Government seeks to recast model concession agreement for PPP projects at major ports

Barely two years after the cabinet under NDA-1 revised the model concession agreement (MCA) for public-private-partnership (PPP) projects at major port trusts, the Shipping Ministry is back at the drawing board again, seeking to recast the key document that sets out the terms and conditions of a port contract.

But, unlike previous attempts, the third edition of the MCA will be drafted by the ministry based on ideas/suggestions from the “existing/prospective investors/PPP concessionaires/individuals/stakeholders”.

“Ministry of Shipping intends to revise the existing MCA. This initiative is being taken to align the provisions of MCA with the best practices to attract more PPP investors in the port sector,” a public circular issued by the ministry said.

Ideas/suggestions for revising/amending the MCA are to be submitted to the ministry by February 28, the circular said.

The MCA currently followed was approved by the cabinet in January 2018 -– the previous document was finalised some two decades ago when the government allowed private funds into the major ports sector -- to make “port projects more investor-friendly and make the investment climate in the port sector more attractive”.

But, this did not make investment sentiment favourable for PPP projects at major port trusts with hardly any new projects being bid out using the revised document, partly due to overcapacity across cargo segments at major ports and partly due to a slowing global and local econom, which depressed demand.

India’s 12 major state-owned ports have a combined capacity to handle 1,514.09 million tonnes (mt) of cargo a year.

In the year to March 2019, these ports together loaded 699.10 mt of cargo, translating into capacity utilisation of 46.17 per cent.

Between April and January in FY20, the dozen ports loaded a combined 585.725 mt of cargo, clocking growth of 1.14 per cent over a year ago.

The Inland Waterways Authority of India (IWAI) also adopted the MCA to privatise India’s first riverine terminal --- the multi modal terminal at Varanasi on National Waterway 1 -- in view of the operational similarities and infrastructure requirements. But, the tender was scrapped by IWAI due to no show by bidders, BusinessLine reported on Monday.

Under the government’s flagship Sagarmala programme, 236 projects have been identified for enhancing infrastructure at ports with an investment of ₹1,17,600 crore.

Private investors are sceptical of the government’s move when such revisions in MCA are adopted only for future projects.

“Private investors are shying away from bidding for new projects even after the last revision in MCA. Why can’t the ministry first accept that there is a slowdown and there is less cargo and there is sufficient capacity to cater to the existing cargo. Even, the growth over the next five years can be easily accommodated in the existing capacity,” said the managing director of a port operating company.

“Instead of revising the MCA yet again, why don’t they think of solving the problems of existing concession agreements. They only talk of a new MCA. The need of the hour is to look at the difficulties/problems in existing concession agreements and rectify them,” he said.

“The most important thing now is that private terminal operators at major port trusts should be given a level playing field with the private operators at minor ports, particularly on freedom in setting rates,” he added.

The MCA approved in 2018 allowed developers to exit from the project fully by selling their equity after completing two years from the commercial operation date.

The bids would be decided on the basis of royalty per metric tonne of cargo/twenty foot equivalent units (TEU) handled, which would be indexed to the variations in the wholesale price index (WPI) annually.

This replaced the earlier method of awarding projects on the basis of the highest revenue that a bidder was willing to share from his annual gross revenue with the government-owned port trust.

This was designed to resolve the long-pending grievances of PPP operators that the revenue share is payable on ceiling tariff approved by the Tariff Authority for Major Ports (TAMP) and price discounts were ignored.

The problems associated with fixing storage charges by TAMP and collection of revenue share on storage charges, which has plagued many projects, was also eliminated with the revised MCA.

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