No other infrastructure sector has witnessed such a raft of contractual disputes as has India’s ports sector , particularly facilities owned by the central government. While the award of port contracts to private firms is announced with much fanfare, those that fall by the wayside due to defaults often don’t get any mention at all.
Recently, Mormugao port decided to scrap a contract awarded to Gammon Infrastructure Projects Ltd for building a facility to handle coal. The port, one of the 13 owned by the central government, unilaterally cancelled the deal as the government of Goa, where the port is located, delayed granting permission to establish the facility on pollution grounds.
Mormugao port cited Gammon’s failure to tie up funds for the project within the stipulated period as the reason for the cancellation. Gammon says that two lenders had agreed to fund the project, provided it had the approval of the Goa Pollution Control Board to start construction. Infrastructure lenders always insist on environment clearance as a precondition for approving loans.
The decision of the port authority took Gammon Infrastructure by surprise because it had sunk a few crores for pre-project activities such as preparing a detailed project report. Gammon went to the court and got the cancellation stayed.
Essar Ports Ltd, a part of the diversified Essar Group, has been waiting since November 2009 to start constructing a 10-million-tonnes (mt) capacity coal terminal, which it had won in a public auction at Paradip port on the eastern coast. The forest clearance for the project came in July 2012, a key milestone that allowed the firm to start constructing the facility.
Till today, Essar hasn’t been able to start constructing the facility because Paradip port is yet to hand over the project site to the firm, citing a court case.
A consortium led by Singapore-listed commodity trader Noble Group Ltd walked out of a deal to set up a 10 mt capacity iron ore berth at Paradip port because by the time the forest clearance for the project came in July 2012, the project had become unviable due to cost escalations. The agreement for the project was signed in July 2009.
Anil Agarwal-promoted Sterlite Industries (India) Ltd exited a deal to build a multi-purpose berth for handling clean cargo including containers at Paradip port, stating that a three-year delay in getting forest clearance rendered the project unviable.
In a separate case, Gammon Infrastructure Projects had sought Rs.350 crore as compensation from Mumbai port for failure to fulfill obligations that have delayed the opening of a container terminal the firm is building there. Gammon has completed the construction of the berth for the Rs.1,228 crore project but is unable to start operations because the port is yet to complete dredging work and hand over the entire back-up area required to store containers.
Gammon is also awaiting security clearance from the government for buying cranes from overseas makers for loading and unloading containers at the terminal.
Gammon had earlier placed an order with China’s state-owned port container crane maker Shanghai Zhenhua Heavy Industries Co. Ltd (ZPMC) for six quay cranes and 20 rubber tyred gantry cranes worth Rs.500 crore. But Gammon had to cancel the order with ZPMC after the government denied security clearance to the Chinese firm to supply the gear.
The government has now introduced new rules that require equipment suppliers to cargo terminals to get security clearance from the government. So far, such a clearance was applicable only to port developers selected through a competitive bidding process.
Gammon has now given the names of all the top crane makers to the government for security clearance ahead of placing order to avoid delays.
There are at least seven different court cases filed by terminal operators, challenging the decision of the port tariff regulator to cut rates for the services provided. Some of these cases have dragged on for years with no settlement in sight.
There are also instances where projects have collapsed due to non-fulfillment of contractual obligations by the port authorities, notably a container loading facility run by ABG Infralogistics Ltd at Kandla port.
Such disputes have often delayed the implementation of the much-needed capacity expansion plans at the ports owned by the Indian government, hurting investor sentiment. In comparison, the development of ports outside the control of the Indian government has progressed at a much faster pace since they are seen to be relatively free from such disputes.
The situation calls for the setting up of a dispute resolution mechanism that can settle disputes quickly as and when they occur before they reach a point of no return.
The port authorities would be better off focusing on the growth aspirations of their ports rather than wasting time and effort in non-productive work.
It is also equally important to have all clearances, including environment, forest and coastal regulation zone, in place before projects are put to tender. This would avert uncertainties surrounding the projects and cost escalations arising from delayed.
Source:- carbonpositive.net
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