DCI’s work secured without tenders shows the downside of PSU to PSU deal

Dredging Corporation of India Ltd (DCI) made ‘ extra money’ on a tender awarded by state-run Jawaharlal Nehru Port Trust (JNPT) and one of its four majority shareholders, unravelling the downside of a government to government strategic disinvestment completed in March last year.

The extra money is estimated to be about Rs 30 crore.

Visakhapatnam Port Trust, Paradip Port Trust, Jawaharlal Nehru Port Trust and Deendayal Port Trust acquired the Central government’s 73.47 per cent stake in DCI for Rs 1,056 crore.

Since the change in ownership, DCI has won contracts from two of its owners -Paradip Port Trust and JNPT- on nomination basis (without a tender). A few days ago, DCI won another contract from state-run Kamarajar Port Ltd (not a shareholder of DCI) for Rs153 crore, on nomination basis.

The most talked about contracts it won on nomination basis was the one in JNPT, which was awarded in November last year for Rs 165 crore. The value of the work originally estimated by JNPT was Rs147 crore, but through negotiations it was finalised at Rs 165 crore, government officials told Business Line.

DCI sub-contracted a major portion of the work to a private dredging contractor and manged the balance work, which was cumulatively much lower than the Rs165 crore it received from JNPT, a government official said.

“This is true,” said a DCI official. “But, that is business. How can anybody blame us for that,” he asked.

DCI defended its move to outsource a big part of the work to a private dredging contractor stating that “it was short of dredgers” to do the work on its own. “The sub-contracting was done by inviting open tenders and the lowest was selected,” the DCI official said.

“Actually, it was a matter of chance that we got lower rates in the tender to select a sub-contractor. We were fearing that even we may have to pay extra,” the official said.

JNPT, according to this official, initially gave DCI time till October to complete the work. “Then, they suddenly turned around and said they wanted the work to be completed before monsoon. That forced us to go for tender to outsource work,” he said.

The five months contract at Kamarajar port involves a mix of capital and maintenance dredging.

A senior official with one of the four major port trust that owns DCI said that they had “no option but to give the works to DCI”.

“We are shareholders of DCI. How can we go for a tender to award works when we have our own dredging company. How can we give it to someone else,” he said.

“All the major port trusts will be giving works to DCI on nomination basis. They can get good price also,” said an official with a private dredging firm.

“DCI will be happy because they are supported with works through nomination. However, since the market rates are not tested through tenders, ports are the losers,” he said.

Keeping the annual expenditure on maintenance dredging to the minimum is critical to the competitiveness of ports. This is because dredging expenses are typically priced into the vessel related charges (VRC) that the ports collect from shipping lines, their main users.

The VRCs at major port trusts are considered high compared to neighbouring ports in the region. “Any hike in dredging costs will have to be recovered from shipping lines by raising the VRC, which may force lines to divert to competitively priced private ports operating nearby,” said a port industry executive.