India Proposes New MCA for Port Sector

Maritime Activity Reports, Inc.

September 23, 2016

Nitin Gadkari, Union Minister of Road Transport & Highways and Shipping. Photo: Official FB Page

Nitin Gadkari, Union Minister of Road Transport & Highways and Shipping. Photo: Official FB Page

 India's Shipping Ministry on Thursday proposed a new model concession agreement (MCA) to attract more private sector investments in the development of port infrastructure.  

 
The proposed MCA will replace the existing agreement which came into existence in January 2008. "The proposed MCA 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)," says a press release from the Ministry. 
 
Change in equity holding to provide exit route: 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 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.
 
Providing for refinancing provision in MCA: 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 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 optimization of the finance cost of the projects.
 
Approval of  Discounts on Ceiling Rates for the Purpose of Recovery of Revenue share: Presently, revenue share is payable on Gross Revenue, calculated as per tariff ceilings even if Concessionaire has to allow discount to keep the charges competitive. 
 
With a view to have a balanced risk allocation, it is proposed that Concessionaire shall be entitled to approach Port to consider and approve discounts on ceiling traffic and revenue share shall be paid on the approved discounted tariff of the approved revenue share. 
 
Cargo storage charges will be excluded while computing Gross Revenue for the purpose of Revenue Sharing.
 
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