• Adani Group is building India's first trans-shipment port at Vizhinjam in Kerala.
  • The government will construct $4-billion port in Tamil Nadu.
  • India expects to save millions of dollars in detour costs.
  • Trans-shipment port will also have navy, coastguard berths.

Indian conglomerate Adani Group has started building the country's first transshipment port, conceived 25 years ago, and the government will construct another $4-billion facility nearby to create a shipping hub rivalling Chinese facilities in the region.

The government will grant Gautam Adani 16 billion rupees ($240 million) in so-called "viability gap" funding to help the new port at Vizhinjam in Kerala win business from established hubs elsewhere in Asia.

India: Conglomerate begins building transshipment port in Kerala (Video)

Once Vizhinjam is operational, the central government will start building the port of Enayam in neighbouring Tamil Nadu, said a senior shipping ministry official. Enayam alone will save more than $200 million in costs for Indian companies every year, he said.

India's 7,500-km (4,700-mile) coastline juts into one of the world's main shipping routes and Prime Minister Narendra Modi wants to capitalise on that proximity by developing ports that can shift freight on to huge vessels capable of carrying up to 18,000 20-foot containers.

By bringing onshore cargo handling now done at entrepots in Sri Lanka, Dubai and Singapore, Modi's government expects cargo traffic at its ports to jump by two-thirds by 2021 as India ramps up exports of goods including cars and other machinery.

The lack of an Indian domestic trans-shipment port forces inbound and outbound containers to take a detour to one of those regional hubs before heading to their final destination.

New Delhi expects the new ports to save Indian companies hundreds of millions of dollars in transport costs, as well as ease concerns over the growing strategic clout in South Asia of rival China, which has invested hundreds of millions of dollars in Sri Lanka ports at Colombo and Hambantota.

Adani wants the Vizhinjam port, which an arm of his Adani Group is building at a cost of around $1 billion, to be operational in 2018. The port lies hard by the Gulf-to-Malacca shipping lane that carries almost a third of world sea freight.

"The port can attract a large share of the container trans-shipment traffic destined for, or originating from, India which is now being diverted primarily through Colombo, Singapore and Dubai," said an Adani Group executive who declined to be named.

But officials acknowledge that it would be difficult for the new ports to win international clients unless they offered discounts.

"A major part of trans-shipment is happening at nearby ports. We can win some of that business," said AS Suresh Babu, who heads a government agency set up by Kerala to facilitate the construction of Vizhinjam.

"There's a viability issue in the first few years. Already the Chinese are operating there. So unless you give some discount you can't attract these ships. So that's why the government of India has approved the viability gap funding."

Chinese threat

India is worried about China's expanding reach in the region through port investments in Sri Lanka, Bangladesh and the Maldives. China is also developing Pakistan's Gwadar seaport as part of a $46 billion China-Pakistan Economic Corridor.

China had also wanted to partner with an Indian company to build the Vizhinjam port, but its proposal was rejected by the government on grounds of national security.

India has not banned Chinese firms from investing in its ports, but takes a cautious approach as most ports are also used for "strategic purposes", said the shipping ministry source.

That is a euphemism for dual-use port facilities that could also be used by naval vessels. The docking of a Chinese nuclear submarine at Colombo's commercial port in 2014 shocked India's security establishment and has added urgency to New Delhi's push to strengthen its port infrastructure.

Vizhinjam port will have dedicated berths for India's navy and coastguard, according to a government note seen by Reuters.

India is also seeking to extend its commercial and strategic reach as it tries to catch up with China, pledging up to $500 million to develop the Iranian port of Chabahar to give it trade access to Iran, Afghanistan and the hinterlands of Central Asia, now largely blocked by Pakistan.

Source: The Times of India