Ruias-promoted Essar Group is re-building its ports business after selling its most priced asset— the Vadinar oil terminal — to Russia’s Rosneft-led consortium as part of the $12.9-billion sale of Essar Oil in August.
“We are building back revenue and topline of Essar Ports Ltd,” Chief Executive Officer Rajiv Agarwal told Business Line in an interview.
The 58-million-tonnes (mt) capacity Vadinar oil terminal was set up to handle the import-export needs of the oil refinery located nearby. The terminal handles close to 35 mt of cargo, generating as much as Rs.1,400 crore in revenue to Essar Ports. “Vadinar contributed about $200 million to our EBITDA every year. We have foregone that revenue,” said Agarwal.
“Next year, we are expecting $200 million of EBITDA which otherwise would have been $400 million,” he said.
Vadinar was one of the largest dilutions in the ports sector, fetching some $2 billion to the Essar promoters in the sale of its oil business.
The group has invested over Rs.11,000 crore in the ports business since entering the space in 2003. Vadinar alone accounted for Rs.4,500 crore or half of the group’s investment in the ports sector. “One asset by itself gave us that value,” he noted.
The divestment also helped Essar Ports trim its debt by half from about $1.1 billion to about $550 million, resulting in lower interest outgo and financing costs.
Post the divestment, Essar Ports is in the process of growing back with a renewed focus on third party cargo. For one, it will help Essar Ports show better third-party cargo percentage because the business has become a little smaller.
“We expect our third-party cargo to reach about 30 per cent by next year,” Agarwal said. Third party cargo now accounts for some 12 per cent of the port’s overall volumes. In FY18, it could reach 20 per cent and by FY19 30 pe rcent. “Eventually, we can go up to 40-50 per cent,” said Agarwal.
Vadinar was a fully captive facility. Whereas, the other ports under its belt have third party customers.
“At the end of the day, we have other ports which are now growing. With this portfolio of ours, we will be as big as what we were earlier, by next year,” says Agarwal.
Essar is expanding its Hazira facility by 1,100 metres of berth length of which 600 metres have been completed while work is in progress on the remaining 500 metres. It expects to handle some 25 mt of cargo at Hazira, of which 15 per cent will be third party cargo. Agarwal expects the third-party business at Hazira to reach as much as 50 per cent over a period of time.
The expansion plans also includes a new 20 mt capacity general cargo terminal at Salaya. “This will be a big boost to the Saurashtra region which lacks a deep draft, mechanised facility that can accommodate cape-size ships. Half of the Salaya capacity will be utilised by Essar Power and the remaining half will be third party cargo,” he said.
Essar will also open the refurbished and mechanised iron ore terminal at Visakhapatnam Port Trust in December with a capacity to handle 24 mt of cargo. The facility will have a water depth of 20 metres, helping dock cape-size ships of 200,000 tonnes. The mechanised cargo loading system installed at the facility will be able to load as much as 100,000 tonnes a day.
Half of the capacity at the Vizag facility will be utilised by Essar Steel and the other half by third party customers.
The company is also developing a 16-mt-capacity terminal in Paradip Port Trust and a greenfield port in Mozambique, helping the firm ramp-up capacity to 110 mt by March 2018.