Dubai government-owned DP World, the world’s fourth biggest port operator, is facing rough weather at Mundra port in Gujarat where it operates one of its five container cargo handling terminals in India.
The terminals came under DP World’s ownership after it acquired British port operator P&O Ports in February 2006. While the facilities at Chennai, Kochi, Visakhapatnam and Nhava Sheva are at Union government-owned ports, the one at Mundra is owned by the Gujarat government.
Ganesh Raj, senior vice-president and managing director, India subcontinent, at DP World
In February 2001, the state government’s maritime regulator, Gujarat Maritime Board, first sold the rights to develop, operate and maintain Mundra port for 30 years to the Adani Group. In May 2003, the Adanis sold the rights to operate and maintain a container terminal at Mundra to P&O Ports for $195 million (Rs920.6 crore then). After P&O Ports was acquired by DP World, management and ownership control of Mundra International Container Terminal (MICT) ended up with DP.
However, the board has contested DP World’s ownership, saying the transfer from P&O Ports needed prior approval. The board maintains that P&O Ports had given an undertaking in 2003 that it wouldn’t reduce its stake in the terminal to below 51% without the board’s approval. Now, the Adanis have moved to terminate their contract with DP World with a formal 8 November notice.
Ganesh Raj, senior vice-president and managing director, India subcontinent, DP World, talked to Mint about the termination notice, which would be the first such attempt after India privatized its ports starting in the late 1990s.
Adani Group chairman Gautam Adani told Mint last month that the board was right in issuing a show-cause notice because otherwise this could allow operators with Chinese and Pakistani connections to come in clandestinely and operate ports in India. What is your take on this?
First, DP World is not involved in any clandestine activities. It is a global leader with 42 container terminals in 22 countries of the world. DP World has been present in India even before the takeover of P&O Ports through its holding in the container terminals at Vizag and Cochin. DP World won the bids for the container terminals at both these terminals, which implies that DP World has met all the national security clearance and all other requirements.
The container terminals at Chennai and Nhava Sheva are functioning without any objection from the Central government. It’s, therefore, incorrect and completely misleading to make such comparisons.
DP World is committed to the trade in India and has to date invested $1.5 billion in developing container terminal infrastructure in the country and going forward will invest another $500 million in the near future.
What does the 8 November letter from the Adanis say?
We have received a letter dated 8 November from (Adanis) in which they enclosed a letter written by the Gujarat Maritime Board. That letter basically states that the DP World should have taken prior approval (of the board) before they made the open offer to the shareholders of P&O Ports. This because the main licence agreement requires MPSEZ (Mundra Port and Special Economic Zone Ltd) to take permission from (the board) for any sale of shares by its shareholders. But, at no time does it require their approvals to be taken by any sub concessionaire (in this case DP World).
Have the Adanis asked you to transfer the container terminal assets at Mundra within three weeks as per their letter?
The letter from Adanis states that our team of representatives must meet with them within 21 days of the date of receipt of the letter.
What is the provocation for the Adanis to move for termination of the contract? Has there been any breach of the terms and conditions of the contract or any default?
There has been no breach of any terms and conditions (by DP World) of the Sub Concession Agreement it entered into with (the Adanis).
Instead, it is MPSEZ that has breached the non-compete clause by commencing operations at the second container terminal. (DP World) has resorted to dispute resolution proceedings to protect its rights.
What is the remedy for DP World?
(DP World) will pursue all possible remedies to ensure its rights are protected...(we) at all times have been pursuing the path of an amicable resolution and continue to be hopeful that the matters will be resolved in the best interests of all parties concerned.
Why didn’t P&O Ports or even DP World seek prior permission from either Adanis or the board before the ownership of the terminal changed hands?
P&O Ports (Mundra) Pvt. Ltd, the holding company of MICT, was required to give the undertaking that it will hold a minimum of 51% for a period of seven years.
P&O Ports Mundra continues to hold those shares and has not divested even a single share to date. We did not breach the undertaking and have communicated so to (the board). We have also fully cooperated and provided all information sought from us.
The board issued a show-cause notice to you on this in 2006. What did you reply or what was your stand on the issue?
MICT has presented its case in writing that P&O Ports (Mundra) has not diluted its equity in MICT and there has been no change in the MICT shareholding. MICT has also explained that there is no other condition imposed on MICT in the Sub Concession Agreement.
Do you think the argument that DP World didn’t seek prior permission from GMB before taking over Mundra terminal is reason enough for justifying a termination of the contract?
If there was a condition requiring permission, then we definitely would have sought the same. Termination of an agreement is a drastic step which should not be taken except in case of material breach and where remedy is not possible.
MICT has grown more than 50% in 2006. It’s a state-of-the-art container terminal and the company has invested heavily both in terms of infrastructure and human resources. It is in the interest of all parties involved, that the matter is resolved amicably, without resorting to further litigation.
It is unfair that MICT which is doing so well should be punished for breach of terms and condition of an agreement (i.e. the main concession agreement between the board and the Adani Group), of which it is not even a part of.