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P&O Ports sails away with CCT project

Shyam G. Menon

P&O PORTS, recently named the `preferred tenderer' for the Chennai Container Terminal (CCT) project, has received the formal Letter of Acceptance (LoA) from the Government.

The port developer now enters the negotiation phase for the concession agreement before formal award of the Letter of Intent (LoI). ``We hope to take over the container terminal by December 21, 2000,'' Capt. Jimmy Sarbh, Regional Director, P&O Ports, sai d. Subsequent to dropping the original idea of floating the project as a joint venture with the Chennai port after invitation of `innovative bids' by the government, the terminal company was cast with tri-partite private equity holdings.

P&O Ports will hold 75 per cent, the Chennai-based Chettinad Group 20 per cent and the M. B. Eduljee Cassinath Group, five per cent. Over the first five years, the promoters will invest $138 millions (Rs. 617 crores at Thursday's exchange rate of Rs. 44. 71/one dollar) mostly for equipment and improving current infrastructure. ``Over a period, we will have a new operations centre,'' Capt. Sarbh said.

Response from the trade has been good. Bengal Tiger Lines has written to P&O Ports and ``two large lines'' have expressed readiness to redeploy vessels if a 13.5-metre draft is ensured at Chennai. The port developer is very upbeat about CCT's future, for eseeing ``Tea Express'' service from Chennai if Concor also pitches in.

The CCT is the third project the Australian port developer is bagging in India. The Rs. 857 crore-Nhava Sheva International Container Terminal (NSICT) is already outperforming the box traffic of licensor, Jawaharlal Nehru Port Trust (JNPT). The $40-milli on terminal at Kandla, announced for P&O Ports, has not been formally awarded. Compared to both, the CCT is big, even if the projected investment is moderate.

Against the NSCIT's 550-metre quayline and 13.5-metre water depth (vessel draft is 11.5 metre inbound and 12 metre outbound), the CCT will have by end-June 2001 almost 950 metres of quayline (the project begins with 600 metres) and expects a government-p romised 15-metre draft. When iron ore shipments move from the Chennai port to Ennore, the CCT will get the iron ore berth. This berth now has a draft of 17.4 metres with a potential length of 360 metres, including fresh construction.

P&O Ports' study shows that most hub ports (which is what the government wants the CCT and the JNPT/NSICT to be) have a quayline of 1,200-1,500 metres. The CCT delivers this to the developer. On Nhava Sheva it remains split and only uniting NSICT's quay with that of the JNPT's 680 metres will yield the required 1,200-metre-plus length. Further, against Chennai's promise of 15-metre draft, the channel-deepening proposal at the JNPT/NSICT (to 15.5 metres) is still under debate.

At the NSICT, pilotage is offered by the JNPT. Simply put, access to the BOT terminal is fully controlled by the licensor since it regulates both draft and pilotage. The CCT, on the other hand, comes with official consent for private pilotage. Sole depen dence on the port trust would be for tugs. ``We can therefore work efficiently,'' Capt. Sarbh said.

Winning CCT has probably given P&O Ports the right project to illustrate the shortcoming in strategy at Nhava Sheva. A Damocles Sword, however, is the issue when Chennai's iron ore berth will be free for addition to the CCT, since there is neither a time -frame nor traffic limit to trigger that.

At Chennai, P&O Ports has promised a traffic of 350,000 TEUs in the first year, 400,000 TEUs in the second and 500,000 TEUs by the third. Throughput is pegged at 650,000 TEUs once the iron ore berth is added, touching 800,000 TEUs in the year after.

The CCT's impact goes beyond P&O Ports, as well. On August 17, 1999, the bidding process for a $205-million joint venture for Kochi's Rajiv Gandhi Container Terminal (RGCT) and building Vallarpadam by April 2005, closed with P&O Ports as sole bidder. Wit h traffic estimate of 33,39,000 TEUs in 2022 by consultant Frederick Harris, Vallarpadam was to be India's `Load Centre'. Conceptually, that load centre dream may have missed the bus yet again, for the project award of deep drafted-CCT came earlier.

Every big port (new or rejuvenated) splits the load Kochi wants. But if it moves fast enough, Vallarpadam has a chance for unlike absolute draft limits at Mumbai, Chennai or Tuticorin, Kochi's basin is of soft soil and adequate traffic can offset mainten ance dredging cost. Besides, there is resident cargo at Kochi.

Despite award of the CCT project, P&O Ports continues to be interested in its lone bid at Kochi. Capt. Sarbh says that the answer lay in fast growing traffic. Even if quaylines at the JNPT and the NSICT merge, full capacity utilisation at Nhava Sheva is not far off. Against the NSICT's original projections of 350,000 TEUs by second year and 500,000 TEUs by the third, the terminal reached 491,192 TEUs in its first year.

With the Mumbai port ill-placed to complement the region's box facilities due to fundamental infrastructure limitations, the west coast will seek another container terminal. Kochi's claim of being closest to the west-bound trade route, still holds good, Capt. Sarbh said.

The stakes

P&O PORTS, which has bagged three container terminal projects in India, is open to the idea of issuing equity shares to the Indian public in these terminal companies, Capt. Jimmy Sarbh, Regional Director, P&O Ports, said.

P&O Ports holds 95 per cent equity in the Nhava Sheva International Container Terminal (NSICT), its only project operational so far. In the proposed Kutch Container Terminal at Kandla, P&O Ports is slated to hold 93 per cent equity while in the Chennai C ontainer Terminal project, its equity share will be 75 per cent.

For the container terminal at Kochi, which bid is still under consideration, P&O Ports' proposal features a 69 per cent equity stake.

The Mumbai-based M. B. Eduljee Cassinath Group is an equity partner at all these locations. Additionally, the Chettinad Group is a partner in the Chennai terminal while the Cochin port is proposed to be a 26 per cent equity holder in the special purpose vehicle that would manage the Rajiv Gandhi Container Terminal and construct the Vallarpadam facility.

One of the advantages in getting the terminal companies listed, is that they become that much more mutually competitive.