Built-in clause for new private cargo terminals to renew concession period

P Manoj Mumbai | Updated on November 15, 2021

Policy on renewing concession added to the revised model of Ports Ministry

New private cargo-handling terminals at Centre-owned major ports will have a built-in clause to renew the concession period for a fresh term, said the Ministry of Ports, Shipping and Waterways, as it seeks to address a situation when the original period ends in 30 years.

Revised model

The policy on renewing the concession for a further term has been incorporated in the revised model concession agreement finalised by the Ministry for private participation in building new cargo handing terminals at major ports.

The policy is expected to be made applicable to existing cargo handling terminals also, some of which are nearing the end of their 30-year concession this decade. Under the existing contract terms, the terminal assets revert to the port authority (concessioning authority) free of cost at the end of the concession period.

Nhava Sheva International Container Terminal, the terminal run by Dubai government-owned DP World at JN Port Authority; PSA-Sical Terminals Ltd, which is 51 per cent owned by Singapore’s PSA International Pte Ltd, at VO Chidambaranar Port Authority, among others, will benefit when the concession renewal policy for existing terminals is approved by the ministry.

A concession agreement sets out the terms and conditions of a port contract and puts the project in motion. For new cargo handling contracts that use the revised model concession agreement, the private terminal operator (concessionaire) has to intimate the port authority between the 25th and 27th year of concession of its interest, and request to renew the concession.

While making the request, the terminal operator should confirm that it is agreeable to participate in the international competitive bidding process initiated by the port authority for price discovery (royalty) for the fresh term.

In the bidding process, the terminal operator will be given the right to match the highest bid, if its bid is within 10 per cent of the highest bid offered. The affiliate(s) of the concessionaire shall not be qualified, either directly or indirectly, to participate in the bidding process.

The concessionaire shall be deemed to be qualified to submit the financial bid without the requirement to participate in the pre-qualification process, and shall not be required to submit any documents for pre-qualification.

However, if the concessionaire has been in material default of the provisions of the original concession agreement, because of which the cumulative damages imposed upon it comes to 20 per cent of the performance security, then the port authority will not be under any obligation to renew or extend the concession period or provide the right to match the highest bid to the concessionaire, according to the revised model concession agreement.

The final decision on renewing/extending the concession period will vest with the port authority awarding the concession.

Published on November 15, 2021

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