Short-term contracts: A New era for Indian Port privatisation strategies

The O&M model is seen as a risk-free and litigation-free solution, in contrast to the longer-term and more complex PPP agreements. India has 12 major ports under the central government’s jurisdiction. None of these major ports have been privatised, as the ownership of the land and waterfront remains with the government. The government allows private participation in specific projects through PPP models. Currently, 89 out of 277 berths in these major ports are operated under the PPP model.

Under the PPP model, private firms are awarded 30-year contracts to handle cargo at terminals, with clearly defined terms in concession agreements. While providing long-term infrastructure development, these projects often encounter significant challenges, including contract defaults, litigation, and project terminations. In contrast, the O&M model offers shorter contracts of 5-10 years, allowing ports to maintain greater control while minimising legal risks.

The appeal of the O&M model lies in its simplicity and lower risk. Unlike PPP projects, which require ports to compensate private operators with 90 per cent of their debt if a project fails, O&M contracts are short-term, with fewer financial liabilities. Ports remain in control of the asset, while private firms focus on day-to-day operations.

A recent example is the Visakhapatnam Port Authority (VPA), which awarded a five-year O&M contract to Green Energy Resources Ports Pvt Ltd for operating its East Quay 1A (EQ1A) berth. This decision came after a failed PPP attempt with SEW Infrastructure Ltd. The O&M model is proving to be financially rewarding for VPA.

Given this success, VPA is now exploring O&M for its West Quay berths, previously slated for PPP. Other major ports are following suit. Syama Prasad Mookerjee Port Authority (formerly Kolkata Port Trust) recently awarded a five-year O&M contract to APSEZ to manage container traffic at Netaji Subhas Dock. Deendayal Port Authority in Kandla, Gujarat, is also exploring the O&M model for its new berths, according to a media report. However, private operators argue that O&M is suitable only for smaller, existing (brownfield ) projects. For larger projects that require significant investment and infrastructure development, they say the PPP model remains essential, as many ports lack the financial capacity for such expansions.

However, to sum up, this shift could shape the future of India’s port infrastructure, especially as ports seek more agile and profitable ways to expand their capacity and improve operational efficiency.