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VOC Port Authority calls global bids to build Rs7,056 crore box terminal in outer harbour

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THOOTHUKUDI : V O Chidambaranar Port Authority, the state-owned entity that runs the port located in Tamil Nadu’s Thoothukudi district, has called bids to build a 4 million twenty-foot equivalent units (TEUs) capacity container terminal in the port’s outer harbour with an investment of Rs7,055.95 crores, adopting viability gap funding (VGF) as the sole criteria for awarding the 45-year deal, a first in the major port privatisation programme.

The port authority has sought bids based on the lowest VGF quoted by bidders for developing the project, marking a departure from the model followed so far by the Union government owned major ports wherein cargo handling contracts are finalised on the basis of the highest royalty per twenty-foot equivalent unit (TEU) or per ton of cargo quoted by the bidders.

“The VGF shall constitute the sole criteria for evaluation of bids: The Project shall be awarded to the bidder quoting the lowest VGF,” the port authority wrote in the tender documents.

The VGF has been capped at Rs1,950 crores or actual quote, whichever is lower.

An Empowered Committee in the Ministry of Finance has granted “in-principle” approval for a VGF of Rs1,950 crore for the project, per documents.

This will be the second port project to receive a VGF from the government after the upcoming Vizhinjam Port project being developed by the Adani Group.

Prime Minister Shri Narendra Modi will lay the foundation stone for the outer harbour project on 28 February at VOC Port, officials said.

The VGF of Rs1,950 crore translates into 27.64 percent of the total project cost (which is less than 40 percent of the project cost available under the VGF scheme).

The Union government will contribute Rs1,411.19 crore (about 72 percent of Rs1,950 crore) as VGF with the Ministry of Ports, Shipping, and Waterways/VOC Port Authority chipping in with the balance Rs538.81 crore.

The VGF share in the first stage of the project is Rs686.02 crore while the balance VGF of Rs1,263.98 crore will be disbursed during the second stage.

If the actual VGF discovered through the bidding process is less than Rs1,950 crore, the VGF to be paid in the two stages will be reduced proportionately.

The port authority said that it was seeking VGF only because of loading the breakwater construction and capital dredging costs onto the private entity developing the project. “Otherwise, there would not have been a requirement of VGF for the port development project only,” it stated.

“The cost of capital dredging is meticulously calculated with the help of IIT Chennai. Therefore, there is no point in offering more VGF than required, VOC Port Authority said, adding that it was “confident of getting bids within this VGF (of Rs1,950 crore)”.

The outer harbour container terminal project – almost a new port – is structured on the model adopted by the neighbouring Kerala government for building a container transhipment port at Vizhinjam near Thiruvananthapuram.

There will be a moratorium on payment of revenue share to the port authority for ten years from the date the contract is signed. The VOC Port Authority will collect a revenue share from the private operator from the 11th year after the concession is awarded that will be equivalent to 1 percent of the gross revenue from the facility. The revenue share collected from the private operator will rise by 1 percent every year till it reaches 35 percent.

The private operator winning the deal will be free to set rates based on market forces. However, the tariffs set by the terminal operator should not be more than the highest tariff at any container terminal in major ports.

The project will earn revenues from berth hire charges, container handling charges, storage charges and miscellaneous charges.

The outer harbour project will comprise two container terminals, each having a berth (quay) length of 1 km with a capacity to handle 2 million TEU’s each. The container berths will be designed to handle 22,000-TEU capacity vessels.

The terminals will be constructed in two phases with the first phase comprising a 5,635-metre-long breakwater, 3,200-metre-long rubble bund for reclamation of dredged materials to create backup storage yard, capital dredging, berth/jetty construction, mechanization in the berth and stack yard, rail lines and installation of navigational aids with an investment of Rs4,494.46 crore.

The private operator will be tasked with deepening the area in front of the terminals/berths and other parts of the Outer Harbour to 16.90 metres and approach channel to 17.40 metres to help handle vessels of up to 16 metres draft. The capital dredging involves a dredging quantity of 9.73 million cubic metres.

The second stage comprises another 1 km of quay with mechanised container handling equipment and capital dredging alongside the berths to handle 16 metres draft ships estimated to cost Rs2,561.49 crore.

The outer harbour terminals will handle gateway as well as transhipment cargo and help transform VOC Port into a transhipment hub on India’s east coast. This will reduce the country’s dependence on overseas ports such as Colombo and Singapore to send and receive container cargo, saving time and costs of as much as $200 per TEU for exporters and importers. In turn, it will translate into foreign exchange savings of some Rs4,000 crores a year for the exchequer.

The project will be funded through equity of Rs1,531.78 crore (all in stage one) and debt of Rs3,574.17 crore.

The project will fetch a net present value of Rs646.86 crore (at 12 percent discount rate) while the NPV for the private investor will be Rs1,496.17 crore (at 12 percent discount rate), per the VOC Port Authority.

The project’s internal rate of return (IRR) is estimated at 13.19 percent, equity IRR at 16.20 percent and economic IRR at 15.47 percent.

The private developer will be contractually bound to construct the second stage of the project two years after the average annual volume of cargo handled by Terminal 1 reaches 70 percent of its capacity of 2 million TEUs for two consecutive years or 96 months from the date of award of concession, whichever is earlier.

The terminal operator will be contractually mandated to handle a minimum guaranteed cargo volume of two million TEU’s between the 16 and 20th year from the award of concession, 2.4 million TEU’s between 21st and 25th year, and 2.8 million TEU’s from the 26th to the 45 th year.

VOC Port, the third largest container handler among the dozen state-owned ports, currently has two container terminals in its inner harbour, run separately by PSA SICAL Terminals Ltd (draft of 11.7 metres) and Dakshin Bharat Gateway Terminal Pvt Ltd (draft of 14.2 metres) with a capacity to handle a combined 1.02 million TEUs. The average capacity utilization of the two terminals is about 80 percent.

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