May 1, 2023 [ET Infra] – A P M Terminals Management B V-controlled Gujarat Pipavav Port Ltd said it will invest some $90 million to build a new liquid cargo berth at the private port located in Gujarat, in a surprise move that comes just five years ahead of its 30-year concession ending in 2028.
The uncertainty over the extension of the concession beyond 2028 had forced Mumbai-listed Gujarat Pipavav Port to halt previously announced plan on a Rs700-crore expansion approved by its board a few years ago that involves upgrading existing facilities for handling bigger ships and increasing the container handling capacity to 1.6 million twenty-foot equivalent units (TEUs) from 1.35 million TEUs.
The expansion covers replacement of three existing cranes with four new cranes with a wider outreach and progressive increase in container yard capacity to 1.6 million TEUs. It also included purchase of two, yard cranes.
A P M Terminals, the port operating unit of Danish transport and logistics group A P Moller-Maersk, holds 43.01 percent stake in Gujarat Pipavav Port. The port operator has made no secret of its desire to get the concession extended from the Gujarat government, which it previously said was key to its capacity expansion plans.
“We wish to continue to operate Pipavav port for the long term. It also means that for the business in Pipavav, we are interested in extending the concession period,” Morten Engelstoft, the then CEO of A P M Terminals, had told this reporter, around the time rumours swirled that A P M Terminals was looking to exit Pipavav port.
“When we make investments in our ports/terminals, we would like to have a good return on investments. That also includes there should be enough time left of the concession to ensure that we are getting a proper payback. Large investments will depend on an extension of the concession,” Engelstoft said at the time. He has since left the company.
A Gujarat Maritime Board (GMB) official, however, said that the balance tenure (of five years) of the Pipavav port concession does not prohibit A P M Terminals from improving and expanding the port with fresh investments.
“The concession agreement for Pipavav port stipulates that if Gujarat Pipavav Port Ltd makes fresh investments in developing infrastructure to expand capacity and if the concession is not extended beyond the 30-year original tenure that ends in 2028, then the GMB will have to pay the replacement value of the investment to GPPL when the tenure ends”, the GMB official said.
The GMB is tasked with the oversight of ports owned by the Gujarat government.
The State government’s Build, Own, Operate and Transfer (BOOT) policy finalised in 2007 for developing new ports with private funds suggests options for extending the concession beyond the original time frame of 30 years either to the existing developer or bid it out to select a new developer and operator.
These options, though, are not specified in the earliest concessions awarded by the GMB for developing ports such as Mundra, Pipavav, Hazira and Dahej.
Last year, GMB hired consultancy firm A T Kearney to help decide on the future of port concessions awarded to private firms such as A P M Terminals Management and Adani Ports and Special Economic Zone Ltd, some of which will complete their 30-year tenures in a few years.
The State government is yet to take a call on how and whether to proceed on extending the concessions awarded to private firms in the 1990s for building and operating ports.
Give this backdrop, the announcement by A P M Terminals to invest some $90 million to build a 3.2-million-ton (mt) capacity new liquid berth at Pipavav port is seen by port industry source as an indication either that the chances of a concession extension have brightened or is a pressure tactic being deployed by the port operator to force an extension.
An alternate view is that A P M Terminals is confident of recovering the $90 million investment over the next five years before the concession ends, due to India’s booming LPG imports, mainly for household use, that makes it a relatively risk-free proposition.
“This investment strengthens our commitment to provide world-class facilities and services to our customers. This expansion is expected to have a positive impact on the economy of Gujarat by boosting trade and commerce. It is also a clear demonstration of our unwavering dedication to enhancing the logistics infrastructure of our country and supporting the Prime Minister’s vision of reducing the cost of logistics in the country,” said Girish Aggarwal, Managing Director, APM Terminals Pipavav.
“As the Dedicated Freight Corridor (DFC) becomes operational and the government emphasizes the use of railways for cargo transportation, APM Terminals Pipavav is well-positioned to solve customers’ needs for sustainable, quicker, and cost-efficient movement of goods from our port,” he added.
Pipavav is one of the few ports in India that has rail siding within its premises to help accommodate a full train carrying about 1,200 mt of liquefied petroleum gas (LPG) cargo.
The setting up of the new berth will be subject to necessary regulatory and other approvals, A P M Terminals said.
Pipavav port currently has the capacity to handle 2 mt of liquid bulk cargo. With the new berth, the liquid bulk cargo handling capacity of the port will increase to 5.2 mt.
The investment in the new liquid berth is in line with the port’s objective of contributing to the growth of India’s logistics infrastructure, bolstering connectivity to the northwest hinterland, and better serve the customers by providing end-to-end solutions, the port operator added.
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