The privatization in Indian port sector has increased significantly in the last decade. The Major Ports capacity is already stretched to its limit and capacity in the Indian port industry need to be augmented. These issues are being addressed by undertaking the Public Private Partnership models and involving captive users. New berths at major ports are constructed on PPP mode and corporatization of Port Trusts has provided better accessibility to funds by encouraging private investment. As a result, Private participation is gaining a major share in the overall investment, enabling a much needed competitive environment that discourages the inefficiencies in the Indian Port Sector.

1. Private Sector Participation in Ports
Submitted by
Shyam Anandjiwala(2014CEC2720)
Aditi Rajbansh (2014CEC2718)
Private Sector Participation in Ports
Submitted by :
Shyam Anandjiwala (2014CEC2720)
Aditi Rajbansh (2014CEC2718)
INDIAN INSTITUTE OF TECHNOLOGY , DELHI

2. Overview of Indian Ports
Major Ports
12 major
Ports
Government of India
– Ministry of
Shipping
Major Port Trust
Act, 1963
Tariff Regulation
(TAMP)
Minor Ports
187 minor
ports
State Governments/
State Maritime
Boards
Indian ports Act,
1908
No formal
regulator

3. How it started?
• Policy guidelines (issued in 1997) - enable the major ports to
set up JVs with foreign ports, minor ports or private
companies
• The Government of India - all new & existing ports will be set up
as companies under the Indian Companies Act.
• CORPORATIZATION OF PORTS / PORT TRUSTS
 Increase the financial and other powers of the Port Trusts
 Better accessibility to funds
 Better profitability and performance evaluation
 Privatisation

4. Why PPP in Ports Sector?
• To encourage and increase competition
• To enhance performance
 Capacity augmentation and utilisation rates
 Increasing efficiency & productivity
 to improve port competitiveness
• To attract investments/funding
• Strengthen linkages with global markets
• Strong Global networking

5. FACTORS FOR DEFECIENCIES IN PORTS
• Designed to handle specific types of cargo
• Under-utilisation of traditional berths and
over utilisation of new cargo berths
• Poor equipment utilisation & maintenance
• Absence of inter and intra-port competition to
poor inland connectivity

6. Source :Indian Port Association

7. PPP Framework for Major Ports
• Regulatory framework
 TAMP regulations
Priority to private berthing structures
• Feasibility Study
• Guidelines for privatization
• Tender conditions & procedure
• Foreign Investors

8. Areas for Privatization
• Leasing out the existing facilities
• Additional assets construction
 Construction/operation of container terminals,
 Warehousing & storage facilities,
 Cranage,
 Captive power plants,
 Specialized cargo berths,
 Dry docking and ship repair facilities
• Leasing of port handling equipment to private sector
• Pilotage and captive facilities

9. GOVERNMENT INITIATIVES AND
POLICY FOR PRIVATIZATION
1
• National Maritime Program (NMDP) & National Maritime Agenda
2
• Foreign direct investment (FDI) of up to 100% under the automatic route
3
• Income tax incentives allowed as per the Income Tax Act, 1961
4
• Formation of JVs between Major Ports and foreign ports, Non-Major Ports,
and private companies
5
• Standardisation of Bidding documents (RFQ, RFP and Concession
Agreement )

10. Policy Provisions (Maharashtra Maritime
Board)
Development on BOOST basis
• Developer’s selection on MOU basis or by tender if many investors
interested.
• Concession period - 50 years.
• Government land on lease, if available, at market valuation
• Equity participation by Government/MMB (maximum 11%)
• Road linkage to nearest State Highway to be part funded by the State and
rail connectivity by Developer
• Freedom to fix tariff Policy Guidelines for Captive Terminals
• Land and site for jetty to be leased out for a period of 30 years
Development on Build, Operate & transfer (BOT) basis
• Wharfage charges as per the prescribed rates notified by the State
Government
• At the end of 30 years, the jetty, superstructure & facilities on jetty will
revert back to MMB.

11. PRIVATE SECTOR INVESTMENTS
• During the year 2013-14, 16 PPP projects have been awarded at
an estimated cost of Rs. 18,640.8 crores for additional capacity
of 159 MT in the Major Ports
• Develop 10 coastal economic regions as part of country’s
Sagarmala project
• Develop the inland waterway sector for transportation of goods
• Indian ports sector has received FDI worth US$ 1,637.3 million
between April 2000 and May 2015

12. Investments as per the Financial Plans (10th & 11th)
32517
18327
2763
619
5766
4051
0 5000 10000 15000 20000 25000 30000 35000
11th plan
10th plan
Investment ( in INR crores)
Financialplan
Center
State
Private

13. CHARACTERISTICS OF PRIVATE PORTS
• A benign regulatory framework
• Lack of competition between private
operators
• Availability of supportive tariff flexibility
• No high entry barriers
• Heavy positive cash flows
• Strong drivers for cargo growth

14. PORT MANAGEMENT MODELS
Port Type Infrastructure
Super
structure
Stevedoring
labour
Other
functions
Service port Public Public Public Mainly public
Tool port Public Public Private Mainly public
Landlord Port Public Private Private
Mainly
private
Private port Private Private Private
Mainly
private
Source: The World Bank

15. PRIVATE PORTS
ADANI GROUP
Mundra Port & SEZ–
• Largest private port in terms of cargo handled
• Draft - deep natural draft availability, long waterfront
• Alignment to existing facilities - favorable
• Special Economic Zone - 33,000-acre Mundra SEZ
• Helps in creating additional demand for cargo traffic
Hazira Port –
• Construction & operation concession for 35 years
• Hinterland connectivity as it lies on the Delhi-Mumbai corridor
• Non-crude extension to the existing Shell terminal
• 1,000 metre long channel, a dredging depth - 12 metres , draft of
15 meters and a turning radius of 600 metres

16. • Mundra Ports and Special Economic Zones
(MPSEZ), Essar Ports, Gujrat Pipavav Ports (GPPL),
Karaikal Ports (MARG Group)
• The qualitative parameters - Location,
Ecosystem, Competition and Parentage.
• Quantitative parameters are – Capacity, Execution
Capability, Traffic growth and financial strength
• MPSEZ has the best strategic positioning and
long-term growth potential followed by Essar
Ports, GPPL and Marg
COMPARISION OF PRIVATE PORTS

17. Privatization models in Port Sector
• Management model for existing public assets
 The private operator has to manage the public assets and make
investment for additional infrastructure.
 Private operator is provided the right to use these assets in
exchange of that. Public sector own these assets throughout the
contract period and at the end of this period private operator
generated fixed assets are usually transferred to the public sector
but the mobile assets of private sector like cranes usually remain
with themselves.
 Information on transferring of assets at the end of contract period
is provided in ‘Transfer-back’ arrangements. There is no
compensation provided for transferring fixed assets generally which
again depends upon the contract agreement.
 Conflicts arise between private operator and public sector over
strategy when private operator is not given enough freedom to fulfil
public sector objectives.

18. • Development rights model for new
port assets
 Private operator is given right to build new assets and can
use these assets ‘exclusively’ till the end of contract period.
 Private operator has to transfer the assets free of cost at
the end of contract period.
 This model has many variants such as : Freehold of port
assets, BOO (Build, Own, Operate) , BOOT (Build, Own,
Operate, Transfer). All these models vary according to the
terms of agreement.
 Freehold of port assets means the outright sale of port
assets which is rare.
 The only difference between BOOT and BOO is that in BOO
model the concessionaire finances, designs, constructs and
operates a facility over a given period but it does not
transfer to the grantor at the end of concession period.

19. • Lease contract
 Landlord ports lease port assets and can derive substantial amount.
 Lease contracts are more popular than the management contacts as it
gives more operational freedom to the operator.
 Potential lessees can be cargo handling companies, terminal operators,
inland transport operators, dedicated terminal operators and shipping
lines, forwarding agents etc.
 Generally only land or warehouse facilities are leased. Berths can be
included or excluded from the lease. If births are excluded then the port
authority as usual collects and keeps revenue generated from berthing
fees.
• Public private joint venture
 The public sector holds a major stake in the SPC (Special Purpose
Company) which is set up to hold management contract for existing public
assets or development rights model for new port assets.
 Such contracts work as the above stated types only but the government
holding a higher stake in SPC has an effect on conditions of contract

20. PPP Variants in Port Sector
PPP Model
Operations &
Maintenance
Investment
Ultimate
Ownership
Duration
(years)
Rehabilitate, Operate &
Transfer (ROT)
Private Private Public 20-30
Rehabilitate, Lease/Rent &
Transfer (RLRT)
Private Private Public 20-30
Build, Rehabilitate,
Operate & Transfer (BROT)
Private Private Public 20-30
Build, Operate, Transfer
(BOT)
Private Private Semi private 20-30
Build, Own, Operate,
Transfer (BOOT)
Private Private Semi private 30+
Build, Lease ,Own (BLO) Private Private Private 30+
Full Privatization Private Private Private Indefinite
Source: Hammammi et al. (2006)

21. Comparison of PPP in Major & Minor Ports
Sr No. Parameter Major Ports Minor Ports
1 Typical nature of PPP
Terminal
development and
operation
Development of
greenfield sites
2 Bidding methodology of PPP 2 stage bidding Bidding/ Nomination
3 Bid parameter Revenue share
 Revenue share
 Per MT royalty
4 Regulated tariff regime Yes No

22. Case study
Kakinada Deep Water Port
Introduction
• Located on the southern part of the east coast of India
in Andhra Pradesh
• A part of the Kakinada Port
• Port related operations commenced in November
1996
• 3 berths developed by GoAP till 1999
• Master plan envisaged 15 additional berths with
requirement of an investment of over Rs. 1500 crores.
• Lack of capacity of GoAP leading to privatization of
port operations

23. PPP details
• Privatization model – OMST / BOMST
• Concession period – 20 years with an option
of 2 extensions of 5 years
• Concessionaire - Kakinada Sea Ports Ltd
(KSPL)
• Commencement date – 1st April , 1999

24. Project details
PHASE 1
OMST Model
O&M of existing 3
berths
PHASE 2
BOMST Model
Construction &
Maintenance of 4th
berth when 70%
occupancy of 3
berths is reached

25. Original Concession Agreement
1
• KSPL is permitted to levy, collect and retain appropriate
charges from port users
2
• KSPL has flexibility in deciding tariff & it is not governed
by TAMP regulations
3
• KSPL has to pay GoAP annually a 20-22% revenue share
subject to a Minimum Guaranteed Amount (MGA) clause.
• KSPL also has to pay lease to GOAP for usage of land.
4
• All movable assets at the port to be sold by GoAP to
KSPL.

26. Amendments in Concession Agreement
1
• Concession period extended from original tenure of
20 years to 30 years, with a further option for
extension by 20 years in two blocks of 10 years each
2
• Elimination of MGA clause for revenue sharing with
GoAP
3
• KSPL is allowed to undertake additional or new
developments at same terms and conditions of the
existing agreement

27. Asset Handover & Transfer back
Clauses
Handover Clause
GoAP
KSPL
Movable Assets
(as per rate in CA)
GoAP
Fixed Assets
(Free of cost)
“Transfer Back” Clause
Fixed Assets
(Free of cost)
Movable Assets
(as per Book value)
KSPL

28. Bidding Process
• International competitive bidding
• 2 stage bidding
PQ (Pre-Qualification) stage
RFP(Request for Proposal) stage
• 14 parties selected at the end of PQ stage
• 4 consortia selected after RFP stage
1. International Seaports Pvt. Limited (ISPL)
2. ABG Heavy Industries Limited
3. KPB, Malaysia (KPB)
4. Kumar’s Marine Engineering Corporation
(KMEC)

29. Evaluation of Bids
Technical criteria
• Master plan for development of facility
offered
• Methodology for traffic forecast
• Capital cost estimates
• Organization set-up for project and
operational stages
• Productivity norms
• Competency of Project Chief

30. Evaluation of Bids(Contd…)
Criteria Weight
Minimum Guaranteed Share of
Income (MGA)
50%
Percentage Share of Income to be
paid to GoAP
30%
Investment Planned in Phase 1
development
20%
Financial Criteria

31. Financing Information
Phase 1: O&M of 3 berths
Equity contribution Rs. 60 crore
Debt funding Rs. 115 crore.
Total investment Rs. 175 crore
Phase 2: Construction and O&M of 4th berth
Total investment Rs. 330 crore

32. Issues during Project Development
• Non realization of estimated traffic
• Minimum Guaranteed Amount (MGA)
• Competing ports in near vicinity
• Lateral defects in the assets
• Public resistance
• Non level playing field for private operator

33. Benefits of KDWP Privatization
• Maximization of the Port Potential
 GoAP had constructed only three berths and had a master
plan envisaging construction of 15 more berths.
 GoAP did not have adequate capacity for infrastructure
development. The private sector participation ensured
adequate traffic to take up the development of fourth berth.
 Private operator is looking forward to develop fifth berth.
• Revenue stream to GoAP
 Although MGA was eventually withdrawn, the private
operator made payments to GoAP in the form of steady
revenue share and lease payments

34. • Improvement in Port Performance
KSPL has achieved a substantial improvement in
port performance. The total cargo handled at the
port has increased from 5.6 million tonnes in FY
04 to 14.5 million tonnes in FY 09 at a CAGR of
21%.
• Demonstration Effect
KDWP set an example for port development via
PPP route. It was one of the first minor ports
developed with private sector partnership.

35. Key Lessons & Learning
• Elimination of MGA
 Minimum Guaranteed Amount (MGA) in addition to the revenue share is a
burden for private party. Government ultimately had to eliminate MGA to
save the project.
• Fair opportunity to private operator
 The government had decided to give full rights to the private party to
develop port at the time of bidding.
 There were some restrictions from the side of the government in terms of
anchorage port running parallel at the time of award.
 GoAP restricted the type of cargo handling at KDWP just to keep the
existing anchorage port working.
 In this way government did not provide fair opportunity to private party.
 This issue got resolved later on but such issue should not have raised at
all.

36. • Technical due diligence
 There were some defects pertaining to the port assets such as
cavities in the diaphragm wall , requirement of boulder removal and
requirement of dredging.
 As the defects were found at later stage it increased the total cost
of the project.
 As this was a brownfield project, the government should have done
proper technical due diligence of assets before handing it over to
the private party so that there is accurate estimation of investment
by the private party.
• Dispute resolution by mutual discussions
 The issue of eliminating MGA, public resistance, terms of
concession agreement etc were taken care by mutual discussions
between the government and private operator.
 There were no need for any litigation ultimately saving time and
resources of both the government and private operator.

37. Examples of failed bids for PPP in ports
Project Name Revenue Share Reason for Failure/ Delay
Chennai Port Trust -
Mega container
terminal project
Revenue share- 5.25%
 Revenue share offered
deemed too low by the trust
 Initial bidding saw poor
response
Ennore Port Trust -
Mega container
terminal project
Revenue share- 39.99%
 Winning bidder was
unsuccessful in finalizing
funds
JNPT – Container
terminal project
Revenue share- 50.08%
 Winning bidder did not sign
concession agreement
Source: TATA Strategic Management Group

38. Issues with PPP in port sector
• Regulatory issues
• TAMP regulations on major ports
• Poor Hinterland Connectivity
• Administrational issues
• Labour oppositions
• MCA framework
Less flexibility
Non extension of concession period

39. References
1. Raghuram, G., Udayakumar, P. D., & Prajapati, R. (2015). Effect of Legal
Issues in Infrastructure Development: The Case of Container Terminal Bids in
Jawaharlal Nehru Port Trust (No. WP2015-10-03). Indian Institute of
Management Ahmedabad, Research and Publication Department.
2. Siddharth P , Aniruddh R. (2013). Ports by PPP – TAMP as Market
Regulator. TATA Strategic Management Group
3. Aerts, G., Grage, T., Dooms, M., & Haezendonck, E. (2014). Public-Private
Partnerships for the Provision of Port Infrastructure: An Explorative Multi-
Actor Perspective on Critical Success Factors. the Asian Journal of Shipping
and Logistics, 30(3), 273-298.
4. Farrell, S. (2011, January). Observations on PPP models in the ports
sector. InCOST Symposium Public Private Partnerships in Transport: Trends &
Theory-Research Roadmap, Lisbon.
5. Private investment in port sector in India. (2011). Standard Charteres
6. http://www.gmbports.org

40. References (Contd…)
7. http://pppinindia.com/
8. http://www.mahammb.com/
9. http://kakinadaseaports.in/
10. http://planningcommission.gov.in/
11. http://infrapppworld.com/
12. http://www.ipa.nic.in/