Bangalore: The Chennai port was on Thursday unable to decide the fate of the sole financial bid it has received for developing and operating a Rs3,686 crore container terminal.
“None of us are happy with the quote” submitted by Mundra Port and Special Economic Zone Ltd (MPSEZ), chairman Atulya Misra said by phone from Chennai after a meeting of the Union government-controlled port’s board of trustees.
MPSEZ, the only one to submit a price bid from a short-list of seven, offered a revenue share of 1.5% to the port for the terminal, planned to have a capacity to load 4 million standard containers a year. “We are discussing ways and means to get a higher revenue share percentage,” Misra said, while noting that recent container terminal privatization deals in India have seen revenue share percentage quotes as high as 50%.
MPSEZ’s offer is the lowest revenue share quoted by a private firm to a state-owned port since India’s container port privatization programme that began in 1997. Under the policy, the bidder willing to share the most from its project revenue with the port gets the contract, typically stretching 30 years.
Misra said the board of trustees discussed three options: setting up a committee to negotiate a higher revenue share percentage with MPSEZ, re-inviting financial bids from the short-listed bidders, or re-tendering the project. “The port will call another meeting of the board of trustees to finalize the road map for the project,” he said, adding any negotiation with MPSEZ will need the shipping ministry’s permission.
An executive at MPSEZ, India’s biggest private port operator, said the steep cost of the project did not justify a higher share. “The project will lose cash in the first seven to eight years of operations,” he said on condition of anonymity. “This has been factored in the bid. Whatever loss we will make in the first seven to eight years, we will have to make it up in the remaining years of the contract. So the low revenue share. We are serious players not frivolous players.”
The financial viability of the project was hit also by the port’s decision to make the successful bidder bear the cost of constructing a 4.23 km-long breakwater that will cost at least Rs1,000 crore, depressing bidder interest.
A breakwater is an offshore structure to protect a harbour, anchorage or a marina basin from water waves, and is typically funded by port authorities. “The stones for constructing the breakwater have to be sourced from a quarry 70 km away from Chennai. These stones have now become gold and silver,” the MPSEZ executive said.
The Chennai port has two container terminals—one run by DP World Pvt. Ltd and the other by PSA International Pte Ltd—with a total capacity to load 2.8 million standard containers a year. These terminals loaded 1.52 million containers in the year to March.