Govt okays revised deal for KPCL

Krishnapatnam Port Company plans to achieve financial closure in 6-9 months for Rs 700-cr project

The long wait of Krishnapatnam Port Company Limited (KPCL) in giving effect to the Rs 700-crore port development project was finally over with the Rajasekhara Reddy government giving its approval for revising the concession agreement on the lines of the Gangavaram port.

Speaking to Business Standard in the wake of the state cabinet's approval of their request on Wednesday, Nannapaneni V Chowdary, chairman and managing director of KPCL, said: "We are expected to sign the revised concession agreement in a week's time. The port development project has now become a viable proposition."

The government has envisaged the company to complete the financial closure in 10 months after signing the revised agreement and complete the construction in 30 months after the financial closure.

Chowdary said that the company is now aiming to achieve financial closure in the next six to nine months to undertake the Rs 700-crore Krishnapatnam port development project at the earliest.

He said that the company is planning to invest Rs 540 crore in the first phase and the remaining investments would be made purely on the basis of future traffic demand. The company has already invested around Rs 40 crore on the development of various facilities at the port.

As per the cabinet's approval, the Krishnapatnam Port Company will now have to part only 2.6 per cent of the gross income with the Andhra Pradesh government for a period of 30 years, as against the original formula of 5 per cent share to the state in the first five years alone.

The revenue share formula of the original concession agreement of the KPCL envisages 5 per cent share in the first five years, 8 per cent share in the second five years, 10 per cent share during the third five years and 12 per cent share during the later fifteen years.

The concession agreement with the Natco group's KPCL "� the first Greenfield Port privatised by the state government "� was signed in 1997.

Absence of any model concession agreement for reference at that time had led to certain lacunae in the agreement, government officials told Business Standard.

KPCL had requested in August 2003 for parity with the concession agreement of the Gangavaram port, which was signed during the same month, in terms of revenue sharing and the inclusion of certain bankable clauses.

Though the then Naidu government had agreed to include certain bankable clauses like force majeure and termination to the concession agreement early this year, it was apparently non-committal on the revenue sharing front.

Whereas in the case of Gangavaram Port, the previous government had agreed for the flat 2.1 per cent share of the gross income from the port operations for the entire 30 years.

Requesting the previous government to revise the revenue formula on the similar lines, KPCL had proposed to pay 2.6 per cent of gross income to the state government during the initial 30 year period and 5.2 per cent and 10.4 per cent share during the successive 10- year periods.

On the advantages of the port, Chowdary said, "Its location is the biggest advantage. With the proposed Kadapa-Bellary railway line connecting to the port, the entire Rayalaseema and the southern part of Karnataka will be benefitted out of the Krishnapatnam port development."

The company has been expecting to handle 5-7 million tonne cargo annually during the next 2 -5 year period including a 3-million tonne coal imports.

"We will handle at least 2 million tonne cargo next year," the company MD said. One load of iron ore cargo is already in the process of take off.

Along side the construction of new facilities in the port, the company is planning to attract the container shipment business from Chennai port in a big way. Out of the 1.5 to 2 lakh containers being at present handled annually from the Chennai port, the company aims to attract one lakh containers, the KPCL managing director said.

The proposed share-holding in Krishnapatnam Port Company is as follows: Natco and V C Nannapaneni and Associates (45 per cent). Portia, an international arm of the second largest port operator in UK-Mersey Docks & Harbour Company) with 26 per cent, EPC contractors with 11 per cent, Financial institutions with 11 per cent, others with 7 per cent equity.