THOOTHUKUDI : Union Government-owned V O Chidambaranar Port Authority located in Tamil Nadu’s Thoothukudi district has secured backing from the Public-Private-Partnership Appraisal Committee (PPPAC) 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.
Separately, an Empowered Committee has granted “in-principle” approval for a viability gap funding (VGF) of Rs1,950 crore for the project, per documents seen. The “in-principle” nod for the VGF recommended by the Empowered Committee will have to be signed off by the Finance Minister, Smt. Nirmala Sitharaman.
This will be the second port project to receive a VGF from the government after the upcoming Vizhinjam Port project. The PPPAC and the Empowered Committee meetings were held on 8 November.
The V O Chidambaranar Port Authority will call global bids for building and operating the terminal on a concession period of 45 years which can be extended by ten years after receiving Cabinet clearance for the project.
The project will be awarded to the private entity quoting the lowest VGF from the government (within Rs1,950 crore) for building the terminal. This is a departure from the model so far followed by the Union government owned major ports wherein cargo handling contracts are finalised on the basis of the highest royalty per TEU or per ton of cargo quoted by the bidders.
The Union government will contribute Rs1,411.19 crore (20 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 (7.64 percent).
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 outer harbour container terminal project at VOC Port has thus followed 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 terminals will be constructed in two phases with the first phase comprising a 5,635-metre-long breakwater, 3,200-metre-long rubble bund, mechanised container terminal, capital dredging in turning circle and installation of navigational buoys with an investment of Rs4,494.46 crore.
The second stage comprises a mechanised container terminal and capital dredging alongside the berths to increase the water depth to 18 metres which is estimated to cost Rs2,561.49 crore.
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 after ten years from the date of award of concession, whichever is earlier or within such extended time set by VOC Port Authority.
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.
Last year, VOC Port Authority picked J M Baxi Ports & Logistics Ltd, through a global tender, to convert Berth No 9 into a container terminal, which will add 6 lakh TEUs to the total capacity.
The port currently handles vessels with a draft of 14.2 metres. “Even after modifications in the existing infrastructure, the port will be able to handle vessels only up to a maximum of 15.5 metre draft. Further, there is a scarcity of back up area in the inner harbour for development of container yard. In order to handle the present and future trend vessels at VOC Port, outer harbour development is essential,” the port authority submitted.
The VOC Port Authority further said that the project is “crucial for handling gateway cargo and mainline vessels at the port” and “will also contribute to meeting the objective of developing VOC Port as transhipment hub”.
This indicates a change in plan by the port authority from the initial thinking on developing the outer harbour into a full-fledged container transhipment hub. This could be due to the construction of a container transhipment port at Vizhinjam.
“While the new port on the west coast is planned to cater to the transhipment traffic, the proposed development at VOC Port is initially to cater to the immense gateway traffic potential in the hinterland and would build up for future transhipment volumes as well,” the port authority said in its project proposal.
The VGF of Rs1,950 crore sought by the port authority 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 port authority said that it was seeking VGF only because of the loading of capital dredging costs onto 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 port authority has applied for environment clearance for the project and bids will be called after securing environment nod.