Bangalore: Union government-owned Kamarajar Port Ltd, the entity that runs the port at Ennore near Chennai, has signed a so-called concession agreement with Sical Iron Ore Terminals Ltd for converting its idle iron ore terminal into a coal terminal at the port.
This is the first instance of a public-private-partnership (PPP) terminal being allowed to alter the cargo profile after it was awarded for another cargo type and will set the tone for similar stressed terminals at Union government-owned ports. The permission to change the cargo profile necessitated a re-bid because the shipping ministry said that such restructuring of stressed terminals would have to go through a re-tender to discover the revenue share afresh.
A concession agreement sets out the terms and conditions of a port contract. Port contracts at Union government-owned ports are decided on the basis of revenue share – the entity willing to share the most from its annual revenue will get the deal typically lasting 30 years.
The concession agreement to convert the iron ore terminal into a coal handling facility was signed after the Madras High Court last month dismissed a petition filed by Chettinad International Coal Terminal Pvt. Ltd challenging the evaluation criteria adopted by Kamarajar Port to disqualify it from participating in the auction.
“The court agreed with our evaluation criteria and dismissed the petition filed by Chettinad International Coal Terminal," M.A. Bhaskarachar, chairman and managing director of Kamarajar Port Ltd, said.
If the highest revenue share quoted in the tender is more than 52.524%, Sical had a so-called right of first refusal to match the highest bid and take the contract on fresh terms.
But, Sical Iron Ore Terminals was the only entity to submit a price quotation on the tender wherein Kamarajar has set a reserve revenue share price bid of 52.524%. It agreed to match the reserve price set by Kamarajar.
To be allowed to handle coal instead of iron ore, the contract terms were re-written to make it on par with an 8 million tonne (mt) capacity coal terminal run by Chettinad International Coal Terminal Pvt. Ltd at Kamarajar Port since January 2011. Chettinad had quoted 52.524% revenue share to win the 30-year deal.
Sical Iron Ore Terminals Ltd is a joint venture company formed by Sical Logistics Ltd and state-run commodity trader MMTC Ltd to develop and operate the iron ore terminal for 30 years. The terminal, awarded in September 2006, was designed to load 12 mt of iron ore in two phases of 6 mt each with a total investment of ₹ 480 crore. The first phase of the terminal costing ₹ 360 crore was ready for commercial operations in January 2011 but has been idling since then due to the ban on iron ore exports.
In July 2010, India’s top court put a ban on mining in the mineral-rich Bellary-Hospet belt in Karnataka to check environmental damage arising from rampant illegal mining. The Supreme Court later extended the ban to cover Chitradurga and Tumkur districts in Karnataka, hampering output and hurting exports from the world’s third largest supplier of the steel-making material.
Karnataka is the second-largest producer of iron ore in the country.
The terminal was totally dependent on the commodity originating from the Bellary-Hospet belt for its operations.
The top court partially lifted the ban on mining and exports in 2015.
Sical will have to invest ₹ 220 crore to erect equipment and gear for handling coal, Kamarajar Port’s Bhaskarachar said adding the 27-year contract gives flexibility to Sical to handle iron ore also if it chose to do so.
“Sical is not planning to handle iron ore. It will convert the facility to handle mainly coal. Maybe in future, after 10 years, if something happens and then they want to convert, they need not come to us. They can do it on their own," Bhaskarachar, said explaining why the flexibility was granted.
Sical Logistics has a 74% stake in the terminal while the rest is held by MMTC. Sical had offered a revenue share of 51.6% to win the iron ore deal.
Sical Logistics is 57.08% owned by Tanglin Retail Realty Developments Pvt. Ltd, a unit of Bengaluru-based Café Coffee Day Group promoted by V.G. Siddhartha.