final report has been submitted on 14th of February to the Port and 16th of February to IPA. Business Plan Development for Paradip Port Trust – Final Report 264

Paradip Port Trust Comments (IPA) and TransCare Response PPT Comments TransCare Response Suggestion for the future land requirement plan and land acquisition for the Port development. Incorporated. Ref page no: 150-151 Suggestion or comment on CISF area relocation. The land need to be identified to relocate the existing residential area in the CISF zone. Incorporated. Ref page no: 143 Reexamine the IRR calculation for Deepening channel project. Incorporated. Ref page no: 180-181 Comments on “the service to the proposed southern dock system”. The service lines (Road and Rail) have been proposed for the different phases. Please ref page no: 146 Please ref also the proposed Master Plan. Comments on “the newly proposed concept for the Oil project/flow”. Incorporated. Ref page no: 146-147