In your interest.
Online Personal Finance Magazine
No beating about the bush.
The reduced drafts available due to lack of dredging in the Hooghly River Port system there for all to see, and the recent mishandling of the growth of ports and dredging on the Malabar coast is making matters worse
The recent face-off between Cochin Port Trust and Mercator bringing all channel and related deepening dredging in Kochi Harbour to a grinding halt drives yet another nail into the economic security of India with far-reaching consequences well beyond just the Arabian Sea that land-bound policy makers in Delhi do not seem to want to understand.
Last Friday, the Union government-controlled Cochin Port served a notice to Mercator giving the Mumbai-based firm 14 days to resume work. If Cochin Port Trust terminates Mercator’s contract, it will have to find another contractor to complete the rest of the work. While Cochin Port said that Mercator could not complete half of the targeted work even a year after it started. On the other hand, Mercator claimed that it has already done three to four times that quantity (of 2 million cubic metres) and spent more than the contract value already.
What is the real reason behind this specific episode as well as the larger issue on a national basis is what this short essay tries to bring out.
1) Specifically in context with Kochi Harbour, the realities, issues, difficulties and problems in trying to deepen the channel as well as waters around the berths have long been known, and the lack of tangible benefits render this an exercise in futility. This has been known for over two decades, and not just because of the report from Cochin Refineries/Kochi Refineries/BPCL, either.
2) Globally, for more than a few very sensible reasons, operational cargo ports now move away from the traditional habitats which supported their evolution in the first case. Those who do not learn from this simple truth are destined to see their cities collapse in due course. The expansion or formation of a new deep-water port in Kerala should have been at any other location—not Kochi. The reasons are—environmental as far as the existing habitats are concerned, deeper natural options available, easier rail and road connectivity, total fresh start and better accountability without going into legacy problems.
3) Further specifically in context with the way dredging is being done at Kochi Harbour—and I have first-hand knowledge on this—the issue here is more to do with faulty procedures followed down the line and total lack of operational supervision by the Cochin Port Trust. I could write a book on the subject—but very briefly, the same sub-contractors, the same dredgers and the same people on those dredgers do a wonderful job at some other locations in India (both private and public sector) but here off Kochi, the odds are stacked against anybody succeeding. Could it be because the existing powers that be don't want dredging to succeed off Kochi?
3) So why would some vested interests not want Kochi to grow, or even retain existing levels, as a major port? Good question—and to understand that, one has to also understand the politics behind why said vested interests are more keen to see UAE and Sri Lankan ports go from strength to strength. Look deeper behind the private player involved, look at the way politics in Kerala moves, and the answers on why the odds are stacked against Kochi being a major player as a port are clear to see—but it is the people of India who keep footing the bill.
4) On the larger issue of national importance—Kochi is home to some extremely important Indian Navy, Indian Coast Guard, satellite monitoring, as well as other national security assets. Their access to the open sea is being hindered due to the existing situation being worsened. The shipyard and now the new terminals have created problems for the naval airbase near the harbour. Placing a private terminal right in the middle of all this, where security clearance has been and continues to be an issue, is like placing the consular office of an enemy country in the middle of a military ops room.
What could be a possible solution in the present scenario, given that so much has already been spent?
To answer that, a basic understanding of dredging would help, as well as going back to the point already raised—the same dredging assets perform brilliantly elsewhere.
In this particular case, the Cochin Port Trust sub-contracted dredging on the basis of a target depth to be achieved and also provided a time-line. In an ideal world, a sub-contractor does a due diligence, re-checks the data provided to agree on a starting point (datum), bids for the work, the winner/winners reach an agreement with the authorities, and then completes the task. Surveys are conducted with all relevant parties present, along with independent third-party surveyors, and the payments are made.
Till a few years ago, the reality of this depended on the checks and balances as well as personal integrities of the people from the ports. Of course, in some cases, there was blatant cheating. Siltation will happen. Nature will be the easiest entity to blame, and there will always be a convenient storm, typhoon, cyclone or tsunami, after which the whole cycle starts again.But some interesting changes have taken place:
1) The typical dredging scams could not be carried out with private ports, which is one reason you do not read about dredging or channel depth problems with private ports in India. They know how to get their money’s worth.
2) Scientific methods to perform independent surveys using fairly low-cost sonar equipment mounted on simple boats or even satellite information on real depths dredged is now easily available—especially to third parties tasked with re-confirming work done.
3) Some public sector ports have honest managements. Some don’t. Kochi’s maritime authorities and Cochin Port Trust have shown their true colours in the Enrica Lexie episode—do you expect anything better in dredging?
At the end of the day, however, it is the tax-payer who suffers. Seaports in other states like Gujarat and Andhra Pradesh continue to race ahead, Tamil Nadu is not far behind.
In the specific case of Kochi, however, it is the importance of the maritime defence aspect which needs to be re-considered. The earlier dredging in Kochi is brought under the Indian Navy, the better—after all, the same dredgers and same people onboard have done a wonderful job at Seabird-I, Karwar.
(Veeresh Malik had a long career in the Merchant Navy, which he left in 1983. He has qualifications in ship-broking and chartering, loves to travel, and has been in print and electronic media for over two decades. After starting and selling a couple of companies, is now back to his first love-writing.)
Kumar Mangalam Birla’s investments in “sunrise” sectors over the last decade have been garments, retailing, telecom, financial services and software. All these have fetched very poor returns. Now comes his investment in the messy, unprofitable and sunset media sector
Kumar Mangalam Birla has just bought a 27.5% stake in the Living Media group which publishes a clutch of magazines such as India Today, Business Today, Cosmopolitan and so on. The group also runs channels like TV Today, Aaj Tak and has a printing press called Thomson Press. The acquisition was done through Kumar Birla’s private investment company. While announcing the stake buy, Kumar Birla said “The media sector is a sunrise sector from an investment point of view. I believe that Living Media India offers one of the best opportunities for growth and value creation.” Both these are questionable. If you look at the balance sheets of all but a few of the largest companies, the media looks like a sunset sector and Living Media not exactly in the pink of health.
Mercifully, shareholders of Indian Rayon and Aditya Birla Nuvo have been spared of this adventurism. Aroon Purie, a chartered accountant who controls the India Today group, has so far kept Living Media and Thomson Press private, and has publicly listed only TV Today.
According to the data we have of 2010, Living Media made a loss of Rs12 crore for March that year. In fact, all except some English publications like the Times of India, Hindustan Times and the leading regional publications (like Malayam Manorama or Ananda Bazar Patrika) are losing money—as are top TV channels like NDTV and TV18.
If Mr Birla genuinely believes that media is a sunrise business, the question is how many times will Mr Birla get carried away by trying to invest in so-called sunrise sectors?
Kumar Birla has been dreaming of sunrise sectors for over a decade now—ever since he inherited the old fashioned metals, cement and textiles businesses when his father Aditya Birla passed away in 1995. He entered the telecom business (Idea Telecom), financial services (Birla Sunlife Mutual Fund and Birla Sunlife Insurance), sold stock the broking business and later bought again (Apollo Sindhoori) and took over the garments business of Madura Coats, paying Rs235 crore to acquire Van Heusen, Louis Phillipe, Allen Solly, Peter England and started a retailing business.
Among the sunrise businesses he had identified in 2001, was software. In June 2001 Indian Rayon bought 50.35% controlling stake from France’s Groupe Bull in PSI Data Systems (PSI) at a price of Rs186.80 per share in cash—costing Rs71 crore. Commenting on the deal, at time, Kumar Mangalam Birla had said “This strategic foray into the technology sector is part of a well-crafted plan to enhance value for Indian Rayon shareholders, through significant rise in growth and earnings. Our aspiration is to attain a leadership position in this sector.” While spending Indian Rayon’s money in buying PSI and Madura garments, Kumar Birla had also declared that the company has undergone a major change in profile by getting into businesses in which “knowledge and branding are key”. That sounded like a powerful wish but was it grounded in reality? In June 2003, Mr Birla even went into the low-margin business of call centres by buying Transworks. The outcome? PSI Data got delisted in March 2009, after destroying 60% of shareholders’ wealth over eight years. Madura Garments hardly makes any money consistently.
The fact is, like the media Mr Birla is willing to fund now, all these businesses—garments, software, IT services, financial services and retailing, telecom— were also described as sunrise businesses and were claimed to be value creating. None of these have delivered return on capital that justified investments in them. Mr Birla’s attempt to make over the commodity-oriented group, through an entry into the glamorous businesses has added to the group’s profile but not much to its bottomline. All these new-gen businesses are limping because they need focused and innovative entrepreneurship while Mr Birla’s principal strength is access to capital.
Possibly chastened by the financial outcome of these dubious forays, Mr Birla has decided not to use public-listed companies to finance his media wish. In that sense, his private investment in Living Media marks a departure from his earlier adventures. He will be a passive and personal investor in an unlisted company. That doesn’t answer a key question: Will he again be throwing good money after bad having fallen for glamour? That depends on how well he understands the media business.
The economics of the media business in India is completely been vitiated over the past decade or so. It is not a business where the more efficient thrive. It is not a business which is delivering improved quality of products and services to masses. Indeed, many of the better media companies are financially crippled today because the competition for advertising revenues is too intense. So, why doesn’t the supply of media products and companies shrink? Because poor quality media companies are not pushed to the wall and do not go out of business. Their losses are supported by politicians and businessmen for their own vested interests. Why have three new daily newspapers sprung up in a poor state like West Bengal over the last two years? If there was ever a sunset business, it is media, especially the print part, which is core of Living Media. And Aroon Purie has publicly stated that the promise of digital media is overblown. Kumar Mangalam Birla seems to have not only got carried away once again in his quest for sunrise sector but this investment is surely one of his worst.
The Aditya Birla Group has invested 27.5% stake in Living Media India, a holding company of TV Today Network, for an undisclosed sum. Will this change the business model of TV Today?
TV Today Network (TV Today), a media company, owned by Aroon Purie’s Living Media India (Living Media), has hit the upper circuit of 20%, to close at Rs64.80, on news that the Aditya Birla Group would be investing in 27.5% of Living Media.
According to the Bombay Stock Exchange (BSE) filing, Aroon Purie, chairman of the India Today Group, said, “I am delighted to partner with the Aditya Birla Group to aggressively address the current and future potential of the Indian media business, which is at a tipping point. The Aditya Birla Group with its strong leadership, global footprint, diversified business interests and its shared values of integrity, commitment and social responsibility is a perfect fit with the India Today Group.”
However, it seems the market may have over-reacted too much by pushing TV Today up. The market seems to have made the assumption that investment in Living Media will somehow change the business model of TV Today. Living Media still holds a 57.11% majority stake in TV Today and this capital infusion from the Birlas is unlikely to affect the listed company, TV Today, in a significant way. Besides, TV Today and Living Media are two entirely different business models. It is even entirely possible that none of the capital infused will find its way to TV Today.
In fact, according to Economic Times (Kumar Mangalam Birla buys 27.5% stake in Living Media Group), Living Media may use the capital to launch a tabloid. If this is the case, what has the investment got to do with TV Today?
According to the same filing with the BSE, Kumar Mangalam Birla quoted, “the media sector is a sunrise sector from an investment point of view. I believe that Living Media India offers one of the best opportunities for growth and value creation.” According to media sources, the Aditya Birla Group has invested over Rs350 crore to buy the stake.
TV Today makes money but not much. Its revenues have stagnated over the past five quarters and its return on net worth is a pathetic 4%.