State-owned major ports in India have begun exploring the operation and maintenance (O&M) model as an alternative to the public-private partnership (PPP) framework for privatizing cargo terminals. This shift is seen as a way to reduce risks and litigation compared to traditional PPP agreements.
Under the PPP model, cargo handling contracts are awarded to private firms for a 30-year period based on a detailed concession agreement. In contrast, O&M contracts are typically awarded for 5-10 years.
Last week, the Visakhapatnam Port Authority awarded an O&M contract to local stevedoring company Green Energy Resources Ports Pvt Ltd. This contract allows the company to operate the port’s East Quay 1A (EQ1A) berth by installing harbor mobile cranes (HMC) for five years, with an option to extend for an additional year.
Previously, the port authority selected SEW Infrastructure Ltd to construct a fully mechanized coal handling terminal under the PPP model, but the 30-year concession was terminated after SEW exited the project midway. The port authority then invested its own funds to complete the berth and prepare it for operations.
The port authority will levy tariffs from terminal users, sharing approximately Rs 15-16 per ton with Green Energy Resources, the O&M operator.
Over two years ago, Visakhapatnam Port Authority engaged HIQ Services to manage the East Quay 1 (EQ1) terminal using the O&M model. Adani Ports and Special Economic Zone Ltd (APSEZ) previously operated the EQ1 terminal for seven years until the 30-year concession was terminated in 2021 due to APSEZ's failure to meet minimum guaranteed throughput obligations for three consecutive years.
After terminating the concession, the port authority compensated APSEZ Rs 155 crores, covering 90% of the debt due. Currently, Visakhapatnam Port Authority charges around Rs 260 per ton for cargo handling, from which it pays Rs 61 (including GST) to HIQ Services, allowing the authority to earn approximately Rs 200 per ton. This has helped generate about Rs 80 crores annually, with the facility handling around two million tonnes (mt) of cargo in FY24.
The revenue from the O&M model has enabled the port authority to recover the termination payment made to APSEZ. “The EQ1 terminal is now the most revenue-earning terminal at Visakhapatnam Port,” stated a source.
The source emphasized that the O&M model has proven to be more profitable for major ports than the PPP model. Following the success of the O&M model at EQ1 and EQ1A, the port authority plans to privatize West Quay berths 1, 2, and 3 using the same approach, which was initially intended to follow the PPP model.
Visakhapatnam Port has faced challenges with contract terminations, with at least three PPP projects halted for various reasons, leading to lengthy arbitration and litigation. As a result, the port authority is shifting exclusively to the O&M model for privatizing cargo terminals.
Similarly, Syama Prasad Mookerjee Port Authority (formerly Kolkata Port Trust) has also adopted the O&M model for berth privatization. Recently, APSEZ secured rights to handle containers from five berths at Netaji Subhas Dock of Syama Prasad Mookerjee Port Authority on an O&M basis for five years, quoting Rs 2,100 per twenty-foot equivalent unit (TEU).
Deendayal Port Authority in Kandla, Gujarat, is also considering the O&M model for one of its planned new berths.
An official from a major port emphasized that the O&M model significantly reduces risk and administrative burden for ports. He believes this model represents the future of port asset privatization, arguing against the necessity of private funding for the mechanization and operation of existing brownfield assets under the PPP framework.
“The O&M model is part of privatization; it will be a government facility operated by a private firm for 5-10 years,” he noted, emphasizing that this approach allows the port authority to maintain control over the terminal.
However, private port operators suggest that the O&M model is best suited for small brownfield cargo handling facilities and may not be applicable for developing new terminals that require significant funding.
