BackPSA walks out of deal to set up container terminal at Hazira
PSA walks out of deal to set up container terminal at Hazira
PremiumBig player: A file photo of a container terminal port run by PSA International Pte in Antwerp, Belgium. Wolfgang von Brauchitsch / Bloomberg
Bangalore: The world’s second biggest container port operator, PSA International Pte Ltd, owned by the Singapore government, has pulled out of a Rs1,300 crore deal to develop a container handling facility at Hazira, Gujarat, on India’s western coast, citing tough financial terms.
“PSA has told Shell that stiff commercial terms have rendered the project unviable," a person familiar with the development said, asking not to be identified, “(and that) unless the commercial terms are changed, it is not conducive to participate in developing the project."
Shell had won the rights from the state government to develop and operate the port for 30 years beginning 2002. It has set up a facility to handle 2 million tonnes of LNG imported into the country at the port.
As part of the contract, HPPL has to develop facilities to handle other cargo, including containers at the port.
As it lacked expertise to do this, HPPL had signed an agreement with PSA on 13 January 2007 to develop and run a terminal that would be operational from 2010 and handle 1.23 million containers a year.
Shell and PSA have since been working on a detailed project report and negotiating the financial terms.
But the project seems to have run aground over commercial terms, particularly on the payment of waterfront royalty to the state government, which was in addition to the money PSA had to pay HHPL for using the port.
As per the terms, the waterfront royalty payable to Gujarat on a per container basis by the terminal operator was to increase 20% every three years.
“If the waterfront royalty rises by 20% every three years, PSA will not be able to increase the container handling charges at the terminal by 20%, particularly when the environment is competitive. Customers will not pay if the rates are hiked," said the person mentioned earlier.
PSA’s spokesperson could not be reached for comment.
During negotiations, PSA wanted Shell to get the government to change the policy on waterfront royalty. Alternatively, PSA said the 20% hike in royalty every three years could be absorbed and paid by Shell to Gujarat. “Both these suggestions were not acceptable to HPPL," the person added.
Shell has now hired Citibank NA to identify a firm that can develop multi-cargo handling facilities (including containers, chemical and bulk cargo) with about $500 million investment.?“The heads of agreement signed with PSA is not valid anymore," said Deepak Mukarji, country head, corporate affairs, Shell group of companies in India. “PSA decided to relook at their own priorities in India and hence didn’t want to pursue the Hazira project any further," he added.
PSA has been expanding its India operations to grab a bigger share of the country’s container cargo market of at least 7 million standard containers a year and growing at about 15% annually. India’s container traffic is estimated to reach 21 million standard containers by 2016 from around 7 million standard containers now, according to the Union shipping ministry.
Earlier this year, PSA invested about Rs350 crore for buying a 49% stake each in companies that operate container cargo handling terminals at Centrally owned Kandla and Kolkata ports. The stakes were purchased from ABG Infralogistics Ltd. PSA also purchased a 11.8% stake in it.
PSA has a 57.5% stake in a 450,000 standard containers annual capacity terminal at Tuticorin Port on India’s eastern coast. It will start operating a facility in May with a capacity of 1.5 million standard containers a year at Chennai Port.
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