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Vallarpadam Load Centre project -- Will P&O Ports bag the contract?

P. Manoj

COCHIN Port Trust (CoPT) has suggested to P&O Ports, the lone financial bidder for the port's proposed container terminal project, that it explore the scope of a tie-up with the Container Corporation of India (Concor), an Indian Railway subsidiary, for r ail linkages with the proposed project, known as the Vallarpadam Load Centre (VLC).

At the pre-bid meeting, the CoPT suggested that the crucial rail connection, estimated to cost about Rs. 60 crores, could be constructed through a special purpose vehicle (SPV) formed with Concor. The proposed SPV, it was also indicated, could materialis e (and prove mutually beneficial) subject to Concor's guaranteeing traffic for the proposed load centre.

The suggestion for a P&O Ports-Concor tie-up was aimed at resolving the stand-off between the Government and P&O Ports over rail and road linkages to the VLC, with the CoPT firmly declining to provide the linkages.

The Rs. 600-crore VLC project is proposed to be developed through the joint venture route, in which the port trust will have a 26 per cent stake. The project involves the modernisation of the Rajiv Gandhi Container Terminal and the development of Vallarp adam as transhipment point.

If implemented as per the present plan, this will be the first port project through the joint venture route in any major port in the country after Parliament passed amendments to The Major Ports Trusts Act, 1963. The amendment to the MPT Act cleared the decks for major ports to pick up equity in port projects along with private operators, minor ports and foreign ports owned by the Government.

P&O Ports has expressed its reservations also about the cut-off year 2005 stipulated by the CoPT for shifting the operations entirely from the present Rajiv Gandhi Container Terminal to the proposed VLC. In its offer, P&O Ports has said that the threshol d period of 2005 is unrealistic. The cargo inducement should determine the shifting time.

Also, P&O Ports insists that the CoPT should provide rail and road linkages with VLC well before the shifting takes place. The CoPT has asked P&O Ports to soften its stand on both the issues, otherwise it will amount to deviations from the conditions as stipulated in the tender document.

After more than a year of intense deliberations, the Department of Shipping allowed the CoPT to open the financial bid of P&O Ports on condition that the bidder would abide by the original tender document conditions with regard to the timing of shifting operations to VLC and the back-up infrastructure facility for evacuating the cargo.

The project was put on tender when the Ministry of Surface Transport was awarding contracts to private operators on the basis of maximum realisation to the port in terms of royalty per tonne of cargo handled. Accordingly, the CoPT did its own calculation of how much it could receive by way of royalty from P&O Ports.If the royalty per tonne of cargo quoted by P&O Ports in its offer turns out to be less than the amount estimated by the port trust, the project might have to be re-tendered. This is because the basics of the original tender have undergone modifications.

According to the revised guidelines formulated by the Department of Shipping for the entry of private firms in the port sector, there is a shift from the royalty-based bidding format to a revenue-sharing system.

The floating of a fresh tender as per the new guidelines, it is felt, might attract a few more players than the big three who have been in the race so far _ P&O Ports, PSA Corporation and Hutchison Port Holdings.

The P&O Ports already manages and operates a container terminal _ the NSICT _ at the Jawaharlal Nehru Port Trust (JNPT). It has also been awarded a Letter of Intent (LoI) for operating a container terminal at Kandla Port Trust. A third container terminal at Cochin port would give P&O Ports a virtual monopoly over container traffic on the western coast of the country.

This is despite concerns expressed in different quarters over creating private monopoly in the port sector. Apparently, the Department of Shipping chose to overlook this aspect; instead, it decided to examine whether the bid by P&O Ports could be tailore d to suit the tender conditions.

But then, the Government had little choice in the matter. The CoPT's several previous attempts to attract private bidders to the project did not yield results, presumably because of the peculiar demands of the project. The Department of Shipping obviousl y feels it is prudent to explore and exhaust the possibility with P&O Ports first, before re-tendering the project.