The Public-Private-Partnership Appraisal Committee (PPPAC) has granted clearance for the development of a massive International Container Transhipment Port at Galathea Bay, situated in the Great Nicobar Island, reported ET Infra.

This ambitious project, valued at ₹48,862 crore, is designed to handle a capacity of 11.8 million twenty-foot equivalent units (TEUs). Following the committee’s approval during meetings on March 17 and 19, the proposal is now set to be forwarded to the Union Cabinet for final ratification.

The project will be executed through a joint venture structure where an Indian-owned and controlled entity will hold a 55 per cent majority stake, while various state-owned ports will hold the remaining 45 per cent.

This specific ownership model, mandated by the Ministry of Home Affairs, effectively ensures that foreign companies are excluded from the development of this strategically sensitive site. The primary goal is to maintain sovereign control while boosting private sector confidence through the participation of major domestic ports.

Funding for the port will be supported by a substantial Viability Gap Funding (VGF) of ₹12,230 crore, which represents 25 per cent of the total cost for both Phase 1 and Phase 2. This request is particularly notable as it exceeds the typical outlays of the Department of Economic Affairs (DEA) VGF scheme. Consequently, the PPPAC has determined that the project does not fit within the standard DEA framework, which is usually reserved for smaller social sector projects rather than mega-infrastructure with high capital requirements.

The Ministry of Ports, Shipping and Waterways (MoPSW) has been advised to fund the VGF component through its own budgetary support rather than the DEA scheme. The Ministry justified the need for such significant financial aid by highlighting that the project is only expected to break even in its 17th year. Until that point, the project remains financially unviable, requiring support to offset the immense risks associated with developing a large-scale, greenfield, and strategic asset in a remote location.

In a change from initial plans, Kamarajar Port Ltd will act solely as the project sponsoring authority and will not take an equity stake in the joint venture. This decision was made to prevent any potential conflict of interest that might arise from an entity being both the regulator of the concession contract and an active participant in the commercial joint venture.

The development is scheduled over a 50-year concession period, divided into two primary phases. Phase 1 is split into Phase IA and Phase IB, each offering a capacity of 2.8 million TEUs, with construction timelines of 60 and 108 months respectively. Phase 2 will further expand the capacity by 6.2 million TEUs and include a 3 million tonne petroleum, oil, and lubricants (POL) berth facility. In total, the facility will boast 12 container berths, two POL berths, and one port craft berth.

To manage the risks of underestimating costs, particularly regarding capital-intensive tasks like dredging, the government has decided to bid out both phases simultaneously. This allows the concessionaire to evaluate the project's risks and opportunities holistically.

The bidding process will be determined by the lowest VGF requirement quoted by the bidders, who must meet a net worth eligibility of ₹3,850 crore, representing 55 per cent of the total ₹7,000 crore net worth required for the joint venture.

The project structure deviates from standard PPP models by including common infrastructure development within the concessionaire's scope. This is intended to give the private partner greater flexibility in design and full accountability for the project’s efficiency. The financial framework is set at a debt-equity ratio of 70:30, a move intended to ensure bankability and attract private interest by avoiding the higher risks associated with more leveraged structures.

While Phase-1 requires the heaviest capital expenditure, Phase-2 is seen as the primary revenue-generating engine. The Ministry noted that if traffic does not materialise as expected in the first phase, the joint venture may opt not to proceed with the second.

To address this, the PPPAC suggested that the concession framework should remain flexible, allowing for contractual remedies or adjustments to the concession period if the project underperforms.

ET Infra