India’s decision to exclude firms from the United Arab Emirates (UAE) from bidding for port projects on national security considerations has added a new twist to the already muddled port privatization policy.
On advice from the home and defence ministries, the shipping ministry has disqualified local entities who have partnered firms from the UAE, such as Emirates Trading Agency Llc., Saqr Port Authority and Gulftainer Co. Ltd, from participating in an auction for the planned coal and iron ore berths at Paradip Port in Orissa.
Given their inexperience in developing and operating port cargo terminals, many local firms seek help from global specialists to boost chances of qualifying for auctions and improve financial capability.
The decision to ban UAE firms adds to the country’s policy to exclude Chinese firms or groups with Chinese connections—including from Hong Kong and Taiwan—from participating in Indian port projects since 1997, when it opened its ports to foreign investors.
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The ban has effectively shut out plans of Hutchison Port Holdings, the world’s top container port operator owned by Hong Kong billionaire Li Ka-shing, to set up and operate container handling facilities in India.
The government has not given reasons for excluding UAE firms from Indian port auctions, unlike in the case of China, where the ban is seen as a fallout of the often sour political relations between the two nations.
It is not known whether the November terror attacks on Mumbai have anything to do with this decision, given the vulnerability of India’s coast to such strikes.
Whatever the reason, the move holds frightening possibilities for firms such as Dubai government-owned DP World Ltd, which is already operating container terminals at Indian ports.
Policy ambiguities and a slew of lawsuits have delayed capacity addition plans at the Union government-owned 12 major ports.
India aims to double cargo handling capacity at ports to 1,590 million tonnes (mt) a year by 2012 from about 757mt now. This needs an investment of Rs91,334 crore, a bulk of which is expected from private firms.
The ruling United Progressive Alliance failed to finalize and award a single cargo handling project during its five-year tenure. This could be attributed to a few reasons. First, it took the government more than two years to revise a so-called model concession agreement that sets terms and conditions for port contracts.
This was followed by the introduction of a new rule to shortlist only six firms for each cargo handling project. Thirdly, the eligibility criteria for prospective port bidders give weightage to all other infrastructure activities except shipping (a key element of maritime trade), which has been omitted from the list of experiences required for computing experience scores.
These warped eligibility criteria have exposed auctions to litigation. An auction to build a Rs1,400 crore container terminal at Ennore port in Tamil Nadu is a case in point.
Many cargo handling projects are thus stuck. To add to the woes, many shortlisted bidders are opting out because they don’t have the money to contribute their share of the equity to implement projects.
The global financial turmoil, worsening economies and slowing of global trade have deeply impacted maritime firms, forcing them to scale down operations and put expansion plans on hold. Thus, getting good quality port developers has become difficult.
India’s port policy managers may not have foreseen this when they drafted the new rules and conditions for bidders. in the first three-four years of its rule, money to fund port projects was available like water flowing from a tap. Things have now changed.
To effectively bar more firms from bidding runs the risk of jeopardizing auctions and capacity addition plans further. Leaving aside security considerations, it would make sense to allow all those who qualify on technical and financial parameters to submit price bids.
P. Manoj is Mint’s resident shipping expert and writes on issues related to shipping and logistics every other Friday. Respond to this column at firstname.lastname@example.org