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Lanco betting big on cargo trade

Lanco betting big on cargo trade

Bangalore: Hyderabad-based Lanco Group is gambling on India’s need for a big port terminal to handle container cargo by offering to pay the Kerala government Rs115 crore to develop and operate a facility at Vizhinjam, which many view as a “wild bid" for a project with big risks.

According to terms in the tender the government floated, the firm or consortium asking for the least debt support from the state would win the rights to develop and operate the 30-year contract beginning 2011.

Also, the winning bidder is not required to share revenues with the government annually, which the major ports do.

A consortium led by Lanco agreed to pay Rs115 crore over 10 years for the Kerala project. In comparison, a consortium of Maytas Infra Ltd and Nagarjuna Construction Co. Ltd sought a debt support of about Rs153 crore, while the consortium of Gammon Infrastructure Projects Ltd, Videocon Industries Ltd and Sical Logistics Ltd wanted Rs2,200 crore.

“If the project comes up at this price, it will be a boon to the Kerala government,"said an official with one of the bidding firms who did not want to be named.

The port will be more than 16m deep, enabling big ships to load containers arriving from smaller ports, or from smaller feeder ships. Because of depth constraints, large cargo ships cannot use many of India’s ports. A large portion of such cargo, originating from or destined for India, is trans-shipped at Colombo, Singapore or Dubai ports that have the required depths.

This typically takes longer and increases freight costs, two key factors that impact India’s competitiveness in global trade.

The country’s exporters and importers pay an extra Rs1,000 crore a year on trans-shipment, according to union shipping ministry data.

“Nobody makes money in trans-shipment. If you can charge $100 for handling a container at Mumbai port, you cannot charge more than $60 for a container at a trans-shipment port. So, there is less margin in the trans-shipment business, which requires huge investments," the official said.

But the state government is not surprised by the bid. “That’s a perception. Everything is possible when you are bidding. We are not bothered by such perceptions," said L. Radhakrishnan, ports secretary of the Kerala government.

Lanco Infratech Ltd, a unit of Lanco Group, partnered Malaysia’s Pembinaan Redzai Sdn Bhd to emerge as the “best bidder" to develop a Rs5,340 crore international deep-water seaport and container trans-shipment terminal at Vizhinjam as India scales up its port infrastructure to meet the rising needs of trade in the world’s second fastest growing major economy, as reported in Mint on Thursday.

The financial bids were opened on Wednesday. Pembinaan Redzai owns some 40% stake in Westports Holdings Sdn Bhd, the holding company for Westports Malaysia Sdn Bhd that runs one of the two container terminals at Klang port in Malaysia, the world’s 12th biggest container port.

The container cargo handled at Indian ports is growing at 15% a year. At this rate, Indian ports need to create capacities to handle 30 million twenty-foot equivalent units or TEUs a year by 2015-16 from about 7 million TEUs now. A TEU is the standard size of a container and a common measure of capacity in the industry.

Vizhinjam port has a natural depth of 20m that will allow ships with a capacity to load 12,000 TEUs or more to dock easily.

When fully operational, Vizhinjam can handle 5.3 million TEUs a year.

The Lanco-led consortium is free to fix its own tariffs for services at Vizhinjam, since it is outside the scope of the tariff regulator for the 12 Union government-owned major ports.

At the end of the contract, Kerala would invite fresh bids to operate the terminal for another 30 years on a revenue sharing basis.

Lanco will have the first right of refusal to match the highest quantum of revenue share quoted by a firm during bidding and continue operating the terminal for another 30 years.

If it declines to match the highest bid, the contract will go to the firm willing to share the highest proportion of annual revenues with the government, said Radhakrishnan.

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