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Small Rules The Roost

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and sluggish pace of expansion (Bloomberg)

Is small better than big? In the first quarter of 2009-10, more efficient ports though with lesser capacity have done better than some larger ports.

While major ports such as Haldia, Chennai and Kandla had a negative growth of 29 per cent, 13 per cent and 10 per cent, respectively, Mormugao — which mainly handles iron ore and coal — clocked the highest year-on-year growth of 20 per cent. Paradip, another small port that focuses on fertilizer and liquid cargo, grew 10.8 per cent.

What drove clients to smaller ports? Most major ports have long backlogs to clear, while smaller ports are relatively less congested and offer assured cargo movement.

In container cargo, which does not need specialised care as in coal or oil, big ports such as Jawaharlal Nehru Port Trust (JNPT) have lost out to small ones. In May, JNPT, which handles about 60 per cent of India’s container volumes, saw 9.4 per cent year-on-year fall in volumes.

Competition is brewing among smaller ports: Tuticorin, for example, is constructing additional cargo berths. Investments from private sector are being sought, says G.J. Rao, chairman of the Tuticorin Port Trust. Paradip is also adding coal berths.

Larger ports are themselves to blame for the poor performance. JNPT, for instance, is dogged by poor access and container stacking. Most of its expansion will only be realised in 2010. Similarly, Chennai’s de-congestion plan will be operational only in 2015.

With expansion of major ports still many years away from completion, smaller, focused and cost-efficient ports will continue to rule the roost.

Load Factor

How mutual funds will benefit despite the ban on entry load

GAME CHANGER: With Sebi’s ban, agents
will not be able to bargain with mutual funds
(Pic by Subhabrata Das)

Last week, the securities and Exchange Board of India (Sebi) abolished entry load — the agent’s commission that mutual funds charge from customers. As per Sebi’s new order, agents will have to collect their commission from investors separately.

Entry load is not a transparent method as there is wide disparity in commissions, and the investor has no way of verifying it.
Many in the mutual fund industry say the ban could dent their business as the agents are the prime source for canvassing subscriptions.
“We will have to see how long it takes for the distributors to get aligned to the new Sebi rule,” says R.S. Srinivas Jain, chief marketing officer at SBI Funds Management.

However, it seems the scrapping of entry load could actually be a blessing in disguise for mutual funds. Agents will no longer be able to hold a fund to ransom by threatening to move clients away from it.

Sebi’s new rule has offered a level-playing field for investors.

“It will also bring down the drivers for agents to push for frequent churning and consequent launch of new fund offers by MFs,” says Sanjiv Shah, executive director at Benchmark Asset Management.
Rajesh Gajra


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Getting Serious Players

Last week, the finance ministry issued guidelines for bidding of public private partnership (PPP) infrastructure projects, which will apply to new metro rail projects, too.

The new guidelines have raised the number of bidders from five to seven; plus, there will be a two-year lock-in period for the members of the winning consortium, who would have to hold equity amounting to 5 per cent of the total project cost for two years.

B.K. Chaturvedi, member, Planning Commission, responsible for infrastructure and energy, and the key official behind framing these new guidelines, says these provisions have been made to ensure only serious bidders — with enough financial resources — get selected to execute important projects.

In the past, smaller companies have joined consortia to gain work experience, but did not share the responsibility in executing the project.

That will no longer happen.

Kandula Subramaniam

(Businessworld Issue Dated 30 June-06 July 2009)