Analysis | Will Adani-MSC deal lead to monopoly in Vizhinjam port operations

Former Kerala Chief Minister Pinarayi Vijayan's objections are legally sustainable. Adani Vizhinjam Port Private Limited (AVPPL) should compulsorily secure the approval of Kerala government when there is a change in ownership.

Chief Minister V D Satheesan also acknowledged this in the Assembly on June 30, and on July 3 wrote to Adani Port and SEZ Limited formally expressing his government's displeasure at the company declaring a joint venture without its approval.

Clause 5.3.2 of the concession agreement signed between Kerala government and the AVPPL on August 17, 2015, stipulates that any acquisition of 25 per cent or more of the total equity will constitute a change in ownership. In this case, Mediterranean Shipping Company (MSC) Group's container terminal arm, Terminal Investment Limited (TiL) plans to acquire 49 per cent stake in AVPPL.

And clause 5.3.1 says that "the concessionaire (AVPPL) shall not undertake or permit any change in ownership, except with the prior approval of the authority."

In the agreement, 'Authority' is defined as the "Governor of Kerala, represented by the Principal Secretary, Ports, Government of Kerala and having its principal offices at Government Secretariat, Thiruvananthapuram". In essence, the government of Kerala.

But nothing in the agreement prevents the AVPPL from causing a 'change of ownership' or entering into a deal like it has reportedly struck with the MSC Group. MSC Shipping's subsidiary TiL plans to acquire 49 per cent stake in AVPPL.

The agreement states that the approval (of the change in ownership) will "not in any manner absolve the concessionaire from any liability or obligation under this agreement". Meaning, Adani Group can go ahead and strike a joint venture with a global shipping giant but the concession agreement of 2015 has enough checks and balances to prevent the new entity from recklessly expanding into a monopoly.

Opposition leader Pinarayi Vijayan is concerned that the port would impose monopoly rates and deprive other stakeholders of a competitive 'common user' facility after the merger.

Fact is, there are sufficient legal immunoglobulins in the agreement to neutralise any such monopolistic inclinations.

Here is what Clause 5.4.2 says: "The concessionaire acknowledges that the competitiveness of charges and tariffs for port services will have a direct impact on the business at the port and the concessionaire, therefore, agrees that it shall make its best endeavours to levy charges and tariffs on competitive terms based on total in-port costs vis-à-vis competing ports."

Another clause says that the concessionaire has to "follow a policy of non-discrimination with regard to the classes or descriptions of vessel traffic that are permitted to use the port and shall not impose limitations on vessel movements within the limits of the port or otherwise restrict capacity at the port."

Clause 5.8 specifically deals with "obligations relating to non-discriminatory access." "The concessionaire shall manage and operate the port on a common user basis and provide non-discriminatory access to all vessels, vehicles, shipping lines, shippers, receivers, forwarders and other persons in accordance with the provisions of this agreement and shall refrain from adopting any unfair or discriminatory practice against any user or potential user thereof".

If the deal comes through it is only natural that MSC Shipping would want to give preference to its vessels at the Vizhinjam port.

Clause 5.8 of the agreement even allows partisanship but with strict limits. In a month, the port can handle at the most 50 per cent of the cargo or vessels of an associate company in which the operator has a direct or indirect financial stake.

This clause will be suspended only if the total cargo handled at the port is less than 65 per cent of its capacity. In such a scenario, to scale up operations to 100 per cent, the operator can handle more than 50 per cent of associate or own cargo.

There is a punitive measure, too. If the concessionaire (AVPPL) offers more than 50 per cent preference for in-house business, it has to pay the state government the fee payable for the excess vessels or cargo.

There are also legal obligations related to berthing a new ownership pattern cannot waive.

"The concessionaire shall follow a policy of non-discrimination with regard to the classes or descriptions of vessel traffic that are permitted to use the port and shall not impose limitations on vessel movements within the limits of the port or otherwise restrict capacity at the port," says clause 20.4 of the agreement.

And at the time of signing the agreement, the Adani Group had also agreed that any user who agrees to pay the prescribed free will be "entitled to use the port without any restrictions."