High drama unfolded in the run up to Adani-Krishnapatnam Port deal

Three days before Adani Ports and SEZ Ltd signed a deal on January 3 to buy a 75 per cent stake in Krishnapatnam Port Co Ltd for an enterprise value of ₹13,572 crore, the Andhra Pradesh government thwarted attempts by the original promoter, CVR Group, to build a new facility in the port’s extended limits.

The planned new deep-water port at Ramayapatnam in the State’s Prakasam district is now being built by the government itself, for which it has hired the AECOM-URS Scott Wilson consortium as the project management consultant. Ramayapatnam will compete with Krishnapatnam for cargo, the reason the promoters of Krishnapatnam port were keen on developing it on their own.

On December 30 last year, the State government, led by Jaganmohan Reddy, issued an order “cancelling” two government orders issued in 2008 and 2009 and “restricted” the exclusive limits of Krishnapatnam port as stipulated in the Revised Concession Agreement (RCA) signed by the state government and KPCL.

The December 30 order “restored” a clause in the RCA that says: “GoAP hereby agrees that no party other than the concessionaire shall have the right to develop a new port, within 30 kms on either side of the port limits, during the concession period under this agreement.”

As a result of this order, Ramayapatnam fell outside the exclusive limits of Krishnapatnam port, allowing the State government to proceed with the development of the new port.

BusinessLine has reviewed a copy of the order signed by Rajat Bhargava, Principal Secretary to the Andhra Pradesh government.

Terms of the original pact

The original concession agreement signed by the government and KPCL stipulated that “GoAP can grant a facility for another port to a private party, within 25 kms on either side of port premises of Krishnapatnam port on the same terms and conditions contained in the concession agreement, or develop by itself only when the Krishnapatnam port is fully utilised and no further expansion of this port is possible. The first right of refusal for such facility should be given to (KPCL) as set out in the MoU (signed by the two parties earlier)”.

The terms of the original concession agreement were changed by a Revised Concession Agreement signed on September 17, 2004, which said that “GoAP hereby agrees that no party other than the concessionaire shall have the right to develop a new port, within 30 kms on either side of the port limits, during the concession period under this agreement”.

To give effect to the RCA, the State government issued orders extending the exclusive rights of KPCL on the northern side of the Krishnapatnam Port up to 30 kms south of Vadarevu port limits, stretching the exclusive limit to about 100 kms.

The exclusivity rights given to Krishnapatnam Port were questioned by the Central government while exploring the possibility of setting up a new major port in the State.

Shipping Ministry view

The Shipping Ministry, in a letter to the Andhra Pradesh government, said that the Indian Ports Act, 1908, which governs the notification of both major port and non-major port in the country, does not provide for for any exclusivity right beyond the port limits.

“The act provides only for notification of port limits. Therefore, the legal basis on which the exclusivity rights have been given for a vast area of 30 kms on either side of the non-major port (Krishnapatnam port) is not clear and may not be legally tenable,” the Ministry told the State government.

On September 11, 2018, the state government wrote a letter to KPCL seeking its “consent for de-notification of the extended exclusive limits in the larger interest of the State”.

KPCL response

Responding to the latter, KPCL stated that for “de-notifying the extended exclusive limits of Krishnapatnam Port, the government must compensate by granting extension of concession period by another 30 years with the same rate of concession fee falling under the first slab for sharing gross income (at the rate of 2.6 per cent) and thereafter extendable as per the terms and conditions of RCA”.

KPCL went even a step further to “contend its rights with regard to development of a non-major port at Ramayapatnam by themselves by initiation of due diligence and necessary studies”.

KPCL claimed that it had “absolute rights to develop any new port within the notified exclusivity limits”.

The government order issued on December 31 nixed such plans.

“It is observed that without any justifiable basis and merely only on the basis of request of the KPCL, the exclusivity limits granted to KPCL were abnormally extended, giving unbridled rights to KPCL at the expense of national and State interests, restraining and adversely affecting the rights of the government in development of any new port within the extended exclusive limits,” it said.

“The orders extending the port limits were issued without consideration of the public policy which overrides any contracts entered by persons. Such consideration of public policy provided in Section 23 of the Indian Contract Act,1872, is also binding upon the government, which is bound to consider the larger public interest while granting State largesse,” the government noted.

“The grant of extended exclusivity rights is therefore not only without any justifiable basis but is also against public interest as the coast line of the country is essentially a public property and is of national interest,” the government told KPCL while rejecting its plea for extending the concession period in case the government de-notified the extended exclusive limits of the port.

Adani Ports is awaiting a few statutory approvals ahead of closing the Krishnapatnam deal.

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