Private sector participation and container terminal efficiency issues and evidence from India
Radhakrishnan, G V
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Greater Private Sector Participation (PSP) is widely considered an effective means to enhance the competitiveness of a nation’s port sector. In this context, the thesis presents a comprehensive analysis of container terminal efficiency and productivity in India. It evaluates and explains performance differentials of container terminals and examines if PSP can be considered an effective means to enhance efficiency. The study evaluates the market structure of the industry using standard concentration ratios under the structure-conduct-performance paradigm and then uses three related methodologies, viz., Data Envelopment Analysis, Malmquist Productivity Index and Tobit Regression to estimate and explain efficiency differentials across terminals. The empirical results indicate that (1) There are significant levels of concentration and significant levels of inefficiency in the Indian container terminal operations with a mean efficiency of only around 50 percent, indicating considerable wastage of resources. (2) Indian terminals are rapidly catching up with global standards, driven primarily by improvement in pure efficiency change and scale efficiency change, but constrained by lagging technological progress. (3) Higher regulation is adversely affecting terminal efficiency. (4) Terminal efficiency is positively related to the scale of operations; however distance from the mainline trade route is not a significant variable. (5) The efficiency of the container terminals improves as ownership moves along the continuum towards greater private sector participation from public ports to private ports. The study makes significant contributions to literature with profound policy implications. It indicates that private terminals, which operate under liberal regulatory oversight, are significantly more efficient. However, PPP terminals only show a weak positive correlation to efficiency. The costs of an inappropriate regulatory environment and inadequate management PPPs are severe. It points to the dangers of increasing concentration in the hands of private operators who seem to have leveraged the regulatory arbitrage to build strong positions in private ports and erected significant entry barriers by vertical integration and large scale and scope of operations. However, with about 96 percent of the investments planned to be funded by the private sector the impact of removing regulatory arbitrage needs to be factored. The policy recommendations are to provide level playing field to all and further incentivise technology infusion, scale improvement, and pure efficiency improvement, and specifically address the potential challenges from an increasingly concentrated market structure. The primary limitation of the study is that all regulated terminals have been grouped in one category; however, the complex regulatory environment is characterised by multiple tariff regimes with significantly varied impact on efficiency. Further, the PPP environment is continually evolving, and initial concessions, for private ports appear to be on very favourable terms. The number of private terminals is limited, with most in the process of ramping up traffic.
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