Jawaharlal Nehru Port Authority will likely flip the payment structure and period followed by the country’s highway development agency for Hybrid Annuity Model (HAM) road projects while undertaking dredging, offshore reclamation and shore protection work on this variant of public-private-partnership (PPP) estimated worth Rs20,647 crores for the planned Vadhvan Port, multiple sources said.
The customization of the highway HAM model for the Vadhvan Port’s dredging, offshore reclamation and shore protection work, is aimed at enticing bidders. It will also drastically cut J N Port Authority and Maharashtra Maritime Board’s need to borrow funds from the market to fund the work.
The new port will be constructed by Vadhvan Port Project Ltd, a joint venture between state-owned Jawaharlal Nehru Port Authority (74 percent stake) and Maharashtra Maritime Board (26 percent equity), in two phases under the landlord model.
J N Port Authority will emulate the HAM model followed by the National Highways Authority of India (NHAI) as there is no template for such a model in the ports sector. However, it will tweak the NHAI model to meet the concerns and suggestions put forward by private
contractors during the expression of interest process ran by the state-run port authority, which is helming the Rs76,220 crore project, billed India’s biggest public port with a capacity to handle 298 million tonnes (mt) of cargo a year.
“What we are planning is, instead of a 40:60 payment structure followed by NHAI, we will do 60:40,” said a person with knowledge of the proposal. “That would be the best we can do,” he added.
There are two payment tranches in NHAI’s HAM highway projects: The first tranche of 40 percent of the project cost typically is spread over five years, and the second tranche of 60 percent is paid over 10 years.
“We propose to make the first 60 percent payment in three years to align with the construction period of three years, and the balance 40 percent will be paid during the maintenance period of 5-7 years,” the person mentioned earlier said.
“Besides, maintenance dredging will not be included in the maintenance period because that was one of the biggest concerns voiced by those who filed the expressions of interest for the work. No one knows what the dredging footprints are or what will be the quantum of maintenance dredging at Vadhvan. Excluding maintenance dredging from the work will also give more objectivity to the tender,” the person said.
Most of the EoI applicants have sought a reduction in the concession period of 15 years set by the NHAI for HAM road projects, lower the timeline for payments and increase the percentage of payout in the first tranche for the Vadhvan project.
“Paying 60 percent of the contract value in three years is the ideal thing followed by a 5-7 year maintenance period during which the balance 40 percent will be paid. So, the contractor’s risk here will be only for 8-10 years and not 15 years as in the case of road projects. We also propose to take out maintenance dredging from the PPP contract because that is prone to gaming,” the person explained.
The HAM scheme for dredging, offshore reclamation and shore protection works for the Vadhvan Port project will be finalized by J N Port Authority in the next few days for submission to the Ministry of Ports, Shipping and Waterways.
The Ministry will pilot the proposal to the Public-Private-Partnership Appraisal Committee (PPPAC) for approval ahead of floating tender for the work.
The PPP HAM model is being tried out for dredging, offshore reclamation and shore protection works in an Indian port project for the first time: typically, such works are carried out through the traditional engineering, procurement and construction (EPC) mode, wherein the contractor is paid in stages during the contract period, the final bill is settled upon completion of the work and the contractor exits.
The PPP HAM model is seen as a “deferred EPC” method of undertaking the work. Instead of paying the full amount to the contractor in three years under the EPC mode, J N Port Authority will have to disburse 60 percent of the amount during the three-year construction phase.
“Under the EPC mode, we would have been called upon to pay Rs20,647 crores in three years. In PPP HAM model, we are getting more time to make the payment plus the borrowing requirement will be significantly reduced,” the person said.
Second, the dredging and offshore reclamation contractor need not wait for 15 years to get the balance amount.
“If the construction period is three years, we will give 60 percent of the contract value in three years and the balance 40 percent will be paid during the maintenance period of 5-7 years. So, we are looking at a maximum concession period of 8-10 years,” the person stated.
“We will also exclude maintenance dredging from the scope of work during the maintenance period. The contractor will be asked to maintain only the shore protection part because once the depth is achieved, the port authority will take care of the maintenance dredging work which is expected to cost not more than Rs200 crores annually,” the person said.
For the annual maintenance dredging work at Vadhvan Port, the port authority can hire a contractor from the market, like the way this work is undertaken at other ports.
“And, after getting a depth of 18-20 meters, the new port is not expected to accommodate big mother ships right from the start of operations,” the person noted.
“We will see the type of vessels that are coming to the port and if we feel that with 18-20 metres depth, the operations initially are running smoothly, then we will not do maintenance dredging at all for two years,” he said.
The port authority will not collect a special dredging levy from the port users to recover the costs associated with dredging, offshore reclamation and shore protection works on PPP HAM mode, the person emphasized, allying fears over this issue, which would make the port less competitive.
“In EPC mode, we have to shell out all the money estimated at Rs20,647 crores in three years. Instead of that, I am giving only Rs12,000 crores (60 percent of the total contract value) in three years. The balance of around Rs8,000 crores will be paid in 5-7 years. That works very well for us. We will give the container terminals on long term concession to private operators, from which we will get revenue based on royalty per TEU from them. The PPP operator will collect berth hire charges from the ships calling at the terminal, but not the vessel related charges which will be collected by the landlord port. With this model, the port authority will need only Rs12,000 crores initially, a large part of which it already has in its kitty and expanding with annual increments,” the person said.
“We are mulling over various aspects such as the tenure of the concession period, the percentage of contract value to be paid initially and the scope of maintenance work,” Unmesh Wagh, Chairman, J N Port Authority and Chairman and Managing Director, Vadhvan Port Project Ltd said, without divulging specific details.
Wagh also allayed concerns expressed in some quarters over payment to contractors.
“The concern is whether Vadhvan Port Project Ltd is able to pay. What we are saying is VPPL is majority owned by J N Port Authority, which is paying. They have to consider my parent company, which is J N Port Authority, which is a financially sound port,” he added.
(source : ET Infra)
The post J N Port Authority to tweak road HAM model for Vadhvan Port’s dredging and reclamation work appeared first on India Seatrade News.