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Shipping Ministry clears bail-out plan for stressed PPP projects at major ports

Thursday, 06 September 2018 | 16:00

The Shipping Ministry has cleared a bail-out plan for stressed public-private partnership (PPP) projects at major port trusts along with a criteria to classify/identify stressed projects.

To save PPP projects that have become stressed due to “abnormally high storage charges”, the Ministry has framed a three-point formula that includes extending the free storage period comparable to what nearby private ports are offering users “to optimise capacity utilisation of the berth”.

Accordingly, if the cargo is cleared within the free period as per the concession agreement signed with the port trust, no storage charge will be levied and hence no royalty need be shared with the port trust.

If the cargo is cleared after the expiry of the free period as per the executed concession agreement, but within the extended free period, the PPP operator will not collect storage charges from the users of the facility. But the PPP operator will have to pay royalty equal to 1 per cent of the annual revenue requirement (ARR) to the port trust.

If the cargo is cleared after the extended free period, the PPP operator will have to pay the contractually mandated royalty on the actual storage charges collected from users or 1 per cent of the ARR, whichever is higher, for the period beyond the extended free days.

A PPP project will be classified as “stressed” if it is sub-optimally utilised — if the actual cargo handled by the operator during two preceding financial years is less than 70 per cent of the projection as per the detailed project report/feasibility report that formed part of the bid document. The project special purpose vehicle (SPV) should have incurred cash losses continuously for two preceding financial years thereby eroding its peak net worth during the operation period by at least 50 per cent.

BusinessLine has reviewed a copy of the bail-out plan approved by the ministry.

Four projects at Visakhapatnam Port Trust and three at Deendayal Port Trust are expected to benefit.

“This will give substantial relief to PPP operators,” said a ministry official. Currently, importers get five free days for storing cargo and exporters 15 days at major ports.

“The grievance of PPP operators was that private ports were offering longer free storage days, up to 120 days for clearing cargo. The government has now allowed them to increase the free days depending upon competition. It will work out,” the official said.

But the CEO of a private port firm said that main issue of cargo handling and berth hire charges compared to private ports has not been resolved, making the rationalisation of storage charges to save stressed projects “irrelevant”.

“Some of the PPP projects are either being operated under stress or have been abandoned/terminated, leading to avoidable litigations and if this continues, major port trusts may not be in a position to attract private investments which would have an adverse impact on the growth of port infrastructure,” the Ministry official said.

“Re-negotiation of contract should be to the extent required for survival of the project – it should be a sort of course correction activity,” the official said.
Source: The Hindu BusinessLine

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