PPP projects at major ports at risk of running aground

25th Sept

A rigid regulatory framework and market dynamics threaten to run aground contracts worth thousands of crores of rupees at public-private-partnership (PPP) projects at India’s major ports or those owned by the Centre, giving beleaguered lenders cause for more worry.

Kandla Port Trust scrapped two PPP projects in August, with the two sides blaming each other for the default: the port trust says RAS Infraport Pvt Ltd and IMC Ltd were not paying the contractually mandated revenue share, while the PPP operators allege the port trust did not give them rail connectivity and water depth on time.

At Visakhapatnam Port Trust, four PPP projects, run separately by Sterlite Ports Ltd (a unit of London-listed metals firm Vedanta Ltd), ALBA Asia Pvt Ltd (a joint venture between STARPORT Logistics Ltd and Louis Dreyfus Armateurs SAS), Vizag Seaport Pvt Ltd and Adani Ports and Special Economic Zone Ltd, are under stress from rate issues and other tender terms, which could force termination in some cases, according to Port Trust Chairman MK Krishna Babu.

Thirty-three PPP projects with an investment of ₹17,818 crore are operational, while 20 more projects worth ₹22,363 crore are under implementation.

There are problems in every PPP project, says the managing director of a Mumbai-listed port logistics firm that runs terminals at major ports.

“Across geographies, every PPP project is in litigation/arbitration with the government,” he said, referring to court cases filed by terminal operators individually and collectively under the banner of the Indian Private Ports and Terminals Association (IPPTA), over rate setting, lack of dredging on time, delayed environment and security clearance and insufficient yard space. Projects have also collapsed due to non-compliance of contractual obligations by the port trusts.

“There must be something wrong with the government’s management of PPP concessions if every operator is opting for litigation,” he said.

Port industry executives question the rationale behind major ports building more capacity when cargo volume growth is flat, or even declining owing to slow global trade. “When you award new PPP concessions, diminishing volumes will have to be further shared with new investors,” points out a port industry executive.

The former head of a PPP terminal on India’s eastern coast said the blame for the crisis has to be widely shared — among port trusts (the Central government) and the bidders. “But it is the consultants who made the detailed project report who are mainly responsible,” he said.

For instance, the consultants had claimed the cargo terminal run by Sterlite Ports at Vizag would be able to evacuate four lakh tonnes of coal every 10 days. On that basis, they worked out a capacity of 10.2 million tonnes of cargo a year.

“Did they check if importers were willing to take the cargo out in 10 days? Did the port give them adequate rakes? It’s a total design fault, but the consultants go scot free,” he said.

The problem, says another expert, is in the way concession agreements are designed — for 30 years without provision for review and amendment. “Even the Constitution can be amended, but not concession agreements!” he exclaimed.

Source-thehindubusinessonline