PSA bid to save ₹900-cr royalty dues to VOC Port Trust

Barely days before it opens a new huge container terminal at Jawaharlal Nehru Port Trust (JNPT), Singapore’s PSA International is fighting to save royalty arrears payment of ₹903 crore it owes to the Central government-owned VO Chidambaranar Port Trust (VOCPT) located in Tamil Nadu’s Thoothukudi district, where it runs a container loading facility since 1999.

Last month, the Madurai Bench of the Madras High Court, accepted an appeal filed by VOCPT in 2011 against a lower court decision to freeze the royalty payment by PSA-Sical Terminals Ltd at 2011 levels on a 30-year contract that began in 1999.

The Madurai Bench asked VOCPT to work out the arrears and raise a demand notice on PSA-Sical Terminals within a week of its order while allowing the terminal operator to pay within three weeks after the demand was made.

The high court order, though, was stayed by the Supreme Court on an appeal filed by PSA-Sical Terminals. The apex court also directed VOCPT not to take any “coercive steps” for three months till February 2018. It further asked the two parties to sort out the vexed rate dispute by the end of February 2018.

PSA-Sical Terminals Ltd, the entity that runs the container terminal at VOCPT from 1999, is 62.5per cent owned by PSA International, a unit of Temasek Holdings , the sovereign wealth fund of Singapore. The terminal has been roiled by tariff issues for many years.

In June 2011, PSA secured a stay from the district court in Thoothukudi, freezing the annual royalty it is contractually mandated to pay VOCPT at the level set for 2011 as part of the 30-year contract.

This was the first instance of a court-backed freeze on revision in royalty for a port contract after the ports sector was opened to private funds in 1997.

According to the terms of the PSA contract, the royalty per twenty-foot equivalent unit (TEU) was ₹102 in the second year of operations. In the 30th year of operations in 2028, it will reach ₹5,178 for a TEU with the royalty rising by 20 per cent every year in July till the end of the contract.

As a result of the Thoothukudi district court order, PSA continues to pay a royalty of ₹1,969 per TEU (the level set for 2011 in the contract) to VOCPT. If the stay was not granted, PSA would have been contractually mandated to pay ₹2,264 per TEU as royalty to VOCPT from July 15, 2012. This would have risen to ₹2,490 a TEU from July 15, 2013, going up to ₹2,615 from July 15, 2014, ₹2,746 from July 15, 2015, ₹2,883 from July15, 2016 and ₹3,027 from July 15, 2017. In 18 years since starting the operations, PSA made three attempts to raise rates for the services provided at the terminal, but each time the tariff regulator for the Central government-controlled ports slashed rates — by 15per cent in 2002, 54 per cent in 2006 and 34 per cent in 2008, which PSA did not implement by securing stay orders from the Madras High Court. PSA has defended its move to freeze the royalty pay-out with the backing of the court, arguing that the tariff cuts would reduce the revenue-earning capability of the terminal and turn it into a loss-making unit. This is because the revenue earned will not be sufficient to cover the cost of operating the terminal, leave alone make profits after sharing a portion with the government port every year. PSA says that it cannot give more royalty to VOCPT till it is allowed to increase rates.

The pending royalty, including interest and penalty, works out to ₹903 crore from July 15, 2011, according to VOCPT. In 2015, the then attorney general had advised VOCPT to scrap the deal citing default in contractually-mandated royalty payments.

“I am of the considered opinion that the querist (VOCPT) can terminate the licence agreement and also claim compensation if it deems fit,” Mukul Rohatgi, then attorney general, wrote in an advice signed on 7 August 2015. BusinessLine has reviewed a copy of the opinion given by him.

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