Bangalore: Gammon Infrastructure Projects Ltd will stop operating its container loading facility at Ballard pier station (BPS) in Mumbai port from 2 December as a delay of more than three years in constructing a new terminal there triggered a key contract clause signed five years ago.
A joint venture between Gammon Infrastructure and Spanish port operator Dragados SPL SA had won the rights in 2007 to develop and operate the new container terminal for 30 years.
Indira Container Terminal Pvt. Ltd, the company formed by Gammon and Dragados, had signed a concession agreement with Mumbai port on 3 December 2007 to execute the project.
Gammon Infrastructure has a 74% stake in Indira Container Terminal with Dragados holding the balance. The first phase of the new facility with a capacity to load 1.2 million standard containers a year and costing Rs.1,228 crore was expected to start operations in 2010.
The opening of the new terminal was pushed back to December this year. The facility is now expected to start operations in March 2014, a Gammon executive said, requesting anonymity. The delay has escalated the project cost to about Rs.1,500 crore.
The Gammon-Dragados team was allowed to run the existing facility at the port till two years after shifting operations to the new terminal or till five years from the date of signing the concession agreement for the project, whichever was earlier. A concession agreement sets out the terms and conditions of the contract and puts the project in motion.
“We have informed the Mumbai port that we are discontinuing operations at the BPS facility from 2 December as per the concession agreement,” the executive cited earlier said.
A spokesman for the Mumbai port confirmed the development. Subhrarabinda Birabar, head of port sector at Gammon Infrastructure, declined to comment. Gammon Infrastructure is a unit of Mumbai-listed construction firm Gammon India Ltd.
The Gammon Infrastructure executive said the company was losing money at the existing facility because it could not accommodate bigger ships because of depth restrictions. It loaded a paltry 37,000 standard containers between April and October this year.
In comparison, Jawaharlal Nehru port, which is 7 nautical miles ahead on the same shipping channel, loaded 2.5 million standard containers during the same period.
Gammon Infrastructure will now have to infuse more funds on its own to construct the much-delayed container terminal after a consortium of four state-owned banks led by Canara Bank that had funded the project declined to give additional funds to meet escalation in costs.
“We have decided not to do any additional funding for the project,” said a spokesman for Canara Bank. “The escalation in costs will have to be borne by the project promoters,” the Canara Bank spokesman said, adding that the delay in constructing the terminal was “beyond the control of the project promoters”.
Canara Bank, Punjab National Bank, UCO Bank Ltd and India Infrastructure Finance Co. Ltd have lent Rs.800 crore to the project.
“Gammon Infrastructure may either induct a new partner into the project or sell stake in the terminal operating company to a private equity firm to meet the additional costs,” the executive said.
Gammon Infrastructure has completed construction of the berth where ships dock to unload and load containers, but the firm is unable to start commercial operations at the new terminal because the Union government-controlled port is yet to hand over possession of two docks to Gammon for further work. The docks will be used as yards to store containers.
One of the docks will be handed over to Gammon in December and the other in March 2013, the Mumbai port spokesman said. The port has also not been able to adhere to the timeline on deepening the shipping channel to 14m from the existing 11m, he said.
The back-up rail and road infrastructure for evacuating containers is also not ready.
The defence ministry has recently put a further spoke in the project by denying permission to Chinese technicians to visit Mumbai port for installing and commissioning cranes used for loading and unloading containers onto and from ships and at the container yard.
In 2011, Gammon Infrastructure placed an order worth $74 million (around Rs.402 crore today) with Chinese firm Shanghai Zhenhua Port Machinery Co. Ltd for 26 cranes to be used for handling containers at the new terminal. “However, security clearance for Chinese workers have become an issue,” said a person associated with the project, but not working at Gammon Infrastructure or Dragados. He declined to be named because of his company’s policy on speaking to the media. The delay has raised the crane costs to about $80 million, the executive said.
“There is a lead time of 12-14 months in erecting and commissioning of the cranes. If Chinese workers are not allowed or permission is delayed to visit Mumbai port for this work, the project will be delayed further,” said the Gammon Infrastructure executive cited earlier.
India has barred Chinese firms from participating in the country’s port projects because of security-related concerns.