Call for common sense

Within the container handling sector generally India is seen as a ‘tough nut to crack’ – bureaucratic, lack of consistency in government and dogmatic beyond the point of reason are traditional complaints that spring to mind.

A prominent example in the latter respect is the exclusion of Hutchison Port Holdings from the country on security grounds, an act widely seen as possessing little rhyme or reason in real terms.

Another more recent example is the expulsion of PSA International-led consortium, this September, from a concession for the new Jawaharlal Nehru Port Trust $1.2bn container terminal.

On September 17 2012, JNPT told the Indian media that it was withdrawing the letter of award to the PSA-ABG team and had cashed the consortium’s $12m bid guarantee. Prior to this there was a chain of events which some observers say show JNPT to be too inflexible when it comes to delivering a win:win arrangement.

Risk or reward?
The criticism has surfaced again that has proved a bug bear in the past in concession offerings in India’s major ports – i.e. that there is really not enough appreciation of the fact that inward investors carry the vast proportion of risk and as such they should receive commensurate rewards.

The two key events that led to PSA International losing the Mumbai concession were:

• In January PSA, the 74% majority partner in the concession, did not sign the concession agreement due principally to an unspecified stamp duty sum that was to be paid to the Maharashtra local government in order to register the concession documents.
• In April 2012 another difficulty arose with PSA’s local partner, ABG, advising JNPT it wanted to withdraw from the consortium and the project.

In the first instance, it is hardly unreasonable of PSA to want to identify the specific figure associated with registering the concession documents. Particularly as its understanding was that the figure could range between 60m rupees ($1.1m) and 3.35bn rupees ($65.2m). There is a lot of difference between the bottom and top of this range – and if at the higher end then doubtless this would have impacted the assumptions in the business model it had developed as part of bidding for the concession.

Further, it is clear that fees associated with registering concession documents had not been requested in conjunction with many previous main port concessions – so why now?

Withdrawal symptoms
The second event – the withdrawal of a consortium partner in a concession bid is not an unknown event. It also need not, based on worldwide experience, spell disaster unless there is, for example, a specific requirement for a local partner. In this case there was not – and PSA could have taken on the whole concession subject to resolving the stamp duty issue and particularly as it was the primary source of expertise.

ABG’s exit is also thought to be not entirely without good cause – there were concerns over commercial considerations and the requirement to share 50% of the gross revenue with JNPT. The worsening world business climate coupled with the country’s restrictive policies on setting tariffs in major ports were both very influential factors.

But – and it was a big ‘but’ – how JNPT chose to play this one was that four months after ABG had advised of its wish to withdraw the port trust advised the consortium ABG could not withdraw and imposed a deadline of September 10 for the concession agreement to be signed. The rest as they say is history.

Many years ago, one of the pioneers in port investment in India said to the author, “It takes deep pockets and a lot of patience to do business in India”. The recent debacle in Mumbai does little to encourage the serious investor – India still has to fly the flag of common sense in this key area.