DP World takes port to court over move to terminate contract

DP World takes port to court over move to terminate contract
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First Published: Tue, Jul 22 2008. 11 36 PM IST
Updated: Tue, Jul 22 2008. 11 36 PM IST
Bangalore: DP World, the world’s fourth biggest container port operator, has filed a legal complaint against the Union government-owned Chennai port after authorities there moved to terminate a 30-year contract over an alleged default of one of the key terms of the agreement.
In August 2001, the port signed a deal to allow DP World, owned by the Dubai government, to operate a container terminal at the port.
According to non-negotiable terms in the contract, DP World had to ensure, within three years of starting commercial operations, that big mainline vessels start calling at the port to haul cargo directly to destinations without being transhipped at any of the big ports in the region.
The clause states that 20% of the total cargo handled at the terminal had to be shipped on mainline vessels directly to destinations in the third year of operations, 25% in the fourth year and 30% from the fifth year until the end of the contract. The clause was added to make Chennai a hub port on the country’s eastern coast for handling container cargo.
In transhipment, cargo containers are first moved in smaller vessels from an Indian port to one of the five neighbouring ports—Colombo, Singapore, Port Klang, Dubai or Salalah—from where they are reloaded on to bigger, mainline vessels and shipped to their final destinations.
Such transhipment entails extra time and costs, eroding India’s competitiveness in the global market.
India spends more than Rs1,000 crore a year on transhipment alone, as big ships are not able to call at the country’s ports due to depth restrictions, according to the shipping ministry.
“When we found that the clause was not complied with for three continuous years, we issued a show-cause notice to DP World, informing them that we intended to terminate the contract and asked them to explain why it should not be done,” said a Chennai Port official, who did not want to be named because of the sensitive nature of the issue.
“Instead of replying to our notice, DP World approached the (Madras) high court and obtained a stay on the port’s plan to terminate the contract. Separately, DP World also decided to resort to arbitration proceedings under the Arbitration and Conciliation Act, 1996, to resolve the issue,” he added. The Chennai Port has the right to terminate the contract if the operator fails to comply with the clause for three consecutive years.
“We have complied with this clause. The port is interpreting it wrongly,” said an official at the DP World-owned Chennai Container Terminal Pvt. Ltd. He didn’t want to be named as he was not authorized to speak to the media.
Several consortia of shipping lines operate seven direct shipping services a week from the Chennai Port terminal, taking cargo directly to destinations such as the US east coast, Europe, the Mediterranean, Red Sea ports, northern Chinese ports, Shanghai and Bangkok.
However, the Chennai port said these operations do not comply with the stipulated levels of cargo shipped from the port directly to destinations on big mainline vessels.
The Chennai terminal handled 1.125million standard containers in the 12 months to March, clocking a growth of 26% over the previous year.
The Chennai port has now encashed DP World’s bank guarantee for Rs46.08 crore to recover part of the Rs63.71 crore compensation the port operator had to pay for non-compliance with the clause for the first three years. DP World paid the balance Rs17.63 crore by cheque.
However, DP World is yet to pay another Rs27.65 crore as compensation for non-compliance in the fourth year, the official mentioned earlier said.
This is the second time DP World is embroiled in litigation over a port project in India.
Last year, the Dubai-based port operator had taken legal recourse to prevent the Adani Group from terminating a May 2003 contract to operate a container terminal at Mundra Port in Gujarat for 28 years.
It had filed a case in the Gujarat high court seeking a stay and dismissal of the 8 November termination notice issued by the Adani Group-promoted Mundra Port and Special Economic Zone Ltd. DP World and the Adani Group are locked in another legal battle over rights to operate a second container terminal at Mundra Port.
The port operator has so far invested close to $1.5 billion (about Rs6,400 crore) in four Indian container-handling facilities in Navi Mumbai, Chennai, Visakhapatnam and Mundra.
These facilities handled close to three million standard containers in the year to March, which is roughly half of the total containers handled at all Indian ports.
The firm plans to invest a further $500 million to set up new facilities at Vallarpadam in Cochin Port and in a greenfield facility at Kulpi in Bengal.
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First Published: Tue, Jul 22 2008. 11 36 PM IST