The team, which includes Spain’s Obrascon Huarte Lain SA and London-listed Eredene Capital Plc, also faces a potential suit for damages, according to a spokesman for Ennore port, who declined to be named.
Eredene Capital, a 22% shareholder in the consortium, announced the withdrawal in London on Thursday, a day before the final date for the consortium to tie up funds for the project.
This is the second setback in less than a fortnight to the Union government’s plan to build container terminals at its ports through private funds, and could slow its efforts towards tripling the cargo-handling capacity at India’s ports by 2020.
Ennore Port Ltd’s board on 13 July decided to give the consortium a final extension till 28 September to arrange the money or scrap the contract if it failed to meet the deadline.
Failure to tie up funds for a port project within the stipulated time and the resultant termination of contract will bar the companies involved from participating in auctions at Union government-controlled ports for three years, according to qualification rules set by the government for port bidders.
Ennore Port encashed the bid security of ₹ 14 crore submitted by the consortium in May when the team failed to meet the previous 30 April deadline.
“We are seeking legal opinion on claiming damages from the Grup TCB consortium for the delay in implementing the project and finally withdrawing and for the consequential losses suffered by the port," the Ennore port spokesman said.
A spokesperson for the Grup Maritim team said it had no comment to offer on Ennore port’s plan to seek damages from it for the failed project.
Eredene Capital, an India-focused infrastructure investor, said in a statement that the consortium decided to withdraw from the project “in light of the changed economic outlook in India since the concession was granted—the increased cost of local financing, depreciation of the Indian rupee and lower projected growth in container traffic".
Eredene Capital is traded on the Alternative Investment Market of the London Stock Exchange.
Container volumes at India’s ports are estimated to reach 38.91 million standard containers by 2020, up from the existing capacity of 11.81 million containers, according to a 10-year plan unveiled by the shipping ministry in 2011.
On 17 September, Jawaharlal Nehru port decided to terminate a contract awarded to a consortium-led by Singapore’s PSA International Pte Ltd for a ₹ 6,700 crore container terminal after the port operator failed to sign a concession agreement for the project. The port encashed the team’s bid security of ₹ 67 crore.
A concession agreement sets the terms and conditions of a contract and puts the project in motion. Failure to sign it, too, results in a blacklisting from future auctions at Union government-owned ports.
The project awarded to PSA and local partner ABG Ports Ltd on 26 September 2011 had been billed the biggest single foreign direct investment in an Indian port project.
The consortium led by Grup Maritim, Spain’s biggest port terminal operator, had won the rights to build a container terminal at Ennore port at an investment of ₹ 1,407 crore. The terminal was planned to load 1.5 million standard containers a year.
Bay of Bengal Gateway Terminal Pvt. Ltd, a special purpose company set up by the consortium to implement the project, signed a concession agreement with Ennore Port on 13 August 2010.
But the consortium failed to tie-up funds of up to ₹ 1,300 crore for the project despite three extensions. Typically, a private port developer has to arrange funds for a project within six months of signing a concession agreement with a port authority, according to the bidding schedule for public-private partnership projects in the ports sector.
“There is no plan to re-work the privatization policy," a shipping ministry spokesman said, but he added that the ministry will take stock of the policy when the current bidding rules come up for review in 2013 after a five-year run.
On banning PSA, Grup Maritim and their partners in the two failed projects from auctions at Union government-run ports, the spokesman said port authorities will apply the model qualification rules prescribed by the government while screening applications for upcoming projects.
The collapse of the two high-profile container terminal projects exposes the faults or weakness in the port privatization policy, say port experts. This has also sparked a debate on the bidding rules. Port tenders are decided on the basis of revenue share—the entity willing to share the most from its annual revenue gets the contract, typically spanning 30 years.
“The government should not look at awarding port contracts on the basis of the highest revenue share. Because what happens then is that the government also becomes a part of the profit-making mechanism instead of focusing on the larger good of the economy," said Hemant B. Bhattbhatt, senior director, Deloitte Touche Tohmatsu India Pvt. Ltd. “An alternative way of awarding port rights would be to select a developer who charges the lowest for service rendered. This will work in India’s interest."
Neeta Ramnath, an independent port expert based in Bangalore, said the developments could actually temper aggressive bidding.
“The ports sector is headed for a clean-up," she said. “Firms would bid more sanely now. All those aggressive and over-enthusiastic revenue share price bids in excess of 50% will disappear in the wake of failed contracts arising from failure to tie-up funds and sign concession agreement."
PSA had quoted a revenue share price bid of 50.828% to win the container terminal at JN port; the Grup Maritim consortium, the only entity to submit a price bid for the Ennore port project, had agreed to share 39.99% of its revenue.
The high revenue shares quoted by the firms to win the projects were not acceptable to the potential lenders, said an executive at State Bank of India. “If some of the calculations go wrong, then you will be running a highly risky project," he said, asking not to be named because his company’s policy restricts him from speaking with the media.
Since February 2008, when the Union government re-worked the port privatization policy, only two container terminals have started operations—a facility run by DP World Pvt. Ltd at Vallarpadam in Kochi port and another built by PSA International at Chennai port. But both were awarded prior to the new policy.