BackNoble-led group may exit iron ore terminal at Paradip port
Delays in getting environment clearances and tight regulations on mining have escalated costs
Premium(A file photo of a ship at Paradip port. Between April and September, the port loaded 1.11 million tonnes (mt) of iron ore, compared with the 4.96 mt handled during the same period last year.)
Bangalore: A consortium led by Singapore-listed commodity trader Noble Group Ltd is set to walk out of a project to build an iron ore terminal at Paradip port in Orissa as delays in getting environment clearances and tight regulations on mining have escalated costs, three people familiar with the development said.
Orissa is India’s biggest producer of the key raw material that’s used in making steel.
The agreement for the ₹ 591.35 crore, 10-million tonne (mt) capacity iron ore loading berth was signed with a consortium of Noble Group, Gammon Infrastructure Projects Ltd and MMTC Ltd on 1 July 2009. The group had agreed to share 36.8% of its annual revenue with the port to win the 30-year contract.
“Paradip port was obliged to give environment clearance for the project within six months of signing the agreement. It took three years. As a result, the cost of building the terminal has jumped 40% to about ₹ 800 crore," said a spokesman for Blue Water Iron Ore Terminal Pvt. Ltd, the entity set up by the Noble-led group to implement the project.
“In between, the iron ore trade scenario has undergone a complete change. Iron ore exports from Orissa has slumped due to policy and regulations being pursued by the state government to curb illegal mining and conserve mineral reserves. So it is no longer viable to put up the terminal," he said, indicating the consortium will soon communicate its decision to quit the project to Paradip port.
The spokesman and the other two people familiar with the developments declined to be identified.
The consortium had arranged $86 million of debt for the project from Standard Chartered Bank.
Hong Kong-based Noble has a 51% stake in Blue Water, Gammon 38% and MMTC the rest.
S.A.C. Bose, deputy chairman of Paradip port, said it was yet to hear from the Noble consortium. Harindarpal Singh Banga, vice-chairman of Noble, did not respond to an email sent on Saturday seeking comment. In early July, Paradip port received the final forest clearance from the Union ministry of environment and forests, a key milestone allowing the group to begin constructing the iron ore loading facility. But even after this, Paradip port is yet to hand over the project site to the group because of a case in the Supreme Court.
“Some people were stacking cargo at the project site. When we asked them to vacate, they went to Orissa high court but lost the case. They have appealed in the Supreme Court. Because of this, we are not able to hand over the project site," a spokesman for Paradip port said.
Between April and September, Paradip port loaded a paltry 1.11 mt of iron ore compared with the 4.96 mt handled during the same period last year. In the year to March, Paradip loaded 6.55 mt of iron ore, less than half of the 13.85 mt it handled in the previous year. During the peak of iron ore trade, from 2005 to 2009, Paradip handled 17-18 mt iron ore a year.
In the past few months, the Orissa government has issued notifications designed to curb mineral output from the state.
The Blue Water spokesman said the existing iron ore loading facility at Paradip port was running at hardly 10% of its capacity. “Until the existing facility runs at full capacity, there is no point in setting up an additional facility," he said.
Blue Water is contractually mandated to load at least 7 mt of iron ore a year at the new terminal, according to the agreement. It made a last-ditch attempt to save the project by seeking changes in the contract terms on revenue share and conversion of the facility to handle multi-purpose cargo. Paradip port did not agree to the proposal.
“In these days of scam, nobody in the government will agree for more concessions than what was granted earlier and written in the contract. So there is no way we can agree for more concessions," the Paradip port spokesman said.
“There are in-built safeguards in the concession agreement to protect the investor and make the project viable. These include automatic increase in tariffs every year and a five-year exclusivity clause on handling iron ore at the port," the port spokesman added. “Two years ago, they were bullish on the project; we don’t know what will happen two years from now. If they don’t do the project, they will repent five years from now."
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