Last Modified: Thu, Jan 04 2018. 04 52 AM IST

Modi govt signs off on radical makeover for ports sector

The cabinet has approved a new model concession agreement for PPP port construction, a move that will permit easier exits for promoters

The cabinet has appointed a committee under FM Arun Jaitley to examine whether the new model concessional agreement can be applied to the 12 stalled port projects in India. Photo: Indranil Bhoumik/Mint
Jyotika Sood

New Delhi: In a bid to boost port construction in the country, the Union government is sweetening the terms, including a change in the revenue model and the creation of a dispute-resolution mechanism.

On Wednesday, the Union cabinet approved a new model concession agreement (MCA) for private public partnership (PPP) port projects. This will, among other things, permit easier exits for promoters.

The cabinet has also appointed a committee under the chairmanship of finance minister Arun Jaitley to examine whether the new MCA can be applied to the 12 stalled port projects with an estimated project cost of Rs20,000 crore. Other members of the committee are law minister Ravi Shankar Prasad, shipping minister Nitin Gadkari and a NITI Aayog representative.

The new MCA will be applicable for new projects conceived under the shipping ministry’s ambitious Rs8 trillion Sagarmala programme. Under Sagarmala, the government plans to construct new ports and 142 cargo terminals at major ports to harness the country’s 7,157km coastline.

According to the new MCA, payment of royalty for the ports will be now on ‘per million tonne of cargo handled’ instead of percentage of gross revenue based on tariff determined by Tariff Authority for Major Ports (TAMP). Once effected, the port operator will pay royalty on the actual and not on notional income.

Further, the new norms require the promoter to be locked into the project with majority stakes only for the first two years after it is commissioned; thereafter they are free to exit and can even sell their entire stake.

These changes are similar to those effected in the MCA for the highway sector. Another important feature under the new agreement is the provision of refinancing, which is aimed at facilitating availability of low-cost, long-term funds to concessionaires so as to improve the financial viability of projects.

“The amendments have been proposed keeping in view the experience gained in managing PPP projects in the ports sector during the last 20 years and to obviate the problems being faced on account of certain provisions in the existing MCA. The amendments in the MCA have been finalized after extensive consultation with the stakeholders,” Gadkari said at a press conference after the conclusion of the cabinet meeting.

According to Manish Sharma, partner and logistics leader at PwC India, the changes to the MCA were long overdue and would improve the risk appetite of developers and operators as well as provide much-needed liquidity leading to more transactions in port sector.

“The setting up of a dispute resolution mechanism for new as well as existing projects and the changes to ‘change in law’ provisions would further have a very positive impact on investment sentiments in the sector,” Sharma said.

According to studies carried out under the Sagarmala Programme, cargo traffic at Indian ports will grow to about 2,500 million metric tonnes per annum (mmtpa) by 2025, compared with the current cargo-handling capacity of Indian ports of 1,500mmtpa. A roadmap has been prepared to increase the Indian port capacity to 3,000+mmtpa over the next few years to absorb this growth in projected traffic.

Separately, the Cabinet Committee on Economic Affairs approved infrastructure projects worth over Rs12,000 crore on Wednesday.

These included the Rs5,369 crore Jal Vikas Marg project—connecting the states of Uttar Pradesh, Bihar, Jharkhand and West Bengal—for enhanced navigation on the Haldia-Varanasi stretch of National Waterway-1.

The project is expected to be completed by March 2023 and “will lead to direct employment generation to the tune of 46,000”, the government said.

Topics: Indiaports sectorstalled projectsport constructionPPP model

First Published: Thu, Jan 04 2018. 12 09 AM IST

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