Chinese blocked from India's
ports By Siddharth Srivastava
NEW DELHI - India's misgivings about a
Chinese presence in telecoms because of security
considerations appears to have been extended to
India's ports.
Reports independently
confirmed by Asia Times Online say that after
deliberating on the issue for more than 12 months,
New Delhi has decided that it does not want the
Chinese investing in or managing any Indian port.
A joint secretary in the Indian Home
Ministry, who asked not to
be
named, confirmed to Asia Times Online that letters
had been sent, at the instance of the office of
the national security adviser (who reports to the
prime minister), to port authorities.
As
per these confidential notes, the government told
the authorities about the barring of Chinese
firms. According to the Home Ministry official,
there is no blanket ban, and matters will be
considered on a case-by-case basis. However, in
principle, it is unlikely that any Chinese
investment in Indian ports will be allowed.
Earlier, The Times of India reported that
the first company to be kept out because of this
policy decision would be Hong Kong-based Hutchison
Port Holdings (HPH), a unit of Hutchison Whampoa,
the largest independent port operator in the
world. HPH has been awaiting security clearance to
bid to build container terminals for Mumbai and
Chennai at Rs12 billion (US$258 million) and Rs5
billion, respectively. The two ports had postponed
the container-terminal projects for more than a
year because Hutchison's application was pending
before the government.
HPH has denied the
reports. "HPH has not been rejected from
participating in any port projects in India. HPH
is interested in investing in the country.
However, we have yet to identify a suitable
investment that would meet our investment
criteria," a spokesperson from the company said.
As part of an infrastructure program,
India is looking to invest more than $13 billion
in building 13 ports.
Meanwhile, the
Business Standard said Kaidi Electric Power Co and
Chinese Harbor Engineering Co, which have bid for
Vizhinjam port in Kerala, as well as in Mumbai and
Chennai, had also been denied permission.
The paper also reported that engineering
and construction major Larsen & Toubro, which
had tied up with Hutchison for Mumbai port, had
now brought in Manila-based International
Container Terminal Services Inc as an alternative
terminal operator.
Shipping Secretary A K
Mohapatra has been quoted as saying that the
Indian government had barred HPH from
participating in building two container terminals
over security concerns, but that there was no
overall ban on all Chinese companies.
Similarly, Mohana Chandran, Mumbai Port
Trust secretary, has been quoted by the Associated
Press as saying, "The security clearance for the
management contractor, Hutchison in this case, was
denied. The decision is specific to Mumbai, not
all of India."
The move on ports reminds
one of the US Senate's decision this year not to
allow certain operations by Dubai Ports for
security reasons.
At the geostrategic
level, New Delhi has for a long time been unhappy
about China's assistance to Pakistan to build
Gwadar port (in Balochistan), which opens the
possibility of a Chinese naval presence near
India's borders.
There is reason to
believe that a lot is brewing. New Delhi is
already working on a proposal to bring in a
security-related law on foreign direct investment
(FDI) over concerns on the origin and destination
of some investments. So far, security fears have
mostly focused on the telecoms sector. Unlike in
the US, in India there is no holistic framework to
screen FDI on the grounds of security.
The
National Security Exception Bill, initially
proposed by the Home Ministry and security
agencies to block investments by Chinese
companies, is under discussion. The Finance
Ministry opposes it on the ground that it would
affect investment and give discretionary powers to
the bureaucracy.
In August, Commerce
Minister Kamal Nath said, "The government is
working on the measures to address the security
concerns in FDI. A bill is in its formative
stages. There are certain concerns on FDI in some
sectors and from some sensitive countries. In
these cases the government can step in."
Indeed, it does seem that Chinese
companies investing in ports will join their
counterparts, Chinese telecom firms Huawei
Technologies and its rival ZTE Corp, in being
refused permission by the Foreign Investment
Promotion Board (FIPB) to invest in India. Huawei
has been looking to provide foreign equity up to
$60 million for its Indian telecom arm. Huawei,
the sixth-largest electronics company in China and
one of the largest manufacturers of telecom
equipment in that country, applied for a license
in March 2005.
For the telecoms sector, a
representative of the Home Ministry vets proposals
to the FIPB. However, the Department of
Telecommunication (DoT), the FIPB and intelligence
agencies have often been at loggerheads because of
the absence of clear rules (as demonstrated in the
Orascom-Hutchison Essar case that was cleared by
the FIPB despite resistance by the intelligence
agencies). In the wake of the recent Mumbai
blasts, the clamor for a defined screening process
has increased. The July blasts killed close to 200
people and injured more than 300, with reports
that terror circles actively use the latest
communication means.
New Delhi has
proposed tighter scrutiny for FDI in the telecom
sector, including bringing communication equipment
under industrial licenses, which could be
counterproductive for business. The DoT said
it would continue to allow automatic FDI levels of
49%; however, department approval would be
required for higher FDI proposals up to the 74%
ceiling.
There is speculation on the kind
of restrictions that could be imposed once the
government comes up with a unified security
policy.
Some reports say the government
may restrict foreign companies from having a
non-Indian chief executive officer in such
sensitive sectors as telecom and media and in
certain infrastructure projects.
According
to some officials, in future, all tenders floated
by public-sector undertakings (PSUs) will have
enabling clauses by which the government could
intervene and disqualify a company for security
reasons. Moreover, the decision to incorporate a
security clause in all the tenders would enable
the PSUs to ban procurement from such companies
(as in the US). All government licenses will also
have a clause to allow for the cancellation of
licenses for security reasons.
Some
observers have said that monitoring is also
critical in research on chemicals, drugs and
information and other technologies. Many of these
projects gather data regarding the genetic pool
and are dealing with data transfer and exchange of
information to the country of origin of the
research and development (R&D) companies.
There is no security control on such data, which
are often confidential in nature and relate to
important geographical characteristics, genetic
data, ecology and natural resources.
Industry data show that R&D has
emerged as the third-largest segment in the export
of information-technology services. Companies
invested $1.13 billion in research operations in
India from 1998 to 2003. Another $4.65 billion in
investment is in the pipeline. The US is the
biggest investor, followed by Germany, with
France, China and Japan having shown interest of
late. Many other countries are planning research
ventures in India.
The Federation of
Indian Chambers of Commerce and Industry has said,
"It is difficult to criticize any move on security
grounds given the present-day situation. But it
will affect FDI flows to the extent that some
players will not be allowed."
The security
moves come at a time when the government has
considerably rationalized FDI norms. FDI,
including money raised on the global markets,
touched $10.3 billion in the financial year
2005-06, the highest ever. But there is a long way
to go. McKinsey & Co has estimated that India
needs more than $250 billion in infrastructure
investment in the next decade.
India will
have to strike the right balance between
addressing security issues and an open environment
that is conducive to more FDI.
Siddharth Srivastava is a New
Delhi-based journalist.
(Copyright
2006 Asia Times Online Ltd. All rights reserved.
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