Energising SEZs

Special economic zones as a concept have caught the attention of countries around the globe. Deemed as separate ecosystems for industrial and economic growth, many of them, especially in Asia, have been fighting against odds to make even the high expectations placed on them. As port activity gears up in India, several SEZs are emerging on the coastline. Here’s a quick look at the sizzling facts ’n figures and what makes them hot.

by Radhika Rani G.

Ever since aggressive Asian economies have been making headlines, a rapt international audience has been watching in awe the energy and ferocity of the emerging tiger, dragon and bull! As the charged up nations take centrestage, the world reckons with reason that time has turned around for new competitors on the block. If England ruled the world economy from 1820-1890 and America from 1890-2000, analysts say China and India are set to dominate the world scene in the 21^st century.

As trade liberalisation has opened unprecedented business opportunities, maritime nations, especially in Asia, are creating value-added facilities along their coastline to reap economic benefits through their ports and network of shipping services. In line with the strategy to pep up growth drivers, special economic zones are being conceptualised and implemented. 

Interestingly, China has set up all its SEZs along the coast, with reason and thought though.

Having realised the role of exports in the country’s development, China opened its territories for foreign investment in the name of SEZs. “It now has in principle 6 major SEZs and more than 120 FTZs. They attract foreign investment worth $ 60 billion that is more than 10-15 times of India’s FDI,” notes Dr Arunachalam, an expert on SEZ. “China attracted more FDIs possibly only because of SEZs in China,” he opines.

The SEZs, variously named as free trade zones (FTZ), duty free areas (DFA), high technology zones (HTZ) and export processing zones (EPZ) are the designated land areas of a country where tariff and quota restrictions are eliminated, bureaucratic stranglehold is minimised and various economic incentives are offered to potential entrepreneurs, observes S K Modak, an eminent researcher.  

Indian scenario 

With the hub port concept intensifying in India, port-based SEZs have started taking shape to provide value-added services. They are being perceived as viable ventures not just for the government but also investors like infrastructure companies, construction conglomerates and investment banks. The concept thrives on stakeholders’ money-returns many!

While the key factors for a port-based SEZ are infrastructure, environment, regulations, labour and weather conditions, a clear-cut policy framework with due attention to objectivity is the key.

“What characterise SEZs, particularly in the context of a developing country like India, are a focused attention on investment, especially foreign and private investment, and the promotion of exports,” notes Sriram Ananthanarayanan in his article ‘New Mechanisms of Imperialism in India: The Special Economic Zones’. All this, according to the government, is done with the stated purpose of increasing economic growth, which in turn increases employment.
 

Objectives of the SEZ Act 2005:

• Generation of additional economic activity
• Promotion of exports of goods and services
• Promotion of investment from domestic and foreign sources
• Creation of employment opportunities
• Development of infrastructure facilities
• Maintenance of sovereignty and integrity of India, security of the state and friendly relations with foreign states

While Kandla SEZ is Asia’s first export processing zone to have been started near Kandla Port in Gujarat in the early sixties, several such self-sustaining entities have come up in later years. The Central Government followed up the Kandla Free Trade Zone experiment by setting up EPZs and FTZs at Mumbai, Chennai, Surat, Noida, Cochin, Falta and Visakhapatnam. Of the 147 valid in-principle approvals out of 579 formal approvals as on date, a third of them comprise of port-based SEZs, thanks to port activity picking up pace in the country. 

The government, admit industrialists, has been proactive in the development of SEZs ever since passing the Special Economic Zone Act in 2005. It has formulated policies and has ensured that developers get proper facilities to start their units in liberal trade zones. In line with it, Cochin Port has commenced a large-scale port-based SEZ project initiative in Vallarpadam and Puthuvypeen.

Already, port-based projects like the international container transshipment terminal (ICTT), LNG re-gasification terminal, crude oil handling facilities for BPCL-Kochi Refinery, are underway. Other projects like a bunkering terminal, distribution park including free trade warehousing and process industries have also been proposed. The port is currently establishing infrastructure and amenities for the zone at a cost of Rs 7500 crore and is likely to commission the project by 2012.   

Among the private ones, Mundra Port & SEZ is the first port-based multiproduct SEZ to come up in more than 100 sq km. of area to offer world-class infrastructure for establishment of business units since 2001. Also, Gujarat is the first state to create SEZ Policy and has the largest area under SEZs.

Taking pride in his state’s best infrastructure and conducive environment for business, chief minister Narendra Modi feels the idea a is not just to create wealth. “The development should be by all and for all to ensure inclusive growth.” Gujarat, he says, believes in development through PPP mode and accordingly, the state manages 24-hour uninterrupted power supply in villages and is all set to ensure broadband connectivity in all the villages going forward.

Newer options 

In the wake of the petrochemical industry offering a wide scope of economic growth, the Central government has decided to attract major investment, both domestic and foreign into this sector. Accordingly, it has given the go-by to integrated Petroleum, Chemicals & Petrochemical Investment Regions (PCPIRs) to make the country a hub for both international and domestic markets to boost manufacturing, augmentation of exports and generation of employment.

As part of the initiative, the West Bengal government has recently signed an MOU to develop a PCPIR at Haldia. The coal ministry hopes that at least 10 lakh people are likely to get jobs at the proposed PCPIR units, including four lakh direct employment. 

An investment of Rs 93,180 crore is proposed for high-class infrastructure and conducive environment for setting up businesses in an area of nearly 250 sq km. The major processing activities are being taken up by IOCL, Haldia Petrochemicals, MCCPTA India Corp Pvt Ltd, Tata Chemicals Ltd, Exide Industries Ltd and Shaw Wallace and Co. Ltd. 

“All existing labour laws of the country would be applicable in the PCPIR. And SEZs in the region, if any, would be governed by special laws, as approved by the Government of India,” the coal ministry explains.

Similarly, the government of Andhra Pradesh and the Department of Chemicals and Petrochemicals of the Central Government signed an MOU for setting up a PCPIR in the Vishakhapatnam-Kakinada region of the state. The total industrial investment is estimated at Rs 343,000 crore, including committed investment of Rs 1,63,890 crore. As the future of the petrochemical industry looks bright, the PCPIR is likely to provide 5.25 lakh direct and 6.73 lakh indirect employment. 

If conventionally, thermal power stations were established near coal mines to reduce logistics cost, they are now being developed in port-based SEZs owing to the import of coal with high calorie value. 

According to Vinay Pandey, general manager of AP Trade Promotion Corporation Ltd., the shift in fact ensures economical, uninterrupted and stable power that can be made available to industrial, commercial & residential units within the SEZ. “Similarly, projects that rely on imported ores are also suitable for development in port-based SEZs,” Pandey adds.

In view of the environmental concerns being voiced against such large-scale projects, experts advise developers to ensure comprehensive water management system including water desalination, distribution drainage and collecting domestic waste water. 

Further treatment and recycling of water can be done to sustain water levels, they say. Also, chemical and other hazardous industries can be established in SEZs by setting up common effluent treatment plants. To protect nature, environmentally demanding industrial units can also be set up in port-based SEZs. And most importantly, business units can rely on the available ample sea water for their heavy water demands.

As a range of SEZs are coming up across the country, experts caution the government to watch the implications for food security, political stability and the functioning of democratic institutions since the SEZ Act has a provision for ‘not’ having any democratically elected bodies of local governance. The special economic zones, though touted as separate ecosystems, are hoped not to remain aloof and above nature and law.

The Giant called JNPT

Jawaharlal Nehru Port has made a name as the container destination in maritime India. But delays in capacity addition and quality of service besides other pressing bottlenecks need to be plugged to navigate the destiny of this mighty Maratha harbour.

by Radhika Rani G.

The Jawaharlal Nehru Port has indeed taken India into the league of Asia’s leading container ports. Ranked as the 24^th largest port in the world and the topmost container port in India handling 56.5 per cent market share, the port today grapples with issues of space, expansion, capacity, connectivity, quality and perhaps bureaucracy. Endless reams have been written on these issues from time to time. However, the promise of a potential revenue generator can prompt the powers that be to endow the Arabian waterfront to make waves and not let JNPT turn a giant pity! 

The somber signs are already showing in exim trade as Nhava Sheva is literally bursting at the seams operating at nearly 107 per cent of the combined capacity of its three terminals – the JNPCT, NSICT and GTI – with insufficient infrastructure. “Service optimisation is nil,” says Capt Deepak Tewari of The Container Shipping Lines Association. “I cannot bring an ideal size of 8,000-TEU ship here because of draft constraints,” he rues.

The root for such disquiet, the maritime fraternity admits, lies at the policy making level where decision makers have paid little attention to infrastructure building and capacity expansion initiatives despite the signs of a growing economy driven by exports and imports. 

However, the Port Trust Chairman L Radhakrishnan hopes to turnaround the port, in two and a half years. With a 14-metre draft in the first phase and an ambitious 16.5-metre draft in the second, he says JNP can take in 8,000-12,000 TEU vessels. Sounds wishful thinking as the long-delayed dredging programme was mired in tentacles of red tape and resistance. But the special purpose vehicle formed with JNPT holding 87.5 per cent stake and MbPT the rest, at a cost of Rs 1,400 crore, will fast-track the deepening of the shipping channel.

The genuine issues, as the Port Trust Chairman L Radhakrishnan narrates in the following interview, can be weeded out by undoing what has been done – by working on the restrictive policies and regulations. The policies such as TAMP are more monopolistic than money-generating and need to be relooked. To add to this are land acquisition hurdles and fears of corporatisation among workers.

For now, things are easier said than done. Because the chairman and his group of officers, despite working relentlessly to take the port to new heights, yes to the Navaratna status, are forced to put up with delays beyond their control. But sheer optimism is the name of the game and the team is all game to make the port the Big Giant that it has set out to be.

Building Blocks

Removing roadblocks and adding acceleration will help Indian shipbuilding industry scale up its potential and reach the milestone of strategic, competitive and self-sustaining industry.

Radhika Rani G.

The Maritime Agenda envisages Indian shipbuilding and ship repair industry to reach international standard, be self-sufficient in building and repairing commercial vessels and generate huge investment and employment opportunities in the coming decade. The Agenda also hopes to achieve a global market share of 5 per cent for shipbuilding by 2020, up from 1.4 per cent now. 

The vision document includes development of a strong ancillary base in the country at the turn of the decade, additional employment for 2.5 million (0.5 million direct and 2.00 million indirect) in core shipbuilding and ancillary industries and development of strong R&D facilities and design capabilities for commercial shipbuilding. The action plan also seeks to achieve self-sufficiency in ship repair requirements of the country – around 10 per cent of the global share – to emerge as a dominant ship repair centre in Asia replacing Colombo, Dubai, Singapore and Bahrain. 

Where are we?

According to Clarkson Research, the total order book in global shipbuilding at the beginning of February this year comprised 7,191 newbuildings with 137.7 million cgt (compensated gross tonnage). A major share of this was taken by Asian giants – China and South Korea. While China had an order book of 3,061 ships with 52.7 million cgt, and South Korea 1,538 units with 43.7 million cgt, Japanese shipyards had an order book of 1,096 ships with 21.6 million cgt.

When measured in cgt, China accounted for 38.3 per cent of the global shipbuilding order book at the beginning of February, South Korea 31.7 per cent and Japan 15.6 per cent. They were followed by the Philippines (2.1 per cent), Vietnam (1.4), India (1.4) and Brazil (1.3).

In terms of building capability, India, according to the Union Shipping Minister, has the potential and the capacity to deliver high-value products. “Our shipbuilding inherent strengths like low labour costs, strong domestic demand, well-established steel and manufacturing industry and availability of technically qualified manpower,” says Minister G K Vasan. Add to this, the history of 4,500 years in seafaring and shipbuilding. 

Despite the present economic slowdown, the offshore segment is robust with new orders, says Mantrana Maritime Advisory. “The offshore segment caters to nearly 40 per cent of the order book of Indian yards and most of these orders are from government companies such as ONGC, SCI, Indian Coast Guard and Navy. Those received prior to the recession are slated to be delivered by 2011-12,” it says. Of the 74 ships estimated to be delivered by 2014, many orders are nearing completion, Mantrana adds.

In fact, Cochin Shipyard is being hailed for the timely delivery of six bulk carriers to Clipper Group of Denmark and five platform supply vessels to Deep Sea Supply of Norway. Other European offshore companies that have been placing orders in India include Bourbon Offshore, Lamnalco Group, Halul Offshore, Maridive Oil, Reederei Vogemann and Opielok Reederei of Germany. But private shipyards that cater to commercial shipping segment have been having a hard time. Most of them have deferred their expansion plans thanks to the global financial crunch and lull in shipping. 

Why are we where we are?

Experts are nearly unanimous in their opinion that Indian shipbuilding industry, that caters to commercial & defence vessels, dry docks and repairs, lacks a strong push from the government. If China is a thriving shipbuilding nation with 1,519 yards, both big and small, as against just 32 in India, it is because the Red Dragon is led by its state leadership which is promoting shipbuilding as part of its larger industrialisation and urbanisation programmes.

“But the shipbuilding industry in India is stuck in the government agenda,” observes Mark Williams, Research Manager at Braemar Seascope, a leading sale and purchase shipbroking company. Lack of a focussed drive in taking the industry forward has left it uncompetitive. This has led to gaps in manufacturing, technology, resources and skill development in the shipbuilding/ship repair sector. 

The ‘so-so’ quality of our shipyards, as the world sees it, can be attributed to lack of consistent quality, cost and timeliness in Indian yards, says Robert Allan, Canada's leading naval architect. “Demand is always there for quality product at a reasonable price,” he adds. This is reason enough for Indian fleet owners too to acquire vessels from overseas yards. 

The overheads of domestic shipyards are no doubt high owing to import duty on raw materials like steel and alloys, agrees Capt Deepak Tewari, Chairman of Container Shipping Lines Association. This cost, he says, is obviously passed on to the buyers. However, capable technology, design, construction and delivery too place a role in determining the choice for shipowners, he adds.

To ensure competitiveness in cost and quality, the government has been giving subsidies for five years. However, in the face of global recession, the subsidy scheme was stopped in August 2007 and since then the Indian shipyards, admits the Ministry, have been languishing for want of new orders.

“While during 2002 and 2007, the order book increased fourfold from 0.3 million dwt to nearly 1.3 million dwt accompanied by an impressive increase in global market share, after 2007 the share in the new orders has progressively declined from 0.67 per cent in 2007 to 0.02 per cent in 2009 and 0.13 per cent in 2010,” the vision document quotes a Clarksons report. This takes us to the crux of the issue.

Where can we be?

It is time for Indian yards to be flexible, adaptable, keep labour force employed and have more people come into shipbuilding, notes Robert Allan. To fill the existing gaps, a mission-based approach is the need of the hour, advises the NMCC. “A continuing mechanism needs to be evolved to synergise the efforts of the naval authorities under the Ministry of Defence and the Ministry of Shipping for meeting long-term requirements of the country,” it says.

Also, there is a need for incorporating modern ship design and operational changes besides identifying initiatives for continued growth, opines Raghavan Ashok, Country Manager, India of American Bureau of Shipping. ABS has been developing standards for design, construction and periodic survey for global shipping. “Smart production technologies, increased collaboration with suppliers and services, commitment to quality & service, safe & efficient infrastructure and more importantly emphasis on education and training can go a long way in taking Indian shipbuilding to new heights,” he exhorts. 

Skill development and specialised training is indeed essential, says Dr Vijayan, Vice Chancellor of Indian Maritime University. “Keeping in view the demand for professionals in ship construction and design, IMU is introducing a four-year Bachelor of Engineering in Shipbuilding from the next academic year. The response to our three-year BSc in shipbuilding and repair courses in our Cochin campus is good. We wish to add quality to our programmes by offering hands-on training to our students in shipyards in Malta. A tie-up is being worked out,” he adds.

Given the present economic situation and demand for alternative modes of transport in India, “Developing inland waterways and coastal shipping can help Indian shipyards cater to the small vessel segment, says Gurmit Singh Bhalla, Chairperson of ICC Shipping Association. The government can consider extending subsidies to coastal ships of 35 metre size, he says.

As shipbuilding industry is labour-intensive, skill-specific and dependent on ancillary industries, agencies like the National Skill Development Corporation could promote vocational courses for unemployed youth thereby leading to significant employment generation, say experts. 

“Government support is (also) critical till the Indian shipbuilding industry gains critical volumes to remove its scale-related disadvantages and remove its dependence on imports for procuring raw materials,” observes KPMG.

In the final account, a national leadership focussed on steering the industry to the next level of competency and competitiveness through steadied measures can take India to the league of thriving shipbuilding nations.