Chennai port defers negotiations with Essar
Chennai port will not negotiate a higher revenue share with the Essar Group for building a Rs.3,686 crore container terminal till the central government reviews its decision to deny security clearance to Adani Ports and Special Economic Zone Ltd (APSEZ), which also bid for the project, two people briefed on the matter said, Livemint reports.
A consortium of Essar Ports Ltd and Vadinar Oil Terminal Ltd quoted a revenue share price bid of 5.25% when the bid was opened on 24 December. The price bid of APSEZ, the only other bidder from a shortlist of seven, was not opened because it was not given security clearance.
Port contracts at Union government-controlled ports are decided on the basis of revenue share. The bidder willing to share the most from his annual revenue with the port gets the contract. Price bids for port contracts are opened after pre-qualified bidders are granted security clearance by Union government ministries such as home, defence, external affairs as well as the Intelligence Bureau and the Cabinet Secretariat.
Chennai port is yet to decide on the lone price bid of Essar Group for the planned container-loading facility. On 26 December, the port’s board of trustees decided to set up a committee to negotiate a higher revenue share percentage with the Essar Group.
The port has now put on hold the board’s decision, a spokesman for Chennai port said, because APSEZ, India’s biggest private port operator, had submitted a representation to the port seeking a review of the government’s decision to deny security clearance to the firm. The port has referred the representation to the shipping ministry which, in turn, sent it to the home ministry for a decision.
“It doesn’t make sense to start negotiations with the Essar Group if APSEZ is granted security clearance to bid for the project based on a representation given by the firm,” the spokesman said.
A spokesman for the shipping ministry confirmed the development.
APSEZ was granted security clearance for the project earlier and in the first round of bidding in 2011, it was the only bidder to submit a price bid. But, its revenue share price bid of 1.5%, which was later scaled up to 5% after negotiations, was rejected by the Union government-controlled port because it was below its expectations. Chennai port then re-invited price bids form all the seven shortlisted bidders and received two bids from Essar Group and APSEZ.
Since November 2010, APSEZ has been denied security clearance by the government to bid for projects such as the fourth container terminal at Jawaharlal Nehru port, mechanized iron-ore loading facilities at Vizag port and operating Vizhinjam port in Kerala. The government has not disclosed the reasons for the denials.
The planned terminal at Chennai port is designed to load 4 million standard containers a year when fully operational. It is one of the 25 projects to be auctioned to private firms by March as part of the government’s plan to expand capacity at the dozen ports it controls.
Chennai, India’s second biggest container port, has two container-loading facilities that are run separately by DP World Pvt. Ltd and PSA International Pte Ltd, with a capacity to load a total of 2.8 million standard containers a year. The terminals loaded a combined 1.55 million containers in 2011-12. Between April and December, they loaded 1.16 million containers.