Nsict Group 1

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PPP GuidelinesPPP Guidelines

� Reasons f or PPP ± not just private investment, but improve

efficiency, productivity and QoS as well as competitiveness

� PPP Guidelines

� Open tenders ± BOT

� License Period ± 30 Yrs

� Two bid system

� Based on

1) Upfront fee

2) Royalty per ton

3) Minimum guaranteed cargo

� NPV Basis



` India¶s First PPP initiative in the port sector.

` Concession ± 30 years on BOT basis for 600m quay length container terminal along with container

handling equipment and other facilities 20 hectares of reclaimed Container yard



NSICT NSICT -- ConsortiumConsortium

y Formed in July 1997

JJ

N N

PP

TT

N N

SS

CC

II

TT

P&O AustraliaP&O Australia

PortsPorts

KonsortiumKonsortium

PerkapalanPerkapalan

BehradBehrad

DBC Group of DBC Group of

CompaniesCompanies

Tariff

Authority

TT

AA

MM

PP

SPV

StructureRegulator



` Comply with the techno commercial conditions outlined

in the agreement

` Ensure timely project completion

` Ensure safety provisions and comply with the

requirements of International safety Standards

` Abide by the operations and maintenance plan in trust

for eventual transfer to the Concessioning Authority on

termination of the agreement and therefore, will not do

any act as a result of which the value of Port Assets andProject Facilities and Services is diminished.



` To promptly and diligently maintain, replace or restore any

of the project facilities or part thereof which may be lost,

damaged, destroyed or worn out.

` Shall during the Concession Period pay in a timely manner all taxes, duties, levies, VAT, cess and charges.

` Collect various charges from Port users etc.



` NSCIT provided services better than envisaged and wasawarded by CII ± for excellence in Infrastructure.

` Induced Intra-port competition

` There seems to be matter of regulatory capture as the

decisions were favorable to NSCIT` Took advantage of the loophole in the concession

agreement by claiming Royalty as cost from Port users,although they did good for profit maximization for shareholders.



` Port trusts would continue to play a regulatory role

` Ensure that private participation does not lead tocreation of monopolies

` Case facts No evidence that JNPT played regulatory role to protect user

interests

Did not proposed tariff revision ahead-of -schedule (Guidelines for regulation of Tariff at Major port, 2004)

I

mproper assessment of Bid` JNPT should have supported TAMP

Technical aspects

Port operation cost



y JNPT as regulator (entrusted by the MPT act & PPP

guidelines) Should have clearly defined and enforceable reporting

requirements

Should have validated the information provided by NSICT (audit) Should have enforced the clause mentioned in the concession

agreement

x Reserve 33% of berth days for common user facilities

x Follow ³First Come First Served´ principal

xOpen to all and any shipping lines



` Independent statutory authority with power to determinethe tariff to be charged by Port trusts as well as byprivate providers of port facilities Power confined only to determination of tariff

x Safeguarding the interest of shippers/consignees and other portusers.

x Ensuring just and fair return to ports.

x Encourage competition, economical use of resources, efficiency inperformance and optimum investment.

x Ensuring transparency and participative approach while discharging

its functions. No power related to setting and enforcing of performance

standards

` Tariff guideline (1998) Cost plus approach with assured rate of return



` Tariff Determination Norms for Debt Equity Ratio Cost plus approach with 15% return on Capital employed (ROCE)

x Capital employed included debt & equityxIf cost of debt < 15%, then return on equity > 15%

x If cost of debt > 15%, then return on equity < 15%

Traffic forecast in tariff setting Cost Calculation !

x Absence of any norms to determine costx Private Operator knows more than the regulator x Relied completely on the data given by NSICTx No power to demand audited costing & performance related

information



` Tariff Determination Determined tariff shall be in force for three years (with some

exceptions)

Continuous review is required to adjust the fluctuation in projected

traffic

` Royalty Treatment Treatment of royalty as cost is one of the biggest flaw of the

bidding



y Department of shipping (DoS) issued guidelines for PPP

in the port sector in 1996

y Objectives for private sector participation in port sectors Improvement of efficiency & Quality of service

Resource mobilization for creating additional capacity

Bring competitiveness in port services

Financial viability for the private players



y Competition

y Market

High Demand & Scarce Resources Possibility of extracting monopoly rent

PrivateParticipation

NSICT

Government(Port Trust)

JNPT

Intra-port

Competition

GovernmentGovernment ± ± Role & Behaviour Role & Behaviour



y Bidding Competitive bidding

Private participation on BOT basis

Concession period ± 30 years

All assets to revert back to the Port Trust, free of cost ± Noincentive to revert back assets in good condition

Two bid system

Financial bid

x An upfront fee for the license

x Royalty per ton of cargo to be handledx The minimum guaranteed cargo

y Selection criteria ± Highest NPV of royalty offered



y Bidding Treatment of royalty as cost is one of the biggest flaw of the bidding

The selection criteria is royalty based and there is no mention that

how royalty would be treated

Treatment of royalty as cost would not serve the basic purpose of

PPP ± Any bidder can quote any amount of royalty and would

charge this amount as cost

Treatment of royalty as cost would finally mean charging end

customer (port user )



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Nsict Group 1