The Hindu Business Line : Bidding for port projects to gain momentum

Conditions of the MCA
Consortium members required to hold 51% equity for at least three years of operations
Need to own 26% throughout project
Port authorities’ approvals required for change in shareholding norms

Mamuni Das

With the new model concession agreement (MCA) for private participation in ports getting the final Cabinet nod, work towards inviting bids for long-pending port projects is likely to speed up. These include such projects as the deep draft iron ore berth and deep draught coal berth at Paradip port, four multipurpose berths at Kandla port and container terminals at Tuticorin and Ennore. The MCA is the standard document that defines the duties and responsibilities of the Government and the private partner.

The port authorities can now adhere to the MCA norms and straightaway approach the inter-ministerial PPPAC (public private partnership appraisal committee) for a final approval without having to acquire an in-principle approval.

In the ownership norms stipulated by the MCA, the members of consortium bidding for a project are required to hold 51 per cent equity for at least three years of the terminal commencing operations. Even after three years, the consortium is not allowed to completely exit the operations — it has to maintain an equity holding of 26 per cent for the entire concession period.

Further, the lead member of the consortium is mandated to have a 50 per cent holding within the share of consortium members. To ensure compliance with competition and security norms after the winning bidder takes over terminal operations, the MCA has stated that any changes or transfer of share within the consortium can only be done along with the Port authorities’ approval.

FORCE MAJEURE

The new MCA also has a detailed chapter on force majeure which classifies different categories (political, non-political) of events beyond the control of both the port authorities and private developer that could affect the operations.

While providing for extension of the concession period by mutual agreement, the MCA allows for an exit clause (termination of contract) if the events affect the operations for over four months.

Another new feature is that it has specified performance standards for terminal operators in terms of dwell time, transit dwell time, turnaround time of vessels and volumes of commodities to be handled by a terminal in a certain period.

The terminal’s performance would be evaluated by port authorities every quarter for commodity groups such as container vessels, mechanised iron ore handling, coking coal, thermal coal, imported coke, break bulk and liquid bulk.

In case there is a shortfall by over 10 per cent of the average expected performance, the operator would have to pay one per cent of the total revenue for that quarter to port authorities as penalty.

TARIFFS

Under the new MCA, port tariff ceilings would be fixed upfront. Companies interested in operating the terminals would then be asked to submit competitive bids. The tariffs would be revised periodically and linked to inflation.

The Shipping Ministry is in the process of finalising the guidelines to be issued to the Tariff Authority for Major Ports. The Ministry had invited comments from various stakeholders on the draft guidelines.

RISK ALLOCATION

The new concession agreement has also built in responsibilities for both the port authorities and private companies, failing which the concerned defaulting party will be penalised.

Additionally, the new MCA regime has allocated risks to both port authorities and developers. Port authorities have to get the relevant in-principle clearances while handing over the project site. If there are delays, they have to extend the concession period and also pay a penalty (0.1 per cent of performance guarantee per day) to the operator.

The concessionaire is required to submit proof of financial closure of the project at stipulated time, or face a reduction in concession period and penalty payment.

Related Stories:
Ports: Model concession pact approved

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