CBI asked to probe Nhava Sheva deal

CBI asked to probe Nhava Sheva deal
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First Published: Tue, Aug 11 2009. 12 17 AM IST

Unfair advantage? The Jawaharlal Nehru Port, where the DP World-run Nhava Sheva terminal is located. Ashesh Shah/Mint
Unfair advantage? The Jawaharlal Nehru Port, where the DP World-run Nhava Sheva terminal is located. Ashesh Shah/Mint
Updated: Tue, Aug 11 2009. 12 17 AM IST
New Delhi / Bangalore: The government has asked the Central Bureau of Investigation (CBI) to probe whether unfair and undue advantage was given to the private sector partner operating the Nhava Sheva International Container Terminal Ltd (NSICT), India’s first privately managed shipping terminal to handle cargo containers, two government officials said separately.
Unfair advantage? The Jawaharlal Nehru Port, where the DP World-run Nhava Sheva terminal is located. Ashesh Shah/Mint
Meanwhile, the Union ministry of shipping is also looking into a report prepared by the Central Vigilance Commission, or CVC, which concluded that the terminal run by DP World Ltd at the government-owned Jawaharlal Nehru Port near Mumbai was “given undue, unjust and unfair advantage”, according to a shipping ministry official who did not want to be identified.
Senior CVC officials could not be reached for comment. DP World declined to comment. A CBI spokesperson did not respond to calls seeking comment.
While the terminal, completed some 15 months ahead of schedule when it was set up in December 1998, is often touted as a showpiece private-public partnership project, a 2007 report that was posted on the website of the inter-ministerial committee on infrastructure, that existed during the tenure of the previous United Progressive Alliance government, raised questions about the way the deal was structured allowing the terminal operator to generate “inadmissible returns”.
The report questioned the role played by the government port tariff regulator, Tariff Authority for Major Ports, or TAMP, in allowing the private operator to earn returns beyond the ceiling by overcharging users. The report also said the lack of scrutiny on the capital and operating costs of the project could lead to padding of costs.
The report said the terminal was allowed to get “inadmissible returns of Rs524 crore”—translating into a 100% annual return on equity as opposed to the permissible 20%—between 2002 and 2005. It also said the guidelines of the shipping ministry issued in 2003 could “confer an undue gain”, over the lifetime of the project by saving the company Rs5,892 crore in royalties.
NSICT was originally developed by British port operator Peninsular and Oriental Steam Navigation Co. Ltd, or P&O Ports. The terminal came into the fold of DP World in March 2006 after the Dubai port operator acquired the British firm in a global takeover worth $6.85 billion (Rs32,743 crore today).
“We have received the report of CVC and the same is under our examination,” said the ministry official, who did not want to be named because of the sensitive nature of the issue. “The case has also been entrusted to CBI by one of the government departments,” the official said, without naming the department that referred the case to the investigating agency. Mint could not immediately verify which department referred the case to the investigative agency.
A senior government official who did not want to be named said the Planning Commission had written to the cabinet secretariat about the NSICT deal as early as two years back. “(That) it has taken two years to refer (the matter) to CBI says something about the governance in this country.”
In fact, the government had, in a tacit admission that the NSICT model was flawed and looking to close the loophole, issued guidelines in July 2003 disallowing firms from booking essentially revenue shares as part of the project cost.
The shipping ministry did this after it found that private firms would offer high revenue shares to government-owned ports to win contracts and then recover the money from the port users. This resulted in higher container handling rates for port users. Indian port bids are judged depending on the royalties the operator offers the government.
However, it later allowed DP World and some other port operators to continue under the system after they lobbied saying the new norm would make their operations commercially unviable.
Modifying its stance, the ministry allowed annual revenue paid by operators to the government as a cost item subject to a cap—the operator could only pass through revenue share to the extent quoted by the second highest bidder in the project.
In further proof that they may have been allowed to overcharge, the regulator, acting of its own accord rather than wait for the two-year tariff review period, reduced the rates charged by NSICT. In all, between 2005 and 2006, TAMP cut rates at NSICT cumulatively by 25%.
S. Sathyam and A.L. Bongirwar, who headed the regulator during the period, could not be reached for their comments. Both of them have left office after completing their respective terms.
DP World, the world’s fourth biggest container port operator, is majority-owned by the Dubai government. Jawaharlal Nehru Port is India’s biggest container port, handling some 60% of the 7.9 million standard containers going through the country’s ports every year.
DP World has so far invested close to $250 million to develop and operate the terminal that can handle 1.4 million standard containers a year. The current capacity of the terminal is a little more than double the original designed capacity of around 600,000 standard containers a year. NSICT handled 1.43 million standard containers in 2008-09.
rahul.c@livemint.com
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First Published: Tue, Aug 11 2009. 12 17 AM IST