Ahmedabad: Gujarat’s finance department has questioned a plan by the state maritime regulator to allocate without bidding a stretch of waterfront that the Essar group is seeking as part of its expansion at Hazira in Gujarat.
This includes boosting steel making capacity at the Essar Steel Ltd plant in Hazira besides stepping up cargo handling at its port, for which the land is being sought.
Essar Steel wants to increase its capacity from the recently ramped up 10 million tonnes per annum (mtpa) to 14 mtpa by 2014-15, according to a proposal presented to the Gujarat Maritime Board (GMB), the regulator. While the company hasn’t given details about the investment involved in the steel capacity expansion, an industry expert pegged it at $4-5 billion (around Rs 27,000 crore).
The project has been awaiting government clearance for over a year now.
The regulator has given in-principle approval for the allocation of a 1.1 km stretch of waterfront and has sought clearance from the state government. The finance department has raised an objection to this.
Mint has reviewed a copy of the communication between the finance department and GMB on the issue.
A finance department official did not comment on the issue.
GMB, in its reply to the finance department, said the expansion will raise capacity to vessels of 100,000 dead weight tonnage (dwt). The permission to ETBL for waterfront expansion was in line with provisions in the Model Captive Jetty Agreement, it said.
“The length of the waterfront alone is not the criterion for judging the requirement of the captive port facility development,” GMB said in its reply, a copy of which Mint has reviewed. “Various other factors like capacity of the port-based industry, marine condition, ship size... etc. are equally important.”
The state ports and transport department asked the maritime board about two weeks ago to provide an estimate of what it could raise from an auction of the waterfront, said a senior government official with knowledge of the development. If the government can earn enough revenue without bidding, the land may be given to Essar, he said.
Essar Bulk Terminal Ltd (EBTL), a special purpose vehicle set up to develop port facilities and perform port operations at Hazira, has chalked out an investment of at least Rs 4,000 crore for expanding the port.
EBTL signed a pact with the Gujarat government during the Vibrant Gujarat summit in January 2011 for the expansion of the jetty into a deep-water, all-weather port facility.
It would be for GMB to reply to the department’s questions, said a senior Essar official closely associated with the project.
“The issue is about two-three months old now and we feel it will be settled soon” he said.
In an email response to queries on the subject, Essar said: “As a group we look for growth opportunities and develop self-sustaining business models, including creating necessary infrastructure to support businesses.”
EBTL will require the additional waterfront to cater to growing demand of cargo, both captive and commercial, the official said.
The company has handled some amount of commercial cargo such as coal after getting the necessary approvals from the regulator.
It currently handles 25 mtpa of cargo, expected to rise to 42.32 mtpa after the expansion.
The government should consider seeking bids for the waterfront, said a senior government official. “Awarding another 1,100 metres will take Essar’s total length of waterfront in the area to about 2,700 metres, which is a very long waterfront as far as captive usage goes,” he said.
Cargo Motors and Israel Ports won a bid to develop Nargol Port, also in Gujarat, by offering high waterfront royalty charges. GMB levies a royalty charge on every tonne of cargo from the port developer for using the state’s waterfront.
A multi-cargo, multi-use terminal is being set up in the vicinity by Adani Hazira Port Pvt. Ltd and granting a captive berthing facility to Essar would cut into the profitability of the multi-user port, the finance department stated.
According to an industry official, the “no-competition” agreement between GMB and private port developers, according to which no facility can be set up within 150 sq. km of another one, ends in 2013.
The latest agreement between GMB and Essar for Hazira port will need to be examined in this regard, he said.
“The current proposal for allotment of 1,100 metres waterfront fits the licence agreement signed with EBTL, wherein the government had made a provision for future expansion. Many private jetties in the state have been given permission to expand. Essar can avail the additional waterfront provided it is only for captive purpose,” said a senior GMB official in the know of the development.