Ministry guidelines a risk factor for Dredging

The January 19 guidelines issued by the ministry stipulate that all dredging contracts by major ports (except Kolkata) should be awarded only through the competitive bidding route.

Further, the corporation will be allowed to exercise its right of first refusal only if its bid price in the original tender was 10 per cent higher than the lowest bid. Further, the ministry of shipping has announced its intention of developing similar guidelines for private and non-major ports.

"These revisions to the current government dredging policy could result in a reduction in our share of the Indian dredging market and adversely affect our income and profit. In addition, in the event of our right of first refusal or PSU purchase preference is further reduced or eliminated, our income and profit may likewise be negatively impacted," DCI has said in the preliminary sale document under the classification internal risk factors.

The issue assumes significance as DCI enjoyed a 92 per cent market share of the maintenance dredging market in the 12 major ports in fiscal 2003.

However, the company's contract with Kolkata Port Trust under which it enjoys a monopoly on maintenance dredging services will continue till March 31, 2007.

Further, DCI believes that its existing maintenance dredging contracts with Jawaharlal Nehru Port Trust (till March 31, 2007); Visakhapatnam Port (till March 31, 2008) and Paradip Port (till March 31, 2006) will continue. The maintenance dredging contract at Kolkata Port accounts for around 57 per cent of DCI's income from operations.

Under the existing guidelines it is not mandatory for ports to float tenders for dredging and they could negotiate directly with DCI.

Further, in the event of competitive bidding, DCI enjoyed the right of first refusal as long as it matched the lowest offer. Now it will enjoy that right if only the initial bid was 10 per cent higher than the lowest bid.

The guidelines on the right of first refusal are in line with those announced by the directorate general of shipping for contracts of affreightment.

DCI is now trying to derisk its dependence on the Indian market and add revenue by going international. It plans to develop strategic alliances with leading international dredging companies to access the necessary skills for capital and international dredging works.

It also intends to add additional equipment suitable for capital dredging and pursue selective international opportunities in the port sector. It has mandated PriceWaterhouseCoopers to help it identify potential joint venture partners.

The company has also pinned its hopes on the Rs one lakh crore Sagarmala project announced by the Union government. Senior company executives say that even if 5 per cent of the envisaged investment in the Sagarmala project materialises then , then DCI would be able double its turnover.

DCI is also planning to appoint marketing agents in Singapore, Malaysia and Middle East to identify projects and to promote its services in those countries. The corporation is also betting on the future expansion plans of the major ports which would lead to additional dredging opportunities.

For instance, the Union government has estimated that the major port capacity will increase to 470 million tonne by fiscal 2007 against around 289 million tonne in fiscal 2002.

DCI clocked a record annual income of around Rs 519.52 crore for the year ended March 31, 2003 and an adjusted profit after tax of Rs 157.49 crore. This was up from Rs 501.53 crore and Rs 88.15 crore, respectively.

The Union government is offloading 5.6 million equity shares through the book-built route and its stake will fall to 78.56 per cent. Under the terms of the offer, a maximum of 50 per cent has been earmarked for qualified institutional buyers, at least 25 per cent for retail investors and atleast 25 per cent for non-institutional bidders.

The Centre also has the option of selling to retail bidders at a price lower than those offered to the other bidders. Retail bidders can bid at the cut off price, a facility not available to the other two categories.

Kotak Mahindra Capital Company and Enam Financial Consultants are book running lead managers to the issue while Karvy consultants are the registrar. The corporation's shares are already listed on the Mumbai, Kolkata and Delhi bourses and are proposed to be listed on the NSE.