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DP World, one of top foreign investors in ports, running out of options as contract terms nears end

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DUBAI : DP World Ltd of Dubai, is running out of options to stay in the container terminal business on India’s western coast where it had build-up sizeable presence and volumes over two decades, as the contract term nears end in the next few years.

Having lost the race for the Jawaharlal Nehru Port Container Terminal (JNPCT) deal where it emerged fourth in the auction last month, DP World is left with a “chance” coming up at Deendayal Port located at Kandla in Gujarat to retain its strong foothold on the western seaboard.

That “chance” is a tender floated by Deendayal Port Authority to build a Rs4,243.64 crore, 2.19 million twenty-foot equivalent units (TEUs) capacity terminal at its satellite port located at Tuna-Tekra with private funds.

Deendayal Port Authority, the entity that runs India’s biggest State-owned port by volume, is anticipating a tough fight over the container terminal tender because “certain things are happening”, according to a port official.

By “certain things are happening”, he was referring to D P World’s two terminal contracts in Jawaharlal Nehru port – India’s second biggest container gateway – completing their tenures sometime in 2028.

Also, DP World’s terminal concession at Mundra port, located some 60 kms away from Deendayal port, is co-terminus with the 30-year concession awarded by the Gujarat government to Adani Ports and Special Economic Zone Ltd (APSEZ) for Mundra, which will end in February 2031.

The Gujarat government has hired consultancy firm A T Kearney to help draft a policy on extending or renewing port concessions expiring after completing their initial 30-year terms.

“It is not certain whether DP World would continue to run the Mundra International Container Terminal Pvt Ltd (MICT) even if the Gujarat government extends or renews the concession period for Mundra port for a fresh term in favour of APSEZ,” said a port industry executive.

A legal fight, running several years, between APSEZ and D P World over the sub-concession for MICT and the “not too cordial relations” between the two entities does not give hope that the Dubai firm would continue to operate in Mundra port.

If these things happen, DP World’s presence on the Western coast would be reduced to a container transhipment terminal it runs at Vallarpadam in Cochin Port.

D P World will have no footing on the western coast, except for the transhipment terminal in Cochin Port if it does not play its cards well.

“Having lost JNPCT where it had the maximum at stake to win the tender, DP World is expected to go after the Tuna-Tekra terminal. And it should,” a Port Executive said.

The nation’s interest, he said, will be best served if the container terminals are run by different entities.

“Otherwise, there will be a monopoly,” he said in a veiled reference to the growing presence of APSEZ along the country’s coastline.

“So, there is a dire need to have other operators. I really wish that somebody else comes who can give competition to Adani. Jaise hindi mein kahavat hain, ‘aag ke liye paani ka darr bane rehna chahiye’ (fire should always remain in fear of water),” he remarked.

DP World, the largest listed global port operator, has invested some $1.2 billion in India since 1997 and is currently the only foreign port operator running five terminals at strategic growth locations in Mundra, Jawaharlal Nehru, Chennai and Cochin ports. These terminals manage close to 5 million twenty-foot equivalent units (TEUs) a year, accounting for a market share of over 20% of India’s annual container volumes shipped through its ports.

The tender floated by JNPA to privatise the box terminal run by the port authority was crucial to D P World’s India strategy.

DP World runs two of the five container terminals currently operating at JNPA. The Nhava Sheva International Container Terminal Pvt Ltd (NSICT) and the Nhava Sheva (India) Gateway Terminal Pvt Ltd (NSIGT), the two terminals run by D P World, have a berth length of 600 metres and 330 metres respectively.

NSICT was the one of the first two private container terminals that started operations after India opened major ports to private funds in the late 1990’s. NSICT came into D P World’s fold after it acquired P&O Ports in a global deal in 2005.

NSIGT started operations in 2015.

Winning the JNPCT tender would have helped the Dubai firm add another 680 metres of berth length, giving it a continuous, linear quay (berth) length of 1,610 metres and help reap the benefits of scale in berthing ships.

Besides, it would have allowed D P World to merge the terminals yards where containers are stored and give it a bigger area for stacking boxes.

Losing the JNPCT tender is seen as a setback for D P World as the contracts for both NSICT and NSIGT will end in 2028.

There is no certainty that D P World will continue to run these terminals post 2028 in the absence of an automatic extension clause in the concession agreements. There is also no certainty that D P World will win these terminals when they are put to tender on completing their respective contract terms in 2028.

“Thus, the JNPCT tender was vital for D P World’s fortunes in J N port, where it had helped bring volumes and put the port located near Mumbai on the world map of container ports,” said the port industry executive mentioned earlier.

In June 2003, the Adani Group sold the first container terminal at Mundra port to P&O Ports (since acquired by DP World, majority owned by the Dubai-government, through a global deal) for $195 million.

DP World, the operator of MICT, contested the operation of the second container terminal at Mundra port by APSEZ, citing the non-compete clause in the framework agreement signed by the two firms.

While quashing an injunction sought by MICT, a city civil court in Gujarat ruled that the framework agreement has been superseded by the subsequent sub-concession agreement between the parties. The dispute was taken by DP World to the Supreme Court which is yet to be settled.

Critics say that tepid growth in volumes and overcapacity in container handling facilities on the western coast would make the Tuna-Tekra “choice” a difficult one for D P World.

“The super heavy projects such as the one planned at Tuna-Tekra require super heavy cargo,” said the top executive at a Mumbai-based port logistics company. “The terminal that D P World can possibly win to stay in business on the western coast does not have the underlying volumes to justify investment of about half a billion dollars,” he said.

“If DP World was running out of options on the Western coast, they should have bid aggressively for the JNPCT tender because it offered maximum synergies with its existing two terminals besides giving it operational continuity in Jawaharlal Nehru port,” he said.

DP World’s royalty price quotation of Rs4,030 per TEU (some 10.8% lower than the winning bid) on the JNPCT tender is a clear indication from the company management that it would bid “aggressively” to the extend the investment is profitable, he added.

DP World did not respond to a mail seeking comment on its strategy for the Western coast.

On the Eastern coast, DP World runs a solitary terminal – Chennai Container Terminal Pvt Ltd – at Chennai port. In March this year, DP World sold its 26 percent stake in Visakha Container Terminal Pvt Ltd to majority partner J M Baxi Ports & Logistics Ltd and exited the facility.

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