The Ministry of Ports, Shipping and Waterways plans to draft a model concession agreement specifically for port projects using the equip, operate and transfer (EOT) and operation and maintenance (O&M) models.
A concession agreement sets out the terms and conditions of a port contract and puts the project in motion.
So far, the ports owned by the Centre have been following the model concession agreement (MCA) finalised by the Ministry for Build, Operate and Transfer (BOT) port projects having a concession period of 30 years. In November last year, the Ministry revised the MCA for BOT port projects to make it more attractive to bidders and bankable to lenders.
The drafting of a separate MCA for EOT and O&M contracts assumes importance in the backdrop of a recent structural change in the governance of State-owned ports.
Increase in privatisation
Privatisation of State-run cargo berths at these ports has become necessary as the ‘port authority’ formed for each of the 11 ports under the Major Port Authorities Act 2021 will play the role of a landlord — a model widely followed globally, wherein the publicly governed port authority acts as a regulatory body and as landlord, while private firms carry out port operations, mainly cargo handling activities.
The landlord port, in return, gets a share of the revenue from the private entity.
Besides, under the national monetisation pipeline (NMP) announced by the government last year, operational infrastructure assets including port terminals will be privatised through the public-private-partnership (PPP) route.
The NMP has listed 31 cargo berths across nine major ports for privatisation by 2025.
The port authorities will have to pursue different models such as EOT and O&M while monetising operational cargo handling terminals depending on traffic and viability compared to the development of new terminals which typically follow the BOT format, where the terms are different.
In the EOT model, the successful bidder will have to install cargo handling equipment at the facility and operate it. Whereas, in the O&M model, the mandate is only to operate and maintain the cargo terminal. The contract tenures are usually lower in such models.
Recently, the Inland Waterways Authority of India (IWAI), adopted the EOT model to privatise the multi modal river terminal at Haldia on National Waterway 1 for an initial concession period of ten years, which can be extended by five years. The waterway development agency had built the Haldia facility with an investment of ₹465 crore, mainly funded by the World Bank.
However, IWAI could not succeed in privatising the multi modal terminal at Varanasi on the EOT format and the Sahibganj terminal on the operate, manage and develop (OMD) model, despite multiple attempts.
A well drafted concession agreement that clearly defines the rights, responsibilities and obligations of the private operator and the port authority will make the EOT and O&M models attractive to investors, officials said.