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PSA-Sical Terminals, India’s first private container handling facility, on the verge of collapse

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TUTICORIN : India’s first private container terminal at a Centre-owned major port moved closer to an inevitable collapse with PSA-Sical Terminals Ltd, majority owned by Singapore’s PSA International Pte Ltd, exhausting all legal options to settle royalty payment and rate related issues at its facility in V O Chidambaranar Port Authority.

The latest setback for the terminal operator came on Tuesday when a division bench of the Madras High Court dismissed an appeal filed by it against the 19 January order by a single bench of the same court on a petition brought by the operator to settle the dispute over royalty payments.

PSA-Sical Terminals Ltd owes royalty dues of Rs1,027 crores to V O C Port Authority from 2011 as the terminal operator and the port authority were locked in multiple litigations, all of which have now been decided in favour of the port.

“Once it has come to this stage, the only option available to V O C Port Authority is to issue the termination order,” a government official said.

The port authority had issued a termination notice to PSA-Sical Terminals on 20 January, a day after the single judge bench of the Madras High Court gave an adverse ruling.

The appeal filed by the terminal operator against the order of the single judge bench also referred to the termination notice issued by the port authority in January.

The port authority is expected to issue the termination order on Wednesday, the government official said, with the termination taking effect after 30 days.

The port authority will take over the terminal and plan to run it for two years with the help of an operation and maintenance (O&M) contractor picked through a tender. The tender will be awarded to the entity quoting the lowest rate from the port authority for handling a container.

After evicting PSA-Sical Terminals from the facility, the port authority plans to proceed legally to recover dues of Rs1,027 crore.

PSA-Sical Terminals, the entity that has been running the container terminal at VOCPA since 1998, is 51 per cent owned by PSA International, a unit of Temasek Holdings Pte Ltd, Singapore’s sovereign wealth fund.

The terminal has been roiled by tariff issues for many years and is the most litigated public-private partnership (PPP) project in the Indian ports sector.

In its petition before the single judge bench, PSA-Sical Terminals had sought to quash a decision by the Ministry of Ports, Shipping and Waterways to scrap a panel that was formed in July 2020 for resolving disputes/issues relating to royalty payments by the terminal, stating that it was “arbitrary, unilateral and against the principles of natural justice”.

The committee was disbanded by the Ministry on November 11, 2021 after the Supreme Court overturned an arbitration tribunal award that allowed PSA-Sical Terminals to rewrite the contract by switching to a revenue share format from a royalty model, in a July 28, 2021 order.

“When the Apex Court had finally adjudicated the issue with regard to royalty/revenue share dispute, the filing of the Writ Petitions, which are impugned in the above Writ Appeals would only amount to interfering with the order passed by the Hon’ble Supreme Court,” the division bench of the Madras High Court wrote in its 7 June order.

“Once the Apex Court has pronounced an order holding that royalty holds the field and it has not been changed since entering into an Agreement between the parties, the purpose of constitution of the Committee on 21 July 2020 to consider the issue between the appellant (PSA-Sical) and the 2nd respondent (VOC Port Authority) , having attained finality at the hands of the Apex court, nothing remains to be deliberated by the Committee, which resulted in the disbandment of the Committee,” the Madras High Court said.

“When the Hon’ble Supreme Court had decided the royalty issue as per the terms of the Agreement by setting aside the Award of the Arbitral Tribunal, thereby negativing the revenue share basis, the said issue no longer survives for being dealt with by the Committee. Further, the constitution of a Committee is within the realm of the 1st respondent (Ministry of Ports, Shipping and Waterways) and it is not open to the appellant to seek for a direction to the 1st respondent to constitute a Committee to redress their grievance,” the court said.

“The appellant cannot seek for continuance of the previous Committee, when the reference before the previous Committee having become infructuous for the reason that the Hon’ble Supreme Court had already adjudicated the said issues. It is also a settled position of law that the Courts cannot direct the Government to frame a policy for settlement of disputes and that with regard to the policy decisions, the Courts, normally, shall not interfere. The appellant having accepted and entered into an Agreement with the 2nd respondent for payment of royalty with a provision for yearly escalation, they cannot now turn around and take a different stand,” the court noted.

“The learned Single Judge also observed that once the Hon’ble Supreme Court has rendered its decision, the appellant and its holding Company are bound to pay the sum due to the 2nd respondent and that through continuous litigative process, the appellant and its holding Company are preventing the 2nd respondent from collecting the huge amount due to it from the appellant. The learned Single Judge, taking into consideration all these aspects, found no perversity or arbitrariness in the act of the 2nd respondent and rightly dismissed the Writ Petitions,” the Court said.

“For the reasons stated above, we do not find any ground to interfere with the order passed by the learned Single Judge. Accordingly, the Writ Appeals are dismissed,” the division bench said.

Abhishek Manu Singhvi represented PSA-Sical in the high-profile case.

In June 2011, PSA-Sical secured a stay from the district court in Tuticorin, freezing the annual royalty it is contractually mandated to pay VOC Port Authority at the level set for 2011 as part of the 30-year contract.

This was the first instance of a court-backed freeze on revision in royalty for a port contract after the ports sector was opened to private funds in 1997.

According to the terms of the PSA-Sical contract, the royalty per twenty-foot equivalent unit was Rs102 in the second year of operations. In the 30th year of operations in 2028, it will reach Rs 5,178 for a TEU as the royalty rises by 20 per cent every year in July till the end of the contract.

As a result of the Tuticorin district court order, PSA-Sical continues to pay a royalty of Rs 1,969 per TEU (the level set for 2011 in the contract) to VOC Port Authority.

The royalty has to be paid on either the actual volumes handled in a year or on the contractually mandated minimum guaranteed throughput (MGT) of 300,000 TEUs, whichever is higher.

In the 23 years since starting operations, PSA-Sical made three attempts to raise rates for the services provided at the terminal, but each time the tariff regulator for the Central Government-controlled ports slashed rates — by 15 per cent in 2002, 54 per cent in 2006 and 34 per cent in 2008, which PSA-Sical did not implement by securing stay orders from the Madras High Court.

PSA-Sical has defended its move to freeze the royalty pay-out with the backing of the court, arguing that the tariff cuts would reduce the revenue-earning capability of the terminal and turn it into a loss-making unit. This is because the revenue earned will not be sufficient to cover the cost of operating the terminal, let alone make profits after sharing a portion with the government port every year.

PSA said that it cannot give more royalty to VOCPA till it is allowed to increase rates.

PSA-Sical is charging its customers some Rs2,138 per TEU (the rate set in 1999), whereas the royalty exceeded the tariff rate in 2011 itself, which was Rs2,264 per TEU.

The current royalty rate of Rs3,863 per TEU is far more than the tariff being collected by the terminal.

The arrears recovery process could be an embarrassment because both PSA and VOC Port Authority are owned by the respective governments. Besides, PSA also runs container terminals at Jawaharlal Nehru Port Authority and Chennai Port Authority, both Centre-owned.

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