PPP port operators set to invoke force majeure in concession pacts

P Manoj Mumbai | Updated on April 19, 2020 Published on April 19, 2020

To seek exemption from royalty/revenue share payments citing the pandemic

Operators running cargo terminals in the public-private-partnership (PPP) mode, at state-owned as well as private ports, are bracing to invoke the force majeure clause written in their concession agreements. This would let them seek exemption from the payment of royalty/revenue share citing a decline in volumes and revenue due to pandemic-led trade disruptions.

“We are going to invoke force majeure this week and notify the government,” said the CEO of a container terminal operating at a major port trust. “We are going to claim exemption from the payment of revenue share to the government-owned port authority till our volumes return to pre-coronavirus levels,” he added.

The clause in the concession agreement stipulates that the PPP operator can continue to operate during the force majeure period but is excused or exempted from performing that part of the concession agreement that it is unable to perform.

The executive said that the PPP operators would face difficulties in meeting the minimum guaranteed throughput (MGT) obligations written into their contracts and pay royalty/revenue share due to the impact of the pandemic.

“It’s impossible. Our revenue after deducting expenses will be negative. How will we pay, from where,” asked the managing director of a port logistics firm.

“Hence, one by one, everybody will invoke the force majeure clause because our volumes are dwindling, and we are unable to pay the royalty/revenue share. To that extend, we should be exempted,” he said.

The government, he said, has done two things. One, it has said that the coronavirus “can be considered as a case of ‘natural calamity’ that would entitle invocation of force majeure provisions as far as obligations under various contracts are concerned”.

Second, it said that seaports are essential services and will continue to run during the lock down period.

This force majeure is different from the one declared earlier by port operators, when the 21-day lockdown was imposed by the government from March 24 to slow the spread of the coronavirus.

The earlier one was only aimed at exempting the PPP operators from meeting their performance obligations, vis-à-vis, their customers such as shipping lines.

“In that case, the force majeure was declared to prevent customers from seeking penalties for non-performance in cargo loading and unloading activities at the terminals”, the managing director mentioned earlier said.

The force majeure to be invoked now is related to the concession agreements signed with the government-owned port authorities and is aimed at seeking exemption from payment of royalty/revenue share, he added.

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Published on April 19, 2020
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