INDIAN INSTITUTE OF TECHNOLOGY , DELHI

Private Sector Participation in Ports

Submitted by :

Private Sector Participation in Ports

Shyam Anandjiwala (2014CEC2720)
Aditi Rajbansh (2014CEC2718)

Submitted by
Shyam Anandjiwala(2014CEC2720)
Aditi Rajbansh (2014CEC2718)
Overview of Indian Ports
Major Ports Minor Ports

12 major 187 minor

Ports ports

Government of State Governments/

India – Ministry of State Maritime
Shipping Boards

Major Port Trust Indian ports Act,

Act, 1963 1908

Tariff Regulation No formal

(TAMP) regulator
 How it started?
• Policy guidelines (issued in 1997) - enable the major ports to set
up JVs with foreign ports, minor ports or private companies

• The Government of India - all new & existing ports will be set up
as companies under the Indian Companies Act.

• CORPORATIZATION OF PORTS / PORT TRUSTS

 Increase the financial and other powers of the Port Trusts
 Better accessibility to funds
 Better profitability and performance evaluation
 Privatisation
 Why PPP in Ports Sector?

• To encourage and increase competition

• To enhance performance
 Capacity augmentation and utilisation rates

 Increasing efficiency & productivity

 to improve port competitiveness

• To attract investments/funding
• Strengthen linkages with global markets

• Strong Global networking

 FACTORS FOR DEFECIENCIES IN PORTS

• Designed to handle specific types of cargo

• Under-utilisation of traditional berths and
over utilisation of new cargo berths
• Poor equipment utilisation & maintenance
• Absence of inter and intra-port competition to
poor inland connectivity
Source :Indian Port Association
 PPP Framework for Major Ports
• Regulatory framework
 TAMP regulations
 Priority to private berthing structures
• Feasibility Study
• Guidelines for privatization
• Tender conditions & procedure
• Foreign Investors
 Areas for Privatization
• Leasing out the existing facilities
• Additional assets construction
 Construction/operation of container terminals,
 Warehousing & storage facilities,
 Cranage,
 Captive power plants,
 Specialized cargo berths,
 Dry docking and ship repair facilities
• Leasing of port handling equipment to private sector
• Pilotage and captive facilities
 GOVERNMENT INITIATIVES AND POLICY FOR
PRIVATIZATION
• National Maritime Program (NMDP) & National Maritime Agenda
1

• Foreign direct investment (FDI) of up to 100% under the automatic route

2

• Income tax incentives allowed as per the Income Tax Act, 1961
3

• Formation of JVs between Major Ports and foreign ports, Non-Major Ports,
4 and private companies

• Standardisation of Bidding documents (RFQ, RFP and Concession

5 Agreement )
 Policy Provisions (Maharashtra Maritime
Board)
Development on BOOST basis
• Developer’s selection on MOU basis or by tender if many investors
interested.
• Concession period - 50 years.
• Government land on lease, if available, at market valuation
• Equity participation by Government/MMB (maximum 11%)
• Road linkage to nearest State Highway to be part funded by the State and
rail connectivity by Developer
• Freedom to fix tariff Policy Guidelines for Captive Terminals
• Land and site for jetty to be leased out for a period of 30 years

Development on Build, Operate & transfer (BOT) basis

• Wharfage charges as per the prescribed rates notified by the State
Government
• At the end of 30 years, the jetty, superstructure & facilities on jetty will
revert back to MMB.
 PRIVATE SECTOR INVESTMENTS
• During the year 2013-14, 16 PPP projects have been awarded at
an estimated cost of Rs. 18,640.8 crores for additional capacity
of 159 MT in the Major Ports
• Develop 10 coastal economic regions as part of country’s
Sagarmala project
• Develop the inland waterway sector for transportation of goods
• Indian ports sector has received FDI worth US$ 1,637.3 million
between April 2000 and May 2015
Investments as per the Financial Plans (10th & 11th)

Financial plan

Center
4051
10th plan 619 State
Private

5766
11th plan 2763

0 1000 2000 3000 4000 5000 6000 7000

Investment ( in INR crores)
 CHARACTERISTICS OF PRIVATE PORTS

• A benign regulatory framework

• Lack of competition between private
operators
• Availability of supportive tariff flexibility
• No high entry barriers
• Heavy positive cash flows
• Strong drivers for cargo growth
 PORT MANAGEMENT MODELS
Super Stevedoring Other
Port Type Infrastructure
structure labour functions

Service port Public Public Public Mainly public

Tool port Public Public Private Mainly public

Mainly
Landlord Port Public Private Private private

Mainly
Private port Private Private Private
private

Source: The World Bank

 PRIVATE PORTS
ADANI GROUP
Mundra Port & SEZ–
• Largest private port in terms of cargo handled
• Draft - deep natural draft availability, long waterfront
• Alignment to existing facilities - favorable
• Special Economic Zone - 33,000-acre Mundra SEZ
• Helps in creating additional demand for cargo traffic

Hazira Port –
• Construction & operation concession for 35 years
• Hinterland connectivity as it lies on the Delhi-Mumbai corridor
• Non-crude extension to the existing Shell terminal
• 1,000 metre long channel, a dredging depth - 12 metres , draft of 15
meters and a turning radius of 600 metres
 COMPARISION OF PRIVATE PORTS
• Mundra Ports and Special Economic Zones (MPSEZ),
Essar Ports, Gujrat Pipavav Ports (GPPL), Karaikal Ports
(MARG Group)
• The qualitative parameters - Location, Ecosystem,
Competition and Parentage.
• Quantitative parameters are – Capacity, Execution
Capability, Traffic growth and financial strength
• MPSEZ has the best strategic positioning and long-
term growth potential followed by Essar Ports, GPPL
and Marg
 Privatization models in Port Sector
• Management model for existing public assets
 The private operator has to manage the public assets and make investment
for additional infrastructure.
 Private operator is provided the right to use these assets in exchange of that.
Public sector own these assets throughout the contract period and at the
end of this period private operator generated fixed assets are usually
transferred to the public sector but the mobile assets of private sector like
cranes usually remain with themselves.
 Information on transferring of assets at the end of contract period is
provided in ‘Transfer-back’ arrangements. There is no compensation
provided for transferring fixed assets generally which again depends upon
the contract agreement.
 Conflicts arise between private operator and public sector over strategy
when private operator is not given enough freedom to fulfil public sector
objectives.
• Development rights model for new port
assets
 Private operator is given right to build new assets and can use these
assets ‘exclusively’ till the end of contract period.
 Private operator has to transfer the assets free of cost at the end of
contract period.
 This model has many variants such as : Freehold of port assets, BOO
(Build, Own, Operate) , BOOT (Build, Own, Operate, Transfer). All
these models vary according to the terms of agreement.
 Freehold of port assets means the outright sale of port assets which
is rare.
 The only difference between BOOT and BOO is that in BOO model the
concessionaire finances, designs, constructs and operates a facility
over a given period but it does not transfer to the grantor at the end
of concession period.
• Lease contract
 Landlord ports lease port assets and can derive substantial amount.
 Lease contracts are more popular than the management contacts as it
gives more operational freedom to the operator.
 Potential lessees can be cargo handling companies, terminal operators,
inland transport operators, dedicated terminal operators and shipping
lines, forwarding agents etc.
 Generally only land or warehouse facilities are leased. Berths can be
included or excluded from the lease. If births are excluded then the port
authority as usual collects and keeps revenue generated from berthing
fees.

• Public private joint venture

 The public sector holds a major stake in the SPC (Special Purpose
Company) which is set up to hold management contract for existing public
assets or development rights model for new port assets.
 Such contracts work as the above stated types only but the government
holding a higher stake in SPC has an effect on conditions of contract
 PPP Variants in Port Sector
Operations & Ultimate Duration
PPP Model Investment
Maintenance Ownership (years)

Rehabilitate, Operate &

Private Private Public 20-30
Transfer (ROT)

Rehabilitate, Lease/Rent &

Private Private Public 20-30
Transfer (RLRT)

Build, Rehabilitate,
Private Private Public 20-30
Operate & Transfer (BROT)

Build, Operate, Transfer

Private Private Semi private 20-30
(BOT)

Build, Own, Operate,

Private Private Semi private 30+
Transfer (BOOT)

Build, Lease ,Own (BLO) Private Private Private 30+

Full Privatization Private Private Private Indefinite

Source: Hammammi et al. (2006)

 Comparison of PPP in Major & Minor Ports
Sr No. Parameter Major Ports Minor Ports

Terminal
Development of
1 Typical nature of PPP development and
greenfield sites
operation

2 Bidding methodology of PPP 2 stage bidding Bidding/ Nomination

3 Bid parameter Revenue share  Revenue share

 Per MT royalty

4 Regulated tariff regime Yes No

 Case study
Kakinada Deep Water Port
Introduction
• Located on the southern part of the east coast of
India in Andhra Pradesh
• A part of the Kakinada Port
• Port related operations commenced in November
1996
• 3 berths developed by GoAP till 1999
• Master plan envisaged 15 additional berths with
requirement of an investment of over Rs. 1500
crores.
• Lack of capacity of GoAP leading to privatization of
port operations
 PPP details
• Privatization model – OMST / BOMST

• Concession period – 20 years with an option

of 2 extensions of 5 years

• Concessionaire - Kakinada Sea Ports Ltd

(KSPL)

• Commencement date – 1st April , 1999

 Project details

PHASE 1 PHASE 2

OMST Model BOMST Model

O&M of existing 3 Construction &

berths Maintenance of 4th
berth when 70%
occupancy of 3
berths is reached
 Original Concession Agreement
• KSPL is permitted to levy, collect and retain appropriate
charges from port users
1

• KSPL has flexibility in deciding tariff & it is not governed

by TAMP regulations 
2
• KSPL has to pay GoAP annually a 20-22% revenue share
subject to a Minimum Guaranteed Amount (MGA) clause.
3 • KSPL also has to pay lease to GOAP for usage of land.

• All movable assets at the port to be sold by GoAP to

4 KSPL.
Amendments in Concession Agreement

• Concession period extended from original tenure of

20 years to 30 years, with a further option for
1 extension by 20 years in two blocks of 10 years each

• Elimination of MGA clause for revenue sharing with

GoAP
2
• KSPL is allowed to undertake additional or new
developments at same terms and conditions of the
3 existing agreement
 Asset Handover & Transfer back Clauses

Handover Clause Fixed Assets

(Free of cost)

GoAP KSPL

Movable Assets
(as per rate in CA)
“Transfer Back” Clause
Fixed Assets
(Free of cost)

KSPL GoAP
Movable Assets
(as per Book value)
 Bidding Process
• International competitive bidding
• 2 stage bidding
PQ (Pre-Qualification) stage
RFP(Request for Proposal) stage
• 14 parties selected at the end of PQ stage
• 4 consortia selected after RFP stage
1. International Seaports Pvt. Limited (ISPL)
2. ABG Heavy Industries Limited
3. KPB, Malaysia (KPB)
4. Kumar’s Marine Engineering Corporation (KMEC)
 Evaluation of Bids
Technical criteria
• Master plan for development of facility
offered
• Methodology for traffic forecast
• Capital cost estimates
• Organization set-up for project and
operational stages
• Productivity norms
• Competency of Project Chief
 Evaluation of Bids(Contd…)
Financial Criteria

Criteria Weight

Minimum Guaranteed Share of

50%
Income (MGA)

Percentage Share of Income to be

30%
paid to GoAP

Investment Planned in Phase 1

20%
development
 Financing Information
Phase 1: O&M of 3 berths

Equity contribution Rs. 60 crore

Debt funding Rs. 115 crore.

Total investment Rs. 175 crore

Phase 2: Construction and O&M of 4th berth

Total investment Rs. 330 crore

 Issues during Project Development

• Non realization of estimated traffic

• Minimum Guaranteed Amount (MGA)
• Competing ports in near vicinity
• Lateral defects in the assets
• Public resistance
• Non level playing field for private operator
 Benefits of KDWP Privatization
• Maximization of the Port Potential
 GoAP had constructed only three berths and had a master
plan envisaging construction of 15 more berths.
 GoAP did not have adequate capacity for infrastructure
development. The private sector participation ensured
adequate traffic to take up the development of fourth berth.
 Private operator is looking forward to develop fifth berth.

• Revenue stream to GoAP

 Although MGA was eventually withdrawn, the private
operator made payments to GoAP in the form of steady
revenue share and lease payments

 
• Improvement in Port Performance
 KSPL has achieved a substantial improvement in port
performance. The total cargo handled at the port
has increased from 5.6 million tonnes in FY 04 to
14.5 million tonnes in FY 09 at a CAGR of 21%.
 
• Demonstration Effect
 KDWP set an example for port development via PPP
route. It was one of the first minor ports developed
with private sector partnership.
 Key Lessons & Learning
• Elimination of MGA
 Minimum Guaranteed Amount (MGA) in addition to the revenue share is a
burden for private party. Government ultimately had to eliminate MGA to save
the project. 

• Fair opportunity to private operator

 The government had decided to give full rights to the private party to develop
port at the time of bidding.
 There were some restrictions from the side of the government in terms of
anchorage port running parallel at the time of award.
 GoAP restricted the type of cargo handling at KDWP just to keep the existing
anchorage port working.
 In this way government did not provide fair opportunity to private party.
 This issue got resolved later on but such issue should not have raised at all.
• Technical due diligence
 There were some defects pertaining to the port assets such as cavities in
the diaphragm wall , requirement of boulder removal and requirement of
dredging.
 As the defects were found at later stage it increased the total cost of the
project.
 As this was a brownfield project, the government should have done proper
technical due diligence of assets before handing it over to the private party
so that there is accurate estimation of investment by the private party.

• Dispute resolution by mutual discussions

 The issue of eliminating MGA, public resistance, terms of concession
agreement etc were taken care by mutual discussions between the
government and private operator.
 There were no need for any litigation ultimately saving time and resources
of both the government and private operator.
 Examples of failed bids for PPP in ports

Project Name Revenue Share Reason for Failure/ Delay

 Revenue share offered

Chennai Port Trust - deemed too low by the trust
Mega container Revenue share- 5.25%  Initial bidding saw poor
terminal project response
 

Ennore Port Trust -  Winning bidder was

unsuccessful in finalizing
Mega container Revenue share- 39.99%
funds
terminal project
 

JNPT – Container  Winning bidder did not sign

Revenue share- 50.08% concession agreement
terminal project
 

Source: TATA Strategic Management Group

 Issues with PPP in port sector
• Regulatory issues
• TAMP regulations on major ports
• Poor Hinterland Connectivity
• Administrational issues
• Labour oppositions
• MCA framework
 Less flexibility
 Non extension of concession period
 References
1.    Raghuram, G., Udayakumar, P. D., & Prajapati, R. (2015). Effect of Legal Issues in
Infrastructure Development: The Case of Container Terminal Bids in Jawaharlal Nehru
Port Trust (No. WP2015-10-03). Indian Institute of Management Ahmedabad,
Research and Publication Department.
2.    Siddharth P , Aniruddh R. (2013). Ports by PPP – TAMP as Market Regulator. TATA
Strategic Management Group
3.    Aerts, G., Grage, T., Dooms, M., & Haezendonck, E. (2014). Public-Private
Partnerships for the Provision of Port Infrastructure: An Explorative Multi-Actor
Perspective on Critical Success Factors. the Asian Journal of Shipping and
Logistics, 30(3), 273-298.
4.    Farrell, S. (2011, January). Observations on PPP models in the ports sector.
InCOST Symposium Public Private Partnerships in Transport: Trends & Theory-
Research Roadmap, Lisbon.
5.    Private investment in port sector in India. (2011). Standard Charteres
6.    http://www.gmbports.org
 References (Contd…)
7.   http://pppinindia.com/
8.    http://www.mahammb.com/
9.    http://kakinadaseaports.in/
10. http://planningcommission.gov.in/
11. http://infrapppworld.com/
12. http://www.ipa.nic.in/