Port authorities should begin drawing-up a policy framework on extending port concessions that are nearing their 30-year period, a port consultant has said, suggesting that the Swiss challenge method could be one of the preferred options for a smooth continuity of the contracts.

Public private partnership (PPP) port contracts awarded for 30 years in the mid-90s will end during the next decade.

In port PPP contracts, the land, water front and assets will revert to the port authority on a “as is where is basis”, either free or for an agreed consideration.

“In a 30-year contract, a developer will not have the initiative to create /refurbish/maintain assets in the last 10 years as the payback period will exceed the duration of the contract,” says KV Natarajan, a former chief engineer at Jawaharlal Nehru Port Trust (JNPT), who drafted the first PPP contract at a major port trust in the mid-90s.

For port projects that have a continuous growth potential of 50-70 years, this can result in capacity stagnation, widening the gap between demand and supply, which will affect India’s competitive position in the international market.

PPP ports developed on greenfield sites will not be able to exploit their optimal growth potential as the developer will have no initiative for investments on additional berths, cranes, deepening of channel etc in the last leg of the concession period, Natarajan, who has advised corporates on setting up greenfield ports, said.

Though the PPP agreements may spell out the start of preparatory actions by the parties at least two years before the end of the contract, policy guidelines are required for unstinted growth of port infrastructure in the larger interests of trade and the nation.

For the new agency that takes over from the existing developer, the actual status of equipment will be known only after take-over and it may take up to a year or more to overhaul the equipment, stream line operations overcoming teething problems with a new set of work force etc which will affect the port’s throughput and the trade.

The existing developer, according to Natarajan, should be given a chance under the Swiss challenge method to submit a proposal for extending the contract by another 30 years.

“If he is not accepting this, we cannot force him. But, he knows the opportunities better if given a chance. His offer can be put to tender with a first right of refusal. This whole process — getting Swiss offer from the present developer, inviting bids based on parameters of Swiss offer, evaluate and decide — may take two years. While giving the present developer a chance for Swiss offer, he should also accept to forego the balance period of existing PPP contract for a consideration (which should be a fair assessment based on his earlier years of earning from the contract),” Natarajan said.

Steady growth

The idea of offering the Swiss method almost 8-10 years ahead of the expiry of the current contract, is not to forgo opportunities for the port’s steady growth. If Swiss offer is received earlier, the developer has a chance even to revisit some of the conditions of the present contract which need to be considered as they can be applicable from the date of start of the renewed contract, Natarajan added.

Related Topics
comment COMMENT NOW