Vizag joint venture seeks to terminate agreement due to dredging failures

Vizag General Cargo Berth (VGCB) Private Limited, a 74:26 joint venture between Sterlite Industries, a company belonging to the UK based Vedanta Group and Leighton Welspun Contractors has served notice to Visakhapatnam Port Trust for termination of the contract of the concession agreement for running on a revenue sharing basis a berth at the outer harbour of the port on India’s east coast. The provocation for termination notice, according to the complainant company, is the alleged failure of the port authorities to dredge and maintain the depth at the entrance channel of the outer harbour at 20 metres.

VGCB won the contract for the mechanization of coal handling facilities and improvement of general cargoes at a berth in the outer harbour in June 2010 so that 200,000 tonne Capesize ships could be received. On the understanding that the Port Trust would maintain the channel depth at 20 metres at all times for smooth operation of the dry cargo berth,VGCB claims to have already spent Rs6.38 billion ($110 million) for its operation since January 2013. However, the company says in a letter to the port authorities that “to date [we] have not been able to cater to any vessel of 200,000dwt.” As VGCB is left hand-wringing, it finds that Capesize vessels are “being diverted to neighbouring ports.” India’s imports of thermal and coking coal leaped 34% 137.56mt (million tonnes) and imports could rise a further 13% this year as domestic production could fall short demand by 155mt. Unfortunately, thanks to the draught issue,VGCB cannot take advantage of rising coal imports, principally for which it entered into a 30-year contract.

The letter further says “as VPT has failed to comply with its obligations and or failed to cure/remedy” the situation,VGCB is left with no option “but to repudiate/terminate the concession agreement.” Pratik Agarwal, director of VGCB, told a news agency that the project’s viability depended upon the entry channel remaining perennially dredged to a depth of 20 metres. “Otherwise, investment of such an amount could never be viable. That was the basis of our bid and now we are losing money every day,” he said.

In the meantime, in the first half of the current financial year (April to March),Vizag Port, one of the 12 major ports in the country, handled 28.9mt of cargo, down from 30.3mt in the corresponding period of 2012/13. Cargoes handled by the port last year fell 8.2mt to 59.13mt. Vizag Port is facing growing competition from Gangavaram Port about 11km away. The government-ownedVizag Steel Plant soon to be expanded to 6mt is using the virtually next door Gangavaram Port for coal and other raw materials import over last few years.