Adani Ports returns a coal terminal to Vizag Port Authority

Adani Ports and Special Economic Zone Ltd (APSEZ) has returned a coal handling terminal to Visakhapatnam Port Authority a few years into a 30-year contract after the State-run port paid ₹155 crore last week per the interim order of an arbitration tribunal.

This is a rare instance of APSEZ returning a cargo terminal to a port authority after it turned unviable due to changed business conditions.   

India’s biggest private port operator, though, is pursuing the arbitration case and mounted a separate legal challenge in the Andhra Pradesh High Court to establish whether the terminal was “first” terminated by it or the port authority. This aspect has a key bearing on APSEZ’s chances to participate in tenders issued by State-run ports for cargo-handling contracts in view of a tender condition for qualification.

Tender conditions

“An Applicant including any Consortium Member or Associate should, in the last three years, have neither failed to perform on any contract, as evidenced by imposition of a penalty by an arbitral or judicial authority or a judicial pronouncement or arbitration award against the Applicant, Consortium Member or Associate, as the case may be, nor been expelled from any project or contract by any public entity nor have had any contract terminated by any public entity for breach by such Applicant, Consortium Member or Associate,” according to a tender condition.

Using this clause, Visakhapatnam Port Authority disqualified APSEZ from participating in the tender for mechanisation of West Quay Berths 7 and 8 at the port. APSEZ challenged its exclusion before a single judge bench of the high court but lost the case. The firm has filed an appeal against the order before a division bench of the court.

APSEZ’s plea is that it was the “first” to terminate the contract, in which case, the tender condition on qualification will not apply to it. Visakhapatnam Port Authority does not agree with this view.

Documents filed before the court reveal that Visakhapatnam Port Authority issued a consultation notice to Adani Vizag Coal Terminal Pvt Ltd (AVCTPL), a unit of APSEZ, on October 3, 2020, citing failure to achieve the minimum guaranteed throughput (MGT) stipulated in the coal terminal contract.

On October 8, 2020, AVCTPL rejected the consultation notice and sought mutual termination of the contract owing to force majeure (arising out of the pandemic) for more than 120 days.

On October 21, 2020, AVCTPL sent a termination notice to Visakhapatnam Port Authority and in November 2020, it invoked arbitration under the contract.

Visakhapatnam Port Authority sent another consultation notice on November 23, 2020, and then issued a termination notice on December 26, 2020, informing AVCTPL that the contract will be terminated from April 23, 2021.

“AVCTPL terminated the contract first and then invoked arbitration. Visakhapatnam Port Authority retaliated by issuing a termination notice on December 26, 2020,” said a person with knowledge of the dispute.

“It is evident from the sequence of events that it was an afterthought on the part of Visakhapatnam Port Authority to issue a termination notice in December 2020 much after a similar notice was issued by AVCTPL in October 2020,” he said.

“Hence, it is unfair on the part of the port authority to disqualify APSEZ from the tender for mechanisation of West Quay Berths 7 and 8 when arbitration is going on to decide, among other issues, whose termination is first and valid,” he said.  

APSEZ declined to comment.

The interim award of the three-member arbitration panel was given in December 2021 and the port authority paid ₹155 crore (on account of debt due to lenders) to APSEZ last week and the terminal was handed back, sources said.

The coal terminal contract — bid out to handle only imported steam/thermal coal — collapsed after government made policy changes to promote use of domestic coal, cutting imports of the commodity which drastically reduced volumes at the terminal.