Land transfer to ease Tata Steel's Subarnarekha port acquisition

Tata Steel has already inked a definitive agreement with Chennai-based Creative Port Development Pvt Ltd to pick up 51% equity in the port project from the original promoters

A decision by the Odisha government to hand over 692 acres of land for the first phase development of Subarnarekha port off the coast of north Odisha is expected to ease Tata Steel's acquisition of controlling stake in the port.

Tata Steel in January this year, has already inked a definitive agreement with Chennai-based Creative Port Development Pvt Ltd (CPDPL) to pick up 51 per cent equity in the port project from the original promoters.

"The state government has decided in principle to transfer 692 acres of land for development of Subarnarekha port in the first phase. After vetting by the law department, the land would be leased out to the concessionaire", said a senior Odisha government official.

The Defence ministry which had earlier raised certain objections, has also given its nod for development of a port at the chosen site, he added. The Subarnarekha river mouth is envisaged to be developed as a commercial port on the build, own, operate, share and transfer (BOOST) model.

As per the agreement signed, Tata Steel would acquire majority stake in CPDPL. The port development is envisaged through a wholly-owned subsidiary, Subarnarekha Port Pvt Ltd (SPPL). The acquisition and development are subject to certain conditions precedent, detailed technical assessments and financial closure.

The cost of acquisition will depend on the capital outlay of the project which is under investigation and will be firmed up after studies are completed. CPDPL, promoted by two technical entrepreneurs, Ramani Ramaswamy and Ramaswamy Rangarajan, had entered into a concession agreement with the Odisha government in January 2008 to develop the Subarnarekha port in Balasore district as an all-weather deep-draft facility. A detailed engineering study to arrive at the configuration and the project cost will be undertaken soon.

For Tata Steel, the Subarnarekha port is expected to address its long-term strategic needs. The port location also makes it attractive for the company to structurally enhance the competitive position of its Indian operations, especially the Kalinganagar greenfield steel project in Odisha.

The port project proposed at Subarnarekha needs 1215.43 acres of land for the port area and 1565.93 acres for the rail corridor. Out of 1215.43 acres of land needed for the port area, 158 acres constitute Gochar land, 193 acres Bhudan land, 138 acres of encroached land and the remaining 724 acres being free land.

According to the concession agreement signed originally, the port would have an initial capacity of 10 million tonnes per annum (mtpa) which was to be scaled up to 40 mtpa in 10 years. As per this agreement, the port developer would share revenue with the state government at the rate of five per cent from first to fifth year, eight per cent from sixth to 10th year, 10 per cent from 11th to 15th year and 12 per cent for the remaining 15 years.