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Chidambaranar port to challenge PSA terminal order

LiveMint logoLiveMint 15-05-2014 P. Manoj

Bangalore: Union government-owned V.O. Chidambaranar port in Tamil Nadu will challenge an arbitration tribunal award that backed a demand by Singapore’s PSA International Pte Ltd to move to a revenue share format from a royalty model for the remaining period of its container terminal contract that ends in 2028.

“We will file an appeal in the Madras high court against the arbitration tribunal award when the court re-opens on 2 June after the summer recess,” a spokesman for the port said.

Earlier this week, additional solicitor general of India K.V. Viswanathan had advised the port to challenge the award of the arbitration tribunal, the port spokesman said.

PSA-Sical Terminals Ltd, the entity that has been running the container terminal at Chidambaranar port (formerly known as Tuticorin port) since 1998, is 62.5% owned by PSA International, a unit of Temasek Holdings Pte Ltd, the sovereign wealth fund of Singapore. The terminal has been dogged by tariff issues for many years.

An arbitration award can be challenged in a high court within 90 days, failing which the award stands confirmed.

The 90-day period in this case ends on 15 May. “Since the court is in recess, the last date for filing the appeal against the arbitration award would be 2 June when the court re-opens,“ said T.R. Rajagopalan, the port’s lawyer who had also advised the port to challenge the tribunal award.

A back-of-the-envelope calculation shows that Chidambaranar port would stand to lose at least `1,521 crore in the remaining contract period if PSA-Sical Terminals is allowed to shift to a revenue share model.

PSA declined to comment.

The arbitration award, passed on 14 February 2014, says that PSA-Sical Terminals should be allowed to move to a revenue share format from a royalty model by adopting the revenue share percentage of 55.19% quoted by ABG Container Handling Pvt Ltd in September 2012 for a new container terminal—the second—at Chidambaranar port.

The starting tariff for the amended PSA contract should be the same as the one approved for the ABG facility (about `2,600 for a loaded standard container), which escalates automatically every year because it is linked to the wholesale price index to the extent of 60%.

The potential revenue loss is based on PSA handling 450,000 standard containers a year (the designed capacity of the terminal) at a rate of `2,600 per container, out of which it would share 55.19% with the government-owned port.

This compares with what Chidambaranar port would have earned had the contract continued with the royalty model.

PSA had argued before the arbitration tribunal that due to the earlier rate cuts ordered by the port tariff regulator, the commercial viability of the project has been adversely affected and therefore it is entitled to have the contract amended.

This view was upheld by the three-member arbitration tribunal headed by former judge R. Balasubramanian.

The earliest container terminal privatization contracts such as the one at Chidambaranar port followed the royalty model. The terminal operator had to pay a certain royalty specified in the contract on each container handled at the terminal to the government-owned port. The royalty rises by about 20% every year in July till the end of the contract.

Since then, Indian government-owned ports have switched to the revenue share model for port privatization contracts. The bidder willing to share the most from its annual revenue with the government-owned port wins the contract.

In the 14 years since starting operations, PSA made three attempts to raise rates for the services provided at the terminal, but each time the tariff regulator for the union government-controlled ports slashed them instead—by 15% in 2002, 54% in 2006 and 34% in 2008. PSA did not implement them by securing stay orders from the Madras high court. In effect, PSA is operating the facility with a capacity to handle 4.5 lakh standard containers a year at rates approved in 1998, when it started out on a 30-year contract.

In October 2011, PSA secured a stay from the district court in Tuticorin to freeze the annual royalty it is contractually-mandated to pay Chidambaranar port at the level set for 2011 as part of the 30-year contract.

This was the first instance of a court-backed freeze on revision in royalty for a port contract after the ports sector was opened to private funds in 1997.

Chidambaranar port had filed an appeal in the Madurai bench of the Madras high court to vacate the stay granted by the district court.

PSA opted for arbitration while the Madurai bench of the Madras high court was hearing the case.

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