The Case of Jawaharlal Nehru Port Trust

Submission by Group 4, IDF, PGP 2014-2016

12 Issues identified in JNPT case

1) Cost plus tariff pricing

Cost plus tariff pricing will encourage showing increased cost in accounting to allow
increase in tariff, especially if the decision of cost will be made using accounts of licensee
which was the case in 2nd CT allocation. In all the structure does not advocate for operation
efficiency. This is also evident in cases when the congestion increased, the operator
reduced the efficiency at times.

2) Treating Royalty as cost

Treating royalty as cost specially when the tariff are based on cost plus method, and
bidding was done on the basis of royalty receive makes no sense. Treating royalty as cost
would essentially mean transferring the royalty which was promised during bid to tariff, and
hence private party is in win-win situation. This can have future implications also if the
similar trend is followed in other bids, royalty promise can easily be increased in the bid by
private player as they can anyway charge in through tariffs to customers.

3) Unclear restrictions to participate in subsequent bids

There have been multiple cases where the guidelines issued to check monopolization
were not clear, also at times countering guidelines were issued during bids and allocation
process.

4) Unclear guidelines in clause 3.2.1

The issue was raised regarding the clause which states that applicant can bid for the
project even if they do not have necessary experience, if they can have a contractual
agreement with third party for 5 years to operate in lieu of them, who have that necessary
experience, is valid only for individual player or Consortium.

5) Non-mutuality and risk framework

The risk coming from poor services (likes power supply) by JNPT were not addressed in
the contracts.

6) NSICT reaping monopoly profits

As stated in the case, though TAMP was to regulate the tariff to stop private operator from
reaping above required returns (15%) profits, NSICT kept on increasing the tariffs till very
late, stating that revenue increase is coming from increased efficiency but not reduced
cost. Since the accounting cost figures are coming from NSICT accounts, there was not
much TAMP or JNPT could argue upon.

7) Security clearance:
There have been 2 cases mentioned about not giving security clearances to 2 private
bidders at different times, which raises some suspicion specially when one private bidder
(MPSEZ) was already operating several other infrastructure projects in India, and was an

established public company. The subsequent pleas in SC has unnecessarily delayed the
bidding process, and cost much to JNPT and project as a whole.

8) Withdrawn by PSA-ABG from 4th terminal award

Due to unclear contract, which left the question of who will bear the Stamped duty charge,
PSA-ABG or JNPT led to termination of contract. It delayed the project by 3 years, and
creating a direct loss of more than 2000 Cr for JNPT.

9) Improper future planning by MoS and JNPT

The traffic expectations were far behind than what was realized actually, creating
operational inefficiencies and loss of business. The delay in realizing the need for opening
further CTs , and slow bidding process increased the congestion drastically in existing
CTs and creating loss of trust in JNPT efficiency and trust. There has been incidences of
13 km waiting queue, 7 fold increase in turnaround time etc.

10) Issues with workers and transporters at the ports

Contracting the internal operation to third party by GTIPL without proper contractual
agreement and inefficient management of labor unnecessarily increased the traffic
congestion, and in 2 occasion lead to almost halting of services.

11) Affects of leadership change on infrastructure projects

(ports)
Leadership changes can adversely affect infra projects especially when their ideologies
are in conflict or due to adversarial conflicts. A reason for the delay in fourth CT was due to
its split into two CTs and reversion to single CT due to change on Chairmanship of JNPT.
Fresh bids were asked for in each scenario.

12) Principal Agent Problem - Vested interests of lessor

(contractor) in choice of lessee
Often vested interests of lessors adversely affect the socially and economically optimal
structuring of the infrastructure projects. In fourth CT, the reduction of security deposit and
reversion to single project plan might have reduced the competition (smaller players
cannot enter) and increased the time of completion of project (from 4 to 8 years). This also
made the project vulnerable to sabotage by reducing the security deposit.