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Govt proposes new concession pact for investments in ports

The proposed MCA includes allowing changes in equity holding of a project so as to provide exit option to developers after six years.

By: | New Delhi | Updated: September 22, 2016 8:13 PM
The proposed MCA includes allowing changes in equity holding of a project so as to provide exit option to developers after six years.(Reuters) The proposed MCA includes allowing changes in equity holding of a project so as to provide exit option to developers after six years.(Reuters)

In order to attract private investments for the ports sector, the Shipping Ministry has proposed a new model concession agreement (MCA) that includes exit clause for private players and granting them powers to issue bonds for refinancing debt.

The proposed MCA includes allowing changes in equity holding of a project so as to provide exit option to developers after six years.

“The revised MCA has proposed that the concessionaire shall hold 51 per cent equity until 3 years after commercial Operation Date (COD) and 26 per cent thereafter for another 3 years. Hence, the private party would be free to exist after 6 years from COD,” the ministry said in a statement.

The Concessionaire may approach the conversioning authority to waive the equity holding requirement during the second 3 year term if performance parameters have been achieved during the first three year period, it said.

It added that the new MCA, which has taken into account the suggestions provided in various reports by Member Planning Commission (2010), Indian Ports Association (IPA-2015) and Kelkar Committee Report (2015), will replace the existing MCA of January, 2008.

The objectives of the new MCA also include more equitable allocation of project risks, provision to handle unforeseen circumstances and removing ambiguity in existing provisions.

Providing for refinancing provision in MCA, government said this amendment is aimed at facilitating availability of low cost long term funds to concessionaire so as to improve the financial viability of the projects and is based on the Model Triartite Agreement approved by the Department of Economic Affairs.

Under this, it said, the concessionaire can issue bonds on completion of one year of operation for refinancing of debt, which will in result in optimisation of the finance cost of the projects.

The proposed MCA will also have amendment in definition of ‘change of law’ as in the present MCA the clause excludes imposition of standards and condition arising out of TAMP (Tariff Authority for Major Ports) guidelines, environmental law & labor laws besides increase and imposition of taxes, and duties for compensating the concessionaire.

“As these can materially affect the viability of the project the proposed MCA states that the Concessionaire shall be compensated for all changes in law except imposition of ‘New Direct Tax’. This will help the concessionaire to get compensation for all material changes in law,” it said.

Besides, the new agreement will also have provisions for mid-term review of concession.

“It is proposed that concessions may be reviewed by a Review Board under applicable laws at the end of 15 years from COD to arrive at required mitigation measures. The triggers and nature and quantum of mitigation measures will be as per guidelines issued by the government in this regard,” it said.

 

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