India’s deepest

Gautam Adani is on a mission to make Mundra India’s intermodal focal point, providing shippers with an enviable choice of deep-sea, rail and air links. But will his connectivity charge succeed in a nation renowned for its fair share of congestion and infrastructural challenges? And will DP World let Adani expand on his own?

Gautam Adani looks strangely composed for someone who oversees a diverse business empire with a combined group turnover of $44 billion. The 46-year-old appears charming and warm, belying the tremendous clout he wields in Gujarat. He marshals facts on his fingertips, and can justify or debunk a plan better than any management guru. But he also has the stuff that visionaries are made of – hard facts, cold execution and the ability to inspire people and countries.

Adani’s goal is simple – to make Mundra the country’s premier intermodal centre, one that unifies deep-sea, rail and air links against the backdrop of the alluring Mundra Port Special Economic Zone (MPSEZ). The air cargo operation is expected to take off within the next year. Mundra Port is blessed with a deep water draft ranging from 15 to 32 metres – and its deepest part is no more than 1 kilometre from the shore – enabling it to handle large size vessels carrying bulk, container and crude oil cargo.

Mundra’s North Indian location is also extremely appealing to Arabian Gulf-sailing operators. Muncra is at least 180 km closer to the Arabian Gulf than any other port in the country.

Between October 1, 1998 and March 31, 2007 Mundra Port handled approximately 56.9 metric tonnes (mt) of cargo, comprising approximately 40.3 mt of bulk cargo, 3.7 mt of crude oil cargo and 1,079,000 twenty-foot equivalent units (TEUs) (approximately 12.9 mt) of containers. Total cargo volume at Mundra Port increased 68.7% from 11.7 mt during 2005-06 to 19.8 mt during 2006-07. The port management now has ambitious plans to increase its capacity to 50 mt by 2010. “This project will test our credibility as infrastructure developers,” says Adani. “We have now to look after the environment, take into account the interest of the local people and the development of the region, and that means focusing on connectivity. And, equally important, we have to generate wealth for all the parties concerned – our society, our country and our shareholders.” Adani’s expansion plans have major implications for trade flows, particularly existing ports such as Mumbai, which currently hoovers up much of North India’s traffic. Companies located in the adjacent Mundra Port Special Economic Zone (MPSEZ) enjoy customs and income tax exemptions and reduced costs for infrastructure, utilities, raw materials and other resources.

Eventually, Mundra will have 14 jetties all forming a semicircle for better management and synergies

Sandeep Mehta, CEO of MPSEZ, is confident its location will make it the gateway for all states to the North and North West of India. “What is more interesting is that the market is growing rapidly – 30% year on year – and with the WTO provisions taking effect, more goods will flow in and out of India. Already the latent demand for port terminals is twice the country’s operations. What is needed is to clear the bottlenecks.”

He says he foresees more of Mumbai and Pune’s car traffic taking a new turn to Mundra.

“[Drivers] will have little option as JNPT is already congested. And we are already experimenting with stacker rakes especially designed for moving cars. We can accommodate large ships and also offer them the best rail road and even air linkages which no other port in India can.” Mehta has equally high hopes for the air cargo division. “I would like it to be what the Fedex hub is in Memphis.”

How it started The Adani group has its beginnings in the Kutchi community which is one of the most important trading communities in India.

This community – although often believed to be made up of only Hindus – encompasses almost every religion with roots in the Kutch region in the state of Gujarat. Adani’s rise to economic power in the region, like most self-made entrepreneurs, is striking considering his lack of formal education. And rather than settling down taking charge of a part of his father’s wholesale textile trading business Adani opted to chalk out his own career. He tried his hand at diamond trading for a couple of years, and then opted out.

After working with his elder brother at his plastic packaging unit, Adani decided to go in for trading of polymers. That proved to be the spark to the flame, as he grew his business into one of the country’s largest export-import houses
under the Adani Exports banner. “I still continue my trading activities mostly through Adani Exports [now renamed Adani Enterprises], which is now looked after my brother Rajesh Adani. To my mind, most entrepreneurs have begun their careers as traders. We began building assets for business only in 1992.” Adani‘s trading background and personal interest in gemstones led him to purchase a substantial interest in coal mines and gemstone units in Indonesia. But destiny took a turn in 1991 when managers from Cargill, the international food, agricultural and risk management corporation, approached Adani with a proposal to source salt from the largest salt pans of India which lay in the Kutch region. To facilitate easy evacuation of the salt, Cargill’s officers suggested Adanani join them in building a port at Mundra. Both parties agreed for a 50:50 joint venture, hammered out in the presence of Chimanbhai Patel, the then chief minister of Gujarat. But events took an unexpected turn when the Union government decided that ports could be built with 100% foreign ownership.

Cargill’s managers decided to rework the ownership ratios and suggested that it should be 89% in favour of Cargill and 11percent in favour of Adanis. Adani backed out of the deal, preventing Cargill from preceding with its Mundra plans. After an abortive attempt to get an equity stake in Kandla Port, Cargill lost interest in Indian ports. But Adani had found a new business opportunity. Thus, when in 1995 the state government came up with its port policy aimed at promoting the development of ports in Gujarat, the Adanis decided to take up Mundra. What began as a joint venture with the state government eventually became a port wholly owned by the Adanis.

Mundra currently handles around 60% of India’s coal imports which are used by the Gujarat electricity board

Today, the Adani Group has interests in numerous industries including commodity trading, coal mining, power trading, power generation, real estate development, agro processing, logistics, shipping and port operations. To make the port succeed, Adani insisted it had excellent rail links. And before the government could come up with a policy, he went ahead and installed 65 km of privately constructed and owned railway lines connecting Mundra to the national rail network junction at Adipur. Adani acquired locomotives and built rakes and began conducting tests to ensure that the trains could carry double decker loads of containers. Then, when the government policy was announced, he was fully prepared, and the first to move in.

The Adani group is also developing a second railway corridor which should be ready in two years.

Lastly, and most importantly, Adani has managed to escape all the restrictions on land acquisition by a whisker. Instead of waiting for the government to step in and acquire the same for him, he went ahead and kept on acquiring land. Today he has almost 15,665 acres – although some claim the area could be as large as as 30,000 acres. Adani sees air cargo operations as the next piece in the intermodal jigsaw. “We are expanding and extending the runway to accommodate bigger planes,“ he says, “and within five years we will make it an international airport for passengers as well.” The Adani family plans to increase it 1.9km airstrip used for private jets to 2.5 km, so that larger aircraft can land at Mundra.

“The plan is to be in control of every aspect of logistics,“ says Adani. “To make this possible, we will build ports, airports, warehouses to help promote companies that need to make use of our air, rail, sea and road facilities, and do everything to make this possible. Japan and Korea have succeeded because of logistics. Their industries are 25 km away from ports. Why can’t we do the same as well?”

Storage strengths Thanks to temperature-controlled silos constructed on site, much of the grain imported by the Food Corporation of India is stored at Mundra. Mundra is the largest oil storage capacity of any port in the country with pipelines running right to the refineries. Hindustan Petroleum has storage capacities of 306,000 tonnes which it pumps to Bhatinda, and Indian Oil has storage capacities of 720,000 tonnes which go to its refinery at Panipat. Edible oil manufacturer Adani Wilmar, part of the Adani group and located near the Mundra Port, is also a major beneficiary because its location near the Mundra Port allows it not only to pipe its imported product directly to its refining unit, but also to dispatch it to its other centres across the country.The port has helped Wilmar become the country’s second largest edible oil player.

Mundra also has storage facilities for coal. It currently handles around 60% of India’s coal imports, used by the Gujarat State Electricity Board, Rajasthan State Electricity Board and Maharashtra State Electricity Board. Not surprisingly, Mundra has one of the finest facilities in the form of coal reclaimers, conveyor belts and stackers capable of handling 100,000 tonnes of coal per day. And a Rs. 20 billion ($500m) terminal for coal and other cargo will only enhance these facilities. The new project has been brought on by the Tata Group’s plan to set up a 4,000 MW ultra mega power plant (UMPP) at the site, and the Adanis’ plans for a 2,640 MW plant at Mundra. These ventures are expected to increase coal imports through Mundra by around 25m tonnes a year.

Mundra’s deepwater capabilities will enable MPSEZ to handle next-generation vessels and up to 30,000 tonne VLCCs

Stackers-cum-reclaimers with 100,000 tonne-per-hour handling capacity will support coal jetties so that the coal can be stacked and reclaimed far more effectively. MPSEZ also plans to install an in-motion wagon loading system for faster and more accurate loading. With the help of this system the port says it will be able to handle about five to seven coal rakes a day. The proposed facility will likely increase output and enhance the speed of handling with proper stockpile capacity monitoring. The project is also touted as environmentally-friendly.

Capacity benefits Captain Unmesh M. Abhyankar, master mariner and vice president, marine services, MPSEZ, says Mundra’s deepwater capabilities will enable MPSEZ to handle next-generation vessels and up to 30,000 tonne very large crude containers (VLCCs). “This will do away with the need to have large vessels berth at Colombo or Dubai,” he says, “leaving the arduous job of trans-shipment to be done by smaller carriers.”

MPSEZ has over eight tugboats (some larger than those available at Mumbai’s ports) and modern material handling systems. It has the largest conveyor belt system for moving coal and grain over long distances, making movement and storage far easier than at any other Indian port.

MPSEZ now has approximately 15,665 acres of land. Its portfolio includes approximately 4,000 metres of undeveloped waterfront land which can be used for expanding its own port operations. Its approval as a developer of the SEZ at Mundra and the surrounding areas makes it the first port-based multi-product SEZ in the country. Eventually Mundra will have 14 jetties forming a semicircle.

The port also has large fertiliser and raw material godowns with bagging systems, 21 closed godowns covering an area of 1,490,000 sq m and 5,200,000 sq m of open storage space, and huge tank farms with storage capacity of 278,000 KL with additional capacity that can be added anytime in the near future. Another key selling point of Mundra Port is its ability to handle cargo throughout the year in all weather conditions (India’s monsoon season is often characterized by severe weather involving heavy rains, strong gusts, and lashing waves), thus resulting in minimal costs, delays and damages that often impact other more exposed ports.

The port is located in the Gulf of Kutch, in the southern part of the Kutch peninsula. The Kutch is the largest district in Gujarat, having an area of 45,652 sq m constituting 23% of the state. It is bound by the sea to its south and west and by the Ranns (salt marshlands) in the east and north. Kutch has 951 villages with a population of about 1.5m. Situated on the western coast of India, Mundra Port offers access to the the Asian, European, American, and South American and African markets.

While it has the potential to become a transit point for international traffic by being a new gateway to the west, Mundra is also strategically located to service the northern and western hinterland of India, which contribute nearly 70% of India’s containerised international trade.

Local support One major advantage MPSEZ enjoys is being located in Gujarat where governments have always shown excellent commercial judgment and promoted projects that spur economic growth and employment. Gujarat also has better administration than and lacks the labour activism of other states. The present state government has been far more aggressive in its drive towards investment mobilization and towards ensuring that Gujarat remains foremost among all the states in India. Not surprisingly, on August 14, 2007, when the country’s central bank released its report of how states had attracted investments, Gujarat emerged as the leading investment destination in India, trouncing even Maharashtra which held the top spot for decades.

Gautam Adani, Chairman, Adani Group

Rail links Mundra Port is connected by rail, road and pipeline to the transportation network of India, particularly the inland regions of western and northern India, including Delhi.

The Adanis have already built 65 km of privately developed rail network, capable of taking double- decker container rakes. Mundra thus becomes the only private port to offer rail linkage to the national railway grid. Mundra links up to Adipur. It can handle upto 22 rakes a day, or one train an hour. Trials are also underway to design rakes that can carry cars in a triple-decker mode. This will make both the transport linkages and the port of Mundra much more attractive to automobile manufacturers.

Alongside these tracks, private (toll) highways are proposed for construction. This will give Mundra Port excellent road connectivity to two major national highways (NH 8 and NH 15) at Adipur. This would allow connectivity of the markets in North and West India to Mundra’s cold storage and temperature controlled storage facilities. Excellent security and ease of movement until the trains or vehicles reach the national network ensures minimum downtime and tremendous comfort and security. This is of enormous significance because delays and pilferage are the two problems that afflict any Indian importer or exporter.

New facilities In order to make Mundra an even more attractive destination,
two five-star hotels are slated to go up near the port, one likely managed by Marriott Hotels. A 12-hole golf course is also being planned near the airport. At the same time, two new townships are also being planned.

The first comprising some 3,000 dwellings is likely to be fully occupied by the end of this year.

The TATAs are constructing the second township around their mega power plant at Mundra. Moreover, a new 100-bed hospital by the Sterling group is under construction (in addition to the one by Apollo which already exists). The Adanis have also invested in an intensive care unit on wheels – the first in Saurashtra.

New opportunities Adani has been looking at this line of business partly because he has investments in at least three ports (Mundra, Dahej and Dholera) and because he sees this activity as a natural extension of the ship-breaking activities it is familiar with (The Adanis also recently acquired a large ship breaking yard in Virginia, USA where decommissioned warships are sent for being dismantled and converted to scrap. They import this scrap into India through the Mundra Port to feed the steel industry.)

It may be recalled, that one of the largest ship breaking businesses in India used to be at the Gujarat port of Alang, but which is now on the decline, partly because of increasing labour costs and partly because of the inevitable climb to higher value – added business opportunities. Much of this business is likely to be Adani Shipyard incorporated in July 2005.

Adani is also eyeing other sectors, including bunkering, piped gas, information technology, township development and textiles.

Group synergies Most of the investments made by MPSEZ are likely to create new business opportunities, not only for the port and SEZ company, but also for other companies within the group. In fact, the synergies between the group companies and MPSEZ are so many, that it is difficult to pinpoint which company depends on whom for its success. Moreover, together they have accelerated the pace at which markets operate, not only within the state, but also in India. Today MPSEZ is keen to make strategic investments in key group companies to better exploit their synergies.

Adani Logistics Ltd (ALL) is a company in which MPSEZ already holds a 49% equity stake, but now wants to enhance it to 50%. It proposes to commence container train operations. ALL has obtained a licence from the Indian Railways to operate container trains on Category-I routes – that is from JNPT/Mumbai Port to locations in and around Delhi and to other locations that can be reached from Delhi.

Mundra port is connected by rail, road and pipeline to the transportation network of India, particularly the inland regions of western and northern India including Delhi

The Adanis, along with Kandla Port, Pipapav Port and the Gujarat government own a 50% equity stake in the Kutch Railway Corporation Ltd (the remaining is held by Indian Railways) for conversion of narrow gauge railway lines to broad gauge. Two conversion projects have already been taken up – one from the Dahej port to Baroda and the other from Dahej to Bharuch. ALL plans to acquire 20 rakes initially for which it has already placed orders for importing 3,600 wheel sets. Once the wheels are received, they will be sent to wagon fabrication companies in India for fabrication of the rakes.

Adani Energy is engaged in the business of production, supply, transportation and distribution of all forms of conventional and non-conventional energy. It has an equity capital of Rs.900m ($22.5m) and earned in income of Rs.790m ($19.75m) during the year ended March 2006. It has ambitious plans to generate 2,640 MW of power by setting up four units of 330 MW and two units of 660 MW. The first of these units is expected to commence operation within a year’s time, and the entire power plant should be on stream by 2012. The boiler-turbine- generator (BTG) units are being sourced from China and, interestingly, the cost per MW of installed capacity is not likely to be more than Rs.35m (a little less than $1m). Given the easy access to coal, the tax benefits the power plant will enjoy and the lowest cost of transmission and distribution, all the units at Mundra and the SEZ – including the township and other commercial establishments located in and around the port – could get uninterrupted power supply at some of the best rates that any power distribution system could offer in the country.

The Adanis have also set up another power generation company under the name Dahej Power Private Limited, whose plans in this sector are yet to be announced.

MPSEZ is also taking up a 50% equity stake in Inland Conware Private Ltd (ICPL) which will be constructing and developing Inland Container Depots (ICDs as logistics hubs for providing synergy with the container terminals at the port and the proposed container train operations. These ICDs will have a rail side area which will be non-bonded by the customs department, a bonded area housing warehouses and open stuffing and de-stuffing areas, and a non-bonded area which has warehouses for providing value-added services. The first ICDs are expected to come up in Delhi, Ludhiana and Kishangarh (Rajasthan) followed by similar facilities in Ahmedabad, Mumbai, Kolkata, Chennai, Bangalore, Coimbatore and Nagpur. Transportation and logistics facilities for both import export and domestic cargo are likely to be offered through ICPL.

Adani Enterprises, formerly known as Adani exports, is the only other company in the group to approach the capital markets in November 1994 to raise Rs.1,892.85m ($47.32m). It is primarily engaged in the business of trading in and the import and export of goods but has made its intention of getting into other areas sucha as mining activities, power plants and real estate acquisitions. As of March 2007, its equity capital stood at Rs.246.5m ($6.16m) and Reserves at Rs.10.2 billion ($254.88 million Its income during that year was Rs.101.5 billion ($2.5 billion) and profit after tax at Rs.1.6 billion ($40.22m).

Adani Wilmar was set up in 1998 to take advantage of the government’s decision to ensure that more edible oil was available in packaged containers instead of being sold loose in the marketplace. “When we began, our edible oil plant, located at seed fields, used to have a capacity of 50-100 tonnes-per day (tpd),” explains Adani. “Now that we are port based and often use the coastal shipping route, we could increase its capacity to 2,000-3,000 tpd.”

That, and the government’s decision to relax import duties on edible oil made the Adanis sense an opportunity and they set up a 600 tpd plant for solvent extraction and packaging. Since more than 50% of India’s edible oil consumption is met through imports, and because North India consumes more than 65% of this edible oil, Mundra enjoys a tremendous competitive advantage. Today, the port has a totally automated process for evacuating edible oil, and sending it through pipes to Wilmar’s plant. The unit has its own PET bottling unit as well.

The company’s oil, sold under the Fortune brand, has already grabbed a quarter of the country’s market for packaged edible oil, and has become the second largest player in India. In addition to the one at Mundra, the company has four units across the country.

Legal framework Gujarat maritime board (GMB) entered into a 30-year concession agreement with MPSEZ, granting it the right to develop, operate and maintain Mundra Port. MPSEZ has also entered into a separate lease and possession agreement with the GMB, whereby, it has been granted the right to use approximately 3,404 acres of land as its port and the right to use the foreshore land and waterfront. It also has a sub-concession agreement with Mundra international container terminal (MICT).

Through this agreement, MICT has the right to operate and maintain the container terminal and the freight station and collect charges from users for providing container handling services at both entities. MPSEZ receives from MICT a monthly terminal royalty equal to 10% of the gross revenue received by MICT.

For fiscal 2006, income from container cargo, including royalties and the income from related marine services, was Rs.529m ($13.23m), or 13.8% of MPSEZ’s income from operations, and for fiscal 2007, container income was Rs. 715m or $17.88m (12.3%). MPSEZ has also entered into strategic long-term contractual arrangements with Indian Railways relating to the railway links and cargo services to and from Mundra Port.

Similarly, it has entered into a long-term relationship with Indian Oil Corporation for the handling of crude oil cargo. MPSEZ earns income through payments for services, royalties provided to them, a percentage of the revenues generated and the lease rent payable. The revenue from such arrangements was Rs.863.9m or $21.6m (22.5% of income from operations) in fiscal 2006 and Rs.1,447.3m or $36.18m (25%) in fiscal 2007.

Adani vs. DP World MICT was acquired by P&O Ports (Mundra) in 2003, which furnished an undertaking to the GMB that it would continue to maintain a minimum 51% shareholding in MICT until at least 2010. Dubai Ports World (DP World) subsequently acquired P&O Ports in February 2006.

DP World is ranked as the eighth top container port worldwide. After it acquired P&O it also acquired the right to manage around 51 container ports across the world in over 24 countries.

It is today one of the largest port operators in the world. In India, it manages eight terminals, notably at JNPT (near Mumbai), Cochin, Vishakhapatnam, Vallarpadam and Mundra.

And it is at Mundra that a very unusual wind appears to be threatening to become a squall, if not a hurricane. When Mundra set up its port terminals, the management of the same was given to P&O, and that management was later taken up by Dubai Ports World (DPW) which later became DP World. Under DP World management, Mundra has seen its business grow. The cargo it has handled has swelled from 11.7m tonnes during 2005-06 to 19.8m tonnes during 2006-07.

Over these years it has handled a total of 56.9m tonnes of cargo (40.3m tonnes of bulk cargo, 3.7m tonnes of crude oil cargo and 1,079,000 TEUs (approximately 12.9m tonnes).

To further expand capacities and become the largest port in India, Mundra is now building additional terminals, and the port management team wants to manage the new terminals itself. But that does not appear to have gone down well with DP World, which wants to manage the new Mundra terminals as well. In the absence of any positive response from the managers of the port, DP World has now decided to file a case in Indian courts against the Mundra Port management, insisting that nobody can have the right to manage the new terminals at the port without first giving DP World the right of first refusal.

The Adanis of Mundra obviously want to ensure that nothing goes wrong with their expansion plans at the port, and are reported to be in active discussions to paper over any differences that may exist between people at DP World and the management at Mundra.

Obviously, with a public issue around the corner, the Mundra management would be loath to see such differences being aired in public forums. Astute as Adani is known to be, however, it is unlikely that this difference will be allowed to blow into a full-fledged storm.