More reports on: Government policies

Shipping ministry reworks model concession agreement for port sector

22 September 2016

The ministry of shipping has proposed a new model concession agreement (MCA) for the port sector. The proposed MCA will replace the existing model concession agreement which came into existence in January 2008.

The proposed MCA has taken into account the suggestions provided in various reports by the Planning Commission (2010), Indian Ports Association (IPA-2015) and Kelkar Committee Report (2015).

The revised model concession agreement aims at a more equitable allocation of project risks with provisions to handle unforeseen circumstances.

It also looks at removing ambiguities in existing provisions, so as to attract more private sector investment.

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 exit after 6 years from COD. The concessionaire may approach the concessioning 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.

There is a provision for refunding of investor money. This 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 Department of Economic Affairs.  Under this, the concessionaire can issue bonds on completion of one year of operation for refinancing of debt, this will in result in optimisation of the finance cost of the projects.

As per the current MCA, change in law excludes  imposition of standards and condition arising out of TAMP guidelines, environmental law and labor laws; and increase and imposition of taxes, duties, etc 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.

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