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Concession For Nhava Sheva International Container Terminal: Group

The document discusses the concession agreement for the Nhava Sheva International Container Terminal (NSICT) in India, the first public-private partnership in the port sector, the roles and behaviors of the various entities involved, and issues around the bidding and regulatory process. NSICT was granted a 30-year concession to develop and operate the container terminal but faced criticisms over its treatment of royalty payments as costs and the lack of effective regulation.

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Gautam Boyanapally
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347 views17 pages

Concession For Nhava Sheva International Container Terminal: Group

The document discusses the concession agreement for the Nhava Sheva International Container Terminal (NSICT) in India, the first public-private partnership in the port sector, the roles and behaviors of the various entities involved, and issues around the bidding and regulatory process. NSICT was granted a 30-year concession to develop and operate the container terminal but faced criticisms over its treatment of royalty payments as costs and the lack of effective regulation.

Uploaded by

Gautam Boyanapally
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Concession for Nhava Sheva

International Container Terminal

Group -1
PPP Guidelines
• Reasons for PPP – not just private investment, but improve
efficiency, productivity and QoS as well as competitiveness

• PPP Guidelines
• Open tenders – BOT
• License Period – 30 Yrs
• Two bid system
• Based on
1) Upfront fee
2) Royalty per ton
3) Minimum guaranteed cargo

• NPV Basis
NSICT Ltd. - Concession
 India’s First PPP initiative in the port sector.

 Concession – 30 years on BOT basis for


◦ 600m quay length container terminal along with
container handling equipment and other facilities
◦ 20 hectares of reclaimed Container yard
NSICT - Consortium
Formed in July 1997

P&O Australia
Ports
N T
JN S DBC Group of A
P C Companies M
T I P
T
Konsortium
Perkapalan
Behrad

Regulator SPV Structure Tariff


Authority
NSICT – Role & Behavior
 Comply with the techno commercial conditions
outlined in the agreement
 Ensure timely project completion
 Ensure safety provisions and comply with the
requirements of International safety Standards
 Abide by the operations and maintenance plan in
trust for eventual transfer to the Concessioning
Authority on termination of the agreement and
therefore, will not do any act as a result of which
the value of Port Assets and Project Facilities and
Services is diminished.
NSICT – Role & Behavior
 To promptly and diligently maintain, replace or
restore any of the project facilities or part thereof
which may be lost, damaged, destroyed or worn out.
 Shall during the Concession Period pay in a timely
manner all taxes, duties, levies, VAT, cess and
charges.
 Collect various charges from Port users etc.
NSICT – Role & Behavior
 NSCIT provided services better than envisaged and
was awarded by CII – for excellence in
Infrastructure.
 Induced Intra-port competition
 There seems to be matter of regulatory capture as
the decisions were favorable to NSCIT
 Took advantage of the loophole in the concession
agreement by claiming Royalty as cost from Port
users, although they did good for profit
maximization for share holders.
JNPT – Role & Behavior
 Port trusts would continue to play a regulatory role
 Ensure that private participation does not lead to
creation of monopolies
 Case facts
◦ No evidence that JNPT played regulatory role to protect user
interests
◦ Did not proposed tariff revision ahead-of-schedule
(Guidelines for regulation of Tariff at Major port, 2004)
◦ Improper assessment of Bid
 JNPT should have supported TAMP
◦ Technical aspects
◦ Port operation cost
JNPT – Role & Behavior
 JNPT as regulator (entrusted by the MPT act & PPP
guidelines)
◦ Should have clearly defined and enforceable reporting
requirements
◦ Should have validated the information provided by NSICT
(audit)
◦ Should have enforced the clause mentioned in the
concession agreement
 Reserve 33% of berth days for common user facilities
 Follow “First Come First Served” principal
 Open to all and any shipping lines
TAMP – Role & Behavior
 Independent statutory authority with power to
determine the tariff to be charged by Port trusts as
well as by private providers of port facilities
◦ Power confined only to determination of tariff
 Safeguarding the interest of shippers/consignees and other port
users.
 Ensuring just and fair return to ports.
 Encourage competition, economical use of resources, efficiency in
performance and optimum investment.
 Ensuring transparency and participative approach while
discharging its functions.
◦ No power related to setting and enforcing of performance
standards
 Tariff guideline (1998)
◦ Cost plus approach with assured rate of return
TAMP – Role & Behavior
 Tariff Determination
◦ Norms for Debt Equity Ratio
◦ Cost plus approach with 15% return on Capital employed
(ROCE)
 Capital employed included debt & equity
 If cost of debt < 15%, then return on equity > 15%
 If cost of debt > 15%, then return on equity < 15%
◦ Traffic forecast in tariff setting
◦ Cost Calculation !
 Absence of any norms to determine cost
 Private Operator knows more than the regulator
 Relied completely on the data given by NSICT
 No power to demand audited costing & performance
related information
TAMP – Role & Behavior
 Tariff Determination
◦ Determined tariff shall be in force for three years (with
some exceptions)
◦ Continuous review is required to adjust the fluctuation in
projected traffic

 Royalty Treatment
◦ Treatment of royalty as cost is one of the biggest flaw of
the bidding
Government – Role &
Behavior
 Department of shipping (DoS) issued guidelines for
PPP in the port sector in 1996

 Objectives for private sector participation in port


sectors
◦ Improvement of efficiency & Quality of service
◦ Resource mobilization for creating additional capacity
◦ Bring competitiveness in port services
◦ Financial viability for the private players
Government – Role & Behaviour
 Competition

Private
NSICT
Participation
Intra-port
Competition
Government
JNPT
(Port Trust)

 Market
◦ High Demand & Scarce Resources
◦ Possibility of extracting monopoly rent
Government – Role &
Behavior
 Bidding
◦ Competitive bidding
◦ Private participation on BOT basis
◦ Concession period – 30 years
◦ All assets to revert back to the Port Trust, free of cost
– No incentive to revert back assets in good condition
◦ Two bid system
◦ Financial bid
 An upfront fee for the license
 Royalty per ton of cargo to be handled
 The minimum guaranteed cargo
 Selection criteria – Highest NPV of royalty offered
Government – Role &
Behavior
 Bidding
◦ Treatment of royalty as cost is one of the biggest flaw of the
bidding
◦ The selection criteria is royalty based and there is no mention
that how royalty would be treated
◦ Treatment of royalty as cost would not serve the basic
purpose of PPP – Any bidder can quote any amount of royalty
and would charge this amount as cost
◦ Treatment of royalty as cost would finally mean charging end
customer (port user)

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