The Paradip port iron ore berth project awaits financial closure as port authorities are yet to obtain environment clearance for the project

A number of Indian infrastructure projects are inching along towards completion due to environmental issues. The Paradip iron ore berth project, which was the first Public Private Partnership (PPP) project in the port sector under the New Model Concession policy, awaits financial closure, as environment clearance is still pending.

Gammon Infrastructure Projects Ltd (GIPL), in a consortium with the Noble Group Ltd and State-run trading company MMTC Ltd is developing the iron ore berth at Paradip port. The total project value stands at around Rs590 crore. The project is being developed on a build-operate-transfer (BOT) basis with concession period of 30 years, including a construction period of three years.

The project is being developed through a Special Purpose Vehicle called Blue Water Iron Ore Terminal Pvt Ltd. The project was awarded in July 2009. The venture is expected to add 10 million tonnes per annum capacity to Paradip port.

According to company sources, all the necessary procedures for the project's financial closure are in place. An environment go-ahead is necessary to formally conclude the financial closure for the project.

GIPL will be raising funds for this project from international banks. The company refused to divulge any further details on these lenders. The project would be financed through a 75:25 debt-equity ratio.

GIPL is positive that the port authorities would be able to obtain the green clearance within a month. The financial closure is expected to be achieved within a couple of weeks thereafter.

This was the first project under PPP to be implemented in the port sector as per the New Model Concession policy approved by the Cabinet. The tariffs for this project had been fixed by the Tariff Authority of Major Ports (TAMP). Paradip Port Trust floated global tenders for construction of a deep-draught iron ore berth on a BOT basis, as part of the PPP scheme of the Centre. The GIPL consortium was selected amongst five short-listed bidders.

In 2008, the New Model Concession policy for private sector participation projects replaced the Model License Agreement, which had been in use in major ports since March 2000. The decision was expected to bring about enhanced bankability of private sector projects in major ports, standardisation of financial and commercial terms for award of concessions for port projects, speedy decision-making and equitable and efficient allocation of risks between the contracting parties. This 2008 Model Concession Policy is also expected undergo certain significant changes soon.

While modifications in the policy might cover issues like bankability and risk allocation, the government needs to emphasise more on green issues too. Port capacity expansion is crucial to cater to the growing raw material requirements of the developing Indian economy.