PPPs at state-run ports: Slew of steps to boost investor confidence

One reason why investment in port services via the PPP route is not very attractive is the high revenue share — close to 40 per cent in some cases — which inflates the costs.

By: ENS Economic Bureau | New Delhi | Updated: January 4, 2018 6:31:02 am
Although the changes fell far short of freeing of tariffs for assorted port services, new investors will have a major relief as future contracts will allow them to share royalty with the port authorities.

The Cabinet on Wednesday approved a slew of steps to spur private investments via the public-private partnership (PPP) route in the country’s major state-run ports, a sector that hasn’t seen as much fixed assets creation as required to bring in the level of competition needed to fast-track cargo movement and pare the country’s high logistic costs.

Although the changes fell far short of freeing of tariffs for assorted port services, new investors will have a major relief as future contracts will allow them to share royalty with the port authorities on discounted tariffs, rather than as a percentage of gross revenue based on tariff ceiling fixed by the regulator at the time of bidding. Other steps announced include easier exit akin to what investors in highway projects enjoy, immunity from post-model concession agreement (MCA) threat to project viability from regulatory (Tariff Authority on Major Ports) orders and changes in environmental and labour laws and imposition of or hikes in indirect taxes. A dispute resolution mechanism — Sarod-Ports — has also been provided for, again on the line of the one for PPPs in the highways sector.

New developers will also be allowed to commence operations before the commercial operations date (COD), a move that could lead to better utilisation of assets leased out by the port before the formal completion certificate. Further, a new refinancing facility will make available low-cost long-term funds to concessionaires.

One reason why investment in port services via the PPP route is not very attractive is the high revenue share — close to 40 per cent in some cases — which inflates the costs. A better model, analysts have argued for long, would have been to treat the revenue share as a fixed component (say, at 20 per cent) and tariff as the variable for bidding so that operators have higher incentive to be more efficient. The latest amendments have not met this demand.

According to the revised MCA, developers can exit a project by way of divesting equity up to 100 per cent after completion of two years from the COD. Under the extant contracts, the developer can exit all but 26 per cent stake after three years from COD. In another measure that would help cut costs, rent on “additional land” has been reduced from 200 per cent to 120 per cent of the applicable scale of rates.

BVJK Sharma, joint managing director and CEO, JSW Infrastructure, welcomed the latest move by the government and said it would draw wider participation from international players. “For instance, post-COD, those with less risk appetite can come; those with higher risk appetite can even come during the greenfield stage. So this could be a new phase in the ports sector in India,” he said . However, he added that “if the government wanted to unlock capacity before building new capacity, it should allow transition to the new MCA for existing players also”. FE

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