The ambitious container terminal project of V.O. Chidambaranar Port Authority, headquartered at Thoothukudi in the state of Tamil Nadu, has once again gone in for a fresh tender. This time around, the port authority is looking at private investment to the tune of ₹7,055.95 crores to design and construct a 4-million-TEUs-capacity container terminal at its outer harbour of the port-a step that shows how India’s port infrastructure is gaining momentum these days.
Background: Earlier Tenders
The earlier six-month process of tender that had been invited for this purpose was canceled in October 2023 by the port authority for the two applicant groups did not pass the level of qualification criterion. This turned out to be an outcome due to which evaluation regarding the process undertaken for this project was seen necessary, however tender conditions have mostly remained the same.
The government policy is the reason that has rejected the variation of original tender conditions. As told by the senior officials, parameters of the project and tender conditions can only be changed if two consecutive failures occurred in tenders. The government stand to achieve uniformity in such massive infrastructures is being undertaken with the positive feedback for its future iterations.
Government Flexibility
For example, during a 2024 roadshow earlier this year, officials from the government said that should the industry feedback be such that would reflect, even changes could be accommodated if they represent necessary modification such as being unworkable to cost estimates, or structuring in some aspects which could be worked on again. The flexibility of the government relating to the design of the project would likely encompass viability gap funding on extension or another funding model; this also involves considering the already in-use hybrid annuity models for projects as big as the Vadhvan port.
Despite these reassurances, bidders have been complaining of unreasonably costed estimates and project structure during a Mumbai roadshow held earlier this year. The industry felt that the cost estimates made by the port authority were inflated for dredging and breakwater construction works, and that made the financing of the project quite difficult.
Project Cost Estimates Issues
The National Technology Centre for Ports, Waterways, and Coasts, commissioned by the V.O. Chidambaranar Port Authority from the Indian Institute of Technology Madras, was entrusted with developing the Detailed Project Report for the container terminal. It was based on this report that the port authority had sanctioned most of the budgetary allocations towards dredging and breakwater construction. For example, the cost of constructing a 5,535 km-long breakwater was estimated in the range of ₹698.45 crore. Dredging was estimated at ₹1,233.51 crore.
But the estimates for this project, mainly on the two major areas, were termed grossly exaggerated by most of the potential bidders, which termed the estimates as “grossly exaggerated.” Investor confidence may have been affected by such high cost overestimates, and such cost overestimates did make the project unattractive to private developers.
VGF Change in Bidding Parameters
V.O. Chidambaranar Port Authority will continue to go ahead to revise the competitive tendering system by having an aim to make it more attractive and it will shortlist the winner who quotes VGF lowest so that the contractor would be issued without identifying anyone quoting the maximum royalty per TEU or cargo ton. The cap of viability gap funding be ₹1,950 crores that constitutes nearly 27.64% of the total cost.
This is in contrast with the earlier trend in other mega government-owned port projects where often the highest tender would prevail. Offering a VGF allowance essentially was to offset the huge capital outlay on breakwater construction and dredging that the private operator had to make.
Despite these efforts, the bidders have raised concerns that the cost estimates of the port authority are still too low and may be undervaluing the project by as much as 50%. As a result, some bidders have suggested increasing the VGF allocation to at least 50% of the total cost to make the project more financially viable for private players.
Incentives for Bidders
To attract more private participation, the port authority has offered a ten-year revenue-sharing holiday. The operator will only start to share revenues after the 11th year of operation. Revenue share will begin at 1% and rise by 1% each year, topping out at 35% by the 35th year. Further, the guaranteed minimum cargo has, by port authority, become defined as what cargo the operator must handle, beginning year 16 onwards. The MGCs themselves increase first as well and target such a ramp up, starting at 2 million TEUs up to 2.8 million TEUs within the 45th year itself.
These are terms to present the project more attractively for private investors; however, yet to be proven is whether this will actually quell the questions which arose in the earlier round of tendering.
Road Ahead: Does the Project Finally Succeed?
A step in the right direction toward developing the port infrastructure of India: fresh tender for mega container terminal at V.O. Chidambaranar Port. Though it is on the way to crossing some remaining hurdles, cost issues, and inviting private investors, efforts from the port authorities toward revising their approach reflect their commitment to the success of the project.
If successful, this container terminal would increase the port’s capacity significantly, leading to more trade and making the port an important gateway in India’s maritime economy. However, to make this a reality, the authority must closely interact with industry stakeholders to fine-tune the financial model of the project and ensure that the cost estimates align with industry expectations.
Conclusion
The re-issued tender for V.O. The mega container terminal at Chidambaranar Port is a very important development in the port infrastructure sector of India. In this regard, industry concerns are addressed and an attempt is made to secure private investment, putting the project on the right trajectory for success. However, the stakeholders need to continue working together, ensuring the project is financially feasible and also operationally sustainable for the long haul. As this project continues, tracking how changes in tender terms and increased incentives impact investor interest will be crucial.
Refer:
Economic Times, Link to article
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