Bangalore: The biggest single foreign direct investment (FDI) in an Indian port project, by Singapore’s PSA International Pte Ltd, has come under threat after members on the board of Union government controlled Jawaharlal Nehru (JN) port raised concerns about PSA’s local partner ABG Ports Pvt. Ltd.
The two firms are associated in a plan that will see PSA investing Rs2,000 crore to build a fourth terminal and expand capacity at the congested JN port, the country’s busiest container facility. The board members are concerned about the below par performance of the Indian company at a container terminal it has been operating since 2007 at Kandla port, in Gujarat.
A JN port spokesman said the board of trustees has set up a six-member panel headed by the port’s deputy chairman N.N. Kumar to find out the reasons for ABG’s performance. PSA has a 49% stake in Kandla Container Terminal Pvt. Ltd with ABG holding the rest.
The shipping ministry is not pleased with the developments.
“The ministry has taken a very dim view of the board of trustees decision to set up a panel to examine the performance of ABG at Kandla,” said Rakesh Srivastava, a joint secretary looking after ports in the shipping ministry.
“If they wanted to disqualify the PSA-ABG team, they should have done so at the qualification stage itself. Now, after qualifying them and after they have become the highest bidder, you can’t do this. It is simply ducking the issue and delaying it for some extraneous reasons,” he said.
The financial bid submitted by the PSA-ABG team is valid till 30 September.
Srivastava said shipping secretary K. Mohandas has asked the port chairman to send a detailed report on the developments, which is awaited, ahead of taking a decision.
A spokesman for PSA declined to comment.
A spokesman for ABG Ports said that there was a problem of draft (depth) at Kandla. “The port management is totally responsible for that; they had promised to give us a depth of 12.5m at the channel, which has not been done so far. As a result, we are not able to bring mainline ships,” the spokesman said. A Kandla port spokesman was not immediately available for comment.
“JN port is choking,” said Samir Kanabar, director, ports and shipping at Ernst and Young Pvt. Ltd. “The government cannot afford to delay building the fourth terminal any further; it is already delayed by several years,” he said, adding that the board of trustees should go by the stature of PSA, the majority JV partner in the new project.
According to qualification documents filed by the PSA-ABG team, PSA is the lead member of the consortium and will have management control of the new terminal with a 74% stake. The documents have been reviewed by Mint.
The delay in clearing the project comes at a time when the port, which loads more than 50% of India’s container cargo, is battling congestion due to lack of capacity, forcing shipping lines to levy a congestion surcharge ranging from $60 to $155, depending on the size of the container, from exporters and importers since July. The port has said it’s losing Rs2 crore of revenue for each day of delay in implementing the new project, according to a June affidavit filed by it in the Bombay high court in a case that involved one of the shortlisted bidders. The affidavit has been reviewed by Mint.
On 10 August, the board of trustees discussed the highest financial bid submitted by the PSA-ABG consortium to develop the new container terminal, the fourth, at JN port as it looks to expand capacity. The PSA-ABG team had offered to share 50.828% of its annual revenue with the government-run port, making it the highest revenue share bid quoted by a private firm since India started container port privatization programme in 1997. Under this policy, the bidder willing to share the most from annual revenue with the government-owned port gets the contract, typically stretching 30 years.
The approval of the board of trustees for the Rs6,700 crore project that will allow the port to load an additional 4 million standard containers a year to the 4.27 million standard containers it already handles and ease congestion, was considered a formality.
This is because port projects bid out under the so-called public-private-partnership (PPP) route have to follow rigorous qualification criteria set by the Public-Private-Partnership Appraisal Committee (PPP-AC) of the Union finance ministry. The price bids submitted by the technically qualified bidders who meet the test of responsiveness to implement the project are opened after they are granted security clearance by the Union home ministry. JN port had complied with the tendering process stipulated by the government and the board of trustees were kept informed about this at every stage, according to the JN port spokesman cited earlier.
The tendering process lasted almost three years as it was marred by court cases filed by bidders over the government’s policy on ports.
After identifying the successful bidder, the trustees are empowered to clear the proposal at their level irrespective of the investment involved (port trusts otherwise have limited financial powers to clear investment proposals), without referring this to the shipping ministry. In 2009, this decision was communicated by the ministry to the ports.
JN port chairman L. Radhakrishnan confirmed that the trustees had decided to set up a panel to examine ABG’s Kandla performance, without elaborating further.
One of the trustees not attached or belonging to the port, who attended the 10 August meeting, said a section of them had urged caution.
“If ABG is not able to perform at a smaller terminal in Kandla, then how would it perform at a bigger terminal at JN port,” he asked, requesting anonymity because the deliberations of the meeting are confidential and also because he is not authorized to speak to the media.