Two failed auctions spread across 20 months has escalated the total project cost of constructing a mega container terminal in the outer harbour of V.O. Chidambaranar (VOC) Port by 75.1 per cent to ₹12,354.78 crore, including a whopping 155 per cent increase in dredging expenses to ₹3,622.55 crore, raising concerns over lack of accountability for the “faulty” cost estimates previously worked out by the National Technology Centre for
Ports, Waterways and Coasts (NTCPWC).
Prime Minister Narendra Modi laid the foundation stone for the outer harbour container terminal at the state-run port on February 28, 2024, after the Cabinet approved the project.
Port mulls PPP-HAM route to mask spike in costs
To camouflage the steep increase in costs, particularly on dredging, due to the delay, the VOC Port Authority is considering undertaking the dredging component of the project on a Public-Private-Partnership (PPP) Hybrid Annuity Mode (HAM) following the model adopted by Jawaharlal Nehru Port Authority for the same work at the upcoming Vadhvan Port in Maharashtra.
In the previous rounds of tendering for the ambitious 4 million twenty-foot equivalent units (TEUs) capacity container terminal in its outer harbour, the VOC Port Authority had structured the project on the viability gap funding (VGF) model.
The VGF of ₹1,950 crore translated into 27.64 per cent of the total project cost of ₹7,055.95 crore. The project was to be awarded to the bidder quoting the lowest VGF — the sole criterion for bid evaluation — for a concession period of 45 years.
The NTCPWC operates under the aegis of the Indian Institute of Technology, Madras.
Based on the Detailed Project Report (DPR) written by NTCPWC in August 2022 for the container terminal, the port authority had factored ₹698.45 crore for constructing a 5.513 km-long breakwater and ₹1,420.62 crore for the dredging work comprising ₹1,233.51 crore for dredging the dock basin and outer harbour channel (with dredging quantity of 10.96 million cubic metres) for the first phase of the project and ₹187.11 crore (1.23 million cubic metres) for the second stage of the facility.
The terminal was planned to be constructed in two phases, with the first costing ₹4,494.46 crore and the second costing ₹2,561.49 crore, for a total of ₹7,055.95 crore.
Revised DPR inflates total project cost
Interestingly, a fresh ‘Draft DPR for Development of Outer Harbour at VOC Port’ by the same NTCPWC has re-estimated the project’s capital cost at ₹12,354.78 crore, including GST, as against ₹7,055.95 crore in previous rounds of tendering, an increase of 75 per cent.
The total project cost is expected to reach about ₹15,000 crore by the time the project is approved by the Union Cabinet and put out to tender. The NTCPWC, in its draft DPR, “noted that no provision has been made to cover unforeseen costs owing to force majeure events, exchange rate fluctuations, changes in rates of taxation, changes in law or other circumstances.”
The capital cost for ‘Outer Harbour Development Phase I Stage 1’ is estimated at ₹6,224.99 crore, inclusive of GST.
Construction of one container terminal to handle 18-metre draft vessels, development of the container terminal yard and other matching infrastructure facilities such as roads, supplying and installing container handling equipment such as quay gantry cranes, rubber-tyred gantry crane, tractor trailers, and reach stacker, etc, is estimated at ₹3,066.68 crore, including GST, translating to ₹9,291.67 crore.
In stage 2, a second container terminal will be built to handle 18-metre draft vessels, along with development of the container terminal yard and other matching infrastructure, such as roads, which is estimated to cost ₹3,063.11 crore, including GST, taking the total project cost to ₹12,354.78 crore, per revised estimated worked out by NTCPWC in June this year.
Dredging the seabed comprising of soil and weathered rocks in front of proposed container terminals 1 and 2 at the outer harbour and the straight navigational channel (10.96 million cubic metres of dredged materials) to handle 16-metre draught vessels is estimated at ₹3,622.55 crore compared to the earlier ₹1,233.51 crore for the first phase and ₹187.11 crore for the second phase of dredging, totalling ₹1,420.62 crore, a whopping 155 per cent increase.
The construction of a 5.513 km-long breakwater using dredged material is estimated at ₹1,344.72 crore, up from ₹698.45 crore earlier, an increase of 92.53 per cent.
“The estimate is firm as on June 14, 2025. Hence, whenever the works are undertaken in a phased manner, the rates need to be reviewed and updated,” the NTCPWC wrote in the draft report.
VOC Port Authority has since hired Spain’s Tecnica Y Proyectos S A (TYPSA) to write a Detailed Project Report (DPR) for building a mega container terminal in the southern port’s outer harbour, media reported on November 3.
The draft revised DPR written by NTCPWC will likely form the basis for TYPSA to prepare a DPR, which port industry sources believe is a way to “validate and legitimise” the estimates worked out by NTCPWC in the revised draft DPR.
The exponentially high dredging costs re-estimated by NTCPWC within a span of 20 months have spooked the port and dredging industries.
“In just 20 months, how can they jump from ₹1,420.62 crore to ₹3,622.55 crore. The same NTCPWC has suggested that the channel deepening work in J N Port has resulted in a huge notional revenue loss to the J N Port Authority, which ultimately led to a First Information Report filed by the Central Bureau of Investigation,” said a dredging industry source.
The steep increase in dredging costs has also lent credence to concerns expressed by bidding groups in earlier rounds of tendering about what they called “unrealistic” cost estimates prepared by NTCPWC for dredging and breakwater construction.
This also explains why the port authority is now considering using the HAM model for dredging to deflect potential criticism of the “faulty and unrealistic” estimates prepared by the NTCPWC for the last round.
During the road show and in the pre-bid meetings in the previous auctions, potential bidders expressed the view that the project cost estimated by the state-owned port authority with the help of NTCPWC in the global tender was lower by “at least 50 per cent,” which would make it difficult to place a price bid and expose them to risks later. This has now been proven right with NTCPWC re-estimating the total project cost at ₹12,354.78 crore.
During the earlier tendering process, citing the “unrealistic” cost estimates, potential bidders had urged the port authority to “re-visit” the capital cost or else raise the viability gap funding to at least 40 per cent of the project cost in line with the Vizhinjam Port project on which the outer harbour terminal tender was modelled.
But the port authority turned down the demand, saying it was seeking VGF only because of loading the breakwater construction and capital dredging costs onto the private entity developing the project.
“Otherwise, there would not have been a requirement of VGF for the outer harbour development project only,” the VOC Port Authority told the PublicPrivate-Partnership Appraisal Committee (PPPAC) when it scrutinised and approved the project on November 29, 2023, ahead of taking the proposal to the Cabinet for approval.
An Empowered Committee in the Ministry of Finance also granted “in-principle” approval for a VGF of ₹1,950 crore for the project.
“Potential private investors were apprehensive about the inclusion of channel dredging work in the outer harbour container terminal project. The port authority’s thinking behind such a strategy lacked clarity,” said an executive from a firm which attended the pre-bid meeting during the previous round.
The loading of the dredging and breakwater costs onto the private developer is seen as a “surreptitious” effort by the port authority “to brush an earlier fiasco on dredging costs under the carpet,” said a second port industry executive.
Flawed dredging estimates trace back to 2018
In 2018, the VOC Port Authority, through the Ministry of Ports, Shipping and Waterways, submitted a proposal to the Cabinet to deepen the dock basin to 16.5 metres and the approach channel to 17.2 metres, with a budget of ₹3,090.28 crore, according to an official document prepared by the VOC Port Authority in November 2018.
The final revised memo for the Public Investment Board (PIB) was submitted to the Ministry in September 2018.
A few days later, the PIB proposal for deepening the dock basin and the approach channel was “reviewed by the Secretary, Shipping on October 10, 2018, and it has been decided to review the proposal by IIT Madras and to submit a fresh DPR considering the present study reports of bore hole data and bathymetry survey including seismic refraction survey,” per the VOC Port Authority document mentioned earlier.
As discussed in the October 10, 2018 meeting held by the then Secretary, Shipping, NTCPWC attempted to arrive at a dredging rate by experimenting with a Back Hoe dredger for 43 days between October 19 to November 30, 2018, and a trailer suction hopper dredger for 15 days from November 29 to December 15, 2018, and worked out an estimate which was 50 per cent lower than the estimate cleared by the PIB.
Thus, a well-conceived project note with proper estimation sent to the Cabinet after PIB approval was “withdrawn” due to the substantially lower dredging cost of about ₹1,545 crore estimated by NTCPWC. The performance of DCI dredgers and the unit rate considered for the experiment were not disclosed by the VOC Port Authority.
Following this, the VOC Port Authority kept the proposal on hold because the much-reduced dredging cost estimated by NTCPWC did not undergo market price discovery.
Subsequently, in a face-saving move, the VOC Port Authority allegedly “camouflaged and disguised the capital dredging costs” of ₹1,420.62 crore (estimated at ₹3,090.28 crore in 2018) into the development of a ₹7,055.95 crore container terminal in the port’s outer harbour.
But after two rounds of tendering, nobody came forward to bid for the project. The delay has jacked up the project cost to ₹12,354.78 crore and could go to as much as ₹15,000 crore.
This is also said to have pointed the fingers at the “inexperience of NTCPWC in giving commercial advice that has delayed the project by more than seven years”.
Industry slams NTCPWC for repeated missteps
The port industry has expressed shock that “NTCPWC which has no wherewithal to give transaction advisory services or no knowledge of container terminal operations business had prepared a DPR and business proposal for the outer harbour project”, a port industry executive said.
“The project ostensibly failed due to under estimation of channel deepening work as well as business proposal written by NTCPWC,” the executive noted.
This resulted in business and financial loss to the port authority for not catering to the shipping industry by allowing bigger size vessels to call, he added.
“Now, they can’t do the project under PPP and want to split the project by adopting the HAM model for dredging work and the PPP route for erecting the container terminals. Who will be held accountable for the notional loss suffered by the VOC Port Authority to the tune of some ₹4,000-5,000 crore due to the 7-8 years delay in deepening the dock basin and approach channel aimed at augmenting revenue,” the dredging industry source mentioned
earlier, asked.
“Why is VOC Port Authority not acting against NTCPWC for giving unrealistic estimates based on frivolous assumptions, resulting in a huge national loss when other public sector undertakings and para government agencies are penalised or even blacklisted for contractual non-performance,” the dredging industry source said, noting that NTCPWC was awarded the contract to write the DPR for the project on nomination basis (without a tender).
“The structuring of the outer harbour project was very important and NTCPWC is said to have bungled big time in its work with the result that the faulty structuring scared bidders away,” he stated.
“This is what happens when an institution spearheaded by professors from IIT Madras instead of teaching students, gives commercial advice to the government,” he said, adding that major ports such as Mumbai and Haldia and some non-major ports in Gujarat are understood to have previously suffered due to the “wrong advice” given by NTCPWC, entailing business and financial loss to the government and the national exchequer arising
from delay in implementing the project.
The VOC Port Authority, he said, should have taken a cue from Mumbai Port Authority, which discarded the advice given by NTCPWC in 2019 for deepening and widening the approach channel to the Second Chemical Berth at Pir Pau at an estimated cost of ₹22.54 crore.
But Dredging Corporation of India “refused” to work at this estimate, forcing the Mumbai Port Authority to revise the cost based on market assessment rather than stick to the “unrealistic” estimate given by NTCPWC to avoid a business loss, as the Second Chemical Berth was ready for operations.
In May 2020, the board of the Mumbai Port Authority revised the cost to ₹84.23 crore and completed the project to avoid an audit by the Comptroller and Auditor General (CAG) of the Second Chemical Berth.
Experts have expressed bewilderment at the ministry not taking a stand on the flawed proposal to deepen the dock basin and approach channel, based on alleged “wrong advice” from NTCPWC.
“It is not proper for the Ministry to let a well-conceived project being disrupted by using an entity that has no wherewithal in giving commercial advice and market analysis on cargo traffic,” said an executive with a shipping company who had participated in the pre-bid meetings during the earlier rounds, adding that the practice of asking NTCPWC to write business proposals for port projects should be dispensed with.
“Prime Minister Modi laid the foundation stone for the prestigious project and VOC Port Authority need to follow J N Port Authority and Mumbai Port Authority by discarding the desk reports written by professors from IIT Madras and revise the proposal by taking industry experts in structuring the outer harbour project including taking the responsibility for the dredging work as a landlord component without burdening the successful private
container terminal operator,” he added.
Susanta Kumar Purohit, Chairman, VOC Port Authority, did not respond to an email and a text sent to his mobile for comments.
(source: ET Infra)
