FROM BUSINESS WORLD OF 8 MARCH 2006
Futile games of government
Mundra Port has developed rapidly
in the past five years. It has four general cargo berths with 17.5-meter draft,
and is building another six. It has a mooring facility to handle 25 million
tons of oil. It is connected by road to National Highway 8 and by rail to
Ahmedabad, and new lines are being built to reduce its distance to North India.
It is contiguous to a 7,000-acre Special Economic Zone; unlike in other SEZs,
goods can be transferred between the port and the SEZ without any harassment
from the Customs. It is currently handling about 15 million tons of cargo.
Thus, the Adanis are sitting on a gold mine. They know it, and have high
ambitions for Mundra, including building an airport and a golf course.
In 2004, they sold two container berths to P&O Ports
for $60 million. The central government sat on approval for six months because
the Adanis were suspected of having been involved in the stock market scam of
2001, but finally approved the sale. Although Department of Company Affairs
filed cases in 2002, no one has been convicted till date.
In February, P&O Steam Navigation Company
(P&OSNC), which owns P&O Ports, was purchased by DP World, the
conglomerate consisting of Dubai Ports and Dubai Airport. Dubai Ports, one of
the world’s most efficient ports, handled 7.6 million TEUs of containers in
2005, more than twice India’s total container handling. P&O Ports, a
subsidiary of P&OSNC, is one of the world’s biggest port management
companies – an area in which DP World wants to expand.
DP World’s acquisition of P&O made waves in the US,
where P&O Ports runs six ports.Eller & To, P&O Ports’ partner in
the US, did not like to acquisition, and tried to block it. Many American
politicians were upset that a Middle Eastern firm should be in charge of
American ports. Since P&O is a British company, its acquisition had to be
approved by a London court. Judge Nicholas Warren of London High Court overrode
Eller’s objections and approved the acquisition in the first week of March. US
politicians contemplated blocking it by legislation. But the United Arab
Emirates, where DP World emanates from, is a friend of the US, so President
Bush said that he would veto any such legislation.
Now the ruckus has traveled to India. Gujarat Maritime
Board (GMB) has sent a notice to P&O Ports to say why its concession should
not be cancelled. Just how the takeover of P&O Ports affects GMB is not
clear. All that the concession agreement says is that P&O Ports must not
reduce its equity stake in Mundhra International Container Terminal (MICT)
below 51 per cent or transfer any assets of the Terminal for seven years
without GMB’s consent. It has threatened cancellation of the agreement. P&O
Ports has not reduced its equity; not has it transferred any assets. Instead,
it has itself been transferred – a contingency not covered by the concession
agreement. But that will not stop GMB from meddling.
That is how Indian governments work. Asserting power,
whether it is theirs or not, comes naturally to them; so does making things
difficult for others. But GMB can do nothing to obstruct or reverse the sale of
P&O Ports. Nor can it cancel P&O Ports’ agreement without having an
option, and it does not have any. It cannot nationalize MICT without the permission
of the central government, which is unlikely to get. So it is jumping up and
down quite unnecessarily. Ultimately, it will have to live with DP World
whether it likes it or not. In the meanwhile, it is only creating work for
itself, ministry of shipping, the UAE government and so on – wasting everyone’s
time and resources of the taxpayer.
Once the government – any government – permits foreign
investment or management, it has to live by the rules of international
capitalism. Companies and services are being bought and sold across the world
without any government’s permission. All that Gujarat-type red tape and
obstruction do is to make India less attractive to foreign investors and
service companies; we pay for the obstruction by having to pay foreigners more.
Indian officials like to boast that the profitability of foreign companies is
higher in India than in China; they forget the implication, that the companies
are prepared to operate in China at a lower profit than in India, because
Chinese bureaucracy does not specialize in creating obstacles. Indian
governments should get a little less obsessed with showing their fist and try
being constructive instead.
