Tuesday, 5 August 2014

All Above Board | The Chinese Equipment Conundrum

There are over 200 Chinese-made cranes operating in Indian ports out of which 146 were supplied by ZPMC alone. 

Indian decision last year to deny security clearance to the port container crane manufacturer of state-owned China, Shanghai Zhenhua Heavy Industries Co. Ltd (ZPMC) to supply equipment for a container terminal under construction at the port Mumbai-port state took the industry by surprise. It was then that the developers of the port came to know of a new rule requiring equipment suppliers charging terminal for security clearance from the government.

 In the past, a gap as applied only to developers and contractors dredging of ports selected through a competitive bidding process. By doing so, Chinese companies or groups with Chinese links were forbidden to bid for port contracts in India, mainly due to political distrust between the two sides. But it is not clear yet whether all Chinese crane manufacturers are not allowed to supply equipment for port projects in India or only ZPMC will be canceled. Because, after episode Mumbai port, Chinese crane manufacturers can continue providing equipment to Indian ports, either owned by the government of the Union or state governments.

Yes ZPMC has an order to supply four cranes to a new container loading facility being developed in Dubai DP World Ltd in the port of Jawaharlal Nehru located near the port of Mumbai on the western coast of India. However, the situation is different in the port VO Chidambaranar in Tamil Nadu on the east coast, where a new container terminal is developing security clearance is waiting for six months before placing an order with ZPMC three quay cranes. In the same port, however, the cranes by another Chinese company are working. There are over 200 Chinese-made cranes operating in Indian ports out of which 146 were supplied by ZPMC alone. Even as recently as March ZPMC cranes supplied Gangavaram port in Andhra Pradesh. ZPMC cranes are operating in the port of Vizag, located near the headquarters of the Eastern Naval Command of India.

The lack of clarity in allowing Chinese cranes in ports of India has become a cause of concern for developer’s ports. Not only annoys the financial estimates of port projects, but also delayed the construction of the terminal, to the detriment of developers. For example, in the port of Mumbai, the developer of the terminal had to submit a new application to the government for security clearance for non-Chinese suppliers of crane before placing firm orders with one of them. The clearance finally came in May 2014 for the three-crane manufacturers in Finland, another joint venture of America and the third between an Indian and a Japanese company.

For ports developers, project costs are damaged if they are not allowed to cranes source a manufacturer of your choice. By extension, it would damage the viability of the project. Security clearance is an important factor that has stalled many port projects. The previous United Progressive Alliance government simplified the security clearance process for developers and contractors dredging port through which an office, once granted to a company, would be valid for a period of three years unless there is a change in the management control of the company or a shift of more than 10% stake in the company by any shareholder.

Such a rationalization process has required equipment suppliers port. Shipping Minister India Nitin Gadkari had assured developers port after taking over he would address the issue of Chinese port equipment, but nothing has materialized so far. Developers of ports had high hopes for the government of Narendra Modi to launch stalled infrastructure projects; including port contracts are obviously disappointed. In June, the Indian cabinet had agreed in principle to sign a memorandum of understanding for the creation of industrial parks in partnership with Chinese companies in an indication that India was interested in large investments of Chinese enterprises.

In the past, Chinese firms had supplied equipment for energy companies, telecommunications and Indian ports. Chinese ships calling at Indian ports to load and unload goods. So assume that handling equipment installed on Chinese cargo ports in India would be a security risk to the country defies logic. Simply because such equipment is already being used in many Indian ports.

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