Govt proposes new concession pact for investments in ports

In order to attract private investments for the ports sector, the Shipping Ministry has proposed a new model concession agreement (MCA) that includes exit clause for private players and granting them powers to issue bonds for refinancing debt.
The proposed MCA includes allowing changes in equity holding of a project so as to provide exit option to developers after six years.
"The revised MCA has proposed that the concessionaire shall hold 51 per cent equity until 3 years after commercial Operation Date (COD) and 26 per cent thereafter for another 3 years. Hence, the private party would be free to exist after 6 years from COD," the ministry said in a statement.

The Concessionaire may approach the conversioning authority to waive the equity holding requirement during the second 3 year term if performance parameters have been achieved during the first three year period, it said.
It added that the new MCA, which has taken into account the suggestions provided in various reports by Member Planning Commission (2010), Indian Ports Association (IPA-2015) and Kelkar Committee Report (2015), will replace the existing MCA of January, 2008.
The objectives of the new MCA also include more equitable allocation of project risks, provision to handle unforeseen circumstances and removing ambiguity in existing provisions.

Providing for refinancing provision in MCA, government said this amendment is aimed at facilitating availability of low cost long term funds to concessionaire so as to improve the financial viability of the projects and is based on the Model Triartite Agreement approved by the Department of Economic Affairs.

Under this, it said, the concessionaire can issue bonds on completion of one year of operation for refinancing of debt, which will in result in optimisation of the finance cost of the projects.
The proposed MCA will also have amendment in definition of 'change of law' as in the present MCA the clause excludes imposition of standards and condition arising out of TAMP (Tariff Authority for Major Ports) guidelines, environmental law & labor laws besides increase and imposition of taxes, and duties for compensating the concessionaire.
"As these can materially affect the viability of the project the proposed MCA states that the Concessionaire shall be compensated for all changes in law except imposition of 'New Direct Tax'. This will help the concessionaire to get compensation for all material changes in law," it said.

Besides, the new agreement will also have provisions for mid-term review of concession.
The new MCA will also approve discounts on ceiling rates
for the recovery of revenue share. Presently, revenue share is payable on Gross Revenue, calculated as per tariff ceilings even if concessionaire has to allow discount to keep the charges competitive.
"With a view to have a balanced risk allocation, it is proposed that concessionaire shall be entitled to approach port to consider and approve discounts on ceiling traffic and revenue share shall be paid on the approved discounted tariff of the approved revenue share. Cargo storage charges will be excluded while computing Gross Revenue for the purpose of Revenue Sharing," the government said.

The new pact will also have provision for commercial operations before COD. "It is proposed to permit operations before COD on project specific terms and conditions about level of operations and payment to the port; this will lead to better utilization of assets provided by the Port in many projects."
Also, it said in order to avoid any ambiguity, it has now been specified that the concessionaire is free to deploy higher capacity equipment/facilities for higher productivity and improved utilisation of Project assets.
Besides the proposed MCA will have a Grievance Redressal System where the concessionaire shall create a Grievance Redressal Portal in their website with adequate monitoring system and timelines for redressal.

Applicable Tariff Guidelines will also be there to give an option to concessionaire to adopt changed tariff guidelines as and when issued by the government. It is proposed that private party will have option to adopt new or revised guidelines within 90 days of publication in official gazette.
Also there will be provision for additional land, utilities & services.
Presently the charges payable by the concessionaire for additional land, utilities and services are equal to 200 per cent of the scale of rates, as per the proposed MCA provisions have been made for providing additional land, utilities and services during operation period and required for Project Operations on payment of 120 per cent of the applicable scale of rates, the statement said.