The ambitious Sagarmala project not only aims to decrease the cost of logistics through optimum use of waterways, it also envisages setting up of Coastal Economic Zones to bolster the infrastructure along waterways and coastlines.
The recent release of draft plans by the Ministry of Shipping on Coastal Economic Zones which outlines the domestic demand-supply situation, resource mapping of essential raw materials and probable cargo traffic estimates for some bulk commodities indicates a strong growth for infrastructure and allied sectors. This project can provide a huge fillip to four sectors in the long run — petroleum, oil and lubricants, steel, cement and thermal coal.
Power and steel plants use around 80 per cent of the total coal in India. With the Centre’s increased thrust on electrifying rural areas and revamping State electricity boards through the UDAY scheme, power generation is expected to reach 280 GW by 2020, nearly twice that seen in 2014.
At present, thermal coal contributes close to 50 per cent of railway traffic and 24 per cent of port volume. This is expected to increase substantially in the coming years. Besides, 90 per cent of the coal handling rail network is over-utilised and the lack of availability of rakes causes capacity constraints at ports. The Sagarmala project expects to increase the share of coastal transportation to cater to the incremental coal demand.
The coastal network is expected to transport nearly 15 per cent (200 tonnes) of the coal demand by 2025, from 3 per cent (23 tonnes) now. Transporting coal using waterways will cost ₹0.2 per tonne km, close to a sixth of the cost incurred through rail. This can lead to savings of around ₹6,000 crore per annum.
The effective use of the coastal network can also help bring down the cost of power supplied by ₹0.2 per unit. Most of the additions in power generation capacities over the next ten years are expected to come up along the coast.
The companies likely to benefit in this space include Adani Power, Tata Power and NTPC.
A consistent GDP growth rate of around 7 per cent is expected to increase the demand for cement by 700 million tonnes by 2025. The current utilisation rate on cement production plants is close to 70 per cent.
Cement production continues to happen closer to limestone reserves and the product is then transported to demand centres through road or rail. Cement being a high-volume, low-value product, this method of production is not cost efficient. Coastal waterways can optimise cost for some of the production units by setting up clinkerisation units near limestone reserves (northern Gujarat and central Andhra Pradesh) while moving the grinding units closer to the demand centres (Mumbai, Chennai, Cochin and Kolkata).
Coastal movements are generally dominated by large players that have dedicated jetties or coastal berths at ports. Large players such as Ultratech Cement, Ambuja Cement and Sanghi Industries, which already have established berths, are expected to have the first-mover advantage. India Cements and JK Cements also have an advantage in the long run. Though road and rail are cost-effective modes of transporting cement for short (₹3 per tonne km) and medium (₹1.5 per tonne km) distances, coastal transportation has a clear advantage in long-distance (₹0.15 per tonne km) transportation.
The report estimates potential saving on the transportation front, of close to ₹1,000 crore per annum by 2025 through efficient choice of production centres. The total cost saving is expected to increase further to ₹2,500 crore per annum if new capacity additions are planned along the coastal regions.
The global steel market is on a downturn. The slowdown in demand for steel from China and the excess supply from the country continues to keep global steel prices depressed. But the long-term demand for this metal continues to be upbeat in India. Close to ₹1,000 crore can be saved right away in logistics cost by moving the current steel produce through coastal transport rather than through railways.
With Centre’s increased thrust on infrastructure creation, the demand is expected to be 200 million tonnes per annum (mtpa) by 2025, double the levels seen in 2015. Transportation of iron ore via coastal shipping and placement of new steel manufacturing centres close to demand centres such as Tamil Nadu, Maharashtra and Uttar Pradesh is expected to save around ₹2,500 crore per annum. Besides, demand projection estimates indicates the need for two steel clusters with a combined capacity of 40 mtpa over the next 10 years.
Petroleum, oil and lubricants
Considering an annual GDP growth of 6 to 7 per cent over the next ten years, demand for petroleum products is expected to increase to around 280 mtpa by 2024-25 from 158 mtpa at the end of 2013-14. Though, more than 80 per cent of the current evacuation happens through pipelines, the incremental surge in crude oil imports (close to 75 mtpa over the next 10 years) will require additional storage and port infrastructure. It is expected that by 2025, close to 20 mtpa petroleum products will be shipped via coastal.
The increasing pace of urbanisation should act as a catalyst in increasing demand for liquefied petroleum gas (LPG) and liquefied natural gas (LNG) over the next decade. A yearly urban growth of about 3 per cent is expected to increase LPG requirement to 35 mtpa by 2025, a 100 per cent increase from the current levels.
This increased demand for petroleum products is expected to accelerate around 2019, once the revival in the rural economy materialises completely. This should favour companies along the value chain — production, transportation and marketing. The companies that are expected to benefit in the long run are ONGC, RIL, BPCL, GAIL and CAIRN India.
The storage facilities for crude oil, petrol and diesel are expected to improve along the coastal areas. This should further increase the need for rail, road and pipeline infrastructure to transport the crude oil, petrol and diesel from ports to refineries and retail outlets.
The expected surge in crude oil imports will require additional storage and evacuation infrastructure across ports.