Bangalore: The shipping ministry is set to scrap a contract given to a consortium led by Spanish port operator Grup Marítim TCB SL to build a Rs 1,407 crore container terminal at Ennore port in Tamil Nadu after it failed to arrange funds for the project despite three extensions. The last extension granted to the consortium ended on 30 April.
This will be the first port project to be scrapped for failure to tie up funds after India allowed private firms to build cargo loading facilities at ports in the late 1990s.
The board of Ennore Port Ltd will shortly decide on scrapping the contract, two people with direct knowledge of the plan said, requesting anonymity because they are not authorized to speak to the media.
The port will encash the bank guarantee of Rs 14 crore given by the consortium and retender the project, one of them, a shipping ministry official, said.
A spokesman for the Union government-controlled Ennore port declined to comment. Grup TCB, the leader of the consortium, could not be reached for comment immediately. A spokesperson for the consortium in India didn’t respond to calls made to his mobile phone.
The consortium was discussing with a group of local banks to arrange as much as Rs 1,300 crore for constructing the terminal, which is to have a capacity to load up to 1.5 million standard containers a year. The terminal will have a depth of 16 metres, allowing container ships with a capacity to load 14,500 standard containers to call.
“In early June, the port was updated by the consortium and the banks on talks for funding the project. From the communication, it became evident that the two sides were yet to sort out their differences over funding terms. We cannot wait endlessly and want to bring the curtains down on this unfortunate episode as quickly as possible,” the shipping ministry official said.
An executive with a Mumbai-based infrastructure consultancy said the project will incur cash losses in the first few years and the developer may not be able to repay the debt. The delay in implementation has escalated the project cost to Rs 1,600 crore, impacting revenue generation and, in turn, the ability of the promoters to repay the loans, he said.
“Hence, lenders were insisting on more assurances, including corporate guarantees, from promoters. The financial closure has been delayed mainly because none of the promoters were willing to extend corporate guarantees against cash losses,” he said, also asking not to be named because of his company’s policy on speaking to the media.
Port industry executives said a retendering will delay the project by as much as five years and the facility will be ready only by 2018 instead of the earlier estimate of 2013. The delay in building the new terminal at Ennore port will benefit Larsen and Toubro Ltd (L&T), which will open a container loading facility at its ship-yard-cum-port complex at nearby Kattupalli in July-August. The terminal, with a capacity to load 1.2 million standard containers a year, will be operated and managed by Philippines port operator International Container Terminal Services Inc. (ICTSI), according to an agreement signed between L&T and ICTSI in April 2011.
The Kattupalli port is owned by the Tamil Nadu government but was given to L&T to build a ship-yard-cum-port complex.
The consortium led by Grup TCB won the rights to develop and operate the Ennore facility in 2010 in a public auction. Consortium members include Obrascon Huarte Lain SA, Lanco Infratech Ltd and Eredene Capital Plc.
Bay of Bengal Gateway Terminal Pvt. Ltd, a company formed by the group to build the terminal, signed a concession agreement with Ennore port on 13 August 2010 to build the terminal. A concession agreement sets out the terms and conditions of the contract and puts the project in motion.
The entity winning a cargo-handling contract at a Union government-controlled port has to arrange funds for the project within 180 days of signing a concession agreement, according to a so-called model concession agreement for public-private-partnership projects finalized by the government in 2007.
Failure to arrange the funds within the stipulated time will be construed as default and could lead to termination of the agreement and encashment of bid security, according to the model concession agreement.