Gangavaram Port deal advantageous to RINL The proposed agreement will offer long term strategic and cost benefits to RINL and fuel growth
Gangavaram Port Limited (GPL) today clarified its stand on the proposed agreement with Rashtriya Ispat Nigam Limited (RINL) stating that this will offer long term strategic and financial advantages to RINL. The GPL management stated that all the allegations levied and the conclusions drawn in the recent media reports on the issue of GPL and RINL agreement are baseless and completely devoid of truth and needs to be dismissed in entirety.
Tweet-- March 26, 2010 Visakhapatnam
Gangavaram Port Limited (GPL) today clarified its stand on the proposed agreement with Rashtriya Ispat Nigam Limited (RINL) stating that this will offer long term strategic and financial advantages to RINL. The GPL management stated that all the allegations levied and the conclusions drawn in the recent media reports on the issue of GPL and RINL agreement are baseless and completely devoid of truth and needs to be dismissed in entirety.
We are shocked at the turn of events over past three weeks with certain elements with vested interests and agenda persistently trying to fuel media and the public with completely false and distorted information regarding this proposed agreement so that for the sake of their own gains the conclusion of this agreement gets delayed. There are allegations levied against GPL regarding non-transparency in dealing with RINL, putting external pressure on RINL, charging RINL exorbitantly, etc. We have to categorically state that there is no merit in these allegations and that all this is purely a step to tarnish GPL's reputation.
Gangavaram Port is the most modern and deepest port of India. The port is located just adjacent to RINL (common boundary wall) and has been developed under the format of Public Private Partnership in joint venture with State Government of Andhra Pradesh. The Port has been operational for last 18 months and in such a short time frame has already redefined and revolutionized the cargo handling standards in India. The Port is, without doubt, a pride of Visakhapatnam. It has put Vizag back on world maritime map. The Port is an achievement for State Government of Andhra Pradesh in terms of setting an example for the world on how Public Private Partnership model can be used to create a world class infrastructure and undeniably the Port is a maritime jewel of India.
Further, with respect to the proposed agreement and various allegations levied, we would like to establish the following facts:
Huge Benefits to RINL
- Gangavaram Port offers tremendous unassailable advantages to RINL, which cannot be offered by any other Port. These strategic advantages are:
- Huge savings in ocean freight resulting from importing cargo in large Capesize vessels and very high discharge rate guarantees
- Ousting priority to RINL vessels ensuring no vessel waiting and pre-berthing delays
- Vast storage space for over 800,000 MT cargo
- Dedicated conveyors from the Port to the Steel Plant ensuring continous supply of raw material and virtually eliminating the dependence on railways
- Savings in capital expenditure to RINL to the extent of Rs 250 Crs as because of conveyors established by the Port, RINL will not be required to invest in additional railway unloading systems during its ongoing expansion program.
The present proposal to RINL is based on the fundamental philosophy that the landed cost of raw-material (i.e. sum total of ocean freight, port handling charges and freight charges from port to the plant) should work out to be the cheapest (when compared to any other Port) to RINL by using the Gangavaram Port.
Purely based on the compelling advantages that Gangavaram Port offers to RINL, in spite of not concluding the proposed agreement, RINL has been using Gangavaram Port for importing its raw-material on a vessel to vessel basis. Over last 18 months, almost entire Coking Coal imports of RINL (around 4Million MT and 63 vessels) has been handled at Gangavaram Port only after RINL has ensured that the landed cost for Coking Coal will be cheapest to RINL by using Gangavaram Port. It is understood that RINL has saved in excess of Rs 50 Crs till date by using Gangavaram Port vis-a-vis the Vizag port.
Transparency in dealing
GPL had given its proposal to RINL in the year 2006. Over the last 4 years, the terms and conditions of the proposed agreement have been intensively and rigourously evaluated and negotiated in the most transparent manner by at least 4 committees at different levels of RINL (first committee of senior management, followed by second committee of Functional Directors and then followed by third and fourth sub-committees of Board comprising the Independent Directors also). Given such an elaborate and extensive decision making process followed by RINL, any concerns or allegations over lack of transparency are completely unfounded.
Exit Clause
To be able to maintain the competitiveness, Gangavaram Port has also provided an unambiguous Exit Option to RINL. By virtue of this exit option RINL will have the right to terminate the agreement anytime when it is proved that Gangavaram Port is no longer competitive for RINL. It needs to be noted that there are no conditions attached to this Exit Clause and decision of RINL will be final and binding in this regard.
15 year agreement period
- There are many precedence for a PSU to enter into a long term agreements with a private port or a private terminal. SAIL has an operational agreement of 30 years with International Seaports Haldia Pvt Ltd, an L&T company. SAIL has also in the past signed a 30 year agreement with Vizag Seaport Pvt Ltd, a subsidiary of Gammon. Indian Oil Corporation, another PSU has a 15 years agreement with Mundra Port for handling its crude oil imports.
- It is our firm belief that a long term agreement will only benefit RINL, as it can charter Capesize Vessels for longer periods, thereby ensuring maximum savings on ocean freights.
- Moreover, given that GPL has agreed to provide an "Exit Option" to RINL, the tenure of the agreement has no relevance as RINL can choose to terminate the agreement anytime when it is proved that GPL is no longer competitive for RINL.
- In spite of the above, GPL has left the option with RINL to choose the agreement period between 5 years or 15 years. We are sure that RINL will decide in its best interest.
Resignation of RINL Directors
Mr. Jagatpal, Independent Director of RINL who resigned on March 2, alleging various irregularities in RINL GPL agreement was also part of the third committee set up by RINL, which included its functional directors and other independent directors. It is learned that he had approved signing this 15 year agreement as part of this third committee. His resignation subsequent to the recommendation of the 4th committee and thereafter politicizing the entire issue and leaking distorted information to media only leaves us with a question mark on his intentions and understanding.
As part of distorting facts, it was also alleged that another Government Director, U P Singh, IAS, Joint Secretary in the Ministry of Steel also resigned from the Board of RINL over the proposed agreement. It is learned that during an administrative reshuffle in the Ministry of Steel, Mr. U P Singh was replaced by Dr. Dalip Singh, IAS as Joint Secretary to be in-charge of RINL. Therefore, Dr. Dalip Singh replaced UP Singh on the Board of RINL. Such change of Government nominated Directors on the boards of PSUs is very common during administrative reshuffles. This factual information was also completely distorted and reported in a scandalous manner for the purpose of harming the prospects of RINL GPL agreement.
No Cargo Handling Services by Vizag Port
It also needs to be noted that Vizag Port Trust, which is a major port under the aegis of Ministry of Shipping, does not provide any cargo handling services. It works on landlord port concept, where RINL or any other port user has to contract with private stevedores or handling agents to unload and handle the vessel. Therefore, it's a misconception that RINL cargo in the past was handled by Vizag Port - it was actually handled at Vizag Port by private contractors. It can be verified that RINL has no cargo handling contract with Vizag Port.
GPL Tariff to RINL
It has been alleged that GPL is charging exorbitantly to RINL when compared to Rs 130.70 fixed by TAMP as the base rate. We have to mention that there is no merit in this argument. First of all, the tariff fixed by TAMP are not generic in nature but specific to each individual project. Therefore, this 130.70 is not a generic rate that can be compared to. And second, the tariff fixed by TAMP for each of these individual projects is directly based on the capital expenditure of each of these projects. Therefore, it will be unfair to compare small projects and their tariffs with that of the larger ones.
Other Allegations
It has been also alleged that GPL has allotted land in Gangavaram Port to certain eminent political personality to buy favours. We have to deny this out rightly and can only mention that this only a game of someone's imagination to give the colours of political controversy to this issue.
We welcome the suggestion of an investigation from CBI or any other source over this proposed agreement so that the merits of this agreement further get established and the elements with vested interests are exposed.
We continue to maintain our firm stand and belief that RINL should sign this proposed agreement only after fully satisfying itself of the advantages it will have by using the Gangavaram Port.
It saddens us and it's a matter that should pain everyone on how these elements of vested interests are playing so as to hurt the nation's interest. Modern ports like Gangavaram help in their own modest way to preserve national wealth. Gangavaram Port with its deep draft and congestion free efficient port operations can enable port users like RINL to reduce its ocean freight costs dramatically. After all, if RINL saves millions of dollars and pays far lesser ocean freight to foreign shipping companies for importing its Coking Coal from Australia to India, is it not preserving precious national wealth and foreign exchange reserves?
We have taken a serious note of the offence that these elements with vested interest are trying to inflict on GPL and its stakeholders and if required, we will take recourse to all measure including legal in order to take action against these elements trying to tarnish our image and malign our reputation.
For more information please contact
Mukta Kumar / Snigdha Sarma
Hanmer MS&L Communications Pvt Ltd
M : 9885907090 / 9701224007