Tata Steel Ltd’s acquisition of a 51 per cent stake in Creative Port Development Pvt Ltd (CPDPL), the entity that was awarded the rights to develop and operate a greenfield port at Subarnarekha in Odisha’s Balasore district, will have to be ratified by the State government.

This is because the concession agreement signed between CPDPL and the Odisha government in January 2008 to build the new port mandates a lock-in period for the promoters’ equity till it starts commercial operations.

“CPDP and its subsidiaries shall hold not less than 51 per cent of total equity capital subscribed of the special project company which shall be locked till in-operation date,” according to clause 2.4 of the concession agreement. The in-operation date refers to the date on which the commercial operation of the port would begin after the completion of development of the first phase of the port.

BusinessLine has reviewed a copy of the concession agreement. Tata Steel and CPDPL did not respond to emails seeking comment. An official at the commerce and transport department of Odisha said the concession agreement did not provide for a change in ownership of the promoter company till the new port starts commercial operations.

“We are yet to be notified of the change in management control of CDPD; nor have they applied for permission to carry out this change,” the official said, asking not to be named because he is not authorised to speak to the media. The first phase of the port with a capacity to load 10 million tonnes (mt) of cargo was expected to be commissioned by 2012. The capacity can be scaled up to 50 mt subsequently.

The construction of the port is yet to begin. The port was awarded for a concession period of 34 years, including four years for constructing the first phase. The concession period can be extended by 20 years. The concession pact mandates the port developer to share 5 per cent of the annual revenue with the State government in the first five years, 8 per cent for the next five years, 10 per cent for further five years and 12 per cent for the balance period of the concession.

The stake sale has raised eyebrows in port industry circles because the port project was awarded to CPDP through the ‘memorandum of understanding’ route without any competitive bidding process.

Concession pact

The Odisha government confirmed in the concession agreement that the project was awarded through the MoU route.

In January, Tata Steel announced it had signed a share purchase agreement to acquire 51 per cent equity shares of CPDPL and a shareholders’ agreement with CPDPL and its promoters for the development of Subarnarekha port through an SPV – Subarnarekha Port Pvt Ltd.

At that time, Tata Steel said the deal did not require any “governmental or regulatory approvals”. Tata Steel had said the deal – designed to de-risk and optimise the in-bound and out-bound supply chain for its steel plants – would be closed in about six months, but it is yet to be completed.

The steel-maker had pegged the deal value at ₹120 crore, though it said that the (exact) acquisition cost will depend on the capital outlay of the project. “The capital outlay is currently under investigation and will be firmed up only after studies are completed. The exact cost of acquisition will only be known at the completion of the project,” Tata Steel said in January while announcing the deal.

The deal, say industry experts, confounds the rationale for Tata Steel’s exit from Dhamra Port, also in Odisha, in 2014, where it had a 50 per cent stake; it was keen on “securing competitive logistics solution” as the managing director of the firm’s India and South-East Asia operations, TV Narendran, said in January, to “address the long-term strategic needs of the company”.

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