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Noble seeks changes in Paradip pact terms on green nod delay

Noble seeks changes in Paradip pact terms on green nod delay

Bangalore: A three-year delay in securing environment clearance has cast doubts on the viability of an iron ore loading unit to be built at Paradip port in Orissa.

A spokesman for the Union government-controlled port confirmed the development.

Paradip port received the final forest clearance for the facility earlier this month.

The agreement for the 591.35 crore, 10-million tonne (mt) capacity iron ore berth was signed with a consortium of Noble Group, Gammon Infrastructure Projects Ltd and MMTC Ltd on 1 July 2009. The consortium had agreed to share 36.8% of its annual revenue with the port to win the project.

“Because of the delay in getting forest clearance, the project cost has escalated by 40% to about 800 crore," said a spokesman for Blue Water Iron Ore Terminal Pvt. Ltd, the entity set up to implement the project. “The tariff regulator for ports controlled by the Union government is not going to recognize the increase in cost because the project was awarded on the upfront model," he said, declining to be identified.

The tariff to be charged by the berth operator was worked out on the basis of the capital costs estimated in 2007. Noble has a 51% stake in Blue Water, Gammon 38% and MMTC the rest.

The consortium is seeking changes in the revenue share and the cargo profile to multi-purpose cargo citing the significant decrease in iron ore shipments at Paradip following a mining scandal in Karnataka, the country’s second largest producer of the commodity.

“How can we think of investing even a single penny knowing fully well there will be no cargo in a project that is contractually mandated to load at least 7 mt of iron ore a year," the Blue Water spokesman said.

During the peak of iron ore trade, from 2005 to 2009, Paradip handled 17-18 mt iron ore a year. Of this, one of the semi-mechanized berths run by it handled 6-7 mt of cargo. According to the agreement, this berth will continue to handle 6-7 mt of iron ore leaving any additional cargo exclusive for the Noble team.

But in the year to March, Paradip loaded only 6.55 mt iron ore, less than half of the 13.85 mt it handled in the previous year.

The Noble team, thus, wants cargo protection as well. “We are asking for full exclusivity to handle iron ore at Paradip port," the Blue Water spokesman said.

The port spokesman said it was up to the developer to factor in any volatility in business.

“You never know what will happen in future. Today, the government policy is not very encouraging for iron ore exporters. Besides, the export market is also not very favourable. (But) it’s up to the developer to invest that much money to construct the terminal," he said, while conceding that the port should have got all the clearances before putting the project to tender.

The Blue Water spokesman said Paradip port had at the time of bidding given a disclosure that it had received environmental clearance for the project. “On that assurance, we signed the contract and arranged debt for the project from Standard Chartered for $86 million. Later, we were informed there is no forest clearance," he said.

Blue Water has not extended the bid security for the project, he said. “We are not obliged to because Paradip port is in default. We don’t have any responsibilities now," he said.

Samir Kanabar, partner-infrastructure practice at Ernst and Young Pvt. Ltd, said the bid and concession documents should have allowed for cost escalation and tariff re-negotiation clauses.

“In case of delay in getting clearances, you either allow the developer to increase the tariff or adjust the revenue share accordingly... both these options will be difficult in ports controlled by the Union government due to tight regulations," Kanabar said. “The only alternative, therefore, will be to permit an increase in the tenure of the contract."

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