Grain storage to get PPP makeover

Written by Subhash Narayan | Sandip Das | New Delhi | Updated: Apr 17 2014, 09:35am hrs
The new government at the Centre will set the ball rolling for the public-private partnership (PPP) plan to modernise grain storage facilities or silos in the country.

The Planning Commission is holding a meeting of all stakeholders on April 25 to give a final shape to the model concession agreement (MCA) for the plan after which bids would be invited by the Food Corporation of India (FCI) to rope in private players to set up facilities under a 30-year concession agreement.

Storage facilities with a capacity of 2 million tonne would be put up under the PPP route initially.

This would be one of the first big initiative of the new government that would go a long way to address the problem of food storage and food security in the country. The entry of the private sector is expected to streamline operations and fast-track the development of modern mechanised storage infrastructure, said an official in the Planning Commission.

As per the draft agreement, the development of silos would be through the design, build, finance, operate and transfer (DBFOT) mode. The private players would put in money to set up the storage infrastructure, while FCI would take these on rent for grain storage for 30 years.

The developers would also be provided viability gap funding (VGF) support of up to a maximum of 40% (up to 20% by state government and another 20% by the Centre).

The facility would have to be constructed within a year, barring in cases where the railway siding is part of the project. However, private players seeking VGF support and taking land on lease from the state government (mostly in cases where silos are to be constructed along with railway siding), would get rent for grain storage only for a period of 10 years. Such projects would also not be eligible for capital investment subsidy and interest subsidy of the state government. To ensure payment security for investors, the MCA may also provide them the right for third-party sale of grains as payment security to recover any dues from FCI.

The bids would be invited on the basis of VGF support required for such projects and the amount of revenue to be shared with the state governments. A proposal to fix minimum gross revenue share of 10% has already been opposed by some of the potential investors.

Land for the project would be provided on lease (in cases where private sector gets land from the government) for a period of 30 years with a 10-year extension in two batches of 5 years each. Crisil Infrastructure Advisory is also involved in the process of developing technical and financial specifications prior to launching bids.

The details of MCA is still to be worked out but it is expected more on the lines of similar documents existing in case of other infrastructure projects, said the commission official quoted earlier.

As a first step towards operationalising the new PPP initiative, FCI invited expression of interest from prospective private sector players recently. This received big response with 45 investors showing interest in setting up these state-of-the-art silos across 28 locations in the country. Sources told FE that a committee comprising officials from Planning Commission, FCI and food ministry officials have already cleared 16 private players on various technical parameters to participate in the final bids for constructing these silos.

The silos would help government in scientific storage of grains as it gears up for the countrywide rollout of the National Food Security Act. Silos with 50,000-tonne and 25,000-tonne capacities are proposed to be built at 42 locations across 10 states, including Bihar, Haryana, MP, Assam, UP, Gujarat and Punjab.

Official sources said for creation of 50,000-tonne capacity silos, around seven acre of land is required while the 25,000-tonne capacity silos would need five acre land.

In 2008, under a pilot project, the FCI had entered into a build-own-operate (BOO) agreement for 20 years with Adani Agri Logistics for setting up two silos with a capacity of more than 5,00,000 tonne at Moga in Punjab and Kaithal in Haryana. Adani's has since invested Rs 650 crore for building two base silos and five field depots (at Chennai, Coimbatore, Bangalore, Navi Mumbai and Hooghly).

To augment grain storage, the FCI and the Central Warehousing Corporation are in the process of building 15 mt capacities over the next five years.