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Backup plan for PSA Sical Terminal
Dr.G.R.Balakrishnan Feb 08 2022 Container Terminal News

Backup plan for PSA Sical Terminal

With PSA Sical Terminals Ltd, one of India’s oldest public-private-partnership (PPP) port projects, on the verge of collapse over non-payment of royalty arrears of some ₹1,250 crore to the port authority, the Centre-owned VO Chidambaranar Port Authority (VOC Port) is gearing up with a back-up plan to run the terminal to support the export-import (EXIM) trade.

On January 20, VOC Port issued a termination notice on the terminal operator following an adverse ruling by the Madras High Court on January 19 on a petition brought by the entity, controlled by Singapore’s wealth fund, seeking to settle royalty payment issues. The termination will take effect after 90 days.

Impacting export

The EXIM trade in and around Thoothukudi has expressed concern over a potential shut down of the terminal saying it would be “detrimental to Thoothukudi as an export gateway and the country”.

“VOC Port will select an alternate operator to run the terminal for the remainder of the license period that ends in 2028. We can’t allow the terminal to remain at standstill,” an official said. “We will operate the terminal ourselves or through an operation and maintenance contractor till the issue is settled,” he added.

The ministry of ports, shipping and waterways, according to the official, is unlikely to entertain a request from PSA- Sical to get the issue addressed through the Conciliation and Settlement Committee (CSC), a newly created alternate dispute resolution mechanism for contractual disputes in major ports.

In a July 28, 2021 order, the Supreme Court overturned an arbitration tribunal award that allowed PSA-Sical Terminals to rewrite the contract by switching to a revenue share format from a royalty model.

During the hearing on a petition filed by PSA-Sical after the apex court order, the Additional Solicitor General, appearing for the government and VOC Port submitted that the “royalty issue having already attained finality before the Hon’ble Supreme Court, the reference before the committee newly constituted only pertains to the pending legal disputes/issues and does not pertain to the one which have reached finality”.

Standing ground

The Additional Solicitor General further added that “any direction to constitute a committee to go into the question of royalty/revenue sharing would be nothing but reviewing the orders of the Hon’ble Supreme Court, which is impermissible and not maintainable”.

PSA-Sical Terminals, the entity that has been running the container terminal at VOCPT since 1998, is 51 per cent owned by PSA International Pte Ltd, a unit of Temasek Holdings Pte Ltd, Singapore’s sovereign wealth fund.

In June 2011, PSA-Sical secured a stay from the district court in Thoothukudi , freezing the annual royalty it is contractually mandated to pay VOC Port at the level set for 2011 (₹1,969 per TEU) as part of the 30-year contract even though the royalty rises by 20 per cent every year till the contact ends in 2028.

PSA said that it cannot give more royalty to VOC Port till it is allowed to increase rates, which it tried thrice but was rejected by the rate regulator.

An official privy to the books of accounts of PSA-Sical said the terminal operator has no money to pay the huge royalty arrears.

There is no money in the balance sheet of the SPV

 “The parent company in Singapore will not pay because the liabilities are all in the special purpose vehicle running the terminal. There is no money in the balance sheet of the SPV,” he said.

But, Justice M Dhandapani of the Madras High Cort said that PSA-Sical and its holding company are liable to pay the arrears.

“Pursuant to the orders of the Hon’ble Supreme Court setting aside the award of the Arbitral Tribunal, the petitioner and its holding company are bound to pay the sum due to the second respondent (VOC Port). Through continuous litigative process, the petitioner (PSA-Sical Terminals) and its holding company are circumventing the second respondent from collecting the enormous amount due to it from the petitioner,” Justice Dhandapani wrote in the January 19 order.