Posted on September 11, 2024
MUMBAI: Despite the initial skepticism, the chances of undertaking the development and maintenance of dredging, offshore reclamation and shore protection works on public-private-partnership (PPP) under Hybrid Annuity Model (HAM) for the new port at Vadhavan have brightened with as many as 15 entities, some of them top names in the industry, filing expressions of interest for the contract estimated worth Rs20,647 crores.
“The response to the expression of interest called by Jawaharlal Nehru Port Authority for the work is unprecedented,” Unmesh Wagh, Chairman, Jawaharlal Nehru Port Authority, told ET Infra. “We will pull it off,” he said with confidence.
JNPA, which is helming the new port project, is studying various aspects relating to the work on PPP HAM – the first in an Indian port project – such as the concession period, the percentage of cost to be paid initially to the PPP operator (concessionaire) and the items to be included in the maintenance part of the contract, Wagh said.
“We are brainstorming on what all should be done basis the feedback received during the EoI exercise,” he said, adding that Royal HaskoningDHV has been hired as the transaction advisor.
A big concern raised by most of the entities during the EoI process was on the ability of Vadhavan Port Project Ltd (VPPL), the special purpose vehicle formed for implementing the new port, to make timely payments to the PPP operator.
Wagh said this concern was unfounded.
“VPPL is majority owned by JNPA, which will make the payments. You have to consider the parent company of VPPL, which is JNPA, a financially sound entity. So, where is the concern,” he asked.
Besides, it was suggested that unless the risks are equally shared by both the parties, the concessionaire (PPP operator) will likely load premium upfront to mitigate risks and uncertainties.
“The project authority also has to find ways to recover the annuity amount paid to the PPP operator. In no case, a cess or special dredging levy should be collected from shipping lines. This will lead to diversion of cargo to nearby competing ports,” said an official whose company participated in the EoI process.
“We will not impose a cess or special dredging levy on shipping lines calling at Vadhavan Port,” Wagh said emphatically.
“If the work is to be undertaken through the EPC route, we have to shell out all the money, estimated at Rs 20,647 crore, in three years. Under the PPP HAM model, we are getting much more time to pay. Besides, it will reduce the quantum of loan VPPL was initially planning to raise for the project,” Wagh said, highlighting the benefits of taking up the work on the HAM model.
Adani Ports and Special Economic Zone, Hindustan Infralog (DP World), Larsen & Toubro, Royal Boskalis, Van Oord Dredging and Marine Contractors, Jan De Nul Dredging, National Marine Dredging Company and International Seaport Dredging are among the 15 entities that filed expression of interest for development and maintenance of dredging, offshore reclamation and shore protection works on public-private-partnership (PPP) under Hybrid Annuity Model (HAM) for the new port at Vadhavan.
Rail Vikas Nigam, Hyundai Engineering and Construction Co, Meka Infrastructure and Vishwa Samudra Engineering have also submitted EoIs for the work when the deadline ended on 30 August.
The scope of work includes carrying out dredging of approach channel, harbor basin, dredging of material for filling/reclamation of total offshore area of 1,227 hectares and maintenance of the developed area on long term concession.
Typically, dredging and reclamation works at ports are carried out through the traditional engineering, procurement and construction (EPC) route, wherein the contractor is paid in stages during the execution of work and the final bill is settled on completion of the contract.
In the HAM model, widely followed in highway development, the first 40 percent of the total project cost will be paid as fixed amount in five equal instalments during the construction phase while the remaining 60 percent will be paid as variable annuity amount towards balance bid amount along with interest on the residual debt after the completion of the project depending upon the value of assets created over a 15-year concession period.
The HAM model offers a balanced approach to financing and executing capital dredging and reclamation projects, combining the efficiency of the private sector with the support of the government, says Devdatta Bose, Port Specialist, Tata Consulting Engineers said at a dredging conference held recently in Mumbai.
“However, the dredging complexities and risks involved require careful planning and management which may be challenging for the entire contract period. Contracts where project parameters are well defined, like in the case of road projects, the HAM model have been successful. For dredging and reclamation to be successful on the HAM model, a well-structured request for proposal (RFP) with proper risk sharing between the concessionaire (PPP operator) and the authority is essential,” he added.
