KCCI President’s Letter to TAMP Chairman regarding MPT Berth # 8
Following are the contents of the letter addressed to The Chairman, The Tariff Authority for Major Ports, Mumbai regarding NMPT’s PPP Project of Container Terminal Berth No. 8 by Jeevan Saldanha-President of Kanara Chamber of Commerce and Industries (KCCI) .
In Ref to: NMPT’s Proposal for Upfront Tariff Setting for Development of Container Terminal at Berth No.8 on PPP Mode at New Mangalore Port
Mangaluru: As per the Request for Qualification (RFQ) dated July 2016, the following conditions were stated:
– Estimated project cost is Rs.277.19 crores
-The Applicant shall have a minimum net worth of Rs.69.30 crores at the close of the financial year.
– Provision of state-of-art equipment consisting of quay cranes and yard equipment
– Total 2 Nos. Rail Mounted Quay Cranes(RMQC’s) will be installed in the quay in the very beginning with total optimum capacity of 400,000 TEU per annum. Further, 3 Rubber Tyred Gantry Cranes, 5 Reach stackers, 4 fork lifts and 18 nos. trailer trucks will be provided for the terminal.
– To develop Berth No.8 for handling containers and clean cargo.
The major capital investment estimated as per RFQ is as under:
– Equipment – supply : Rs.144.16 crores
– Civil works : Rs. 45.25 crores
A careful study of comments-cum-suggestions by Applicants and reply by NMPT reveal that most of the conditions were relaxed in favour of prospective bidders.
It is evident from comments by M/s. Bollore that NMPT has allowed the bidder to deploy second hand equipment for the first 5 years or till reaching 75% of the project capacity whichever is earlier for the financial viability of the project. Along with the bidder, NMPT also concedes that the project is not financially viable and hence this deviation from the conditions set out in the RFQ. Whether this kind of concession is permissible as per the TAMP guidelines for fixing the tariff?.
It has been proven in the other proposals in NMPT that once the tariff is fixed byTAMP, the successful bidder has placed second-hand equipment as against the new equipment as stated in the tender document thus violating TAMP guidelines for fixing the tariff. In addition to the violation of terms and conditions, this will severely affect the productivity of the container handling at the terminal.
It is noted from the comments-cum-suggestions by Applicant(APSEZ) that NMPT has accepted the applicant’s request for removing capex of Mobile Harbour Cranes and instead using ship’s gears for handling other bulk cargo. NMPT is widely known for its existing infrastructure including the availability of mobile harbour cranes. If this document is to be believed, NMPT cannot accommodate gearless vessels once the berth No.8 is handed over to the successful bidder.
Contrary to the conditions laid down in RFQ that only clean cargoes shall be handled at this berth, NMPT has assured the TAMP that the word ‘clean cargo’ will be termed as ‘other cargo’ in the revised proposal so as to accommodate wide grades of commodities. To best of our knowledge, NMPT is implying that PPP operator will have exclusive rights to handle all cargo including containers.
The proposal has seen relaxations in the conditions which brought about steep change in estimated project costs. NMPT reduced the costs substantially over a period of time owing to multiple relaxations given to applicants. At various stages, NMPT changed the estimated project cost from Rs.277.19 Crores to Rs.312.77 Crores and then to Rs.268.26 Crores. As per RFQ, the qualification criteria for the applicant shall be Rs.69.30 Crore (i.e. 25% of the Project Cost of Rs.277.19 Crores). With subsequent concession allowed by NMPT, the project cost has been reduced considerably. Had NMPT, at the initial stage itself decided that the project is unsustainable and there will not be sufficient cash flows and permitted the bidder to deploy second hand equipment, the investment on the project would have been substantially reduced and accordingly the Financial Capacity criteria would have been less and more bidders who are capable of matching the reduced financial capacity would have participated in the tendering process.
It is noted from comments-cum-suggestions by TAMP under point No.5(i), it states that tariff once set will ordinarily operate in respect of a particular terminal for a period of 30 years. However, as per the TAMP guidelines for upfront tariff setting for PPP projects at Major Ports, 2008 states that tariff caps will be reviewed once in five years to adjust for any extraordinary events that could not have been foreseen by a prudent person.
To another query from the applicant, NMPT states that the operator will be allowed to utilise the complete terminal capacity before the phases mentioned in the DPR, if so it wishes. If the project does not take off as expected and the container volume does not grow as projected, the bidder will have the luxury of all land earmarked for the implementation of this project in total. The total backup area made available for the project is 17.3 hectares.
The KCCI strongly believe that there is no clarity on many issues in the said proposal. In addition, KCCI observes an unusual haste in the proposal on the part of the NMPT compared to several other critical tariff proposals of the port in the recent past. All the study conducted in the recent past at NMPT shows that setting up a container terminal at this port is not feasible owing to lack of container traffic. The current situation has not improved any better.
In the history of NMPT, very few Main Line Vessels have called at this Port. Also, the likelihood of any increase in such Main Line Vessels calling at this Port in near future is remote. As such there does not appear to be a need to utilise this fully developed berth No.8 (Old No.14) for improving Container business. Normally Port Authorities worldwide take initiatives either to develop a new berth or under- developed berth to meet the demand of the trade. But here the proposal is to privatise an already developed berth with highest berth occupancy of 74%. Does the proposal of handing over a full-fledged, developed berth to private operator comes under PPP?
The average growth for the last 6 years is only 16%. The present traffic and projected traffic for the next few years will not justify setting up of a separate Container terminal at berth No.8 (old No.14) nor appears to be feasible. Since NMPT does not find a place in the International Container Trade routes, there is no likelihood of Mainline Container Vessel calling at NMPT on regular basis.
As per the RFQ, the projected container traffic in next 20 years is 400,000 TEUs. The same RFQ also states that presently only 74,000 TEUs are being handled. No much increase in container volume is envisaged since NMPT is in between major Container terminals at Kochi, Goa and Mumbai/JNPT. The hinterland of NMPT also does not justify any much increase in Container Traffic. Container Traffic from the main industrial belt of Karnataka i.e. Bangalore/Tumkur/ Hubli/ Belgaum etc. do not come to NMPT due to ghat section in-between and other economic reasons.
The traffic forecast of 3,20,000 TEUs in 2028 is unimaginable due to reasons cited above and does not appear to be realistic. In the last 12 years, the Container Traffic has grown from about 9000 TEUs in 2005 to 74,000 TEUs in 2016 including empty Containers. Any slight variation in the import or export pattern could bring down the volume drastically as the movement of empties constitutes about 50% of the overall current volume. In other words, if major imports like Cashew nut or exports like Coffee has any disruption in production at the origin, the impact on volume will be double.
Every study conducted at NMPT had shown that projected traffic for container traffic has never been anywhere close to the ground reality. The current proposal is no exception to that. The assumption based on to arrive at unrealistic projected traffic of 400,000 TEUs is not justifiable. The Business Plan prepared by RMG and TCS for NMPT during the year 2007 had projected a container traffic of 98,000 TEUS by the year 2012-13(table 4-15 page 62). However, in reality, NMPT handled only 48,409 TEUs, which is less than 50% of the projected traffic. Similarly, as per Traffic Analysis carried out by TCE in May 2015, NMPT in the year 2015-16 shall handle 106,000 TEU in the base case. However, the actual containers handled during the same period is 74,000 TEUs which is 67% of projected traffic for this period as per TCE report(para 4.1.8 of DPR by EIL). It only suggests that even premier consultants have failed miserably to gauge the container traffic projections at NMPT.
During 2010 NMPT had shortlisted IL&FS Maritime Infrastructure, Group Maritime TCI of Spain, Simplex Infrastructure, a consortium between Adani Port and Mundra Port & SEZ, Essar Ports & Terminals along with Vadinar Oil Terminal to build greenfield container terminal on BOT basis. However, NMPT had to drop this proposal after the private players backed out of the project citing lower returns.
The KCCI wish to draw your attention to Business Plan done by Rotterdam Maritime Group and Tata Consultancy Services(RMG and TCS) for NMPT during the year 2007. The report recommends that a container terminal is set up at existing berth No.1 and 2 to generate a positive income only if and when a ‘mechanised handling’ or an all-in stevedoring tariff is introduced. The KCCI urge the NMPT management to adopt the recommendation given by these reputed consultants as it appears so relevant even now. In line with this Plan, NMPT needs to mechanise the existing container operations and wait for realistic growth trends which warrants setting up of a full-fledged container terminal.
As per DPR by EIL(page No.37), Tuticorin Port is having one container terminal operated by a private operator. The total berth is 370m and alongside depth is 10.7m. The container traffic handled in the year 2015 was 560,000 TEUs. If Tuticorin Port can handle this volume with limited resources, why not NMPT emulate the same success story?
NMPT is giving away a 14m deep draft multi-purpose berth with a berth occupancy of about 74% to a PPP operator to handle mere 74,000 TEUs? Does it not amount to a gross misuse of available assets?
The berth No.8(14) was financed through Grant in Aid the budget route through Parliament. The asset belongs to the Citizens of India built from Tax Payers money. Whether the Board of Trustees of NMPT can take a decision to go for a PPP model when it is a grant in aid project of about Rs.400 Crores.
The berth No.8 was originally designed for larger water depths and can be deepened to accommodate larger vessels. This berth has a water depth of 15.10 m and can handle ships with a draft of 14m. The quay wall has a design depth of 17m and by dredging in front of the berth/channel, it can handle ships with a draft of 16m and ships with a maximum of 130,000 to 140,000 DWT. Is it worth dedicating such a premium berth to a PPP operator for handling few thousand containers and that too for a period of 30 years?.
Knowing these facts, the trustees representing the trade, labour and other interests had put forth their dissent note against this proposal during the 5th ordinary meeting of the Board of Trustees held on 17.10.16, which has been minuted. However, the Chairman, NMPT went ahead with the project without consulting the stakeholders. KCCI feels that the decision to overrule the dissent put forth by Trustees is arbitrary and ultra vires.
In view of above, KCCI reiterates that the proposal is not realistic and request the NMPT management to reconsider the proposal in the best interest of all parties concerned.
Thanking you, Yours sincerely,
Jeevan Saldanha- President, KCCI