Pilot project for developing inland ports across India

By Anjan Dasgupta and Ajoy Halder, HSA Advocates
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According to the Ministry of Transport, there are over 1,000 kilometres of navigable inland waterways in India. If developed, these could reduce stress on the country’s highways, and could also provide an alternative and efficient mode of transport for goods and people.

Anjan Dasgupta, HSA Advocates
Anjan Dasgupta
Partner
HSA Advocates

Inland navigation has been considered one of the cheapest means of transport, in terms of initial investment as well as operation and maintenance, especially when compared to road, rail and air transport. Northeast India faces several logistics, geographical and weather challenges for road and rail transport. Hence, water transport is more suitable and is also likely to act as a catalyst for economic growth in the region.

To realize the potential of inland waterways in India, the Inland Waterways Authority of India (IWAI), a statutory government body responsible for development of inland waterways, embarked on a first-of-a-kind pilot project in the east for the development of inland ports in India. This project will also assist in increasing trade between India and Nepal, as the project proposes to amend the India- Nepal Protocol to the Treaty of Transit, 1999, to specifically include inland waterways on the list of mutually agreed routes for transporting goods between India and Nepal.

Ajoy Halder, HSA Advocates
Ajoy Halder
Partner
HSA Advocates

Being a relatively new area of interest for the private sector, it was imperative to structure the project to make it financially viable and bankable as well as to encourage private sector investment. Balancing this with the government interest was also critical from a public policy perspective.

The primary objective was to create a model for future projects for development and operation and maintenance of inland ports and waterways, and to provide alternative means of transport for goods and people of India. This had to be achieved predominantly within the existing regulatory and policy framework of the country.

To achieve this purpose, the project was structured as a long-term operation and maintenance contract, and also allowed the private operator to undertake limited major maintenance work to increase the efficiency of the inland ports. While the revenue risk of the project is on the private operator, the private operator is allowed to determine the tariff for the inland port (except for the government charges), thus allowing the project to compete with other modes of transport.

This economic model is in line with port projects executed internationally. To avoid any discrimination and unfair trade practices, the private operator has to maintain a uniform port policy applicable to all port users, and also has to provide non-discriminatory access to all the users. The performance of the private operator will be measured against predetermined key performance indicators (KPIs) specified in the contract. Failure by the private operator to meet the KPIs would result in consequences for the operator, including having to pay damages.

The commensurate obligations of IWAI during the term of the contract have also been specified and are primarily limited to fulfilment of its statutory functions, such as providing navigation facilities and maintaining the draught in the river.

Termination on account of IWAI’s default would result in payment of damages by IWAI, determined as per a pre-specified formula, which essentially compensates the operator for profits not obtained due to early termination. Conversely, termination on account of operator default would result in damages to be paid by the operator to IWAI.

Selection of the private operator is being done on a transparent evaluation of its technical and financial strength at the request for qualification stage, and the bid parameter was the highest revenue share being offered to IWAI.

To ensure the participation of serious and committed bidders, the usual protections such as restricting change in ownership were included. However, this was balanced by allowing the investor to dilute in favour of others investors and eventually exit once the project has stabilized. At the end of the contract period, which is 30 years, possession of the inland ports would be handed over to IWAI.

To conclude, this first-of-a-kind model will act as a precedent and will be replicated for development of inland ports across India, which in turn will increase the connectivity of the inland waterways for transportation of goods and people across the country. Further, having received significant market interest both from domestic and international port operators, there is also talk to replicate this model for some of the bigger ports in India.

Anjan Dasgupta and Ajoy Halder are partners at HSA Advocates. HSA is a full-service firm with offices in New Delhi, Mumbai, Bengaluru and Kolkata.

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