The government's ambitious target to expand India's port capacity by over 230 million tonnes in 2011-12 is in jeopardy – thanks to policy confusion and financing risks for private investors, reported the Economic Times.

Less than two years after the government settled on a model concession agreement (MCA) for PPPs in port projects, the Planning Commission and the shipping ministry have commenced talks to alter the framework that has failed to enthuse investors.

The dialogue on amending ports' PPP policy comes after private investors backed out of a project to build a new container terminal at the Mangalore Port.

The project will now have to be funded and implemented by the Centre – a sharp U-turn from the government's intent to push all new port projects in PPP mode.

Shipping Secretary K Mohandas said that the Mangalore port project was affected by 'unrealistic tariff structures' fixed by the Tariff Authority for Major Ports (TAMP).

"Now the Port Trust would develop the civil infrastructure for the new terminal, and PPP would be considered for mechanising operations like cargo handling," he said.

Mohandas, however, said that minor changes have been proposed in the MCA, which would not amount to an overhauling of the policy.

Till recently, PPPs in port projects were done on the basis of the model concession agreement for the roads sector, which was clearly not feasible. An MCA for ports was finalised after much debate but has got little buy-in yet.

"For us, the Eleventh Five Year Plan was reduced to a three-year plan as for two years, we kept discussing the ideal MCA and other bidding documents for ports," said Rakesh Srivastava, joint secretary in the shipping ministry.

Since the MCA was finalised, 13 projects were awarded in 2009-10 and just nine in 2010-11. The target for 2011-12 is to award 24 projects to add port capacities of 232.43 million tones per annum.

Even if the MCA is tweaked to attract private investors into these projects, there are serious financing issues that need to be overcome.

"The interest rate, at which projects are sanctioned by lenders, is set only for two years, with a re-set clause after that," said Srivastava. "This makes the project uncertain for investors as port projects take time to implement," he said.

What aggravates this problem is that port projects or project developers are unable to get a credit rating for the first few years of the project. "Not having a rating attracts a penal interest of one percent over and above the interest. We have requested that this should be waived," Srivastava said.

"There is more of an issue with the planning and structuring of all port projects," said Amy Mistry, manager (transportation advisory) at Feedback Infra. "Banks are wary of funding unless there is a traffic guarantee which in turn affects the viability of the project.’’

Unlike the road sector, port projects don't get any viability gap funding from the Centre, leaving the onus on private developers to raise the upfront capex cost.

Source: CargonewsAsia.