PSA-Sical terminal in dire straits at Tuticorin Port

PSA-Sical Terminals Ltd, one of the Indian terminal operating units of global port operator PSA International Pte Ltd, is in dire straits after a newly opened terminal at Central government-owned V O Chidambaranar Port Trust (VOCPT) in Tamil Nadu’s Thoothukodi district grabbed much of its business in January. The move triggered a run-in with the landlord port authority.

PSA-Sical is 62.5 per cent owned by PSA International, a unit of Temasek Holdings Pte Ltd, the sovereign wealth fund of Singapore. The terminal has been roiled by tariff issues for many years and is the most litigated public-private partnership (PPP) project in the Indian ports sector.

Dakshin Bharat Gateway Terminal (DBGT), the terminal run by a joint venture between Starports Ltd, a unit of Mumbai-listed Starlog Enterprises Ltd and Bollore Africa Logistics SAS, handled 57,405 twenty-foot equivalent units or TEUs in January, accounting for 90.91 per cent of the total container volumes handled at VOCPT.

PSA-Sical handled a paltry 5741 TEUs in January, a far cry from the average volume of 37,257 TEUs it handled a month in calendar year 2018 and more than 40,000 TEUs a month before DBGT started operations. In December 2018, PSA-Sical handled 25,813 TEUs.

The sudden steep fall in volumes created panic as PSA-Sical is contractually mandated to handle minimum guaranteed throughput (MGT) of 300,000 TEUs in a year. In case of a shortfall, the terminal operator has to pay the contractually-mandated royalty to the landlord port for 300,000 TEUs. The royalty, though, is paid to the port authority every month based on the average volumes handled and is reconciled at the end of the contractual year.

VOCPT asked PSA-Sical to pay royalty for 25,000 TEUs (the per month MGT in its reckoning based on the annual level of 300,000 TEUs) for January. Apprehending that the port trust might encash its performance bank guarantee, PSA-Sical approached the Madurai bench of the Madras high court seeking to stall VOCPT from doing so. In its writ petition, PSA-Sical said that the port trust was “discriminating” against it by giving a deeper draft of 14.10 metres to DBGT thereby hurting its commercial interests.

The court initially asked VOCPT not to encash the bank guarantee but subsequently rejected PSA-Sical’s petition after the port trust filed a counter. As a result, PSA-Sical paid Rs 4.5 crore as royalty to the port trust for January on 25,000 TEUs.

Port experts say that PSA-Sical has not reneged on its agreement with the port trust. “The volumes are less than 25,000 TEUs per month now and it is in difficulty. Reneging would only be correct if it did not meet the yearly MGT and refused to pay; neither of these have happened and the year is not over yet” said an expert.

“PSA-Sical has tirelessly served the Tuticorin trade since 1999. We remain in compliance with our contractual obligations,” a spokesperson for PSA-Sical said.

The shipping ministry has denied granting undue favours to DBGT by giving a deeper draft. “The concession agreement signed between the port trust and DBGT obligate the landlord port to give a depth of 14.10 metre to the terminal operator. In the case of PSA-Sical, VOCPT is obliged to give a depth of 10.7 metres only. Yet, VOCPT spent Rs15 crores from its own pocket to increase the depth at PSA-Sical terminal to 11.7 metres to their advantage,” a shipping ministry official said.

“Besides, there is no scope for deepening the berth area at PSA-Sical beyond 11.7 metres. Th berth is constructed by placing block structures which will collapse if the area is dredged beyond 11.7 metres,” the official said.

The deeper draft, the steep discount offered in vessel related charges and the modern super post panama cranes that can lift two containers at a time helped DBGT wean away many of the international services from PSA-Sical in December 2018, taking all the international volumes to DBGT, manifesting in the volume drop at PSA terminal.

Trade sources said that DBGT has signed annual contracts with international feeder services run by Maersk Line and CMA-CGM, ruling out their possibility of returning to the PSA terminal in the near future and help it regain volumes.

They also said that PSA-Sical has been priced out of business- it is effectively paying over 80 per cent of its revenue as royalty to the port trust compared to the 55 per cent shared by DBGT. “Along with ageing equipment which have been operating way above capacity, it has become tough for PSA-Sical to compete with DBGT due to the uneven playing field and disparity” a source said.

“It is not surprising that once DBGT is up and running, it was only a matter of time before it took business off PSA,” he said. “Obviously, volumes come in services. It’s almost all or nothing and DBGT has been able to price very attractively,” he added.

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