DCPL's US$565 million greenfield deep port north of the River Dhamra in the state of Orissa will become India's deepest port and continues a growing trend of indian port investment

The BOOST (build, own, operate, share, transfer) project has been languishing for the last 9 years since the initial an agreement was signed between the Orissa  state government and International Seaports Pte (ISPL) in April 1998 for the 34-year concession.

The deal is part of a wave of financings in India's large ports sector.

India has 12 major ports (controlled by central government) and 187 minor ports - of which only 60 are active - (controlled by state governments) along its coastline.

The total traffic volume handled by all ports in 2005-6 was 567 million tonnes, about 75 per cent of which was handled by major ports.

India's continuing economic growth and foreign trade policy which predicts the doubling of India's share of global exports in the next five years to US$150 billion (with 95 per cent by volume of trade and 70 per cent by value through maritime route) means that this trend is likely to grow.  

Cargo handling at major ports is projected to grow at 7.7 per cent a year until 2010 reaching 877 tonnes by 2011-12.

The Project

The Dhamra port is to be the deepest all-weather port of its kind in India with a draught of 18.5 metres - enough to accommodate super cape-size vessels up to 180,000 DWT (deadweight tonnage).

It will eventually have 13 berths to handle more than 83 million tonnes of cargo per year. Of these, the first two berths with a handling capacity of up to 25 million tonnes of bulk cargo per annum will be built in the first phase.

The project will also include a 62km rail link to the main Kolkata-Chennai line at Bhadrak.

B Mutharam, managing director of Tata Steel says that Dhamra would not be a captive port and in large, it would be a coal port initially handling imported coking coal.

The port is being developed by Dhamra Port Company (DCPL), a 50:50 joint venture between Larsen & Toubro and Tata Steel.

Santosh Mohapatra, CEO of DCPL, says: 'we have plans to make the port operational by January 2010.  Every care is being taken to avoid large scale displacement of the local population and a committee has been constituted to look after the compensation and rehabilitation of people as per government norms.'

Environmental issues

Delays to the project have been caused mainly by environmental issues - Orissa is the largest breeding ground for Olive Ridley turtles.

With DCPL's decision to build a port at Dhamra, it threatened the turtles and the unique ecosystems off the cost of Orissa.

The location of the port is just north of the boundary of the Bhitarkanika National Park and 10km from the Gahirmatha marine Sanctuary.

When the sanctuary at Bhitarkanika was mooted, it covered an area of 367 sq km which included the site of the proposed port.

When the national park was notified in 1998 - its area had been reduced to 145 sq km and excluded the port site in spite of the ecological values of the area, significantly, this only occurred after the proposal for the port came up the first time.

The Dhamra port was then classified as a 'minor' port making procurement clearances simple for the state government and project proponents as minor ports are exempted from Environmental Impact Assessment (EIA) assessments as specified under the 1986 Environmental Protection Act (EP Act).

The difference between minor and major ports is not in terms of land requirements, investments or overall environmental impact but jurisdiction alone.

While major ports such as Chennai and Paradip and others are under central government, minor ports are under the jurisdiction of respective state governments.

The project was however granted clearance by the ministry of shipping and transport (MoST).

Financing

The project was originally due to close financing in September 2006 but was delayed due to environmental issues raised by conservationists.

Financial close was rescheduled for November 2006 - but this was stretched until March 2007.

A number of banks closed the financing for the port project with Industrial Development Bank of India (IDBI) acting as lead MLA.

The senior debt MLA's led by IDBI were:

• Andhra Bank
• Canara Bank
• Federal Bank
• Punjab National Bank
• UCO Bank
• United Bank of India

The Sub-ordinated debt lenders were (again led by IDBI):

• Punjab National Bank
• UCO Bank
• United Bank of India

The total debt size is US$395.7 million, total equity amounts to US$113 million with L&T and Tata Steel both putting in 50 per cent each. The balance of the financing is provided by sub-ordinated debt tranche of US$56.4 million.

The debt:equity ratio is 70:30 with an ECA tranche of US$40 million still pending.

The banks are to part -finance the project and signed a loan agreement on 27 February 2007 with export credit agency tranche - led by BNP Paribas - still outstanding.

Mulla & Mulla & Craigie Blunt & Caroe are acting as legal adviser to the sponsor with SBI Capital Markets providing financial services. Jyoti Sagar & Associates acted as legal adviser to the MLA.

The government of Orissa used In-house legal and financial advisers.

Scott Wilson Kirkpatrick India Private is providing project management services to DCPL.

Conclusion

The government of India has so far identified 276 port projects to be redeveloped, new-build or modernised and has estimated that over US$13.5 billion will be invested over the next seven years.

Confidence in Indian port construction is growing in ambition shown by the re-tendering of Vizhinjam port  in the state of Kerala - mooted as the world's deepest container port - on a BOT basis.

The state of Maharasthra  is hosting a further pipeline of four ports:

• Revas
• Mandwa
• Vijaydurg
• Dhamankol

Two ports which have selected private firms to modernise existing ports in Tamil Nadu on a BOT basis are:

Karaikal  (chosen developer - MARG Construction Company which has a 30-year concession
Pondicherry  (chosen developer - Subhash Projects and Marketing Bangalore)

Areas opened to private investment - mainly on a BOT basis - include construction of cargo handling berths, container terminals, warehousing, dry-docks, and ship repair facilities.

The project at a glance