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Private investors may get exit clause in port projects

Private investors in the port sector could get an exit clause in their agreements with major ports with the Union shipping ministry planning to amend the model concession agreement. A proposal to allow companies to exit the long-term agreements is likely to be finalised soon.

“After industry feedback on the recommendations of the B K Chaturvedi report, a decision would be finalised within the next 45 days,” said a senior official. This will bring the exit conditions in the port sector in line with the policy framework in the highway sector, where companies have been allowed to exit after two years of project commissioning so long as majority stake is maintained during construction period.

Currently, private port operators are not allowed to exit projects even after the commissioning date (COD). Companies have to hold managerial control and 51 per cent of paid-up equity till three years after COD. After that, they can bring down their stake but are required to maintain at least 26 per cent equity throughout the concession period. “The proposal now is to allow complete exit after lapse of a few years following the COD. Unlike the highway sector, the port sector is slightly more complex and requires stabilisation of the project before the operator can completely go,” said an official involved in the discussions within the government.

In the past, port trusts have entered into litigations with companies because of untimely exit. For instance, ABG Ports had exited Kandla container terminal, which it was jointly operating with the Port of Singapore Authority. Both port and the company were blaming each other for violating the agreement. The company also exited operations in Haldia in 2012 and a legal battle ensued thereafter.

According to experts, amending the concession agreement could ease such troubles for the port sector. The government wants to simplify the model concession agreement with several amendments dealing with issues such as exit clause, project cost definition. The shipping ministry would draft a Cabinet note to notify these changes.

A proposal to change the ‘actual cost of project’ with the ‘total project cost’ is also being incorporated, to accommodate escalation in costs.

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