BACKGROUND
A systematic logistics network is crucial to economic growth. To develop this sector, the Cabinet Committee on Economic Affairs, in October 2017, under the ‘Bharatmala Pariyojana’, mandated the Ministry of Roads Transport and Highways (MoRTH) to develop Multi Model Logistics Parks (MMLP) across the country[1].
DESCRIPTION OF MMLP
MMLP typically acts as an inter-modal freight-handling facility with mechanised material handling provisions, which contains warehouses, specialised cold chain facilities, freight/ container terminals and bulk/ break-bulk cargo terminals. MMLPs include inter-modal connectivity, such as dedicated railway line, access from prominent highway(s)/ expressway(s) to allow movement of commercial vehicles and connectivity to an airport or a seaport (or inland waterway terminal)[2].
PROPOSED MMLPs
For the purposes of reduction in congestion on proposed corridors under the ‘Bharatmala Pariyojana’, and to enhance logistics efficiency and reduce costs related to freight movements, MoRTH has identified 35 locations across India, for the development of MMLPs under the public private partnership model (PPP). These MMLPs are proposed to be implemented by the National Highways Authority of India (NHAI)[3] and the National Highways and Infrastructure Development Corporation Limited ((NHIDCL) in North-East India).
Since 2017, work has progressed significantly in the implementation of MMLP projects in India. The MMLP at Jogighopa (Assam) is the first project for which development work has been initiated. This is the only MMLP project till now, which is proposed to be entirely funded by the Government of India and is implemented by NHIDCL. Other MMLPs on locations such as Chennai, Nagpur and Bengaluru are at advanced stages of formation of special purpose vehicles.
MODEL CONCESSION AGREEMENT
MoRTH had also released a draft model concession agreement (MCA) on October 7, 2021, for developing MMLP to be executed by the concessionaire to whom the project is awarded after a competitive bidding process. The MCA provides that the MMLP will be developed on design, finance, construct, operate and maintain basis. The concession period has been fixed at 30 years. MCA provides that, during the operations period, the concessionaire has the sole and exclusive right to collect, demand and appropriate fee from users of MMPL at a fee as indicated in the bid documents and recorded in the concession agreement.
Set out below are some of the key terms of the MCA:
- Scope: The concessionaire is required to develop the MMLP, which includes, inter alia, the following: (a) rail terminal for cargo handling and any additional rail siding required for meeting up service requirements; (b) cargo related facilities – handling; (c) warehouses; and (d) custom bonded area and custom bonded storage facilities.
- Project completion schedule: The construction of the MMLPs is required to be completed in a phased manner, with phase-1 required to be constructed in two years. The commercial operations date is said to be achieved when completion certificate or the provisional certificate for phase-1 of the project is issued.
- Right of way: The authority is required to grant upfront right of way of at least 95% of the land required for phase-1 and subsequent phases, no later than two years from the appointed date or commercial operations date, whichever is later.
- Key Performance Indicators: The concessionaire is required to meet certain key performance indicators, comprising ‘total turn-around time of freight train and vessel’, ‘crane rate’, ‘vehicle service time’ and operational key performance index such as warehouse space utilisation.
- Change in Ownership: Unlike NHAI, concession agreements for highway projects, where the successful bidder is required to hold at least 51% of equity of a concessionaire up to two years after the commercial operations date, the MCA casts an obligation on the successful bidder to hold 51% of the equity of the concessionaire, only up to six months after the commercial operations date. However, any transfer of equity of the concessionaire by more than 25% or acquisition of control over the board of directors of the concessionaire, requires consent from public interest and national security perspective.
- Restriction on competing facility: As per the MCA, the authority or any government instrumentality cannot construct another competing facility (of at 100 acres of area) within a radius of 100 kms of the MMLP, proposed to be developed by the concessionaire. In case of breach of the aforesaid condition, the authority is liable to compensate the concessionaire for the loss by extending a concession period by a maximum of three years.
- Commercial property development: The concessionaire is authorised to develop facilities for commercial purposes, for which the concessionaire has the right to sub-lease/ sub-licence any or all part of the site (not exceeding 10% of the total project area), post the declaration of commercial operations for the project. Any sub-leasing/ sub-licencing to any foreign person requires prior written consent of the authority from a national security and public interest perspective.
- Debt financing of MMLP: Similar to NHAI model concessions for highway projects, the MCA permits the concessionaire to avail financial assistance from senior lenders (which includes bank, financial institutions, trusts, multilateral lending agencies and funds) to part finance the costs of setting up of the MMLP. The MCA also permits refinancing of such financial assistance, subject to prior approval of the authority, which the MCA provides will not be unreasonably withheld as long as it does not have any effect of increase in financial liability or obligations on the authority and does not jeopardise the interest of the authority in any manner.
- Security creation for borrowings: Concessionaire is permitted to create mortgage, charge on its goods and assets, as a security to secure the indebtedness availed from senior lenders. However, there is a restriction on creation of any encumbrance on project assets. The term project assets, inter alia, includes (a) physical and other assets forming a part of the site, including the rights over the site in the form of a licence; and (b) all rights of the concessionaire under the project agreements. However, the assignment of rights of the concessionaire under the substitution agreement for the benefit of the senior lenders is permitted.
- Revenue sharing with authority: The concessionaire is required to pay to the authority a revenue share payable in four quarterly installments per annum. The revenue share is proposed on a minimum guaranteed basis and is payable to the authority after a moratorium period of three years from commercial operations date. The revenue share is calculated on an identified percentage of gross revenue (as provided under the concession agreement).
- Termination payments: Unlike concession agreement for highways projects, where the concessionaire is eligible to receive termination payments for a concessionaire default only during the operational period, the MCA provides that the concessionaire will be eligible to receive termination payments even during the construction period, upon achievement of project milestone -1. This will significantly improve the bankability of the MMLPs.
The termination payment, in case of various scenarios under the MCA, are paid as a percentage of debt due and adjusted equity, as the case may be. In case of termination on account of concessionaire default and non-political event, termination payment will not include the adjusted portion of equity. The definition of ‘debt due’ excludes any part of the principal that had fallen due for repayment two years prior to the transfer date and any interest, penal interest, pre-payment charges fees or charges that had fallen due one year prior to the transfer date. Therefore, termination payments may not cover the actual equity and debt contributions for the project.
- Authority obligation to provide access: The authority is required to provide access to the concessionaire, at minimum, four lane paved road and single line rail siding to the MMLP and two handling rail tracks inside the MMLP. The authority can provide such rail connectivity anytime till expiry of four years form the appointed date. Therefore, it is quite possible that the MMLP may achieve commercial operations date and still there is no rail connectivity to the MMLP at that time. Further, the concessionaire is required to bear the cost of maintaining rail connectivity to MMLP. Maintenance of rail connectivity includes maintaining the rail siding from takeoff point to inside MMLP.
Additionally, the authority is required to provide within two years from the appointed date or by commercial operations date, whichever is later, a traffic worthy connecting road, as indicated in the master plan. The cost of maintenance of such connecting roads will be borne by the authority.
- Water and electricity: Authority is required to ensure that external power and external water supply connection is provided to the site in no event later than six months prior to the commercial operations date. Accordingly, during the construction period, the concessionaire is responsible to procure power, water, and related back-up systems at the MMLP to maintain uninterrupted power and water supply at all times.
From the aforesaid, it is worthwhile to say that the MCA aims to provide a fair overview of the contractual framework that will exist between the concessionaire and the authority, in relation to the MMLPs and lays down the operational responsibility of each party. Having said that, the aforesaid contractual framework remains to be tested operationally and it is yet to be seen if the model poses any challenges to the parties in relation to the implementation of the MMLPs.
BUDGET PROVISIONS
The Government of India recently, in the Budget for financial year 2022-23 has announced the ‘PM GatiShakti National Master Plan’. Under the aforesaid plan, the Government of India has announced that contracts will be awarded through PPP model for implementation of MMLPs[4].
CONCLUSION
The implementation of MMLPs at strategic locations in India will bring down India’s logistics costs and help boost the national economy. Whilst the implementation of MMLPs and development of overall logistic infrastructure remains in the foresight of the government initiatives in India, the Government of India, may still want to consider a few operational challenges, which can be fixed in order to expedite the implementation of MMLPs such as providing a single window clearance for implementation of MMLPs.
Effective steps have already been taken by the Government of India, towards logistics development in the country, such as notifying ‘logistics’ as one of the infrastructure sectors in 2017. This has eased the fund recourse to private players, interested in developing the logistics infrastructure sector. This evidently shows the commitment of the Government of India towards development of logistics infrastructure in the country. Whilst the announcement of MMLPs is a promising step towards development of logistics infrastructure in India, it remains to be tested how efficiently the Government of India can achieve implementation of the same.
For further information, please contact:
Yash Jain, Partner, Cyril Amarchand Mangaldas
yash.jain@cyrilshroff.com
[1] https://www.pib.gov.in/PressReleseDetailm.aspx?PRID=1737646
[2]https://pib.gov.in/PressReleseDetailm.aspx?PRID=1684574#:~:text=A%20Multi-Modal%20Logistics%20Park%20%28MMLP%29%20acts%20as%20an,container%20terminals%20and%20bulk%20%2F%20break-bulk%20cargo%20terminals.
[3] Through its fully owned special purpose vehicle, National Highways and Logistics Management Limited (NHLML)
[4] https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1794165
