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PSA withdraws from Hazira container terminal deal

PSA withdraws from Hazira container terminal deal

Mumbai: PSA International is reported to have pulled out of a Rs1,300 crore ($272m) deal to develop a container handling facility at Hazira, Gujarat, on India's western coast, citing tough financial terms.

News Website Livemint has released a news report quoting a person familiar with the development as saying, "PSA has told Shell that stiff commercial terms have rendered the project unviable unless the commercial terms are changed, it is not conducive to participate in developing the project."

According to the news report, Shell Gas BV, part of the Royal Dutch Shell Group, has a 74% stake in Hazira Port Pvt. Ltd, or HPPL, an entity formed to develop and operate Hazira port. France's Total Gaz Electricité holds the remaining equity in HPPL.

The state government had awarded Shell the rights to develop and operate the port for 30 years beginning 2002. It has already set up a facility to handle 2m tonnes of LNG imported into the country at the port.

As part of the contract, HPPL has to develop facilities to handle other cargo, including containers at the port. Accordingly the company signed an agreement with PSA in January 2007 to develop and run a terminal with an annual capacity of 1.23m containers, scheduled to be operational from 2010.

Although Shell and PSA are reported to have been negotiating the details of the project, it appears to have come to stand still over commercial terms pertaining to the payment of an additional waterfront royalty to the state government, above the rental paid to HHPL for using the port.
As per the terms, the waterfront royalty payable to Gujarat on a per container basis by the terminal operator was to increase 20% every three years.

"If the waterfront royalty rises by 20% every three years, PSA will not be able to increase the container handling charges at the terminal by 20%, particularly when the environment is competitive. Customers will not pay if the rates are hiked," the source is reported as saying. Livemint could not reach a PSA spokesperson for comment.

HPPL is said to have rejected requests to negotiate a reduction to the royalties or to pass on the price increase to Shell.

Accordingly, Shell has now hired Citibank NA to identify a firm that can develop multi-cargo handling facilities (including containers, chemical and bulk cargo) with about $500m investment. "The heads of agreement signed with PSA is not valid anymore," said Deepak Mukarji, country head, corporate affairs, Shell group of companies in India. "PSA decided to re-examine their own priorities in India and hence didn't want to pursue the Hazira project any further," he added.  [16/12/08]
 

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