Posted on November 18, 2024
The plan approved by the Board on Thursday is seen as the most appropriate to draw bidder interest for the work
MUMBAI: The Board of Jawaharlal Nehru Port Authority has cleared a proposal to undertake dredging, offshore reclamation and shore protection work estimated worth Rs20,647 crores for Vadhvan Port in two phases on the Hybrid Annuity Model.
According to the proposal, the first phase of the work will involve reclamation of some 800 hectares of land to build the new port for which the contractor will be paid 60 percent of the contract value during the construction period of three years.
In the second phase, the balance reclamation work of some 400 hectares will be carried out in two years during which the contractor will be paid 60 percent of the contract value.
The balance 40 percent of the contract value for both the phases will be paid to the contractor during a ten year maintenance period which will start after the two phases of off shore reclamation, dredging and shore protection works are completed in five years, sources briefed on the plan said.
The proposal will now be submitted to the Ministry of Ports, Shipping and Waterways for onward submission to the Public Private Partnership Appraisal Comments.
The customization of the highway HAM model for the Vadhvan Port’s dredging, offshore reclamation and shore protection work, is aimed at enticing bidders.It will also drastically cut J N Port Authority and Maharashtra Maritime Board’s need to borrow funds from the market to fund the work.
The new port will be constructed by Vadhvan Port Project Ltd, a joint venture between state-owned Jawaharlal Nehru Port Authority (74 percent stake) and Maharashtra Maritime Board (26 percent equity), in two phases under the landlord model.
J N Port Authority is emulating the HAM model followed by the National Highways Authority of India (NHAI) as there is no template for such a model in the ports sector. However, it is tweaking the NHAI model to meet the concerns and suggestions put forward by private contractors during the expression of interest process ran by the state-run port authority, which is helming the Rs76,220 crore project, billed India’s biggest public port with a capacity to handle 298 million tonnes (mt) of cargo a year.
“What we are planning is, instead of a 40:60 payment structure followed by NHAI, we will do 60:40,” said a person with knowledge of the proposal. “That would be the best we can do,” he added.
There are two payment tranches in NHAI’s HAM highway projects: The first tranche of 40 percent of the project cost typically is spread over five years, and the second tranche of 60 percent is paid over 10 years.
“Besides, maintenance dredging will not be included in the maintenance period because that was one of the biggest concerns voiced by those who filed the expressions of interest for the work. No one knows what the dredging footprints are or what will be the quantum of maintenance dredging at Vadhvan. Excluding maintenance dredging from the work will also give more objectivity to the tender,” the person said.
The PPP HAM model is being tried out for dredging, offshore reclamation and shore protection works in an Indian port project for the first time: typically, such works are carried out through the traditional engineering, procurement and construction (EPC) mode, wherein the contractor is paid in stages during the contract period, the final bill is settled upon completion of the work and the contractor exits.
The PPP HAM model is seen as a “deferred EPC” method of undertaking the work. Instead of paying the full amount to the contractor in three years under the EPC mode, J N Port Authority will have to disburse 60 percent of the amount during the five year construction period spread over two phases.
“Under the EPC mode, we would have been called upon to pay Rs20,647 crores in three years. In PPP HAM model, we are getting more time to make the payment plus the borrowing requirement will be significantly reduced,” the person mentioned earlier said.
The port authority will not collect a special dredging levy from the port users to recover the costs associated with dredging, offshore reclamation and shore protection works on PPP HAM mode, the person emphasized, allying fears over this issue, which would make the port less competitive.
“In EPC mode, we have to shell out all the money estimated at Rs20,647 crores in three years. Instead of that, I am giving only Rs12,000 crores (60 percent of the total contract value) in five years. The balance of around Rs8,000 crores will be paid in 10 years. That works very well for us. We will give the container terminals on long term concession to private operators, from which we will get revenue based on royalty per TEU from them. The PPP operator will collect berth hire charges which will be collected by the landlord port. With this model, the the port authority will need only Rs12,000 crores initially, a large part of which it already has in its kitty and expanding with annual increments,” the person said.
