New Model Concessionaire Agreement to make port contracts investor friendly

The recently approved Model Concessionaire Agreement for the port projects is expected to open a string of opportunities for private companies in the maritime sector. The new model agreement allows flexible working contracts and exit norms.

Experts feel the possible renegotiation of contracts through the exit policy route would bring in respite to the industry.

The MCA will be applicable for new projects conceived under the shipping ministry's ambitious Rs 8 trillion Sagarmala programme. Under Sagarmala, the government plans to construct new ports and 142 cargo terminals at major ports.

According to an official, the decision that was approved by the Union Cabinet, earlier this month, would make port projects more investor-friendly and make investment climate in the sector more attractive.

The exit policy for the port projects has been proposed on the lines of a similar policy in the highways sector. The amendments to the MCA envisage constitution of a Society for Affordable Redressal of Disputes-Ports (SAROD-PORTS), similar to the provision available in the highway sector.

Under the revised MCA, the developers have been allowed to exit from a project by way of divesting their entire equity after completion of two years from the commercial operation date.

According to a former shipping secretary, renegotiation of the contracts would go a long way in addressing the issues that are affecting the execution of these contracts.

"Market linking of tariffs is another positive that has emerged from this fresh guideline as it would give the major ports to compete with other private ports," the former secretary said.

The concessionaire would now pay a royalty on "per MT of cargo/TEU handled" (or the ship's cargo carrying capacity), which would be indexed to the variations in the Wholesale Price Index. This will replace the procedure of charging royalty which is a percentage of gross revenue, quoted during bidding. 

The revenue is calculated on the basis of up-front normative tariff ceiling prescribed by the Tariff Authority for Major Ports.

In December 2016, the Union Cabinet approved the proposal of Ministry of Shipping to replace the Major Port Trusts Act, 1963 by the Major Port Authorities Bill, 2016. The decision empowers the Major Ports to perform with greater efficiency on account of full autonomy in decision making and by modernizing the Institutional structure of Major Ports.

The role of Tariff Authority for Major Ports (TAMP) has also been redefined under the new Act as the Port Authority has been given powers to fix tariff which will act as a reference tariff for purposes of bidding for PPP projects. PPP operators will be free to fix tariff based on market conditions. The Board of the Port Authority has been delegated the power to fix the scale of rates for other port services and assets including land.

Experts believe the proposal would bring in greater efficiency in port operations since more investment would come into the sector. At present, ports in India run at over 70 per cent of capacity which translates into over utilization leading to lower efficiency.

Union Shipping Minister Nitin Gadkari had earlier said certain contractual issues were impacting the implementation of port projects, which the new MCA would address. Since the model contract would be applicable to only new projects, issues relating to existing 10-12 port projects would be resolved by a committee headed by Finance Minister Arun Jaitley. Other members of the committee are law minister Ravi Shankar Prasad, shipping minister Nitin Gadkari and a NITI Aayog representative.