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i-maritime news letter

Should Government subsidise dredging at major ports? - 2011-12-26


Recent media reports suggest that the Cochin Port Trust is in a serious financial crisis and its net loss in 2011-12 is likely to be in the region of about Rs 232 crore as against Rs 86 crore in 2009-10. The Cochin Port Trust has stated that it is required to maintain a navigational channel about 16 km long up to a draught of 14.5 m to permit large container ships to call at the International Container Transhipment Terminal at Vallarpadam. It would be of interest to examine whether there is any economic logic for the Centre to subsidise dredging costs at Indian major ports or not. Will a subsidy granted to maintenance dredging at Indian major ports lead to a situation whereby the economic benefits would extend to a broad spectrum of Indian exporters and importers significantly? Let us examine this issue in greater detail. The cost of dredging at all the 12 major ports in the year 2010-11 was Rs 860 crore (Major Ports of India - a profile: 2010-11, Indian Ports Association). Kolkata port registered the highest expenditure on dredging at Rs 404 crore accounting for about 47 per cent of the total dredging costs. Maintenance dredging over a 203 km of navigable Hooghly river contributes to the high dredging costs of Kolkata port. Next comes Kochi where the dredging costs are estimated at Rs 75 crore in 2010-2011 accounting for about 12 per cent of the total dredging costs. In the year 2011-12, the cost of dredging is likely to go up to Rs 105 crore.
The dredging costs of Kandla port come to Rs 66 crore accounting for 7 per cent of the total dredging costs. Costs of dredging in Paradip, New Mangalore, Mormugao, Mumbai, Visakhapatnam and the JNPT are reported to be at Rs 43.5 crore, Rs 38 crore, Rs 22 crore, Rs 22 crore, Rs 21.7 crore and Rs 18.5 crore, respectively. Only negligible quantities of annual maintenance dredging have been reported in Ennore, Chennai and Tuticorin ports. One of the most comprehensive legislations on cost sharing in dredging is the US Water Resources Development Act 1987 approved by the US Senate and Congress which entered the statute book of the US on April 1, 1987. Under the provisions of this Act, the Federal Government meets 90 per cent of the dredging costs and 10 per cent by the local port authority for a depth up to 20 ft, about 75 per cent of the incremental maintenance dredging costs by the Federal Government and 25 per cent by the local port authority for depths up to 45 ft. For depths exceeding 45 feet, the incremental cost of dredging is to be borne by the Federal Government and the local port authority on a 50:50 basis. This implies that it is the responsibility of the Federal Government to provide some minimum level of navigational facilities in harbour projects. Out of about 183 major ports, about 90 per cent ports are likely to fall under the category of under 45 ft depth, in which case, the Federal Government in the US will be meeting about 75 per cent of the incremental dredging costs. For depths of over 45 ft, the cost gets shared only for the incremental portion on a 50:50 basis, implying that deeper and more specialised facilities bring concentrated local benefits and, therefore, the local users could pay a larger share. The above mentioned US Act is particularly significant in one respect that well-informed public opinion in the US, after a thorough debate, has rejected the principle of full cost recovery from the direct users of the marine access channels, navigational aids, communication, etc.

The Federal Government seems to have accepted the principle of provision of maritime access channels, operation and maintenance as a federal responsibility. Another significant contribution of this Act is that it recognises the broad spectrum of beneficiaries and tries to allocate the responsibility for cost sharing of harbour projects in some compromise proportion between the local port authority and the Federal Government. The above mentioned US Act does seem to provide an instructive parallel for developing countries. The one principle that stands out and offers great practical applicability to developing countries based on logic and merit is the rejection of the concept of full cost recovery from direct users/beneficiaries. This principle seems to have been widely accepted by Canada, Japan and most of the West European countries as well. The US and Canadian port policies seem to offer some similarity in the sense that these Governments seem to confine federal subsidy strictly to providing facilities of a ‗public goods' character, namely the maritime access channels, maintenance and operation including navigational aids and communication facilities. A study for the US Army Corps of Engineers on the economic benefits in terms of total industrial production from channel dredging and land fill development in the ports of Los Angles and long Beach found that while the direct benefits were concentrated in the immediate area of the port, the indirect revenues are distributed across the country. In a complex economy, it appears impossible to sort out the primary beneficiaries of port dredging, with the result that levying fees against any specific set of users, namely the ship owners and shippers, also seems to be inherently inequitable. (US National Research Council, 1985) The solution thus appears to be for the national governments to meet the cost of dredging and maintenance of the access channels, navigational aids and communication, i.e. services of a ‗public goods' character as the beneficiaries seem to be distributed across the country in varying proportions. The Government has already granted subsidy for maintenance dredging in Kolkata port. Based on the Bhattacharya Commission recommendations, the riverine port of Kolkata started receiving central subsidy on maintenance dredging initially at 50 per cent and progressively enhanced to 100 per cent. The justification is that Kolkata port is situated on the Hooghly which permits inland waterways to penetrate deep into the hinterland of West Bengal. At the international level, the US, Canadian and Japanese governments seem to have recognised the economic logic of cost sharing with the regional port authorities in view of the spill-over effects to the respective national economies. It would thus seem logical for the Centre to share the costs of maintenance dredging of the approach channels of major ports as a central responsibility treating them as the country's social overhead capital. As the length and width of navigational channel and the depth to be maintained vary from port to port, the proportion of cost sharing may vary from 75 per cent to 100 per cent between the Centre and the respective port authorities. Since an international container transhipment terminal has come up at the port of Kochi – at the mouth of the Periyar river - there appears to be a greater justification for the Centre to meet a higher proportion of the annual maintenance dredging costs as that would help Kochi unburden its financial commitments and enable the port to compete with Colombo more effectively in terms of tariff, service quality and performance.

Source: Hindu Business Line