Q&A: public procurement and PPP for ports and terminals in India
Public procurement and PPP
Is the legislation governing public procurement and PPPs general or specific?
The legislation governing public procurement and public-private partnerships (PPP) is specific and is governed by the Major Port Trusts Act 1963, the Indian Ports Act 1908 and its rules.
Consideration of the proposal
Can the government or the relevant port authority consider port privatization / PPP proposals other than through a formal tender?
Yes. Under the guidelines of the captive ports policy, the Ministry of Navigation decided to allow port industries to set up cargo loading facilities for their own captive use in ports controlled by the central government without going through an auction. The Ministry of Maritime Transport further clarified that under the policy a port industry is an industry that requires 100% captive berths or a rescue zone for the purpose of:
- import raw materials;
- export finished products;
- transport of raw materials; and
- transport finished products.
Joint venture and concession criteria
What criteria are taken into account when awarding port concessions and port joint venture agreements?
The criteria taken into account when awarding port concessions and port joint venture agreements are financial eligibility and experience in operation and maintenance. The party that requested the port concession and port joint venture agreement must first meet the technical requirements. Once the part meets the technical requirements, the final selection takes place on the basis of the most competent price offers.
Is there a PPP agreement template used for port projects? How far can the public body depart from its terms?
Yes, there is a PPP Agreement Template, also known as the Concession Agreement Template, which is issued by the Ministry of Navigation. As such, the parties to the agreement cannot derogate from its terms. However, a public body may deviate from the terms of the PPP agreement to a very small extent, subject to obtaining permission from the relevant authority.
What government approvals are required for the implementation of a port PPP agreement in your jurisdiction? Does a specific law need to be passed in your jurisdiction for this?
Depending on the nature of the PPP, various approvals are required for the implementation of a port PPP agreement. Mandatory approval is required from:
- the Ministry of the Environment;
- the Ministry of Labor; and
- local municipal bodies under applicable local laws regarding water, sanitation, etc.
As such, no specific law has been passed for the implementation of a port PPP agreement. All requirements and approvals are available in the concession contract template.
On what basis are port projects in your jurisdiction generally implemented?
Port projects in India are typically implemented on a build-operate-transfer or design-build-finance-operate-transfer basis.
Is there a minimum or maximum duration for port PPPs in your jurisdiction? What is the middle term?
There is no minimum duration for a PPP prescribed in India. However, section 34 of the Major Port Trusts Act of 1963 limits the term of a lease for any real estate that a board of directors can accept to 30 years. Thus, a port can enter into a PPP contract for a maximum period of 30 years, which is also found in concession agreements.
On what basis can the duration be extended?
The term can only be extended by the concessionaire (i.e. a government entity). The duration can be extended by further negotiations with the authorities.
What pricing structures are used in your jurisdiction? Are they subject to indexation?
The tariff structures or tariffs applicable to PPP agreements in India are the tariff schedules, which were developed by the Tariff Authority for Major Ports. However, in some cases the fee structure or land tariffs may also be governed by port policy guidelines. The price schedules are not always indexed. In cases where the tariff structures are not subject to indexation, they are subject to an annual increase in predetermined percentage.
Does the government provide guarantees for port PPPs or does it grant exclusivity to the port operator?
No, the government does not provide any guarantees with regard to port PPPs nor does it grant exclusivity to the port operator. However, on the basis of negotiations, the government may grant exclusivity up to a certain period for a particular terminal in the port concerned.
Does the government or port authority offer other incentives to investors in ports?
Yes, financial assistance is available for certain identified sectors, such as shipbuilding. In 2015, the government also announced exemptions from customs duties and central excise duties on imports used in shipbuilding. Tax exemptions for 10 consecutive tax years for infrastructure development, including ports and inland waterways, are also available. Automatic foreign direct investment of 100 percent is allowed for projects in the maritime sector.