A government plan to build 35 cargo consolidation and distribution centres linked by multiple modes of transport or so-called multi modal logistics parks (MMLPs) across key locations is struggling as private investors shy away from putting bids due to unfavourable terms and conditions, says experts.
Of the 35 MMLPs being developed under the ‘PM GatiShakti National Master Plan’, only one such logistics park at Mappedu near Chennai in Tamil Nadu’s Thiruvallur district has been awarded so far with Mukesh Ambani-led Reliance Industries Ltd clinching the deal through a competitive bid last November.
At least three MMLPs put to tender by the National Highways Logistics Management Ltd (NHLM), at Bengaluru, Indore/Pithampur and Nagpur (the Parliamentary seat of Nitin Gadkari, the Union Minister for Road Transport and Highways), are yet to be finalised even after giving multiple extensions of time and a slew of concessions to prospective investors.
The tender for building an MMLP at Bengaluru is currently undergoing a rebid after a botched first round.
The National Highways Logistics Management is a unit of the National Highways Authority of India (NHAI), India’s highway development agency.
“The quantum of capital expenditure which is sought to be invested by a private party, is very high. Therefore, interest has been lukewarm from limited large players,” said Santosh Janakiram, Partner & Head – Projects & Financial Institutions Group, Cyril Amarchand Mangaldas.
Besides, the 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, he stated.
“MMLPs should have sufficient captive cargo to succeed,” said an executive at Container Corporation of India Ltd (CONCOR), which is building logistics parks on its own land at a few locations. “Otherwise, it becomes unviable to operate,” he added.
That aside, the technical and financial criteria stipulated by NHLM for prospective bidders is turning out to be a deterrent.
“MMLP is a mega project with bidding confined only to those who are financially strong, strategically placed in the logistics business segment and have a thorough understanding of the market dynamics of setting up a logistics park to derive maximum benefit for self and other allied players,” says Vikas Apte, Director at Infrastats LLP.
“At the same time, the National Logistics Policy which has been rolled out recently also has a multi-dimensional impact on all the players in this market. Besides, the Unified Logistics Interface Platform or ULIP aims to bring about transparency into the entire logistics business segment,” Apte told ET Infra.
“Good, bad and ugly experiences in the past for public-private-partnership (PPP) projects have already thwarted many players from entering this market,” he pointed out.
The MMLP planned near Chennai attracted only three bidders – Reliance Industries Ltd, Adani Logistics Ltd and Prakash Asphaltings & Toll Highways Ltd. Of this, Prakash Asphaltings & Toll Highways was disqualified on technical grounds, leaving the two industry giants to compete in which Reliance Industries emerged the winner.
The tender for MMLP at Bengaluru elicited only two bidders – Reliance Industries and Prakash Asphaltings & Toll Highways. As Prakash Asphaltings & Toll Highways was technically disqualified from the Chennai MMLP, the firm became ineligible for the Bengaluru bid also, leaving Reliance Industries as the sole bidder for the project.
NHLM scrapped the tender and called for a fresh round of bidding in which the deadline was extended from 16 January to 9 February.
The tender for the MMLP at Nagpur is being keenly watched to see whether there will be more players than the usual ones. Nagpur being the stronghold of Nitin Gadkari, who is pursuing the MMLP projects under the PM GatiShakti National Master Plan for Multimodal Connectivity, NHLM is looking to entice more players into the bidding fray.
However, even in this case, the bid deadline has been extended many times with the latest timeline ending on 15 February.
Apte listed some of the “issues” that were holding back large private sector participation for MMLPs.
Bidders, he said, are asking to discount COVID-19 years of FY20 and FY21 while working out their profitability and also of their consortium partners, which was not accepted in the Chennai MMLP. They had sought a 5-year window preceding the bid submission year, from FY17 to FY21, in this regard.
Bidders were given two groups – A and B – to qualify and/or satisfy the technical and financial eligibility criteria depending on the net worth.
Some bidders found the parameters for calculating the net worth to be “too stringent”.
To attract bidders into the fray for the Nagpur MMLP, NHLM introduced big changes to the tender terms last December, easing the threshold technical capability for Group A bidders to Rs224.38 crores from Rs599.39 crores, and broadened the window period to 5 years preceding the bid due date to balance out the bad years of COVID-19 pandemic.
The threshold financial capacity for Group A bidders in terms of minimum net worth was reduced to Rs59.94 crores from Rs89.91 crores at the close of the immediately preceding financial year.
The threshold financial capacity for Group B (those bidders having the required minimum financial capacity but does not have the required technical capacity) in terms of minimum net worth was reduced to Rs119.88 crores from Rs179.82 crores at the close of the immediately preceding financial year.
The average annual turnover during the last three financial years from FY20 was initially linked to twice the estimated project cost of Rs1,198.78 crores. This was reduced by linking it to twice the estimated project cost of Phase – 1 of Rs448.76 crores.
A new clause for Group C bidders (those meeting the minimum financial capacity but falling short of the required technical capacity) on minimum assets under management (AUM) was introduced to shortlist entities on the basis of operational capability of similar assets such as MMLP.
The AUM should not be less than twice the estimated project cost of Rs 1,198.78 crores. AUM is the market value of assets managed by self or on behalf of investors.
To attract bidders through the consortium route, the minimum net worth criteria for each Group was further reduced: for Group A bidders to 5 percent of the estimated project cost from the previous 7.5 percent and for Group B to 10 percent of the estimated project cost from the earlier 15 percent.
Besides, the earlier AUM of twice the estimated project cost for Group C bidders was reduced to one time or equivalent of the estimated project cost for each consortium member.
The NHLM also dropped the condition that a bidder including consortium member should not have (received) any notice from the National Company Law Tribunal (NCLT) for eligibility, extending a relief to potential bidders.
For the Indore/Pithampur MML, NHLM has agreed to supply 33 KV power supply of 2.5 MVA capacity to the MMLP site and water supply of 733 KLD capacity to the MMLP site at the termination point marked in the concept master plan.
NHLM also agreed to start work on railway siding on or before the commercial operations date of Phase-1.
“How many bidders are convinced by the changes in tender terms will become clearer when the bids for Nagpur and Indore/Pithampur MMLPs are opened,” says Apte.
“Government incentives will help make the sector more attractive for private operators. Increasing the avenues of financing such as private equity investment, could also help. The PM Gati Shakti National Master Plan could be leveraged by using digital models to identify optimal MMLP site locations,” Janakiram at Cyril Amarchand Mangaldas said.
Meanwhile, the bidders have expressed concerns over obligations relating to competing facilities, wherein any breach on behalf of the Authority, should be treated as an event of default with the Authority liable to pay per the terms thereof. Bidders also sought a 20-year exclusivity period compared to the 10-year offered by NHLM.
Potential bidders for the Bangaluru MMLP wanted the government to declare it as a “Project of National Importance” so that all related benefits such as Capital Investment Subsidy, GST Exemption, Electricity Duty Exemption and Exemption from other State and Central dues would be extended to the Project. The NHLM did not agree to this demand from bidders.
The bidders had also asked for extending the time for constructing Phase-1 of the project from 2 years to 4 years from the appointed date, considering the time required for obtaining environmental and regulatory clearances. This demand was vetoed by NHLM on the grounds that the Phase-1 involved only 30 percent of the total CAPEX.
The bidders further asked for termination payment per agreement for events of default by the Authority relating to delay in providing rail, road, and port/airport connectivity.
The bidders also sought higher damages compensation from the Authority of Rs1,000 a day from Rs100 per day for every 1,000 square metres or part thereof of Right of Way getting delayed beyond 180 days from the appointed date.
