Mumbai Port Trust is set to scrap a contract awarded to a unit of the financially struggling Gammon Group for building a container terminal at one of India’s oldest state-owned ports after lenders failed to get bids to replace the original developer for default on repayment of loan.

The facility, partly completed by Indira Container Terminal Pvt Ltd (ICTPL), a special purpose company formed by Gammon India Ltd, Gammon Infrastructure Projects Ltd and Spain’s Dragados SPL, owes some Rs 812.53 crore to a clutch of five banks led by Canara Bank . The lending consortium includes Central Bank of India, Punjab National Bank, United Bank of India and India Infrastructure Finance Co Ltd.

A decision by the cabinet committee on economic affairs (CCEA) to reject a proposal to restructure the stalled terminal by changing its cargo profile to allow handling of automobiles and steel permanently has strengthened the case for termination of the contract that was awarded in December 2007. The terminal was contractually mandated to start operations in December 2010 on a 30-year period.

Canara Bank called bids in October to identify a new developer to complete construction and run the terminal after the CCEA rejected a proposal forwarded by the shipping ministry to restructure the facility in a bid to help banks recover money given to the project.

The CCEA rejected the restructuring plan by agreeing with the finance ministry’s stand opposing a change in cargo profile for public-private-partnership (PPP) projects at state-owned ports after the contract was awarded.

An executive at one of the lending consortium said that the tender did not receive any offers when the deadline ended on December 15.

“With the CCEA rejecting the restructuring proposal and the unsuccessful attempt by the lenders to find a new developer, Mumbai Port Trust has no other option but to terminate the contract,” a shipping ministry official said.

Mumbai Port Trust to seek legal advice

Mumbai Port Trust has mandated law firm HSA Advocates for advice on the financial liabilities arising out of contract termination.

The contract was also stalled partly due to the default of the Mumbai Port Trust because it failed to meet its contractual obligations on dredging the approach channel and berth pocket on time and hand-over the entire back-up area required to store containers. The developer also lost time awaiting security clearance from the government for buying Chinese-made cranes used for loading and unloading containers at the terminal, which was eventually denied.

“Mumbai Port Trust has sought legal advice on the extent of liability it would have to bear when the contract is terminated. On getting the advice, it would proceed with the termination,” the ministry official said.

The eight-year delay in opening the Rs 1,015.66 crore facility that was designed to load 1.2 million twenty-foot equivalent units (TEUs), has escalated the project cost and affected the viability of the project because Jawaharlal Nehru Port Trust (JNPT), also state-owned and located a few kilo-metres away, bolstered its stature as a preferred gateway for export-import containers shipped by the sea route, by doubling capacity.

In July 2015, Mumbai Port Trust allowed ICTPL to handle automobiles and steel at the berth as an interim arrangement to help put idling resources to optimal use. ICTPL retained 45 per cent of the revenue earned from this arrangement and shared the balance with the Mumbai Port Trust.

 

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