Policy Brief Note - Draft PPP Policy for Major Port Land Industrialization
- Maritime India Vision (MIV) 2030 aims to strengthen the Ports, Shipping and Waterways sectors of India through more than 150 initiatives across various segment.
- Port Led Industrialization’ is one of the focus areas and a way forward for Port sector growth under the MIV. This has been one of the key development area under various other plans and programs including the Sagarmala Program through the Coastal Employment Unit development initiative.
- MIV 2030 has identified over 6000 acre of land that is spread across the major ports which can be potentially industrialized to contribute to various other national objectives of increase in the contribution of manufacturing GDP, generation of various avenues of employment, attracting FDI, increase in exports from the country.
- As a target, MIV 2030 aims to attract investment of over INR 45,000 crore and creation of over INR 10,000 crore in revenues for ports through port led industrialization while simultaneously contributing to the other objectives under the ‘Aatma Nirbhar Bharat Abhiyan’ and ‘Make In India – Make for the world’.
- To take forward this agenda of ‘Port Led Industrialization’, the ‘Policy Guidelines for Land Management (PGLM)’ for Major Ports of India plays a key role in enabling investment in port land.
- While the Ministry of Shipping is considering the revision of ‘Policy Guidelines for Land Management (PGLM)’, leveraging Private sector capability as a catalyst for industrial area development for port led industrialization is crucial.
- Taking cognizance of the fact that private sector investment plays a significant role in industrial infrastructure development of the country, PGLM considers PPP based port land industrial area development as a key. Thus, the proposed ‘PPP Policy for Major Port Land Industrialization 2021’ provides the much needed platform for enabling private investments to partner with various Major Ports of India and take forward the industrialization agenda of MIV 2030 and Government of India.
- While the proposed revision to PGLM include several changes like, prescribing ‘Ready Reckoner Rates as the ‘Reserve Price’ for land allotment and moving away from the earlier mechanism of ‘Highest of the five factors’, allotment of fresh lease and license for less than three years without inviting competitive bids, special provision for attracting port led industry, renewal of existing leases and licenses on ready reckoner rates with right of first refusal (RoFR) to the existing allottees, leases in special cases (government bodies), ease of doing business interventions (easing the transfer charges and procedures), the proposed policy aims to enable ports to provide world class infrastructure for industrialization. Given that industrial area development in existing provision of PGLM under PPP format is based on sub leasing model, it is important to recognize the same and make necessary provision in this PPP Policy beyond the provisions of PGLM.
- Further, the need for this policy is also recognized due to various factors like, port authority needs to focus on port operations and management as its core business and should only provide support as a facilitator for industrial area development, development and operation of industrial area is a capital intensive business and such capital could thus be unlocked by port authority to invest in port development projects, managing multiple allotments and recovery of lease rentals needs dedicated team where at times in the past ports have faced challenges in managing leases and faced various technical and legal issues (disputes and litigations), existing framework of industrial area development at ports was limited to 30 years lease offering limited opportunity to private developers to participate in any form of industrialization initiative of port, reserve price determination for PPP allotment follows the same mechanism for regular port land allotment thus making it unaffordable for private developers to participate, given that both domestically and internationally industrial area PPP development models have evolved significantly, it is important to provide the Port Authorities the requisite opportunity to explore and adopt suitable PPP development models that can contribute to the objectives of both the PGLM and this PPP Policy.
- The policy proposes that land delineation for PPP based industrial area development to be part of the port master planning process and a condition precedent for conceptualizing such projects. A PPP industrial area project can be an integrated development that can accommodate various components like industrial projects, logistics projects (MMPL, MMLH), residential and real-estate projects etc.
- The Committee for Revision of MCA undertook the policy development activity and over 15 detailed deliberation meetings to develop the draft policy document. The committee also undertook detailed deliberations on key aspects of policy development like various potential PPP models, learnings from various successful case studies, key risks to be mitigated under various PPP models, key responsibilities of port and the private sector partner, integration of PPP industrial area development and overall port master plan, various technical aspects of development, potential areas of consideration for enhancing attractiveness of PPP investment, institutional mechanism etc.
- In order to implement the policy the committee also recognizes that it is important to develop a Model Concession Agreement (MCA) for executing projects identified by the ports to be developed under the policy. Additionally, the committee also identifies that the policy will need periodic revision to stay aligned with other policies viz. PGLM, Major Ports Act, National PPP Policy etc.
- The policy details out various potential models that may be considered by the ports as development options. Ports, under the institutional provision may require necessary approvals from Board, Empowered Committee, Ministry of Shipping, PPPAC and other concerned authority. The models include: a) SPV model with Port land as equity contribution for greenfield industrial area development, b) Development through long term concession model for greenfield industrial area, c) Holding company model with development through concession route or long term lease route for greenfield development, d) Swiss challenge model for greenfield industrial area development (multi product, sector specific) and greenfield anchor industrial investment (large industry(ies)), e) Operation and Maintenance through management contract for brownfield industrial area (competitive bidding and swiss challenge route).
- Under the SPV model with Port land as equity contribution, the authority undertakes valuation exercise for the land, in case of ports this will be governed under the provisions of PGLM according to the prescribed five methods. This valuation is adopted as equity contribution of the Port for establishing an SPV with private developer/ investor. The authority shall undertake competitive bidding for identifying private developer for establishing the SPV for development of industrial area. The bidding parameter for such competitive bidding shall be the highest equity share offered by private developer in setting up of such SPV.
- Under the development through long term concession model, long term concession may be awarded by ports to private developers through competitive bidding route. This competitive bidding shall be undertaken through a Model Concession Agreement with applicability of PGLM. Such concession shall be for a minimum tenure of 30 years and may span up to 99 years in alignment with the provisions of PGLM. The key bidding parameter under such model is ‘Revenue Share’ where the private partner offers gross revenue share to the sponsoring authority. The Model Concessions Agreement regulates the conceptualization, development, financing, operation, risk sharing, safeguards for the interest of parties of such concession. Further, a ‘Minimum Guaranteed Revenue’ may be prescribed as part of the concession to mitigate potential financial risk to the Ports.
- The third model mentioned above i.e. development of projects through holding company model with development through concession route or long term lease route may also be considered by ports. To enable ports to bundle/ un-bundle project components an alternative route is provided such that ports can prepare separate projects or combination of project through PPP route. Ports may undertake incorporation of a fully owned Special Purpose Company (SPC) for implementation of such industrial area PPP projects. Such SPC shall be established under the Companies Act 2013. Creation of SPC and thus implementing projects under such structure will provide financial and governance advantages to the port. Such SPC shall enable Port to participate in PPP projects where the development model and financial considerations may differ across category of projects under the proposed industrial area development.
- As a fourth model, port may undertake implementation of Swiss Challenge mode of development either through i) Long Term Concession model route or ii) Through SPC route or through iii) Long Term Lease Route. Given the complex nature of industrial area development projects, the development of such projects can be seen in three different formats under the Swiss Challenge route as a) Greenfield Industrial Park Projects proposed by Private Developers, B) Greenfield Sector Specific Cluster / Industrial Area Project proposed by Private Developers and c) Single industrial unit investment / large investment proposed by Industrial investor.
- As the fifth model, ports may consider granting O&M concession through Management Contract for various tenure ranging from 10 – 30 years. Such concession can be granted through a MCA that shall be customized to cater to management and O&M requirement of industrial areas developed by Ports. It is understood that there are two separate aspects of Operation and Management i.e. a) marketing and branding services and b) operation and maintenance services that may be procured by Ports for industrial area that it shall develop.
- The policy as part of building its attractiveness also considers a) provides for minimum 30 years and maximum 99 years of lease tenure to the PPP developer with rights to sub-lease and further sub-lease given that industrial area development is based on sub-leasing model, b) the PPP developer shall be granted No Objection Certificate (NOC) for creation of mortgage on the land allotted for development, c) PPP developer shall be granted rights to sub-lease and determine the sub-leasing lease/ license reserve price, d) Port shall prescribe a ceiling (limit) of extend of land that may be sub-leased by the PPP developer to a single entity and the recommended limit of such allotment is 10% of the allottable land within the PPP industrial area to single entity (contiguous or in multiple parcels).
- As part of the institutional framework, the PPP Policy adopts Empowered Committee mechanism as prescribed in PGLM for various appraisal and approval as required for implementation of PPP industrial area projects. The functions of this Empowered Committee will be in alignment with the PGLM and the MCA that shall be drafted for implementation of PPP industrial area project(s).