Over the past two decades, the port sector in India has undergone significant changes with the introduction of new policies, amendments to existing ones and spurt in private participation, among others. The first public-private partnership (PPP) project in the port sector was launched in 1997 when the Nhava Sheva international container terminal was privatised. Since then, the PPP environment in the port sector has grown considerably.
The Ministry of Ports, Shipping and Waterways (MoPSW) launched the new model concession agreement (MCA) in November 2021 to reduce arbitration and litigation in the sector. The new MCA will be applicable to all future PPP projects at major ports, as well as projects that have been approved by the government but are still at the bidding stage.
Under the new MCA, a provision has been made for providing flexibility to concessionaires to fix their tariff based on market conditions, which will create a level playing field for private terminals at major ports to compete with private ports for cargo. Further, to reduce the risk for lenders and make the project more bankable, a provision of compensation has been added for the concessionaire’s event of default before the commercial operation date (COD). Another provision that lays out the process for extension of the concession period on the basis of performance and mutual agreement has been introduced.
Going forward, the new MCA will instil confidence in developers, investors and lenders and other stakeholders in the port sector as well as catalyse investment in the sector. The MoPSW has clearly defined a pipeline of 31 projects of more than Rs 146 billion to be awarded for PPPs till financial year 2025, and it expects that the new MCA will generate an enthusiastic response from the stakeholders.
Tariff guidelines 2021
In December 2021, the MoPSW announced the tariff guidelines, 2021, for PPP projects at major ports. The guidelines allow concessionaires at major ports to set tariffs as per the market dynamics. These new guidelines will also be applicable to future PPP projects including projects that are currently at the bidding stage.
Further, the government mandated concessions in tariff for transshipment and coastal shipping will continue to apply to all PPP future concessionaires. In fact, the government has gone a step ahead and made further concessions to promote transshipment and coastal shipping. The royalty payable for transshipment cargo will now be one time (from 1.5 times earlier) the normal container. Similarly, for the coastal cargo, the concessionaire has to pay only 40 per cent of the royalty payable for foreign cargo (as against 60 per cent earlier) in accordance with the government’s coastal concession policy. For transparency, the tariffs fixed are to be hosted on the website of the concessionaire.
According to reports, the government is likely to invite financial bids for the Shipping Corporation of India (SCI) by September 2022, after the process of demerger of its non-core assets is completed. As part of the strategic sale process, the government is hiving off Shipping House, the training institute and some other non-core assets of SCI. The SCI board had approved a demerger scheme for hiving off the identified non-core assets in August 2021 and incorporated Shipping Corporation of India Land and Assets Limited (SCILAL) in November 2021, for holding such assets of the company, which is under the MoPSW. Recently, in April 2022, the ministry directed SCI to expedite the process of demerger of the non-core assets of SCI to SCILAL and also requested the board of SCI to review the demerger scheme for hiving off the non-core assets, including Shipping House, Mumbai, and the Maritime Training Institute.
Early resolution of stuck PPP projects
The MoPSW recently finalised the guidelines for the early resolution of stuck PPP projects at major ports. In the case of projects that became stressed during the construction stage (pre-COD), the concessioning authority would pay to the concessionaire or to the lenders of the concessionaire (as the case may be), full and final settlement for taking over the useful assets created by the concessionaire. This amount will be the value of the work done by the concessionaire in accordance with the concession agreement and found useful by the major port or 90 per cent of debt due as defined in the concession agreement or any other amount as may be mutually agreed in writing between the concessioning authority and the concessionaire as per the relevant provisions of the MCA 2021, whichever is lower.
The other guidelines are for PPP projects undertaken by the major ports, which became stressed both at the pre-COD and post-COD stages, due to borrowings being categorised by the lenders as non performing assets (NPAs) and/or lenders approaching the National Company Law Tribunal (NCLT) for the recovery of their dues. For these projects, the due process before the NCLT under the Insolvency and Bankruptcy Code, 2016 or under Section 241(2) of the Companies Act, 2013 will be followed.
These guidelines will pave the way for the resolution of cases under arbitration. Rebidding is expected to be undertaken to put the port asset to use. This would unlock a blocked cargo handling capacity of about 27 million tonnes per annum (mtpa), resulting in enhanced trade opportunities for potential investors and revenue generation for the port authorities. Furthermore, this will restore investor/concessionaire confidence as well as create job possibilities.
The assets considered for monetisation from financial years 2022 to 2025 as part of the National Monetisation Pipeline are spread across nine of the 12 major ports. A total of 31 projects have been identified for private sector participation to improve the operational efficiency and capacity utilisation of existing port assets.
Meanwhile, the government has come out with the Maritime Vision 2030, which envisages aggressive targets to be achieved by the sector by 2030. These include the development of three mega ports of over 300 mtpa cargo handling capacity, increase in the share of trans-shipment cargo from 25 per cent to 75 per cent, increase in the share of cargo handled at major ports by PPP operators to more than 85 per cent, and improvement in port efficiency.
The government plans to privatise the multimodal terminals (MMTs), built by India’s waterways development agency as part of the Jal Marg Vikas Project. The plan has picked up pace since IRC Natural Resources Private Limited was awarded a letter of award to equip, operate and maintain the Haldia MMT, the West Bengal, in December 2021. This marks the first successful PPP procurement process with the selection of a private sector operator by the Indian Waterways Authority of India for the operationalisation of an inland waterway asset of an MMT in India. The concession period spans over 10 years and, if required, can be extended for five years. The estimated investment is Rs 475 million.
The government is planning to develop Paradip port in Odisha into a mega port with various projects involving an investment of Rs 30.05 billion. One such initiative involves deepening and optimisation of inner harbour facilities, including development of the western dock on a build-operate-transfer (BOT) basis in PPP mode at Paradip port. The project includes the development of a new western dock on a BOT basis and capital dredging by the selected concessionaire at an expense of Rs 2.04 billion and Rs 3.52 billion respectively. Paradip port will invest Rs 6.13 billion towards providing common supporting infrastructure.
Issues and concerns
Port contracts lack clearly defined risks and responsibilities for the two parties involved in the process, leaving a lot of room for ambiguity and dispute. The lack of a proper dispute redressal mechanism further reduces the investor interest in the sector.
Due to multiple approvals and inordinate delays in securing them, there is typically an average lag of two years between the date of award of the project and commencement of construction work. This has led to the cancellation of projects, backing out of developers from projects and delays in commissioning.
The way forward
Going forward, the new MCA, the new tariff guidelines allowing market-based pricing for new PPP projects, and guidelines for the resolution of stuck PPP projects will improve the competitiveness of the port sector and help in attracting private sector investment.
There is wide scope for private participation in the Indian port sector. A strong project pipeline, continued focus of the government on developing infrastructure (including ports), flagship programmes and key policies are expected to keep investors interested in the sector. Further, the disinvestment of SCI is expected to offer opportunities to investors.