We want to diversify our cargo base

Rajiv Agarwal, Managing Director & CEO, Essar Ports Ltd

Rajiv Agarwal, Managing Director & CEO, Essar Ports Ltd: “We used to be in dry bulk as well as liquid bulk and all the major products. Now, we are looking at LNG and we are also looking at containers.”

Now, this Covid 19 pandemic has affected virtually every business globally. Container trade was almost paralyzed for sometime and still the numbers have not picked up. So, I would like to know from you how is the scenario in bulk segment?
So, the bulk segment, what we saw that initially, you know, in the month of April when we had the lockdown because I think the lockdown started sometime in the middle of March and April was the first month in which we had fully backed. So, the numbers went down to almost 40% and then we have been gradually growing and by July we are almost at 95% and in August, we were 100%. So, I feel that many of our industries are essential services like steel, power and refineries, etc. So they haven’t been working and demand was definitely impacted because, you know, their sales themselves were impacted.

But now I feel that the companies are coming back and the volumes are picking up for them and many of them are almost at 100%. So, our volumes are also 100%. Yeah, that’s good news and it also gives an impression that the consumption is coming back in these areas. So, initially it could be that its channel stocks would have been zero or depleted over the months. So, that would get fulfilled. But then slowly we can see that in the various segments the demands are going up and initially, they exported a lot of material to China to start with especially in the steel industry and now but I think they have cut down the exports and the domestic consumption has come down.

Let us go back a little bit and then see, in the financial year ended March 2020, how has been the performance at SR Ports Ltd.? And which were the growth drivers you have seen?
As you know that we actually developed five ports. So, our capacity that we had developed over the years – from 40, we went up to about 166 million tonnes. And then 56 million tonnes, we divested few years back VOT, which was our oil terminal in Vadinar we divested and we sold it to Nayara Energy Ltd. So, the rest of the four ports that we have, 2 of them like in Vizag and in Salaya, they have come recently; about 1.5 to 2 years back, so last year was their first full year. So, they have shown growth.

And also we have grown in Hazira. So, total we did about close to about 50 million tonnes which was about 23% more than last year in 2019, so 2020 grew at 23%. So, all these ports, because we are still, I would say from an infrastructure point of view because these assets have come at various times and we have a bouquet of assets. So, we are still a very young company as far as assets life is concerned and so all of these assets have many years of growth in front of them. So, with 110 million tonne capacity, 50 million utilisation, we have good scope for growth and we are also looking at expanding within these ports further.

You are one the pioneers in coastal cargo movement on both the coasts of India. Can you tell us a bit of the commodities that are now being moved and the ports connected through coastal shipping and also what kind of economies does coastal shipping bring to your business?
See, I would say Essar has been a pioneer in this, like you rightly said. Our chairman, he always believed in having the manufacturing units next to the port and we created good port asset. We had good expertise in ports, shipping, logistics – these are our strengths in construction. And all other industries, like steel plants and power plants and telecom business are all built around these. So, if you see that we feel that we have …been able to get the benefit of reduced logistics costs because of this coastal shipping.

Also, we have used pipelines very effectively. If you see that we have connected from the mines to Vizag 250km pipeline, where the cost is a fraction of what you incur by rail. So, like that, the way it moves is from the mines to Vizag, palletise it there and then move by ship on the coast to Hazira. Similarly, in Orissa, from the mines, it is moving 250km pipeline then by coast to Hazira. So, these are some of the models and we also did it in the oil sector, where we were using the ships to do on the coast, all the domestic consumption and of course trucks were also used. But a lot used to go by coast. The cost of this is almost one-fourth of the cost by ships because here you can use large quantities to move. So, we are moving cape-sized vessels on coast for coastal movement as against if you have to move by trucks, it is not possible because we are moving almost 20 million tonnes of cargo, 25 million tonnes of goods for one industry and then you have also finished goods moving to their various demand centers.

So, it is a very good operation and it helps in competing wherever you are and then when you are on the west coast, you are close to the consumption centers; at the same time, you can export. So, all in all, I think we have very effectively demonstrated this model of industry getting developed because of good port infrastructure.

So, going by your experience and also with a lot of thrust by government of India on coastal shipping, do you see more business potential in coastal shipping?
Yeah. I believe so because like you said the container business is slightly lower but then I think our demand and our own movement..you see, Mr. Modi has been our minister for so many years in Gujarat. He was the minister for ports and shipping also. So, he understands this. There are almost 35 ports in Gujarat. So, these are small…they may be shallow draft terminals. And there is a lot of movement which takes place within these 35 to 40 locations in Gujarat. So, same thing, he wants to replicate all over the country, where, there could be some shallow or some deep drafts.

These could be slowly evolved as the cargo goes up. Then you keep increasing the size of the port, increasing the draft, and increasing the mechanization, storage capabilities, etc. And also multi-modal transportation from there connecting with the rail and road, etc. So, I think this is a good model because it will help reduce the costs as well as the congestion for roads. And it will also help to create industrial hub or trade centers. As you know, Vizag – it’s a port city basically. It started as a port city; then so many industries came there. Same is with Mumbai or Chennai or Kolkata. Paradip is a very big port now. Goa.

So many places have come up in India as well as in the world over where once the port develops, eventually the city takes over the port. And after sometime, the city wants the port to go because they want to do more as commercial business. I think it’s a good model, it’s a right model for us to grow to improve the productivity. Apart from that, it is also giving a lot of stress on the inland waterways. Inland waterways has a longer route to travel because there are a lot of issues with the dredging of the rivers having perennial water, etc. unless you have locks or some other system bunds. It is a bit already constructed structures on the rivers which will not allow ships to go or pass. I think these are some of the challenges they are facing but I feel that there is a lot of potential in shorter distance.

We should not aim that I should go start in Haridwar and reach Calcutta in Ganga. You could do 50km stretch which where the water can be there, and within 50 to 100km slowly we can increase 250km. Maybe smaller stretches will be more effective in the inland waterways.

Recent months have seen a spike in iron ore and steel exports to China. How is the scenario now and how do you see the iron and steel trade dynamics in the coming months?
I think the government has taken some good steps in the mining side. So, which is going to bring a lot of these changes ..I think they realize that mining is a very big thrust area for India and not only from domestic production but also from employment generation and development. Sometime back, there was a ban on illegal mining and then there was a lull for some time and now we have to give proper stress on the mining side, which they have done. As a result of this, many of the steel companies, they have now their own mines. So, the mining activity is going to increase manifold. What we have seen that is, initially when the lockdown opened lot of export was happening to China because it helped them to get their working capital cycle get restarted because there was a big market for export of iron ore and pellets.

There is a problem with the Brazilian supplies. So, as a result India was filling some of that gap. But as we go along and the prices have shot up like anything and Indian manufacturers don’t like it. But it was good for the initial period for some exports to happen because that helped the companies to get the working capital and some money out of those exports because domestic demand was not there but as the domestic demands keep picking up, I think the exports may come down and may not happen to that extent.

You were looking at some overseas locations to set up infrastructure, right? What is the current thinking?
Yeah. We have a refinery in UK, the second largest refinery of UK – Stanlow refinery is owned by Essar. We bought if from Shell 5 to 6 years back and we have a terminal there – an oil terminal where we import crude oil and we export the products with pipelines, storage capacity of close to 3 million cubics. So, it’s a large operation which we are running; so that is one. We are also looking at Mozambique for a long time now, in Africa it takes a long time. So, now we are expecting to move ahead in the next maybe 6 to 8 months after we get financial closure there. So, we are working on that also. We used to have a terminal in Canada which we divested a few years back. So, yeah, we are having some presence in some of these locations.

A while ago, you mentioned that you are a young company. But numbers don’t say that, you have grown from 40 plus to 166 mmt. So, from here to where Rajiv ji. What are your future plans?
We want to diversify our cargo base because we used to be in dry bulk as well as liquid bulk and all the major products. Now, we are looking at LNG and we are also looking at containers. So, our aspirations are to diversify our cargo base. Because there are three to four major cargos – coal, iron ore, steel products and liquids and containers. These are the main cargos. Now, LNG is also picking up….LNG, LPG, etc. gases. So, we are wanting to be in all these spaces. So that is what we are looking at going forward and have a larger presence in India as well as outside India.

So, we are working on plans to see how we can grow, and not many companies have presence, and it needs deep pockets at the same; it needs a lot of patience and expertise to be able to construct, operate these projects. So, I think we are looking at increasing the capacity to 200 million in the times to come from 110, which is now with us at the moment. And about maybe outside India, we want to go to about 30 million tonnes. So, that’s how we are looking at it, and increasing the throughput utilisation, and we have targets for improving our profitability in times to come. This year, of course, there are some bottlenecks and we have almost overcome them. But we still feel that this year may not be a very good growth year; like we grew 23% this year.

So, we have to take a break this year, and maybe if we can do 100% of what we did last year 10% or 5% more, I think we will be in good position. So, we are targeting about 55 million tonnes this year in India and about 10 million tonnes in the UK. So, this is what our plan is and we can keep growing.