Ennore Port Limited. Business Plan for Ennore Port Limited. Final Report

Transcription

1 Ennore Port Limited Business Plan for Ennore Port Limited Final Report Ennore Port Business Plan Consultancy HPC-CES March, 2007

2 Business Plan for Ennore Port Limited Final Report This Report has been prepared by the Ennore Port Business Plan Consultancy HPC-CES: HPC Hamburg Port Consulting GmbH CES Consulting Engineers Services (India) Pvt. Ltd. Container Terminal Burchardkai 3 57 Nehru Place (5th Floor) Hamburg New Delhi Germany India Phone: (+49 40) Tel Fax: (+49 40) Fax [email protected] [email protected] Internet: Internet: Copyright by Ennore Port Business Plan Consultancy HPC-CES 20/03/07 12:28 D:\23328_Indien_Ennore_BP\Reports\Final Report March 2007\Final Report (FR)- V doc

3 Table of Contents EXECUTIVE SUMMARY xi 1. INTRODUCTION MAJOR RESULTS OF INCEPTION AND INTERIM PHASES Port Description General Existing Facilities Composition and Trends in Cargo Traffic Traffic Forecast by Commodity Considerations and Major Assumptions Coal Iron Ore Liquid Bulk Containers General Cargo Summary of Cargo Traffic Forecast Vessel Traffic Forecast Competitive Position Capacity and Bottleneck Analysis Phased Land Use Plan Land Availability Requirements of Additional Lands Summary of Additional Land Requirement Strategy Hinterland Connectivity Rail Connectivity Local Area Connections Hinterland network Rail connectivity Strategy Road Connectivity Existing and Proposed Access Roads Proposed Network of Port roads Strategy Organisational Issues VISION, GOALS AND STRATEGY Vision and Goals Management Vision for the Next 20 Years Goals to be achieved in the Next 7 Years Strategy 3-26 iii

4 3.3 Long Term Development OVERVIEW OF INVESTMENTS Private Investment Projects Existing Coal Berths (TNEB Coal) Common-User Coal Terminal Common-User Iron Ore Terminal Marine Liquid Terminal Container Terminal Summary of Private Investments Public (EPL) Investment Projects Capital Dredging Road Connectivity Rail Connectivity Miscellaneous Investments Summary of EPL Investments FINANCIAL PROJECTIONS Principal Assumptions Revenue Expenditure Investment Costs Others Depreciation Provision for Income Tax Dividends Foreign Exchange Rate Upfront Fees Main Results Profit and Loss Account Balance Sheet Cash Flow Key Financial Indicators Financing Strategy DETAILED ACTION PLAN Approach Action Plan for Identified Projects Projects Under Private Financing Marine Liquid Terminal (BOT Project) Coal Terminal (BOT Project) Iron Ore Terminal (BOT Project) Container Terminal (Phase-I) (BOT Project) Projects under EPL Financing Capital Dredging (Phase I) 6-60 iv

5 Capital Dredging (Phase II) Capital Dredging (Phase III) Road Connectivity Rail Connectivity Co-ordination & Monitoring FINANCIAL MODEL Structure Development Annual review of the financial model ANNEXURES 8-74 List of Tables Table 2.1: Past Traffic 2-6 Table 2.2: Summary of Traffic Forecast by Commodity 2-10 Table 2.3: Summary of Expected Vessel Calls by Type 2-11 Table 4.1: Common User Coal Terminal Financial Implications for EPL 4-34 Table 4.2: Iron Ore Terminal Financial Implications for EPL 4-38 Table 4.3: Marine Liquid Terminal Financial Implications for EPL 4-39 Table 4.4: Estimated Private Investment of the Terminal 4-41 Table 4.5: Container Terminal Financial Implications for EPL 4-42 Table 4.6:Summary of Private Investments 4-42 Table 4.7: EPL Investment on Development of Roads 4-45 Table 4.8: Summary of EPL Investments 4-47 Table 5.1: Phasing of EPL Investments 5-51 Table 5.2 Key Financial Indicators 5-54 Table 8.1: Civil Works for Container Terminal 8-82 Table 8.2: Equipment Investment for Container Terminal 8-83 Table 8.3: Cash Flow of Container Terminal 8-86 v

6 List of Figures Figure 2.1: Present Port Layout 2-5 Figure 2.2: Demand-Supply Analysis South Indian Ports 2-9 Figure 2.3: Updated Land Use Plan 2-16 Figure 2.4: Rail connectivity to Ennore Port 2-17 Figure 2.5: Sketch of Hinterland Rail Routes 2-19 Figure 2.6: Existing and Proposed Access Roads 2-21 Figure 2.7: Road Network Within the Port Area and Vicinity 2-22 Figure 2.8: Recommended Organisation Structure of EPL 2-24 Figure 3.1: Projects under 7-Year Action Plan and Provision for Long Term Development 3-30 Figure 8.1: Estimated Capital Expenditure of Container Terminal 8-85 Figure 8.2: Sensitivity Analysis of Container Terminal 8-87 List of Annexures Annexure 1: Commercial Terms of Concluded BOT Contracts 8-75 Annexure 2: Productivity Benchmarks 8-78 Annexure 3: Container Terminal Layout 8-79 Annexure 4: Financial Analysis of Container Terminal 8-80 Annexure 5: Year wise phasing of EPL Investments (Position as on ) 8-88 Annexure 6: Projected Profit and Loss Account 8-90 Annexure 7: Projected Balance Sheet 8-91 Annexure 8: Projected Flow of Funds 8-92 Annexure 9: Financial Model (Separate Attachment) 8-93 Annexure 10: Documents and References 8-93 vi

7 List of Abbreviations ADB B/H/T BOT CB CCTL CD CEA CES CFS CISF CMD CMDA CONCOR CPCB CPCL CRZ DPW ECP EIA EMC EMP EPL ESCO ETTPL FRM GAAP Asian Development Bank Bellary /Hospet/ Tumkur Build, Operate and Transfer Carbon Black Chennai Container Terminal Limited Chart Datum Central Electricity Authority Consulting Engineering Services (India) Private Limited Container Freight Station Central Industrial Security Force Chairman Cum Managing Director Chennai Metropolitan Development Authority Container Corporation of India Central Pollution Control Board Chennai Petroleum Corporation Limited Coastal Regulation Zone DP World, successor to Dubai Port International East Coast Ports Environmental Impact Assessment Environmental Management Cell Environmental Management Plan Ennore Port Limited Ennore SEZ Company Limited Ennore Tank Terminals Private Limited Fertilizers and Raw Materials Generally Accepted Accounting Principles vii

8 GOI GOTN GSPC HPC HSD ICD ICTT IMC IOCL IPA IPGL IRR IS ISPS IT/ITES IWT JNPT LNG LPG MEPZ MLT MMTC MOE & F MOSRTH MRTS MS MS Government of India Government of Tamil Nadu Gujarat State Petroleum Corporation Hamburg Port Consulting GmbH High Speed Diesel Inland Container Depot International Container Transhipment Terminal (Vallarpadam) Indian Molasses Co. Indian Oil Corporation Limited Indian Ports Association Indra Prastha Gas Limited Inner Ring Road, Internal Rate of Return Indian Standards International Shipping and Port Security Information Technology/ Information Technology Enabled Services Inland Water Transport Jawaharlal Nehru Port Trust Liquefied Natural Gas Liquefied Petroleum Gas Madras Export Promotion Zone Marine Liquid Terminal Minerals and Metals Trading Corporation Ministry of Environment & Forests Ministry of Shipping, Road Transport and Highways Mass Rapid Transport System Motor Sprit Mild Steel viii

9 MSPL NCTPS NH NHAI NMDP NMPT NSDP PFSA POL PPPAC PPP RFP RFQ RGCT ROW RPL RSO SEZ SSG SGL SICAL SICL SIP SIPCOT SISCOL SK SPCB Mineral Sales Private Limited North Chennai Thermal Power Station National Highway National Highways Authority of India National Maritime Development Programme New Mangalore Port Trust Net State Domestic Product Port Facility Security Assessment Petroleum, Oil and Lubricants Public Private Partnership Appraisal Committee Public Private Partnership Request For Proposal Request For Qualification Rajiv Gandhi Container Terminal Right of Way Reliance Petroleum Limited Recognised Security Organisation Special Economic Zone Ship Shore Container Gantry Crane Sesa Goa Limited South India Corporation (Agencies) Limited South India Corporation Limited South Indian Ports State Industries Promotion Corporation of Tamil Nadu Southern Iron & Steel Company Limited Superior Kerosene State Pollution Control Board ix

10 TAMP TIDCO TLF TNEB TNRDC TPP VHF WCP Tariff Authority for Major Ports Tamil Nadu Industrial Development Corporation Tank Lorry Filling Tamil Nadu Electricity Board Tamil Nadu Road Development Corporation Thiruvottiyur Ponneri - Panchetti Very High Frequency West Coast Ports Units: Cum Cfm DWT GRT ha Hr KM KVA KW M MT MTEUPA MTPA MW TEU TPD TPH Cubic metre Cubic feet per minute Dead Weight Tonnes Gross Registered Tonnes Hectares Hour Kilometre Kilo Volt Ampere Kilo Watts Meter Metric Tonne Million TEU per Annum Million Tonnes per Annum Mega Watts Twenty-feet Equivalent Unit Tonnes per Day Tonnes per Hour x

11 USD United States Dollar xi

12 EXECUTIVE SUMMARY 1. Introduction Ennore Port was developed from a green field situation in the East Coast of India at a distance of about 20km to the north of Chennai port. The Port was declared as a Major Port under the Indian Ports Act, 1908 in March 1999 and incorporated as a company (Ennore Port Limited) under the Companies Act, 1956 in October, The Port was commissioned in June, 2001 with two dedicated coal berths with 15m alongside depth and since then handles about 8.5 to 9 Million Tonnes of thermal coal per annum for the power stations of Tamil Nadu Electricity Board (TNEB). The Port also handles small quantities of Iron ore and POL through temporary facilities. The Port has initiated action for development of terminals through private sector participation to handle liquids, coal, iron ore and containers. The Port Management is functioning as a land lord Port with essential core staff. With a view to facilitate development of world class terminal facilities well suited to meet the present and future needs of the trades, Ennore Port Company has awarded the contract to prepare a Business Plan for Ennore Port to HPC Hamburg Consulting GmbH together with the Consulting Engineering Services (India) Pvt. Ltd. in July, The Inception Report was submitted on 21 st July The Interim Report was submitted on 3 rd November 2006 and presented to the Central Advisor (Port of Rotterdam) at New Delhi on 9 th December After incorporating the comments of the Central Advisor, the Interim Report (Final) was submitted to EPL on The Draft Final Report was submitted to EPL on and presented to EPL, the Indian Ports Association and the Central Advisor on Comments from EPL and the Port of Rotterdam were received during the first week of March and were discussed with both EPL and the Port of Rotterdam on occasion of the presentation of the Draft Final Report. The Final Report (FR) is now presented. The Final Report takes the outcome of the discussions of the presentation of the Draft Final Report and the comments received thereon onto account. The Final Report is complemented by an Addendum that sets out more details of the container terminal project. The terms of the reference were also kept in view while preparing the FR. The objective of the FR is to provide a consistent, integrated and substantiated business plan. 2. Major results and conclusions of inception and interim phases. 2.1 Port description Ennore Port is an artificial deep-sea, harbour comprising of two rubble mound type breakwaters with concrete capping. The South breakwater of 1,070 m in length and North breakwater of 3080 m in length created a protected port basin of 220 ha in area. The approach to the port is through a channel of 3,775 m in length, dredged to Executive Summary xii

13 16.0m level and equipped with night navigational facilities. The permissible draught is 13.5m. Two coal berths each of 280 m length in tandem and with an alongside depth of 15m were constructed by EPL and Tamil Nadu Electricity Board (TNEB) have installed the fully mechanised coal handling system comprising of two gantry type grab unloaders each of 2,000 TPH capacity, hoppers and two streams of conveyors each of 4000 TPH capacity to facilitate direct delivery of coal to the premises of North Chennai Thermal Power Station (NCTPS) (Figure 2.1 shows the present port layout) Traffic forecast by commodity The Traffic forecast for Ennore Port has been made for the period of 20 years from to The principal items of Cargo to be handled at Ennore Port comprise of Coal (for TNEB and non-tneb), Iron ore, POL & bulk liquids and Containers. Summary of Traffic Forecast by Commodity (Table 2.2) (million tonnes) Commodity Low Cargo Forecast Coal TNEB* Coal Non-TNEB Iron Ore Liquid Bulk General Cargo Total(million tonnes) Container (mteupa) High Cargo Forecast Coal TNEB Coal Non-TNEB Iron Ore Liquid Bulk General Cargo Total(million tonnes) Container (mteupa) * Excluding additional potential new requirements by TNEB addressed to EPL in March 2007 following completion of the report. (Empty squares indicate no cargo due to non-availability of facilities) 2.3 Competitive Position With the infrastructure in position, the green field Ennore Port is in a good competitive position to develop deep-drafted dry-bulk, liquid-bulk and container Executive Summary xiii

14 terminals through private sector participation and provide better facilities and services. Strengths of Ennore include superior physical facilities and space for expansion. Threats and weaknesses result mainly from hinterland connections that while being a part of the action plan included in this business plan require upgrading and expansion. The principal competitors of Ennore Port are: Chennai, Tuticorin, Cochin (Vallarpadam) and Vizhinjam for containers Chennai and Cuddalore (as and when developed) for coal (Non-TNEB users) Chennai and Krishnapatnam (as and when developed) for Iron ore. On development and commissioning of Coal & Iron ore terminals at Ennore Port, the coal (Non-TNEB) and iron ore presently being handled at Chennai port are expected to shift to Ennore. 2.4 Capacity and bottleneck analysis Ennore Port has a potential to become a world class port. As per the traffic projections in the Business Plan, Ennore Port should have sufficient land back up to support development and operations of port facilities to handle about 55 Million Tonnes of dry-bulk and liquid-bulk cargo and 3.5 million TEU of containers the second half of the next decade. The land presently available is not adequate to meet the long-term demand. EPL should acquire additional lands to remove this bottleneck so that the growth of Ennore Port in long term is not affected for want of back up lands. 2.5 Phased land use plan Ennore Port presently owns 836 ha of land located inside and outside of the port boundary wall. EPL has a land use plan prepared in 2003 to guide the developments. The consultants have reviewed the land use plan with reference to the long-term demands vis-à-vis the land requirements. As per assessment made by the Consultants in the Business Plan, a minimum requirement of 1,050 ha of additional lands are required to provide space to accommodate future berths and the associated back up storage areas, road corridor, portside container yard, commercial corridor etc. The land use plan is updated incorporating the additional requirements. EPL should take action on priority to acquire additional lands in the vicinity before the land becomes scarce in this region. (Figure 2.3 shows the Updated Land Use Plan). The discussion of long term development possibilities reveals that even with the land additions mentioned above EPL will not have sufficient land to support the long term development. EPL must address this concern in conjunction with the recommended revision of the long term Master Plan. Executive Summary xiv

15 2.6 Hinterland connectivity Rail connectivity is required for 100% inward movement of Iron ore, 65% out ward movement of non-tneb coal and 25% of inward outward movement of containers. Road connectivity is required to move about 75% of container traffic and liquid cargo. After analysis of the connectivity needs for uninterrupted evacuation of cargo, the following recommendations have been made. Construction of an independent railway siding to connect Attipattu / Attipattu Pudunagar railway stations to coal, iron ore and container stack yards. (Ref. Figure 2.4) Construction of a new 88km chord line from Puttur to Attipattu with equity participation of EPL. (Ref. Figure 2.5) Construction of the network of roads suggested inside and outside of the port boundary wall. (Ref. Figure 2.7) Construction of a new Northern Port Access road to directly connect Ennore Port to TPP road and then to Thachur at NH-5. EPL to pursue action either to bring it under the port connectivity or participate through equity contribution. 2.7 Organisational issues The management of Ennore Port incorporated under the companies Act, 1956 is provided through the Board of Directors. As a commercial oriented corporate, the management is following the land-lord concept. With the view to improve the planning capability within the management, a 3-layer organisational structure has been recommended (Senior Management, Middle Management and Junior management). EPL has already initiated action to recruit proper professionals and fill up the slots as per the recommended organisation structure (Ref. Figure 2.8) in stages commensurating with the workload. 3. Vision, Goals and Strategy The Management vision for the next 20 years is that: Develop as a mega port with world class facilities to become the Eastern gateway Port of India. The goal for the next 7 years is: To execute the following projects selected to meet the traffic demands and to provide the supporting infrastructure. Projects Marine Liquid Terminal Coal Terminal Iron Ore Terminal Executive Summary xv

16 Container Terminal Installation of additional equipment in the existing coal berths (TNEB). (Figure 3.1 shows the location of the berths) Supporting Infrastructure Dredge the areas of marine liquids, coal, iron ore and container berths in phases synchronising with the construction schedules of the berths. Establish Road and rail connectivity for evacuation of Cargo. Develop other common infra-structure to improve port s attractiveness. Strategy: Develop Cargo terminals through private sector participation. Undertake support infra-structure works through EPL financing. Acquire additional lands to support the long term developments. Co-ordinate with the concerned State and Central Government Departments to improve connectivity. Maximise utilisation of the existing assets and increase revenue earnings. Obtain Government funds for capital dredging. Develop core manpower. 4. Over view of Investments The private investment projects on development of cargo terminals proposed for implementation within the next 7 years are listed in Table 4.6. Summary of Private investments (Table 4.6) Sl. Project Investment Cost Status Capacity No. (Rs. in million) 1. Marine Liquid Terminal 1,963* Contract awarded 3.0 MTPA 2. Coal Terminal 4,000* Contract awarded 8.0 MTPA 3. Iron Ore Terminal 4,800* Contract awarded 9.0 MTPA (Phase I) 15.0 MTPA (Phase I+II) 4. Container Terminal 13,000** Action initiated to 1.50 Million TEU (Phase 1) select BOT operator PA 5. TNEB coal additional capacity 2,000** 4.0 MTPA Total 25,763 * Source DPR ** Source EPL Estimates The Public (EPL) Investment projects on core infrastructure to support the development and operations of the private investment projects within the next 7 years are listed in Table 4.8. Executive Summary xvi

17 Summary of EPL investments (Table 4.8) Sl.No. Project Investment cost (Rs. in millions) 1. Capital Dredging (Phase 1) Capital Dredging (Phase 2) 1, Capital Dredging (Phase 3) 1, Road Connectivity 1,800 * 5. Rail connectivity to coal, iron ore, and container stackyards Miscellaneous investments 450 Total 6,980 equivalent to Rs.698 crores * This includes equity contribution of Rs million by EPL to the SPV for the development of Northern Port Access Road and widening of TPP road. Equity Contribution to the SPV of Puttur Athipattu new rail line Million Gross Total of EPL Investment - Rs.748 Crores. 5. Financial Projections equivalent to Rs.50 crores The Financial Statements comprising of projected Profit and Loss Account, Balance Sheet and Cash Flow for a period of first 7 years, 10 th year, 15 th year and 20 th year commencing from the financial year are prepared adopting the formats prescribed by the Central Advisor and provided. The key financial indicators are shown in Table 5.2. In the years and , the cash generated from ordinary operations will not be sufficient to cover all cash requirements for planned capital expenditure. The financial forecasts shown in the table overleaf include the results of the preferred financing strategy to mitigate this shortfall through additional debt of Rs.3,900 million drawn down in the years and Executive Summary xvii

18 Key Financial Indicators (Table 5.2) (Rs. in Millions) Total operational revenue 1,249 1,367 1,602 3,730 4,679 4,910 5,461 7,484 8,622 10,215 Total operating cost ,501 Operational net earnings 951 1,101 1,333 3,409 4,287 4,494 4,970 6,863 7,681 8,715 Depreciation Net earnings before interest and tax ,095 3,138 4,016 4,224 4,700 6,596 7,414 8,448 Interest Net earnings before tax ,484 3,526 3,899 4,542 6,495 7,409 8,448 Tax ,166 2,534 2,911 Net earnings ,205 3,131 3,461 4,032 4,329 4,875 5,537 Debt (Long term loan) 3,893 5,051 7,103 6,723 5,033 3,335 1,624 1, Equity 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 Reserves ,208 3,413 6,544 10,005 14,037 25,141 43,920 66,309 Net Worth 3,460 3,847 4,208 6,413 9,544 13,005 17,037 28,141 46,920 69,309 Liquid means ( Op. Bal ) , , , , , Liquid means ( Cl. Bal ) , , , , , , Increase (decrease) liquid means (673.40) (32.44) , , , , , , Operating Ratio (Operating expenses / Operating revenue) 2. Debt Equity Ratio (Debt / Equity) 3. Return on Capital Employed 7.09% 5.19% 3.99% 22.07% 32.07% 36.35% 43.44% 67.33% 89.17% % (Net earning before tax / Fixed Assets) - 4. Net earning before tax / Net worth 14.20% 11.34% 9.66% 38.73% 36.95% 29.98% 26.66% 23.08% 15.79% 12.19% 5. Earning Per Share in Rs Note: The financial implications of the financing strategy discussed below are reflected in this table. It should be noted that according to the most recent annual report, EPL has contingent liabilities of Rs. 2,143 million towards claims against the company not acknowledged as debt. According to applicable Indian GAAP, the contingent liability is not shown in the balance sheet or taken into consideration in the above table. Financing Strategy First Choice Seek Government grant of Rs.3,200 Millions during to cover Phase- 2 and Phase-3 capital dredging and to tide over the critical cash flow position during that year. EPL will be able to meet other investments from internal resources. Second Choice Increase in Equity Capital by up to Rs. 3,000 Millions. This would allow EPL to either fund investment from equity or back additional debt financing to fund investment and/or to meet contingent liabilities should EPL be required to do so. Executive Summary xviii

19 Third Choice Short or medium debt from banks or financial institutions to the extent of Rs.3,900 million. Additional debt financing may require pro-rata additional equity financing to ensure maintenance of prudent capital structure Following discussions with EPL management, the third choice has been adopted in the financial analysis. It is thereby further expected that in case the arbitration procedure ends with an unfavourable result for EPL and EPL is required to honour the contingent liability, present shareholders will provide requisite support to EPL to maintain healthy balance sheet ratios. 6. Detailed Action Plan Detailed Action Plan comprising of Activity schedules for implementation of each of the private and public sector projects have been prepared and provided. The milestone events and the action points of EPL to ensure timely completion/ commissioning of the private sector projects have been indicated in the Action Plan. A Master Control Bar Chart showing the relative start and completion of all projects has also been provided to facilitate monitoring and review. 7. Financial Model The financial model is structured with input fields, calculation fields and output fields with instructions for annual review by EPL. In order to make the model more accessible to EPL, a distinction has been made by using different colours for input fields, calculation fields and output fields. A soft copy of the financial model has also been provided to facilitate annual updating. The financial model is provided as a separate attachment (Annexure 9). Executive Summary xix

20 1. INTRODUCTION To facilitate an efficient development of Indian ports, the Ministry of Shipping, Road Transport and Highways (MOSRTH), has mandated that each of the 12 major ports develop a Business Plan Study to spell out the long term goals for each major port and setting out how these goals are to be reached. The key elements of these Business Plan are Goals to be achieved over the next seven years The strategy to be followed to achieve these goals An action plan to implement the strategy. The sources of funding to implement the action plan. To ensure that the Business Plans prepared by all ports address all elements in the scope of work postulated by MOSRTH, Port of Rotterdam has been appointed as the Central Advisor (CA) by the Indian Ports Association (IPA) to oversee the preparation process. HPC Hamburg Consulting GmbH together with Consulting Engineering Services (India) Private Limited have been awarded the contract to prepare the Business Plan for Ennore Port Limited (EPL). The contract was signed in July An Inception Report was submitted by 21 st July and commented on by both EPL and IPA in August The Interim Report was submitted on 11 th September Comments of EPL have been received following presentation of Report to EPL officers on 29 th September The comments have been taken into account and the Interim Report was revised and submitted to EPL on 3 rd November The Central Advisor has evaluated the Revised Interim Report and his comments have been received on 29 th November 2006.The Revised Interim Report was presented to the Central Advisor on at New Delhi. The comments have been incorporated and the Interim Report (Final) submitted to EPL separately on The Draft Final Report was submitted to EPL on and presented to EPL, the Indian Ports Association and the Central Advisor on Comments from EPL and the Central Advisor were received in the first week of March 2007 and were discussed with both EPL and the Central Advisor on occasion of the presentation of the Draft Final Report. Responses of the Consultant to the comments of the CA and EPL are provided as a separate document. The Final Report presented herewith is a continuation of: the Inception Report providing all details of the existing port and its operations and Section 1: Introduction 1-1

21 the Interim Report (Final) providing all details of planned developments at Ennore Port. The Final Report contains a brief summary of the previous reports mentioned above. For any details the above reports refer, as does an Addendum to the Final Report for the container terminal. The Detailed Project Reports of the Coal Terminal and Iron Ore Terminal are since received from the BOT operators and the latest investment and rate analysis figures have been taken into account in the Final Report. The Final Report further summarises the business strategy of EPL, provides a detailed action plan to implement this strategy and a financial projection of EPL adopting the formats prescribed by the Central Advisor. The Final Report takes the outcome of the discussions of the presentation of the Draft Final Report and the comments received thereon onto account. The objective of the Final Report is to provide a consistent, integrated and substantiated business plan. Section 1: Introduction 1-2

22 2. MAJOR RESULTS OF INCEPTION AND INTERIM PHASES 2.1 Port Description General Ennore Port was developed from a green field situation in the East Coast of India at a distance of about 20km to the north of Chennai port. The Port was declared as a Major Port under the Indian Ports Act, 1908 in March 1999 and incorporated as a company (Ennore Port Limited) under the Companies Act, 1956 in October The Port was commissioned in June 2001 with two dedicated coal berths with 15m alongside depth and since then handles about 8.5 to 9 Million Tonnes of thermal coal per annum for the power stations of Tamil Nadu Electricity Board. The Port also handles small quantities of iron ore and POL through temporary facilities. The port has initiated action for development of terminals through private sector participation to handle liquids, coal, iron ore and containers. The Port Management is functioning as a landlord port with essential core staff. The cargo handling is by private operators and the port provides marine services Existing Facilities The existing marine facilities are as follows: Breakwaters South Breakwater 1,070m North Breakwater 3,080m Type of Breakwater Rubble mound with concrete capping; North Breakwater has been armoured with Accropodes [Special type of concrete armour blocks]. Entrance Channel Length 3,775m Width 250m Depth -16 m Width at entrance 300m Turning Basin Diameter 600m Depth -15.5m Berths No. of berths 2 [Dedicated berths to handle Thermal coal for TNEB] Section 2: Major results of the Inception and Interim Phases 2-3

23 Length 280m [each] Depth [alongside] -15 m Permissible draft 13.5m Size of vessels handled 65,000 / 77,000 DWT Equipment (Installed and operated by TNEB) Gantry type grab cranes 2 Nos. (Each 2,000 TPH capacity) Shore Hopper (Big) 1 No. (to receive coal from self unloading vessel) Shore Hopper (Small) 6 Nos. (to receive coal from handy max ground vessel) Conveyors 2 streams (Each 4,000 TPH capacity) Capacity 12 MTPA (Coal Berth No.1-- 8MTPA, Coal Berth No MTPA In coal berth No.2, geared coal vessels (vessels equipped with onboard grab cranes) discharge coal onto the shore mobile hoppers which feed to the conveyor system. Marine Crafts [initially purchased, then sold and in-chartered] Tugs 3 Nos. [40 T Bollard Pull] Pilot Launches 2 Nos. Mooring Launches 3 Nos. Navigational Aids Transit Light Towers 2 Nos. Channel Buoys 6 Nos. Fairway Buoy 1 No. Signal station For communication and regulation of ship movements Temporary facilities: Mobile unloading arm installed by Reliance Petroleum Limited (RPL) at Coal Berth No.2 to handle High Speed Diesel (HSD), Motor Spirit (MS) and Superior Kerosene Oil (SKO). Capacity 0.50 MTPA. Barge jetty and temporary conveyor system installed by Minerals &Metals Trading Corporation (MMTC) to export Iron Ore through barge system. Capacity 2.0 MTPA. The present port layout is shown in Figure 2.1. Section 2: Major results of the Inception and Interim Phases 2-4

24 Figure 2.1: Present Port Layout Section 2: Major results of the Inception and Interim Phases 2-5

25 2.1.3 Composition and Trends in Cargo Traffic The main cargoes presently being handled at Ennore Port are thermal coal, petroleum products (HSD & MS) and Iron ore. Cargo throughput of Ennore Port is approximately 1.8 percent of all Indian ports traffic. Table 2.1 summarises the trends in Port Traffic. Table 2.1: Past Traffic Year All Ports Ennore Port (mill. Tons) Mill. Tons Coal Iron Ore POL Total Source: IPA and EPL There has been a rise in POL and Iron ore traffic. The fluctuation in coal traffic is due to the variation in actual consumption of coal by the Thermal Power Stations. Over the past three years Ennore Port has handled about 170 vessels per year. 2.2 Traffic Forecast by Commodity Traffic forecast for Ennore port has been made for the period to year wise adopting the following methodology. Interaction with end users Review of available projections from other sources. Macro economic analysis Statistical analysis Analysis of Cargo movement routes Review of Port Master Plan Special emphasis has been made in the projection of container traffic taking the competitive situation among the South Indian Ports into account and the demand supply (capacity) gap. Section 2: Major results of the Inception and Interim Phases 2-6

26 2.2.1 Considerations and Major Assumptions Coal Iron Ore The projection of coal is on the following considerations. Requirement of coal for TNEB (Thermal coal) 9.0 to 9.6 MTPA for the power stations of TNEB at North Chennai (630 MW), Ennore (450 MW) and Mettur (840 MW) depending on the calorific value of the coal and seasonal fluctuations. 5.0 MTPA for the proposed 2 x 500 MW capacity Joint Venture (NTPC- TNEB) power station at Vallur. The first unit is expected to commission by and the second unit by MTPA for the proposed 500 MW unit at NCTPS expected to commission by MTPA for further expansion of 500 MW unit at NCTPS expected to commission by In March 2007, TNEB has addressed the requirement to handle an additional 5 MTPA of thermal coal for a new power station to EPL. This requirement was received after completion of the report and it was not possible to explicitly include the additional volumes in the forecast or the report. Requirement of coal for Non-TNEB users Shifting of 7.0 million tonnes of thermal coal (2.0 MTPA), coking coal (1.0 MTPA) and steam coal (4.0 MTPA) presently being handled at Chennai Port to Ennore. 1.3 MTPA of thermal coal for the additional 210 MW unit of Karnataka Power Corporation Limited (KPCL) Power Station at Raichur. 1.0 MTPA of metallurgical coal for the proposed Coke Owen Plant of Venkatesh Coke and Power Limited near Ennore Port. The Iron ore traffic has been projected for Ennore Port on the following considerations. Bellary / Hospet / Tumkur (B/H/T) will be the only source available to Ennore. For B/H/T, Iron Ore production has been projected up to 51 million tonnes in the short term and 70 million tonnes in the long term. Local demand is assessed to go up to 12.5 MTPA in short term and 18 MTPA in the long term. Section 2: Major results of the Inception and Interim Phases 2-7

27 Liquid Bulk Containers Export volume available for export would be up to 38.5 million tonnes in short term and 52 million tonnes in the long term. The Exportable surplus is likely to be shared by Ennore/Chennai Port and Krishnapatnam port (When developed) on the East coast and New Mangalore and Mormugao on the west coast. Because of the gradient and connectivity problems prevailing at Mormugao and New Mangalore ports, it is unlikely that movement of Iron Ore from Bellary Hospet region to these ports will exceed 6.6 million tonnes and 9.3 million tonnes handled during , when the demand from China is at peek. Ennore port being nearer to China (lesser sea freight) would attract more volumes from Bellary-Hospet. The Export potential through Ennore/Chennai Port would range from 9.8 million tonnes in to 16.5 million tonnes in going up to 20 million tonnes by On commissioning of the new Iron Ore terminal at Ennore Port, the iron ore presently being handled at Chennai Port will shift to Ennore. The demand of POL (HSD, MS and SKO) shall be 0.8 MTPA in short term which would increase to 1.5 MTPA in long term. The import of LPG by Indian Oil Corporation Limited (IOCL) shall be 0.6 MTPA in short term and 0.9 MTPA in long term. The local demand for Base oil, Carbon Black Feed Stock (CBFS) and Chemicals shall be 0.5 MTPA in short term and 0.7 MTPA in long term. LNG and crude oil are long-term perspective cargoes and no traffic prospect over next 7 years. The traffic forecast for containers is based on the following assumptions: The container forecast is by adopting log linear regression model taking GDP as an independent variable. The projection is based on the growth pattern of container traffic at Indian ports during the past 16 years ( to ). GDP at 7% is considered for Low scenario and 8% for high scenario. An analysis of probable supply-demand developments was prepared to assess the likely Ennore Port market share. The analysis took regional developments, likely shifting of cargo and competing port facilities into account. Market shares for Section 2: Major results of the Inception and Interim Phases 2-8

28 Ennore port were then estimated according to relevant capacity developments for each year. For the financial year , the market share of Ennore Port was estimated with 10% should capacity be developed quickly in competing ports. Should capacity develop more moderately, the market share of South Indian ports was estimated to be 18% for Ennore. The forecast South Indian ports share will thereby also depend on the extent to which shipping lines introduce new services with direct calls. The recent introduction of a direct call at Chennai on the new NEMO service by CMA CGM is a first positive example. Figure 2.2: Demand-Supply Analysis South Indian Ports '000 TEU Supply-Demand Balance Moderate Capacity Development Ennore '000 TEU Supply-Demand Balance Aggressive Capacity Development Ennore Figure 2.2 summarises the expected demand and supply developments for these two capacity scenarios. The analysis identifies a containerised cargo volume for Ennore Port to the order of magnitude of approximately 1.5 million TEU within a few years of commissioning of the new terminal, which will occur in the financial year at the earliest General Cargo The market analysis leads to the conclusion that presently, there is an insufficient potential to develop a general cargo facility in competition to Chennai. For strategic reasons, it was recommended not to include a multipurpose terminal in the scope of the Business Plan. In the opinion of the consultants the following strategy will apply: Chennai port would continue to handle break bulk general cargo where adequate facilities exist. Export of cars is a prospective cargo for Ennore Port when Hyundai Motors Limited starts production from of its second plant in Till generation of sufficient volumes of car exports justifying the need for a separate terminal, the proposed container terminal will handle the car exports and other clean unit loads in the initial years. Section 2: Major results of the Inception and Interim Phases 2-9

29 In the medium term a potential may arise and EPL is recommended to review the prospects regularly Summary of Cargo Traffic Forecast The summary of traffic forecast by commodity for the period from to is presented in Table 2.2 Table 2.2: Summary of Traffic Forecast by Commodity (million tonnes) Commodity Low Cargo Forecast Coal TNEB* Coal Non-TNEB Iron Ore Liquid Bulk General Cargo Total(million tonnes) Container (mteupa) High Cargo Forecast Coal TNEB Coal Non-TNEB Iron Ore Liquid Bulk General Cargo Total(million tonnes) Container (mteupa) * Excluding additional potential new requirements by TNEB addressed to EPL in March 2007 following completion of the report. (Empty squares indicate no cargo due to non-availability of facilities) Table 2.2 projects container traffic for Ennore port on the basis of a detailed demand-supply analysis. The forecast includes likely shifts in cargo trade patterns and takes developments in competing ports into account Vessel Traffic Forecast Considering the present and future vessel trend analysis, vessel traffic forecast has been made and the summary is shown in Table 2.3. Section 2: Major results of the Inception and Interim Phases 2-10

30 Table 2.3: Summary of Expected Vessel Calls by Type (in Numbers) Vessel type Low Cargo Forecast TNEB Coal Non TNEB Coal Iron Ore Liquid Bulk Container ,188 2,711 Total Vessels ,013 1,121 1,991 3,627 High Cargo Forecast TNEB Coal Non TNEB Coal Iron Ore Liquid Bulk Container ,674 4,187 Total Vessels ,193 1,247 1,384 2,646 4,989 (Note: Container vessels forecast beyond 2016 would require a review as the container traffic projections are based on the log linear model which trends to over estimate beyond a time span) 2.3 Competitive Position Ennore is a Greenfield major port situated at the vicinity of the well-developed Chennai city, yet away from the populated areas. The strength of Ennore port is the availability of protected waterfront of about 3,000m in length and back up lands of 836 ha for development of deep drafted cargo terminals benchmarking high productivity standards and quality parameters. It has the ability to connect to the national highways NH4, NH5 and NH45 without entering into the populated Chennai city area. All in all Ennore port is in a good competitive position to develop bulk and container terminals and the weakness can be mitigated through better facilities and services. The principal competitors of Ennore port are: Chennai, Tuticorin, Cochin (Vallarpadam) and Vizhinjam for containers. Chennai and Cuddalore (as & when developed) in case of coal (for Non- TNEB users). Chennai & Krishnapatnam (as & when developed) for iron ore. Section 2: Major results of the Inception and Interim Phases 2-11

31 Containers Even though Chennai, Tuticorin and Cochin terminals enjoy certain advantages of the present market network, the ports suffer because of some constraints like space availability for expansion, congestion in access roads, draft limitation, labour problems etc. Vizhinjam will be a new comer and on the one side enjoy similar advantages as Ennore. On the other side, hinterland access may not be quite as favourable. The strategy for Ennore port to remain competitive is to develop the container terminal for 6,000-8,000 TEU vessels on priority with better facilities and commission it ahead of competing facilities, e.g. the proposed second container terminal at Tuticorin. Coal The Chennai port is presently handling about 7 million tonnes of coal per annum in conventional berths for users other than TNEB and the operations are suffering because of multiple handlings, in-adequate stack areas, cargo evacuation and dust pollution. This cargo is to shift to Ennore Port. Development of Cuddalore minor port is in the preliminary stage of planning and may not pose any serious competition to Ennore port. Even if the development materialises in future, it may take away only about 3.40 million tonnes of Thermal coal meant for Mettur Thermal Power Station of TNEB from Ennore Port. This will not affect Ennore port because the potential is more than the available capacity. EPL has already taken action and signed the concession agreement with the BOT operator. Iron Ore Chennai port is presently handling about 7 million tonnes of iron ore per annum through the mechanised iron ore handling terminal. The problems on account of inadequate stack areas, outlived handling equipment serving beyond their service life & pollution problems will make the exporters to shift to Ennore port. The potential competitor of Ennore port will be the Krishnapatnam port as and when developed. The present proposal is to construct a deep-water port there to handle thermal coal for the new super thermal plant being put up by Andhra Pradesh Government nearby. The market analysis and the present status of development reveal that Krishnapatnam will not be a serious competitor for the export of iron ore within the next seven years. Ennore Port has already taken action and signed the concession agreement with the BOT operator. Ennore Port should pursue with the Railways to strengthen the track capacity in the critical Avadi-Vyasarpadi section to remove the bottleneck in the rail movement of iron ore rakes. Ennore port should also take a lead to develop the new chord line between Puttur & Attipattu by forming a SPV with Railways (Rail Vigas Nigam Limited) and other stakeholders. Section 2: Major results of the Inception and Interim Phases 2-12

32 2.4 Capacity and Bottleneck Analysis With the existing infrastructure of two breakwaters and the protected port basin of 220ha water spread and 15.5m depth, Ennore Port has a capacity to become a mega port with world class facilities to handle dry bulk/ liquid bulk/container cargoes. It has a potential to handle cars, LNG, and crude when demands arise in courses of time. Ennore Port should have the land and waterfront resources to meet such demands and build up capacity in stages at least for the next 50 years. The foreseeable major bottlenecks which have a bearing on port capacity are: Shortage of backup lands. The present available lands of 836 ha with EPL may be able to accommodate the developments up to the capacity of 42 million tonnes per annum to handle dry bulk & liquid bulk cargoes (TNEB coal- 16 MTPA, Non-TNEB coal- 8 MTPA, Iron Ore 15 MTPA, Marine Liquids 3 MTPA) and 3.0 million TEUS of containers per annum. Even to handle this capacity, EPL requires additional lands for a westward extension of the coal stack yard, the land corridor for Northern Port Access Road including buffer yards, a portside container yard, port related commercial activities etc. Need for a 8-lane Northern Port Access Road directly connecting Ennore Port with TPP road and then NH 5 for evacuation of containers, coal and other cargo items. Need for a new chord line connecting Puttur and Attipattu to support Iron ore movement from Bellary Hospet mines to Ennore Port. The above bottlenecks and the means to overcome them have been analysed in the subsequent paras 2.5 and Phased Land Use Plan Land Availability Ennore port presently owns 836 ha of land inside and outside the port boundary wall. The lands acquired from TNEB, TIDCO and some private landowners are located in Puzhudivakkam, Ennore and Kattupalli villages of Ponneri Taluk, Thiruvallur District. EPL has taken up with the Salt Department for transfer of 486 ha of Salt lands for port development and port related purposes. EPL has been following the land use plan prepared in 2003 for developmental and operational activities. Section 2: Major results of the Inception and Interim Phases 2-13

33 2.5.2 Requirements of Additional Lands Commensurating with the award of BOT contracts for the development and operation of Marine liquid, Coal and Iron Ore terminals and the container terminal to follow, the lands have been allocated towards these developments. Even to meet these committed developments, additional land is required for the following purposes. Westward expansion of the coal stack yard and to construct the new west spinal road for evacuation of coal. Road corridor for the Northern Port Access Road with buffer yards to effectively serve the container terminal(s) Portside container yard with CFS facilities for the rail-borne ICD containers. Ennore Port has the potential to become a world class port. Judging from the traffic forecast of the Business Plan, Ennore Port should have sufficient land back-up to support development of port facilities to handle about 55 million tonnes of Dry bulk/ Liquid bulk cargo and 3.5 million TEUS of containers (see also section 3.3 below). According to the traffic forecast, this may be sufficient until the second half of the next decade. Thereafter, additional facilities must be developed. The long term development is discussed in more detail in section 3.3 below. One option thereby mentioned the extension of dock basin as shown in Figure 2.3. In that case, the 400m width of dock basin proposed in the Master Plan needs for a review. Good amount of land is required on the northern side for the extension of the Dock basin to accommodate future berths and the backup storage yards. Land is also required to support port related activities and utilities Summary of Additional Land Requirement 1. Land to the extent of 1,500m x 1,400m (210ha) north of the northern Port boundary wall to accommodate the future northward extension of the Dock basin with ship manoeuvring area, storage of containers & liquid cargo, LNG regassification plant and other port related activities. 2. Strip of land to the extent of 2,000m x 250m (50ha) on the western side for expansion of coal stack yard and aligning the West Spinal Road. It is desirable that EPL may acquire the balance available lands also in this region to augment the railway operations in the holding yard ha of land for locating the port side container yard adjoining the Attipattu/ Nandiampakkam R.S. 4. Strip of land to the extent of 200 m x 10 Km (200ha) for aligning the Northern Port Access Road (Road corridor) from Ennore Port Northern gate to TPP road (Phase-I) and about 20 ha. for siting the buffer yard for Section 2: Major results of the Inception and Interim Phases 2-14

34 2.5.4 Strategy containers by the side of it. 5 ha of land for siting another buffer yard by the side of the existing access road leading to the port main gate. Total land requirement for these purposes shall be 225ha. 5. Salt Department land of 486 ha for which action has been initiated by EPL for transfer. The above locations are marked in the updated land use plan at in Figure 2.3. Total requirement of additional lands mentioned above works out to 1,046 ha or approximately 1,050 ha including areas for environmental upgrading and tree plantation. EPL should take action on priority to acquire about 1,050 ha of land in the vicinity of Ennore Port before land becomes scarce in the region and to make sure that Ennore Port s growth is not affected for want of lands. The 1,050 ha will however not be sufficient to cater for the long term development and EPL must initiate further action to identify their requirements and procure the resulting land. 2.6 Hinterland Connectivity Rail Connectivity Local Area Connections Ennore Port is connected to the southern railway network at Attipattu and Attipattu- Pudhunagar railway stations at about 6m from the port on the Chennai-Gudur section of the Southern railway. A broad gauge railway siding which was developed during the construction phase and branching off from the NCTPS (TNEB) siding is now available and presently being used for the movement of about 2 million tonnes of Iron ore per annum for export through the temporary barge loading jetty. Ennore Port does not have its own siding at present to connect to southern railway network. It depends on NCTPS siding. The rail connectivity is shown in Figure 2.4. This connectivity is not adequate to move the rail-borne cargo of the proposed new terminals. Section 2: Major results of the Inception and Interim Phases 2-15

35 Figure 2.3: Updated Land Use Plan Section 2: Major results of the Inception and Interim Phases 2-16

36 Figure 2.4: Rail connectivity to Ennore Port Section 2: Major results of the Inception and Interim Phases 2-17

37 Hinterland network 100% export of Iron ore about 65% coal despatches to non-tneb users and about 25% inward / outward movement of containers between Ennore Port and the hinterland destinations depend on rail connectivity. Hinterland rail routes are shown in Figure 2.5. The critical rail route to move about 10 million tonnes of Iron ore in short term and about 15 millions tonnes in long term is between Bellary- Hospet iron ore mines and Ennore Port passing through the severely congested Avadi- Vysarpadi sub- urban section (17.5 km sketch). As the coal despatches from Ennore Port are through the released wagons of iron ore, coal movement will not pose any problem Rail connectivity Strategy Rail connectivity to establish un-interrupted evacuation of rail-borne cargo is vital for Ennore Port operations: Ennore Port and southern railway through various studies and interactions have identified the projects to be undertaken to remove the bottleneck. Strengthening of the critical Avadi-Vysarpadi section on the Arakkonam- Chennai line. This can only be a short-term solution as far as iron ore is concerned. Take up the new 88km chord line from Puttur (on the Renigunta-Arakkonam section) to Attipattu with a flyover crossing the main line near Minjur station via Periapalayam to bye-pass the critical section (Estimated cost is Rs crores). This will be the long-term solution. Construction of an independent siding to connect Attipattu /Attipattu Pudunagar to Coal, Iron Ore and Container Stackyards. (Estimate cost is Rs.63 crores) EPL has initiated action on this. Implementation of Puttur-Attipattu new chord line is vital for Ennore Port development and operations more specifically for Iron ore traffic. The interest of Ennore Port and Ennore Port users is a single line from Puttur- Attipattu with a fly over at Minjur and not in the Tiruvallur-Periapalayam link. Railways may be asked to segregate the costing accordingly. EPL should commit its willingness to support the construction financially through equity participation along with other beneficiaries. MOSRTH & EPL to take up with the Ministry of Railways to give highest priority for this construction. EPL to initiate planning of a port side container yard at a strategical location by the side of Attipattu Minjur stretch of the Trunk railway line in interaction with CONCOR to attract ICD containers. Section 2: Major results of the Inception and Interim Phases 2-18

38 Figure 2.5: Sketch of Hinterland Rail Routes Section 2: Major results of the Inception and Interim Phases 2-19

39 2.6.2 Road Connectivity Existing and Proposed Access Roads Ennore Port is envisaged to handle large volumes of bulk commodities and container traffic. A reasonable 35% share of dry bulk commodity, 75% of liquids and chemicals and 75% of the container traffic are expected to move by road system. A good network of roads in appropriate form, adequate in capacity and offering high level of service is important to enable efficient movement of goods and promote profitability of the port. A network of access roads exist with ability to connect the port to the National Highways NH5, NH4 & NH45 and deep hinterland with certain improvements (widening & strengthening) and construction of bye-pass roads. Network of the existing and proposed access roads to Ennore Port is shown in the map at Figure Proposed Network of Port roads Strategy The proposed network of port roads has the following components to connect the port operational areas with the access roads (NCTPS road and TPP road). Roads within the port operational areas (within the port boundary wall) Roads outside the port boundary wall. Map at Figure 2.7 shows the Road Network within the port area and vicinity. The details of roads constituting the road network are shown in Table 4.7. Among the new roads proposed in the Business Plan, Northern Port Access Road will be an important link between Port area and TPP road near Vallur and then on to NH5 at Thachur thus providing connectivity to Chennai metropolitan area and the deep hinterland. This road would also serve the proposed SEZ and other developments north of Ennore Port. This road will have 4-lanes up to TPP road. Persuade MOSRTH, GOI/NHAI to develop the Northern Port Access Road under their port connectivity plan. NHAI may develop this road under BOT route or forming a SPV with equity contributions from the beneficiaries like EPL, TIDCO (SEZ), CPCL, Container terminal operators etc. Play an advocacy role to persuade NHAI, GOTN, CMDA and others to expedite the widening of TPP road, construction of Chennai Bye-pass roads and improvement of the network of other access roads. Section 2: Major results of the Inception and Interim Phases 2-20

40 Figure 2.6: Existing and Proposed Access Roads Section 2: Major results of the Inception and Interim Phases 2-21

41 Figure 2.7: Road Network Within the Port Area and Vicinity 2.7 Organisational Issues The management of Ennore port incorporated under the companies Act, 1956 is provided through the Board of Directors. The top management body is functioning in the style of a Central Government Public Sector Undertaking meeting out Section 2: Major results of the Inception and Interim Phases 2-22

42 government objectives and policies. As a commercial oriented corporate, the management is following the landlord concept. The Directors and Heads of Departments are responsible for the corporate planning keeping in view the strategy of the port company. As the development of new projects is gaining momentum with the award of concessions for three terminals and the fourth one is on the pipeline EPL is taking action to strengthen the organisation. With a view to improve the planning capability within the organisation, a 3-layer organisational structure is recommended (Senior management, Middle management & Junior management). The recommended organisation structure in shown in Figure 2.8. Job descriptions for the personnel involved in the planning activities are drawn according to the managerial position in the planning unit. EPL already initiated for recruiting the proper professionals and fill up the slots as per the recommended organisation structure in stages commensurating with the workload. The financial implication on account of the organisational improvements is Rs.6.0 crores / annum which is Rs.4.5 crores more than the present establishment cost. (Contd..) Section 2: Major results of the Inception and Interim Phases 2-23

43 Figure 2.8: Recommended Organisation Structure of EPL Section 2: Major results of the Inception and Interim Phases 2-24

44 3. VISION, GOALS AND STRATEGY 3.1 Vision and Goals Management Vision for the Next 20 Years Develop as a mega port with World Class facilities to become the Eastern gateway Port of India Goals to be achieved in the Next 7 Years The goals for the next 7 years are to execute the following projects selected to create port capacities to handle marine liquids, coal, iron ore and containers and to provide the supporting infrastructure. Projects: Marine Liquid Terminal to handle POL, LPG, chemicals and other liquid bulk cargo Coal Terminal to handle coal for various users other than Tamil Nadu Electricity Board (TNEB) Iron Ore Terminal to facilitate export of iron ore by various users Container Terminal (Phase 1) to promote export/import of containers Organise installation of additional shore based unloaders in the existing coal berths when required for TNEB / TNEB NTPC JV power plants. The plan at Figure 3.1 shows the location of the berths. Supporting Infrastructure: Dredge the berth areas of marine liquids, coal and iron ore terminals to -15m depth in Phase-I and land raising for Coal and Iron Ore stackyards. Dredge the berth area of Iron ore terminal to 18.0m, port basin to 18.5m and channel to 20.0m in Phase-II Dredge the berth area of container terminal to -15m in Phase III. Establish rail connectivity to the coal, iron ore and container stack yards. Establish road connectivity to the coal, marine liquid and container terminals Section 3: Vision, Goals and Strategy 3-25

45 Develop other common infrastructure to improve port s attractiveness. This includes organising development of buffer yards and portside (rail) container yards. Develop Green belt. 3.2 Strategy The strategy has to address the following issues: Development Strategy: Develop cargo terminals through private sector participation. Undertake the required capital dredging and essential road and rail connectivity works. Acquire additional lands to support the long term development of port facilities. This refers to both the immediate requirements mentioned in section 2.5 as well as additional long term requirements discussed in section 3.3 below. Develop core manpower to achieve an optimum and effective core strength. Outsource specialised expertise as and when required. Monitor and co-ordinate the activities among the BOT operators, EPL and interfacing Departments/Agencies to maintain the time frame. Continuous market studies and updates future development and operations. Commission feasibility study for construction of a multipurpose berth to handle cars, granite blocks, project cargo and other clean unit loads. Co-ordinate with State and Central Government Departments to improve access roads and rail connectivity. Act as a business facilitator. Commercial Strategy: Maximise utilisation and revenue earnings of the existing coal berths and temporary handling facilities for POL and iron ore. Encourage temporary (improvised) cargo handling facilities ahead of regular terminals in line with market demand to be set up under private investments. Expedite transfer of 486 ha (1,200 acres) of Salt Department Lands at Attipattu south block, as it is needed for port related commercial uses. Review the land use plan and allot lands for port related purposes. Section 3: Vision, Goals and Strategy 3-26

46 Introduce a cost centre system to ensure timely and accurate monitoring of forthcoming BOT agreements. Review and fix the tariff for vessel related charges other than berth hire for the berths constructed by the BOT operators on commercial basis. Draw up suitable tender conditions to avoid excessive market exploitation by BOT operators. Form joint ventures with stakeholders to increase port throughput. Financial Strategy: Mobilise private sector funding for developing cargo terminals. To the extent possible, obtain Government funds for basic infrastructure investments like capital dredging. Mobilise additional funds through equity or loan for funding common infrastructure works. Explore the possibilities of forming Joint Venture with the beneficiaries like TIDCO, National and State Highways, BOT operators, Railways, RVNL and other stakeholders for investments on road and rail connectivity. 3.3 Long Term Development The short term projects included in the Business Plan for EPL allow EPL to increase capacity from the present level of 12 MTPA to 42 MTPA for bulk cargo, and 18 MTPA containerised cargo aggregating to 60 MTPA. This will be sufficient to cater for the projected traffic well into the second half of the next decade. To cater for projected traffic volumes thereafter, two principle options exist for EPL. a) Further extension of the nascent dock basin created through the container terminal in a north-south direction. b) Creation of one or more harbour basins in an east-west orientation. The first basin could be established north of the first container terminal. The latter solution has initially been proposed at the time Ennore Port was first conceived. The former solution is presently preferred by EPL management and has the advantage that a continuous quay of several kilometres in length could be established. Compared thereto, the possible length of one or more dock basins with an east west orientation would be limited by the stack yard of the new common user coal and iron ore terminals and the NCTPS ask dykes. There are also concerns that creating a number of dock basins with an east-west orientation can create environmental problems, if they require alternations to Buckingham Canal or Ennore Creek. It is outside the scope of this Business Plan to address the long term Section 3: Vision, Goals and Strategy 3-27

47 development aspects in any detail. This should be addressed by EPL in the medium term future, e.g. in conjunction with the next revision of the master plan. Having said the above Figure 3.1 over leaf shows how the long term development might be approached, based on the alternative presently preferred by EPL management. Figure 3.1 shows the expansion with a northern dock arm stretching to 2,250 m quay length in the west and 850 m quay length in the east to accommodate future berths. This dock arm can be further extended northwards with ship manoeuvring area as shown in Figure 2.3 (see page 2-16). Such extension can accommodate more berths in the long run. A key issue that EPL must thereby address is the availability of additional land to accommodate the long term development perspective. Provision must be made for both port facilities and port related infrastructure (such as roads, rail connections, etc.) as well as auxiliary facilities (container depots, commercial zones, ). It is outside the scope of this assignment to exactly specify the amount of land required as it will depend on which development alternative EPL finally prefers. However, the following points and comments are worthwhile mentioning: The present land available would suffice to add either: o A further container terminal with a maximum capacity of around 2 million TEU and perhaps 3 bulk berths. However, there would not be sufficient land for bulk storage yards; or o One or two additional bulk berths including related storage yards. One additional bulk berth will most probably be thereby required to address additional needs for coal handling to the order of 5 MTPA that TNEB has addressed to EPL in March This may be located adjacent to the present TNEB power station in close proximity to the berth. Furthermore, it is a present planning principle of EPL to clearly segregate dirty bulk cargo and clean cargo (hence the location of the coal and iron ore stack yards west of Ennore Creek). Therefore, additional land outside the present boundaries will be required to develop further bulk berths. Land presently under control of EPL will be sufficient to cater for future traffic development until sometime in the second half of the next decade. An extension of the dock basin as shown in Figure 2.3 will require the minimum additional land of 210 ha as discussed in section 2.5 above. The extension of the dock basin will however require much of the presently available land in the north east and will severely limit the possibility to create additional bulk storage areas should a second container terminal be established next to the presently planned container terminal. Section 3: Vision, Goals and Strategy 3-28

48 The proposed phase II for the SEZ will conflict with any northward extension of the dock basin. As TIDCO is already understood to be in an advanced planning stage, it is strongly recommended the EPL quickly approach TIDCO and agree on a different location, e.g. to the north of the proposed Northern Port Access Road. An initial comparison with other ports with a similar cargo mix would suggest that the long term land requirement might easily be to the order of 2,500 to 3,000 ha, which is more than fourfold of the present land available. The undeveloped nature of surrounding land is a substantial advantage for Ennore Port as there is still potential to create the reserves required to secure the long term development and it is necessary that EPL address this problem now with high priority mitigate any future possible constraints. Section 3: Vision, Goals and Strategy 3-29

49 Figure 3.1: Projects under 7-Year Action Plan and Provision for Long Term Development Section 3: Vision, Goals and Strategy 3-30

50 4. OVERVIEW OF INVESTMENTS 4.1 Private Investment Projects This section highlights new terminal investment projects to handle marine liquids Coal and Iron ore which are designed, tendered and awarded on a BOT basis and those proposed within the next seven years. EPL has completed the planning of container terminal (Phase 1) and activated selection of the BOT operator. These projects have been covered in the National Maritime Development Programme (NMDP) for Ennore port. Where necessary, reference is made to the existing facilities. Financial viability has been established in two alternative ways: Projects already contracted are seen to have passed the acceptability and financial viability test of operators by virtue of the contract concluded. These operators have committed substantial investments likewise has EPL. The revenue shares offered put EPL in a comfortable financial position. For the container terminal project, which is yet to be awarded, the usual financial analysis at project level has been performed. The LNG terminal project for the import of LNG is not included in the analysis of this business plan for the next 7 years for the following reasons: Even though the LNG project at Ennore Port had been under consideration at least for the last 10 years, initially by Tamil Nadu Industrial Development Corporation of Government of Tamil Nadu as part of their Petrochem Park project and later by EPL, the project did not take of. Two years back EPL accorded in-principle approval to IOC to put up the terminal on a JV basis but no concrete action has yet occurred. It is understood that IOC have not firmed up their gas sourcing so far due to constraints in the supply situation in the international market. In addition, it is expected that in the medium term, LNG demands will preferably be met from domestic sources for the following reasons: 1. Improved domestic supply following major off-shore natural gas finds in Krishna Godavari basin. 2. Price structure favours domestic out put so that more national consumers would favour Krishna Godavari basin out-put than the relatively more expensive LNG imports. 3. Consumer prices for LNG are presently heavily subsidised and it may be expected that domestic sources will be preferred compared to foreign sources as same would impact government finances through a large subsidy burden in addition to the additional foreign exchange requirement. Section 4: Overview of Investments 4-31

51 4.1.1 Existing Coal Berths (TNEB Coal) The Ennore Port has set apart the existing two coal berths for handling thermal coal required by the power plants in which Tamil Nadu Electricity Board (TNEB) is a stakeholder. The existing terminal has a capacity of 12 million tonnes now, which can be enhanced to 16 million tonnes by installing shore based grab unloaders at coal berth No.2. Increasing the number of cranes from the existing two to four (2,000 TPH capacity each) would increase the berth capacity from the existing 4 million tonnes to 8 million tonnes. Presently the coal requirement for power generation at the power plants of TNEB having linkage to Ennore port is of the order of 8 to 9 million tonnes per annum. TNEB plans to set up some more power plants with linkage to Ennore port and it is expected that the full berth capacity of 16 million tonnes will be utilised by The projected forecast of requirement for for TNEB is 16.5 million tonnes. EPL should initiate and take up with the TNEB to install 2 grab unloaders in coal berth No.2 to upgrade its capacity to 8 million tonnes and meet the projected demand of 16.5 million tonnes. The new grab unloaders to be installed should be capable to unload coal from the large panamax vessels (80, ,000 DWT), which have a broader beam. The investment required from TNEB for augmentation of coal handling capacity shall be of the order of Rs.200 crores Common-User Coal Terminal EPL has signed a concession agreement for a second terminal for handling coal for the consumers other than TNEB on a 30 year BOT basis in September 2006 with the project company Chettinad International Coal Terminal Pvt. Ltd. The promoters of the project company are M/s. South India Corporation Ltd, Portia Management Services Ltd and Navayuga Engineering Co. Ltd. The commercial terms are summarised in Annexure 1. The investment of the licensee on the project is estimated at Rs.4,000 millions (DPR). The planned capacity is about 8 million tonnes per annum. This is less than the traffic demand projection made in section 4 of this study, i.e. 9.3 million tonnes by and 16.3 million tonnes by (low scenario). It thus leaves room for additional expansion. The configuration comprises of: Berth of 325m in length (Alongside depth 15m) Two grab unloaders and conveyor belt to link the stack yard Stackers and reclaimers at the stackyard Railway yard lines and wagon loader Section 4: Overview of Investments 4-32

52 Comments on the configuration for consideration of EPL during DPR stage: Capacity of 325m berth with the configuration of the equipment proposed by the BOT operator can go up to 8 MTPA with the vessel mix of Handymax and Panamax size vessels. There is a potential to increase the capacity to 16 MTPA by extending the berth length by another 200m to 525m (as of the adjoining iron ore berth) and installing additional two grab unloaders and installing the second conveyor. Correspondingly stackyard space would be required for westward extension. The operator has proposed to develop a stackyard of 0.50 million tonnes capacity. With the projected throughput of 8 million tonnes by and 10 million tonnes by the stockyard capacity works out to 6.25% and 5% of the annual throughput. The projected traffic is in three different categories of thermal, coking and steam coal. Also a large number of importers/consignees are involved and segregated stacking plots will be required according to grades and consignees. Space will be lost in such segregated storing of cargo and so the proposal to have stock yards in blocks of 400 M x 40 M will not be practicable. Therefore only if a stackyard of capacity of 0.80 million tonnes is developed it will be possible to service the requirements of consignees in full. Such an increased capacity stackyard will also help in better servicing of the coal ships by avoiding congestion in the stackyard. The operator has proposed to provide a capacity of 1,500 TPH for the belt conveyor to be loaded by the reclaimers. But the wagon loader will be linked to the coalbunker by a 2,000 TPH capacity conveyor. It is necessary to match the capacities so that loading operation is not delayed or interrupted. The bunker capacity of 1,000 tonnes will be critical to complete the wagon loading operation within the permitted time by railways especially if there is a breakdown in the reclaiming system. It is felt that a larger bunker of 2,000 tonnes will increase the reliability of the wagon loading system. In the ship unloading system, the capacity of the unloader has been worked out as 1,750 TPH. The capacity of the grab proposed to be used is stated to be 30 cubic metres and the number cycles per hour of operation as 75. For purpose of effective average unloading capacity, the achievable average number of cycles per hour, is only 45. Therefore the effective capacity of unloader will be 30 x 0.9 x 0.8 x 45 = 972 tonnes say 1,000 TPH. 0.9: density of coal 0.8: effective average capacity of grab 45: effective cycles per hour. Section 4: Overview of Investments 4-33

53 This effective unloading rate per day with two grab unloaders will be only 40,000 tonnes. In our view grab unloader of 2,000 TPH capacity (Rated Capacity) similar to the one operating in the Existing coal berths will be a good choice. Recommendations: Feasibility for increasing the capacity of the terminal by further 8 MTPA by linear extension of the coal berth by another 200m eastwards with space for installation of second conveyor and augmenting the capacity of the stackyard and the Railway system may be examined. The navigational aspects should also be considered. Capacities of various system components should be matched for optimal utilisation. Larger bunkers will increase reliability of wagon loading system. Capacity and productivity benchmarks are summarised in Annexure 2. Commercial/Financial Assessment The BOT operator in his Detailed Project Report has adopted a rate of Rs.235 per tonne. The comparable rate at Chennai is Rs.180 per tonne. As anticipated services are better in Ennore than in Chennai (mechanised handling, gearless vessels, higher productivity, faster turn round etc) a rate of Rs.200 per tonne is adopted in the revenue projection which is approximately 10% higher than the present Chennai Port rate of Rs.180 per tonne. Financial implications for EPL during the business plan period are summarised in Table 4.1. Table 4.1: Common User Coal Terminal Financial Implications for EPL Rs. Million Tonnes of Cargo (million) Revenue share , ,074.6 Lease rental Way leave charges Port dues Pilotage Total income , , , ,313.8 Share of total income 0.3% 1.1% 16.8% 31.5% 25.7% 26.5% 24.1% Capital expenditure Dredging Phase I* Total capital expenditure * Common infrastructure for coal, iron ore and marine liquid terminal Section 4: Overview of Investments 4-34

54 4.1.3 Common-User Iron Ore Terminal EPL has signed an agreement for an iron ore terminal on a 30 years BOT basis in September 2006 with the project company SICAL Iron ore Terminal Limited. The promoters of the project company are M/s. SICAL Logistics Ltd and L&T Infrastructures Development Project Ltd. The commercial terms are summarised in Annexure 1. The Investment of the Licensee on the project is estimated at Rs.5,000 million. The BOT operator has proposed to develop the capacity in two phases. Installed capacity in the first phase will be 9 MTPA with a guaranteed minimum of 6 MTPA to be increased to 15 MTPA in the second phase. Expected handling volumes fall in between the low and high demand forecast of this Business Plan Study. The configuration comprises of: Berth of 271m length with two mooring dolphins in Phase 1 One ship loader and conveyor belt to link the stack yard Stackers and reclaimers at the stackyard Railway yard lines and wagon tipplers. Comments on the configuration for consideration of EPL during DPR stage: In the first phase a berth of 271m in length with two mooring dolphins is proposed by the operator to be constructed for vessels up to 150,000 DWT and the contractual obligation of EPL is to dredge the berth area to 18.0m CD & the corresponding deepening of the turning basin and approach channel. The berth structure will be suitable for dredging up to -22m, so that during the second phase vessels up to 250,000 DWT can be serviced, if dredging is completed. Analysis of the vessel size development of dry bulk carriers (see Interim Report for details) reveal the following trends. Panamax vessels (60,000 80,000 DWT) and super cape size vessels (Above 1,60,000 DWT) grew most dynamically (Panamax 42.6% & super cape size 37.5%) According to the reputable Clarkson Bulk Carrier Register 2006 the Panamax vessel has been upsized as Panamax (r) (80,000 to 1,00,000 DWT LOA 232.5m, Beam 38.3m and draft 13.6m). Building of vessels of this range has been doubled since As per the vessel order book for the next 3 years ( ). The number of vessels under order in the cape size range 100,000 DWT to 159,000 DWT is only one. Section 4: Overview of Investments 4-35

55 It is evident from the above that even if the berth is deepened to 18.0m CD for cape size vessels (150,000 DWT) by spending Rs.150 crores by EPL the berth is likely to be visited mostly by Panamax and Panamax (r) size vessels for which 15m depth is adequate. Capacity of the berth length of 271m (one berth) with single ship loader can reach only up to a max productivity of about 8 MTPA with the predominant vessel mix of Handymax & Panamax vessels. Reaching of the first phase planned capacity of 9 million tonnes would be difficult. Instead extending the berth to 525m in second phase coupled with installation of second shiploader and second stream of conveyor the capacity would increase to 16 million tonnes (2 berths) with the alongside depth of 15m. The utility of the facility and the performance level would increase as two panamax vessels could be handled at a time. In case, the BOT operator insist 18m depth quoting the contractual provision EPL should call for a viability study report from the operator to justify the arrival of sufficient no of capesize vessels and significant increase in berth capacity on account of it. To achieve a minimum ship-loading rate of 50,000 per day for panamax size vessels and 75,000 TPD for cape size vessels two ship loaders of 5,000 TPH capacities would be advisable. This will also facilitate even loading of vessels, better reliability and efficient ship loading operation. The ship loading system envisages a single 2 km conveyor of 5,000 TPH capacity connecting the stackyard conveyor to the ship loading conveyor without any surge bin in between. Operationally a suitable surge bin at the beginning of the berth conveyor will be of great help for the ship loader operator while hatch changing as well as for trimming operation in the final stages of ship loading. It will also help better management of conveyor breakdown during operation. By providing a surge bin, too many stoppages of all the conveyors in the ship loading system during the operation can be avoided. The capacity of surge bin should be not less than 2,000 tonnes taking into account the ore leftover in the conveyors at a given point of time and the need for topping up operation towards completion stage of ship loading. No ore sampling system is proposed to be installed and if the buyer insists on representative sampling and analysis, such a sampling system will be required to ensure that the buyer s requirements are met. An efficient dust suppression system [either dry or wet (spraying water)] is proposed at dumper house, transfer points, drive houses etc. The water spray system at the stackyard has to be effective and extensive to avoid dust pollution. More effective systems of controlling environmental degradation due to ore dust, deploy automatic water spray system by providing sensors and controlled through computerised operating system are recommended. As large stackyards for coal and iron ore are proposed to be established side by side to handle large Section 4: Overview of Investments 4-36

56 quantity of cargo, it is absolutely necessary to install an effective dust suppression system not only in the dumper house, transfer points and ship loading point but also in the large stackyards in order to avoid adverse effects on the container terminal. When the throughput of ore exceeds 10 million tonnes per annum, wagonunloading system with two tipplers of 25 cycles per hour design capacity as proposed by BOT operator will be overstrained to achieve higher output. A third tippler is considered essential to handle an annual throughput of 12 million tonnes. Definitely a 15 million tonnes throughput will be difficult to be achieved with only two tipplers. Recommendations: Instead of a berth length of 271m with end dolphins in Phase 1, a berth length of 325m without end dolphins is preferable which will provide space for the linear extension of berth length to 525m (without any obstruction). Considering the current trends of dry bulk carriers, a berth length of 525m (2 berths) with the second stream of conveyor and addition of second ship loader would able to handle 16 million tonnes with the alongside depth of 15m. If the BOT operator insists on 18m alongside depth, EPL will ask for a viability study to justify the arrival of sufficient Nos. of capesize vessels (150,000 DWT) as this category is dwindling in the market. Provision of a surge bin of not less than 2,000 tonnes capacity will ensure continuous loading operations without interruptions. A sampling system is necessary. The stack yard should be furnished with a highly efficient automatic water spray system. When cargo volume exceeds 10 MTPA a third tippler should be installed. Capacity and productivity benchmarks are summarised in Annexure 2. Commercial/Financial Assessment The BOT operator in their Detailed Project Report has adopted a rate of Rs.230 per tonne. However, the comparable rate at Chennai is Rs.110 per tonne. For revenue projection a rate of Rs.125 per tonne has been adopted which is approximately 10% higher than the present Chennai Port rate of Rs.110 per tonne. Financial implications for EPL during the business plan period are summarised in Table 4.2 Section 4: Overview of Investments 4-37

57 Table 4.2: Iron Ore Terminal Financial Implications for EPL Rs. Million Tonnes of Cargo (million) Revenue share Lease rental Way leave charges Port dues Pilotage Total income Share of total income 0.9% 10.2% 19.1% 16.0% 16.6% 16.1% Capital expenditure Dredging Phase I* Dredging Phase II Total capital expenditure * Common infrastructure for coal, iron ore and marine liquid terminal Marine Liquid Terminal In November 2004 a concession agreement was signed with Ennore Tank Terminals Private Ltd. (ETTPL) for a 30 year BOT of a marine liquid terminal. After EPL obtained the environmental clearance from the MoE&F the project construction started from June The commercial terms are summarised in Annexure 1. Investment of the Licensee in berth and pertinent land facilities is estimated at Rs.1,963 million (as per the DPR). The operator will develop a terminal capable of servicing vessels from 5,000 DWT to 125,000 DWT with a cargo handling capacity of approximately 3 MTPA. Cargo to be handled comprises of POL, LPG, CBFS, chemicals and others. The configuration consists of: 210m long service/berthing platform and two mooring dolphins. a pipeline system to carry the liquid cargo to the tank farm; LPG shall be directly delivered to the IOC bottling plant outside Ennore port area. storage facilities for the various products comprises of six sections with a total storage capacity of approximately 260,000 KL. Comments on the configuration: The berth occupancy of the MLT berth is given as 70 percent to achieve the full capacity. Given the expected vessel mix, this is ambitious, but achievable under good operational performance. However, it will inevitably lead to considerable Section 4: Overview of Investments 4-38

58 ship waiting times if vessel traffic is not scheduled and co-ordinated but at random arrivals. The proposal to have two additional mobile unloading arms to be utilised when two 5,000 DWT vessels are berthed will involve additional risk factors. Mostly chemicals use small size vessels, operationally they are dangerous cargo. Recommendations: Berth occupancy needs to be closely monitored to minimise undue waiting times. Safety precautions have to be enforced. Pertinent MARPOL conditions to be adhered to. Commercial/Financial Assessment It remains to be seen how clients will react on ship waiting times due to high berth occupancy when the terminal reaches 3 million capacity. A very good service can only be guaranteed at an occupancy rate of 35 percent, at random ship arrivals if one berth is available. The manageable berth occupancy without much waiting of vessels would be around 50%. Under ceteris paribus conditions this could result in a traffic shortfall of up to 25 percent, comparable to the pessimistic traffic scenario. The resulting pre-tax IRR at current prices for the BOT Operator is just 10.9 percent (Source: Revised MLT DPR of August 2006). Financial performance of the operator needs to be carefully monitored. Financial implications for EPL during the business plan period are summarised in Table 4.3. Table 4.3: Marine Liquid Terminal Financial Implications for EPL Rs. Million Tonnes of Cargo (million) Revenue share Lease rental Way leave charges Port dues Pilotage Total income Share of total income 0.3% 7.4% 9.3% 4.2% 3.7% 3.7% 3.6% Capital expenditure Dredging Phase I* Total capital expenditure * Common infrastructure for coal, iron ore marine liquid terminal Section 4: Overview of Investments 4-39

59 4.1.5 Container Terminal The traffic demand forecast reveals a considerable potential for a container terminal at Ennore Port. A Technical and Financial Report developed for the business plan covering the conceptual layout and operations of the proposed container terminal is contained in an Addendum to this Report. This analysis concludes that a container terminal with a capacity of 1.5 million TEU will reach its capacity limit within a few years of commencement of commercial operations. The typical layout of the Container Terminal and the Financial Analysis of the Container Terminal are at Annexure 3 and Annexure 4. As a matter of prudence the low traffic forecast forms the basis for the financial analysis. This approach takes the asymmetric risk profile of the forecast into account: If the forecast underestimates future traffic, an extension of capacities is possible once unexpected higher traffic growth becomes evident and business relations to shipping lines have been firmly established. If the forecast overestimates traffic, excess capacities would incur a financial burden and might jeopardise financial viability of the terminal. Development of a terminal of 1,000m of quay length and 600m width in two stages through private sector participation would facilitate a financially viable terminal operation and provide linear expansion of the second terminal, once the need arises. The licensee may be given the flexibility to develop the terminal in two stages. In this case, the initial configuration will not be less than 700m (Stage I). In Stage II, the operator would have the option to add a further 300m. It is proposed that this option may be exercised within 5 years of commissioning of the terminal or when reaching 0.8 million TEU of throughput which ever is earlier (exact conditions to be determined during the tendering process). The quay length and the number of SSG that the quay can accommodate limit the capacity of the terminal. Nine cranes can be employed in stages corresponding with the traffic growth with sufficient clearance in between the equipment. This results in an annual terminal capacity of 1.5 million TEU. A Stage I terminal of 700m quay length and 600m width would handle containers up to the level of 1.20 million TEU per annum which correspond to the projection for the year (high scenario) as per Table 2.2. The container traffic is likely to exceed 2.0 million TEU per annum by (high scenario). Further, there is a possibility to handle cargo items like cars, granite blocks, project cargo etc. It is therefore suggested that the container terminal be developed through private sector participation with a waterfront of 1,000m in line with the maritime policy of the Government of India. The private operator can develop topside and backup area facilities on line with the traffic growth. During the initial years of operation the operator may be permitted to handle cars, granite blocks, project cargo etc using the spare capacity of the Section 4: Overview of Investments 4-40

60 container terminal. This would benefit the port for entry of new types of cargo and revenue share thereon. When sufficient volume of container traffic is generated and on completion of Stage II, the 1,000m x 600m container terminal can be fully utilised for container handling. For the purpose of financial viability analysis, a phased development with a terminal of 700m x 600m in stage I and a further 300m in stage II is considered. The configuration of the terminal comprises of: 700m quay length with an alongside depth of 15m CD in stage 1 42 ha of terminal area Workshop, gate and administrative buildings Up to nine post panamax double-trolley Ship-Shore Gantry Cranes Up to 39 Rubber Tyred Gantry Cranes stacking 5 high and six wide Auxiliary equipment and IT-System From a commercial and operational point of view, a minimum of 2 SSG should be provided upon commencement of operations. EPL management is currently considering to require the licensee to invest in a minimum of 4 SSG. Other equipment is to be acquired by the Licensee if and when the need arises. The details of container terminal requirements are provided in an Addendum to the Final Report. It should be considered to allow alternative proposals to the bid as this might open some additional perspectives for the development of container traffic at Ennore port. The technical evaluation will surely become more complex under a more open tender structure; however, the chances for a broader perspective should outweigh this. It may be considered to exclude the current operator of the container terminal at Chennai port as well as the operator of the envisaged second container terminal from the EPL bid to foster competition in the region. Estimated private investment of Rs.10,878 millions as shown in Table 4.4 has been taken into account for the purpose of financial viability analysis. Table 4.4: Estimated Private Investment of the Terminal Total (million Year Rs.) Infrastructure 3,648.1 Equipment 7,229.8 Grand Total 10,877.9 Expenditure is phased for the to when the terminal will have been operating at full capacity for some time. It should be noted that this figure also contains replacement investment according to the expected economic life of the equipment. Expenditure in a railway terminal are not included in the calculation as Section 4: Overview of Investments 4-41

61 existing rail connectivity restrictions might discourage investors to invest in such a facility at least in the initial stage of the terminal. Likewise EPL investments in the pertinent immediate rail connectivity have not been taken into account. Results of the cash flow analysis of the proposed container terminal at Ennore port are as follows: Internal Rate of Return: NPV at 12 % discounting rate: 27.3 percent (Low traffic Scenario) Rs.8,665 million Financial implications for EPL during the business plan period are summarised in Table 4.5. Capacity and productivity benchmarks are summarised in Annexure 2. Table 4.5: Container Terminal Financial Implications for EPL Rs. Million Containers ('000 TEU) Revenue share Lease rental Port dues Pilotage Total income Share of total income 0.9% 0.8% 7.8% 14.1% 14.7% 18.1% Dredging Phase III 600 1,100 Total capital expenditure , Summary of Private Investments Total private investments amount to Rs.25,763 million shown in Table 4.6. Table 4.6:Summary of Private Investments Sl. No. Project Investment Cost (Rs. in million) Status Capacity 1. Marine Liquid Terminal 1,963* Contract awarded 3.0 MTPA 2. Coal Terminal 4,000* Contract awarded 8.0 MTPA 3. Iron Ore Terminal 4,800* Contract awarded 9.0 MTPA (Phase I) 15.0 MTPA (Phase II) 4. Container Terminal (Phase 1) 5. TNEB coal additional capacity Total 25,763 * Source DPR, ** Source EPL Estimates 13,000** Action initiated to select BOT operator 1.50 Million TEU PA 2,000** 4.0 MTPA Section 4: Overview of Investments 4-42

62 4.2 Public (EPL) Investment Projects The development strategy of Ennore Port Ltd (EPL) for implementation of the planned projects is that development of cargo terminals including installation of equipment will be through private sector participation under private investments and capital dredging and development of common infra-structure like road and rail connectivity, will be under EPL investments. EPL will make available the protected waterfront area and land areas to the respective BOT operator after raising it to the required levels. As can be seen from the projects already committed by the private sector this sort of sharing the investments by the port will motivate and attract private investments in the port projects. This strategy has proved well for EPL, which is evident from the fact that the selected BOT operators for Marine Liquid Terminal, Coal Terminal and Iron Ore Terminal have offered high revenue shares benefiting the port. EPL investments on capital dredging and rail/road infrastructure will benefit the BOT operators to carry on the operation to the optimal level and maximise the utilisation of the facility created. EPL investment projects to support the private investment projects are: Capital dredging Road connectivity Rail connectivity Capital Dredging Capital dredging is required: To provide the required depths: (1) 15.0m CD in the berth areas of the proposed marine liquids, coal and container terminals (2) 18.0m (Ore berth area) 18.5m in port basin and -20.0m in channel. To provide dredge materials for raising about 500 acres of low lying port land west of Ennore creek to about +2.50m level to facilitate development of stackyards for coal and iron ore and railway holding yard. To deposit the dredge materials for shore protection on the northern side of north breakwater. The dredging in the berth areas, port basin and channel will benefit the BOT operators for safe berthing and sailing of vessels for cargo operations. The dredging is in the sandy seabed and no rock dredging is involved. The dredging is to be carried out in a phased manner and the timings should match with: Section 4: Overview of Investments 4-43

63 Construction schedule of the berth structures Raising of low lying land for development of stackyards Commissioning of the berths for cargo operations. On this consideration, it is recommended to carryout the capital dredging in three phases. Phase 1: Dredge the berth areas of marine liquids, coal and iron ore terminals to 15.0m CD and land raising for Coal and Iron ore stackyards EPL investment : Rs. 90 crores Phase 2: Dredge the berth area of the Iron ore terminal to 18.0m CD, port basin to 18.5 m and channel to 20.0m EPL investment : Rs. 150 crores Phase 3: Dredge the berth area of container terminal (Phase 1) to 15.0 m EPL investment : Rs. 170 crores Note: Deepening of iron ore berth from 15.0m CD to 18m CD and the corresponding deepening of turning basin from 15.5m CD to 18.5m CD and the approach channel from 16.0m CD to 20.0m CD (Phase 2 (a)) to cater for cape size vessels (150,000 DWT and 16.5m draft) is the contractual obligation of EPL under the Licence Agreement. Investment required by EPL on this score is about Rs.150 crores. EPL would decide on this investment after getting a viability study report from the BOT operator justifying the arrival of sufficient number of cape size vessels and substantial increase in the berth capacity. The capital dredging for the container terminal can be done in stages according to the licensees schedule Road Connectivity Development of port business and productivity in port depends on good road and rail connectivity to the hinterland for the effective movement of cargo in and out of the port. Network of well-laid roads are required to connect the port operational areas to the main access roads. On EPL investment point of view, the roads can be classified as: Network of internal roads within the port boundary wall Network of roads in the vicinity area of the port Besides the internal roads, the main access roads like TPP road and NCTPS road are to be widened and strengthened to effectively connect the internal roads to the National Highway. EPL has to share a proportionate expenditure with the SPV and other beneficiaries of the road by way of contribution. Development of roads will be Section 4: Overview of Investments 4-44

64 beneficial to the operators of the port and other agencies who have business with the port like shipping, customs house agents, exporters, importers, traders etc. Table 4.7: EPL Investment on Development of Roads Road 1. Roads within Port Operational Areas. Widening and strengthening of South Port Road up to the Container Terminal (from 2 lanes to 4 lanes with hard shoulders). Length (km) Priority Rate/km (Rs. in millions) Section 4: Overview of Investments 4-45 Cost (Rs. in millions) Development of North Port Road (Two-lanes) Link road from North Port Road to the gate on the northern boundary wall Development of North South Link Road (four lane with hard shoulders) Development of Security road along the boundary wall. (One lane with shoulders) Strengthening the Road to coal wharf & SBW LS Roads in the Vicinity Areas Development of Spinal Road on the west of stackyards (Two lanes with hard shoulders for 3.5 km, extending westwards up to NCTPS road (ash dyke road) (two lanes for 2 km) (including box bushing under the railway crossing) Development of Northern Port Access Road from EPL North gate to meet TPP Road (four lanes) further extend to Thachur at NH-5 including Construction of a major bridge across Ennore creek Development of a road in front of western port boundary wall. (Village access road) (Two lane with hard shoulders) 3. Strengthening of NCTPS road and port access road from 2 lanes to 4 lanes including widening of the road and railway bridges lump sum 990* lump sum Widening & upgrading the TPP Road into four lanes (EPL contribution) 9.0 Proportionate 87.5** 5. Upgrading and strengthening of ash slurry pipeline road (Immediate requirement) 1 lump sum Commissioning of detailed feasibility studies, and preparation of DPRs for road network development. lump sum 20 Total 1,800 Rs.1,800 millions * EPL has taken up with the Central Government to include this road under port connectivity to be financed by NHAI. In that case EPL investment will be nil. If the development is on EMRIP pattern through an SPV then EPL has to contribute equity. The financing model of this road needs to be updated under the annual review of the Business Plan.

65 ** Total EPL contribution is Rs.175 millions of which Rs.87.5 millions (50%) has already been paid Rail Connectivity Development of rail connectivity is an essential common user transport mode for the inward and outward movement of rail-borne cargo items between the port operational areas and the hinterland destinations. Iron ore (100%) - Immediate Coal (other than TNEB) (65%) - Immediate Container (10 to 25%) - Future Liquids (Provisional) - Future Being a common user facility, EPL is required to make investment on: Internal connectivity: Creation of sidings connecting the port to the nearest Chennai Central Gudur BG trunk line of southern railway (Attipattu/ Attipattu Pudunagar R.S.) External connectivity: Creation of a new railway line connecting Puttur- Attipattu primarily for the movement of iron ore from Bellary-Hospet to Ennore port (in the form of equity contribution). The EPL investment on rail infrastructure will facilitate quick evacuation of cargo from port area and benefit the exporters and importers in moving the cargo directly to the destinations without any intermediate transhipment and multi-handling. Internal connectivity comprises of railway sidings connecting Attipattu/Attipattu Pudunagar RS to the holding yard by the side of the iron ore and coal stackyards and sidings in the holding yard with all accessories and signalling equipment. EPL investment on this project is about Rs.63 crores. Internal connectivity is initially to service the contracted iron ore and coal terminals. A new siding could be extended to the container terminal subject to feasibility. The proposal for creation of a new line connecting Puttur-Attipattu (updated cost estimate is Rs crores in August 2006) is in the planning stage. The Railways is of the view that routing of the traffic via the shorter project route will be benefiting not the railways but the consignor/consignee (iron ore exporters). However railways is willing to consider the proposal with EPL suggesting sharing the cost of construction of the new line along with the iron ore exporters by floating SPV for funding the project. Construction of the proposed new line will be necessary on EPL point of view to motivate the iron ore exporters and promote iron ore traffic through Ennore port and to reach the throughput level of 16MTPA. This Section 4: Overview of Investments 4-46

66 will also maximise the utilisation level of iron ore terminal. Ennore port would take a lead to promote the SPV with Railways (RVNL), Exporters of Iron ore etc. EPL contribution to the SPV in the form of equity shall be of the order of Rs.50 crores Miscellaneous Investments Besides the above specific project investment, EPL has to make the following investments to support the private investments on cargo. Sl.No. Item Rs. in millions 1. Land excavation for container terminal prelude to capital dredging 2. Removal of rock boulders from the container park area Removal of the existing Railway sidings and site clearance Land developments works Green belt and environmental measures Shore protection structures Land Acquisition (additional lands) Total Summary of EPL Investments EPL investments amount to Rs.748 crores as shown in the Table 4.8. The costs may be reviewed and updated during the annual review and updating of the Business Plan. Table 4.8: Summary of EPL Investments Sl.No. Project Investment cost (Rs. in millions) 1. Capital Dredging (Phase 1) Capital Dredging (Phase 2) 1, Capital Dredging (Phase 3) 1, Road Connectivity 1,800 * 5. Rail connectivity to coal, iron ore, and container stackyards Miscellaneous investments 450 Total 6,980 equivalent to Rs.698 crores Section 4: Overview of Investments 4-47

67 This includes equity contribution of Rs million by EPL to the SPV for the development of Northern Port Access Road and widening of TPP road. Likely additional investment subject to feasibility and further study: Sl.No. Project Investment cost (Rs. in millions) 1. Equity contribution to the SPV of Puttur 500 Attipattu new rail line Total 500 equivalent to Rs.50 crores The Gross Total investment is Rs. 748 crores. (Source EPL Estimates and Consultants analysis) Year wise phasing of EPL Investments is given in Annexure 5. Section 4: Overview of Investments 4-48

68 5. FINANCIAL PROJECTIONS Financial statements consisting of projected Profit and Loss account, Balance Sheet and Cash Flow for a period of first 7 years, 10 th year, 15 th year & 20 th year commencing from the financial year are at Annexure 6, Annexure 7 & Annexure 8. Annexure 6: Projected Profit and Loss Account Annexure 7: Projected Balance Sheet Annexure 8: Projected Flow of Funds The projections are based on the following activities at Ennore Port: Present TNEB coal handling. Temporary oil handling by Reliance Petroleum Limited until Temporary iron ore handling by MMTC until Contracts on BOT basis have already been awarded for establishing coal, iron ore and multi liquid cargo handling facilities. The Marine Liquid Terminal is expected to commence commercial operations during The Coal and Iron Ore terminals are expected to commence commercial operations during In addition, the business plan envisages development of a Container terminal (Phase 1) on BOT basis that is expected to commence commercial operations during Principal Assumptions Revenue The projection for traffic, number of vessels, nature of vessels, GRT etc., are based on the present trend of traffic, expectations and capacity of the terminals. For reasons of financial prudence, all projections are based on the low traffic forecast. For the existing facilities of handling of coal, iron ore and oil, present tariff of the EPL is adopted. In the case of coal handling by TNEB a revision is due on 1 st July 2007 based on wholesale price index for all commodities. Based on the trend of increase in index, 10% revision is taken into account Section 5 : Financial Projections 5-49

69 5.1.2 Expenditure for the financial year and the same percentage once in 3 years thereafter. Further when once the tonnage handled crosses 10 million tonnes per annum, the Tariff has to be renegotiated for the tonnage handled in excess of 10 million tonnes as agreed to between EPL and TNEB. Having this in mind, a 10% reduction in rate has been assumed for the tonnage exceeding 10 Millions per annum expected to be handled from For liquid products to be handled at the new berth possible tariff based on DPR of BOT operator has been adopted. For iron ore handling, though the BOT operator has adopted a rate of Rs.230 per tonne in their DPR, for the purpose of EPL revenue projections only Rs.125 per tonne has been adopted. This rate compares favourably with the present rate of handling of about Rs.110 per tonne at Chennai Port and is approximately 10% higher than the present rate at Chennai Port. For coal handling at the new coal terminal a rate of Rs.200 per tonne is adopted, though BOT operator has adopted the rate of Rs.235 per tonne in their DPR. The rate adopted for EPL revenue projection is approximately 10% higher than the present rate of Rs.180 per tonne prevailing in Chennai Port. For containers an average of Rs. 3,200 per TEU has been assumed. This is approximately 10% above the recorded average earning of M/s. CCTPL at Chennai port in A revenue share of 30% has been assumed to EPL. Revision in rates has been 10% once in three years. The revenue share of EPL is calculated accordingly. Land rentals and way leave charges are as per the provision made in the concession agreements. Vessel dues (port dues and pilotage) to be recovered by EPL directly from the Shipping Agency are based on the present tariff. 5% increase once in 3 years is assumed. The increase once in 3 years is broadly based on the existing practice in the other major ports. For time charter contracts for Tugs & Pilot launches provision has been made as per the existing contracts of EPL up to Thereafter provision made is based on average for 10 years with yearly increase of 5% for escalation. For establishment charges for the year one time increase of Rs million has been assumed to meet the cost of quantum increase in staff and also wage revision. Likewise for the year and one time increase of Rs million for each year is assumed. For all years 15% increase is provided every year to cover normal annual Section 5 : Financial Projections 5-50

70 5.1.3 Investment Costs increments. For running cost like fuel, mooring operation etc., expenses provided is in proportion to the number of vessels handled. For other operating and administrative expenses, escalation has been provided at 5% per year. The cost of maintenance dredging is forecast at Rs. 60 million p.a. following completion of the dredging programme, escalated once every three years. The provision for manning contract for fire fighting has been doubled during , the year of commissioning Marine Liquid Terminal handling facilities. The provision for interest for long-term loans taken by EPL from Banks and Chennai Port Trust has been increased by 1% from the year as there is an agreement for resetting interest rates from that year. For new loans according to the financing strategy discussed in section 5.2.5, an interest of 10% has been assumed. Section 4 (Overview of Investments) and Section 6 (Detailed Action Plan) refer. Estimated investments by EPL on capital dredging, road connectivity and rail connectivity during the years to have been taken into account for cash flow and balance sheet purposes. The total of EPL investments and the period are shown in Table 5.1. Table 5.1: Phasing of EPL Investments Investment Period Amount (Rs. in Millions) Capital Dredging to ,100.0 Road connectivity Add Equity contribution for Road connectivity to ,077.5 Rail connectivity to Miscellaneous works such as land acquisition, land development, sea protection structures, etc. EPL Contribution to Total 6,980.0 Section 5 : Financial Projections 5-51

71 5.1.4 Others Regarding improvements to TPP road, EPL has already paid Rs.87.5 million during as its share of contribution and the balance Rs.87.5 million is expected to be paid during Towards development of Northern Port Access road from EPL north gate to Minjur and then extended to Tachur, the contribution of EPL is expected to be Rs.490 millions during and Rs.500 millions during and this has been provided for. Further EPL is expected to pay a contribution of Rs.250 millions each year for the years and towards to the new rail link Puttur Attipattu. All these items of contributions totalling to Rs.1, millions are shown as investments in the Balance sheet towards Equity participation. The total of EPL investments in creating supporting facilities and contributing to Equity works out to Rs.7,480 millions Depreciation For the purpose of projection of Profit and Loss account depreciation has been provided on straight-line method as per the present practice of EPL as provided under the Companies Act Depreciation has also been provided for the expected capital investments on dredging, road connectivity, rail connectivity etc. For the period after expiry of the tax holiday, depreciation has been worked out as per income tax law for the purpose of working out income tax Provision for Income Tax Tax holiday for 10 years as opted by EPL from the financial year under Sec.80 IA of the Income Tax Act has been taken into account. During the tax holiday period of 10 years minimum alternate tax at the rate of 11.22% has been provided. After the tax holiday period, tax liability has been worked out at the rate of 33.66%. These provisions are in accordance with the present Tax laws Dividends No provision has been made for payment of dividends in the early years of the forecast horizon as the port is in a growing stage and surplus generated has to be ploughed back for port development works. Provision has been made for the payments of dividends from Resulting dividend distribution tax has also been included Foreign Exchange Rate For working out vessel dues for foreign vessels calling at the port an exchange rate of US $ 1 = Rs.44.00, prevailing as on 31 st January 2007 has been adopted. Section 5 : Financial Projections 5-52

72 Upfront Fees 5.2 Main Results Upfront fee of Rs.40 Million received from MLT operator during and accounted under current liabilities is taken to Profit and loss account during as the zero date commences during this year. Upfront fee of Rs.55 Million received from Iron ore terminal operator is taken as cash inflow for and shown in Balance sheet under current liabilities. This will be taken to Profit and Loss account during when zero date is expected to commence. Upfront fee of Rs.40 Million received from Coal terminal operator is taken as cash inflow during and shown in Balance sheet under current liabilities. This will be taken to Profit and Loss account during when zero date is expected to commence. Upfront fee of Rs.100 Million expected to be received from Container terminal operator is taken as cash inflow during and shown in Balance sheet under current liabilities. This will be taken to Profit and Loss account during when zero date is expected to commence Profit and Loss Account An analysis of the Profit and Loss account shows that EPL will make moderate profits of Rs millions after tax during and Rs millions during and profit would considerably increase once the commercial operations of Coal and Iron ore terminals start from the financial year and will further increase from the financial year when commercial operations of Container terminal are expected to commence Balance Sheet The Balance sheet projections take care of increase in fixed assets, depreciation, profits and cash flows. Investments include contributions of EPL towards improvements to TPP road, construction of the new Northern Port Access Road and the new rail link Puttur- Attipattu. It should be noted that according to the most recent annual report, EPL has contingent liabilities of Rs. 2,143 million towards claims against the company not acknowledged as debt. According to applicable Indian GAAP, the contingent liability is not shown in the balance sheet. It is understood that the contingent liability is the result of arbitration proceedings brought against EPL. It is not known when a final judgement thereon will be available Section 5 : Financial Projections 5-53

73 5.2.3 Cash Flow The EPL is expected to have an opening cash flow position of Rs million as on 1 st April During the year and the cash inflow on account of operations is expected to be Rs million and Rs million respectively. This would help to meet the repayment liabilities of loan already taken and cash flow required for capital investment on dredging, road connectivity and rail connectivity during and However a short fall of funds to the extent of Rs.1, millions is expected by the end of and short fall will increase and will continue till end of on account of EPL investments on capital dredging, road connectivity and rail connectivity etc. The cash flow will be positive from and is comfortable from To accommodate the cash shortfall, a commercial debt financing of Rs. 3,900 million has been assumed as discussed further below Key Financial Indicators The key figures and accounting ratios as extracted from the Profit & Loss account and Balance Sheet are shown under Table 5.2 for ready reference. Table 5.2 Key Financial Indicators (Rs. in Millions) Total operational revenue 1,249 1,367 1,602 3,730 4,679 4,910 5,461 7,484 8,622 10,215 Total operating cost ,501 Operational net earnings 951 1,101 1,333 3,409 4,287 4,494 4,970 6,863 7,681 8,715 Depreciation Net earnings before interest and tax ,095 3,138 4,016 4,224 4,700 6,596 7,414 8,448 Interest Net earnings before tax ,484 3,526 3,899 4,542 6,495 7,409 8,448 Tax ,166 2,534 2,911 Net earnings ,205 3,131 3,461 4,032 4,329 4,875 5,537 Debt (Long term loan) 3,893 5,051 7,103 6,723 5,033 3,335 1,624 1, Equity 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 Reserves ,208 3,413 6,544 10,005 14,037 25,141 43,920 66,309 Net Worth 3,460 3,847 4,208 6,413 9,544 13,005 17,037 28,141 46,920 69,309 Liquid means ( Op. Bal ) , , , , , Liquid means ( Cl. Bal ) , , , , , , Increase (decrease) liquid means (673.40) (32.44) , , , , , , Operating Ratio (Operating expenses / Operating revenue) 2. Debt Equity Ratio (Debt / Equity) 3. Return on Capital Employed 7.09% 5.19% 3.99% 22.07% 32.07% 36.35% 43.44% 67.33% 89.17% % (Net earning before tax / Fixed Assets) - 4. Net earning before tax / Net worth 14.20% 11.34% 9.66% 38.73% 36.95% 29.98% 26.66% 23.08% 15.79% 12.19% 5. Earning Per Share in Rs Note: The financial implications of recommendations contained in Section below are reflected in this Table. Section 5 : Financial Projections 5-54

74 5.2.5 Financing Strategy The cash position will be as set out in Table 5.2. In the years and , the cash generated from ordinary operations will not be sufficient to cover all cash requirements for planned capital expenditure. The cash flow will become positive from In case of any variation in the traffic realisation or time over run in the project implementation by the BOT operators, the short-fall may likely to change. EPL s financial commitment on its own investments for providing supporting infrastructure including its contribution towards SPV is estimated to be Rs.7,480 millions of which the cost of Phase 2 and Phase 3 capital dredging alone is Rs.3,200 millions. As EPL is in the initial stage of development and to meet its contractual obligations of providing the support infrastructure at high cost, EPL, requires financial assistance. The following options are available: Financing Strategy First Choice Seek Government grant of Rs Millions during to cover Phase- 2 and Phase-3 capital dredging and to tide over the critical cash flow position during that year. EPL will be able to meet other investments from internal resources. Second Choice Increase in equity capital by up to Rs. 3,000 Millions. This would allow EPL to either fund investment from equity or back additional debt financing to fund investment and/or to meet contingent liabilities should EPL be required to do so. Third Choice Short or medium debt from banks or financial institutions to the extent of Rs.3,900 million. Additional debt financing may require pro-rata additional equity financing to ensure maintenance of prudent capital structure The principle justification for applying for a grant to cover the cost of capital dredging is that dredging is a long term basic infrastructure investment that benefits all port users. According to applicable guidelines, dredging in principle qualifies for government assistance and it is understood that EPL has received positive preliminary indications in this respect from the relevant central government agency. The second choice would have the disadvantage it carries the risk of increasing the influence of Chennai Port Trust. This is presently not considered to be advantageous. In principle, it would also be possible to take in other shareholders, e.g. other Port Trusts. However, this requires approval from present shareholders as Section 5 : Financial Projections 5-55

75 their shareholding will be diluted. It might also impact negatively on the independence of EPL as in the long run, EPL may be expected to compete for cargo with other port trusts, in particular in the field of containerised cargo. Both choices 1 and 2 also contradict the general stipulation from the terms of reference to in principle not assume government support, even though such support may be justified. Following discussions with EPL management, the third choice has been adopted in the financial analysis. It is thereby further expected that in case the arbitration procedure ends with an unfavourable result for EPL and EPL is required to honour the contingent liability mentioned above, present shareholders will provide requisite support to EPL to maintain healthy balance sheet ratios. Support could thereby be either through additional equity, through guarantees or other forms that provide sufficient comfort to financing institutions. Even before a final arbitration result is available, this may also be a requirement in obtaining the additional debt financing proposed by the third choice. It is also recommended that such additional shareholder support be provided to EPL should the available funds for acquisition of additional land beyond the specific requirement discussed in section 2.5 be insufficient. The financial implications of the above recommendations have been taken into account in the Projected Profit and Loss Account, Balance Sheet and Cash Flow Statements contained in Annexure 6, Annexure 7 & Annexure 8 and Table 5.2. Section 5 : Financial Projections 5-56

76 6. DETAILED ACTION PLAN 6.1 Approach This section covers detailed Action plan for implementation of the identified projects during the first seven years of the business plan focusing on schedule of activities and milestone events. The plan includes the cargo terminals to be developed and operated through private sector financing and the support core infrastructure projects like capital dredging, road and rail connectivity etc to be established through the port financing. The plan specifies the responsibilities of the private operator and EPL in the development and commissioning of the project facilities and set timings for accomplishment of inter-dependent items so that construction of project facilities by the private operator and development of the support facilities by the port can progress in an integrated and synchronised manner and to achieve the goal. The timings for the accomplishment of the milestone events, commencement and completion of project facilities vis-à-vis the date of commissioning of the terminals under the BOT format and the supporting infrastructure projects to be funded by EPL are in accordance with the discussions held with EPL officers and their Development Plan. The plan also lists the action points of EPL in providing the support facilities to the private investors to meet the obligations of EPL mandated in the respective agreement. As regards Container terminal (Phase-I) EPL has prepared the Project Report defining the project parameters and submitted the proposal to Central Government for obtaining in principle clearance of Public-Private-Partnership Appraisal Committee (PPPAC). The Bidder selection process through competitive tendering will start on receipt of clearance. In case of the infrastructure projects under EPL financing, the phasing and timings of the construction schedule are matched with the construction schedule and commissioning of the BOT projects. 6.2 Action Plan for Identified Projects Projects Under Private Financing Marine Liquid Terminal (BOT Project) The activity schedule and mile stone events are shown in the chart at Appendix 1. Commencement of project Completion Section 7: Financial Model 6-57

77 Action points of EPL to support the construction and commissioning of Marine Liquid Terminal: Handover the land on lease to the operator for setting up tankages Dredge the berth area of MLT to -15.0m CD to facilitate berthing of tankers Develop village access road along the western port boundary wall and make it available to the operator for tanker truck movements Facilitate and ensure approvals from the statutory authorities for commissioning of the project facilities and collector of customs to start business Coal Terminal (BOT Project) The activity schedule and mile stone events are shown in the chart at Appendix 2. Commencement of project Completion Action points of EPL to support the construction and commissioning of Coal Terminal: Handover the project site Raise the land earmarked for coal stack yard to the designated level and handover with access road (construction purpose) Obtain right-of-way permission from the owners of the land concerned outside Ennore port area for routing the conveyor alignment Obtain clearance from the authority concerned for routing the conveyor support structures across the Ennore back water (creek). Acquire/ take over the land from the concerned authority (TIDCO/ TNEB/ Salt Department) for locating the holding yard for railway sidings and construction of west Spinal road for evacuation of coal. Dredge the berth area of the coal terminal to 15.0m CD to facilitate berthing of coal vessels. Upgrade the ash-slurry pipeline road (taking permission from TNEB) and develop the Spinal road on the west and extend it westwards to meet NCTPS road (taking permission from the authority concerned). Provide road connectivity to facilitate evacuation of coal through road trucks. Section 7: Financial Model 6-58

78 Develop and provide rail connectivity to the stackyard. Facilitate and ensure approvals from the statutory authorities for commissioning of the project facility and collector of customs to start the business Iron Ore Terminal (BOT Project) The activity schedule and milestone events are shown in the chart at Appendix 3. Commencement of project Completion Action points of EPL to support the construction and commissioning of Iron Ore Terminal: Handover the project site. Raise the land earmarked for Iron ore stackyard to the designated level and hand over with access road. Obtain right of way permission from the owners of the land concerned outside Ennore port area for routing the conveyor alignment Obtain clearance from the authority concerned for routing the conveyor support structures across the Ennore backwater (Creek) Dredge the berth area of Iron ore terminal to 18.0m CD, port basin to 18.5m and channel to 20m to facilitate berthing of Iron ore carriers Develop and provide rail and road connectivity to the stackyard Facilitate and ensure approvals from the statutory authorities for commissioning of the project facility and collector of customs to start the business Container Terminal (Phase-I) (BOT Project) The activity schedule and mile stone events are shown in the chart at Appendix 4. Commencement of project Completion Section 7: Financial Model 6-59

79 Action points of EPL to support the construction and commissioning of Container Terminal: Initiate tendering process and award BOT contract Clear the boulders and handover the project site Remove the temporary railway sidings and hand over the area for development of container parking yard Dredge the berth area of container terminal to 15.0m CD to facilitate berthing of container vessels Widen the south port access road from the existing two lanes to four lanes and develop part of north south link road (1 km) (4 lanes) and make them available to the operator to facilitate movement of container trailers Develop a land of about 5 ha on the western side of port access road to the extent nearer to the EPL main gate to serve as buffer yard for parking container trailers and go through export formalities before entering the gate Facilities and ensure approvals from the statutory authorities for commissioning of the project facility and collector of customs to start the business Projects under EPL Financing Capital Dredging (Phase I) Dredging the berth areas of MLT, Coal and Iron ore to -15.0m CD. The activity schedule and milestone events are shown in the chart at Appendix 5. Commencement of Dredging Completion Action points of Ennore Port Limited: Decide and mark the alignment of the pipe line to carry the dredge materials from the dredger to raise the (Stackyard) land well before mobilisation of the dredger & equipment Ensure formation of bunds progressively in the dumping area to contain the dredge materials In case of raising the holding yard area take permission from the respective land owner Section 7: Financial Model 6-60

80 Capital Dredging (Phase II) Dredging the berth area of iron ore m CD, port basin to 18.5 m and channel to 20.0m. Commencement of dredging Completion Capital Dredging (Phase III) Dredging the berth area of container terminal to m CD. Commencement of dredging Completion Road Connectivity A network of roads within the port operational areas and in the vicinity area has been developed to establish good connectivity for evacuation of cargo from the terminal areas and stackyards. The activity schedule and milestone aments for construction of various roads constituting the system are shown in the chart Appendix 6. The schedule for commencement and completion of each road has been so drawn matching with the completion/commissioning dates of the terminals which require road support. Improvement and construction of some of the roads, depend on external agencies in obtaining their permission or availing the land corridor. The action points of EPL to take care of such constraints have been listed in the action plan of the respective terminal. The major road to connect Ennore port direct to NH5 has been identified as the Northern port access road. As it involves major investment and beneficiaries are many, it is recommended that EPL could take it up with the Central Government to bring it under the port connectivity projects funded by NHAI Rail Connectivity This activity schedule and milestone events are shown in the chart at Appendix 7. Commencement of work Completion Section 7: Financial Model 6-61

81 6.2.3 Co-ordination & Monitoring Master control bar chart combining the construction schedules of the major four terminals and the associated capital dredging is at Appendix 8. The development of projects in the next seven years is by various private developers and the EPL and many activities are inter-linked. It is necessary to co-ordinate and monitor the activities with reference to the individual action plan. It is recommended that EPL should set up a monitoring team under a senior level officer to over see the activities, rectify the deficiencies then and there so that the overall action plan is kept up. Section 7: Financial Model 6-62

82 Section 7: Financial Model 6-63

83 Section 7: Financial Model 6-64

84 Section 7: Financial Model 6-65

85 Section 7: Financial Model 6-66

86 Section 7: Financial Model 6-67

87 Section 7: Financial Model 6-68

88 Section 7: Financial Model 6-69

89 Section 7: Financial Model 6-70

90 7. FINANCIAL MODEL 7.1 Structure The financial model is structured with input fields, calculation fields and output fields. The input fields comprise of traffic, number of vessel calls, tariff, revenue share, lease rentals, various elements of operation, repairs and maintenance, administrative cost, source of funds and application of funds. The calculation fields comprise of computation of revenue earnings, expenditure, depreciation, debt servicing and taxation. Output fields comprises of total operating revenue, total operation cost, net earnings after tax, cash flow, additions to assets, liabilities and reserves. The fields are shown in different colours to facilitate annual review. Input fields - Light green Calculation field - Yellow Output fields - Blue 7.2 Development The financial model is developed taking into account the relevant elements of revenue, expenditure, source and application of funds. Revenue 1. Wharfage (Composite rate) for TNEB coal 2. Concession fees (Revenue Share) payable by BOT operators. 3. Port dues and Pilotage dues from Shipping Agents 4. Lease rental and way leave charges. Expenditure 1. Running and operations cost (Fuel, Manning contracts, Time charter, etc) 2. Repairs and Maintenance cost 3. Electricity, Water Supply, Fire service and other services 4. Marine survey and Maintenance dredging 5. Establishment charges 6. Administrative Overheads 7. Interest and Tax. Computation of revenue is based on projection of traffic, number of vessels and provision in concession agreements with BOT operators. Computation of Section 7: Financial Model 7-71

91 expenditure is based on trends in expenditure, maintenance dredging, manning contracts, cost of improvements in organisational structures, service cost, debt servicing cost, tax laws etc. The principal assumptions are listed under Section 5.1 of the report. The financial model includes Profit & Loss Account, Balance Sheet and Cash Flow statement. These provide all items of revenue, expenditure, profit, source of funds such as Equity Capital, Loan Capital, Net Earnings, and Short-term liabilities and application of funds such as fixed assets, current assets, liquid assets and investments. Long-term loan schedule and EPL investment schedule are provided. Depreciation and taxation schedule are also provided. The financial model gives financial projection year wise consisting of Profit & Loss account, Balance Sheet & Cash Flow for a period of 20 years commencing from Categories of revenue, Categories of cost, classification of assets, shortterm liabilities, long-term liabilities, Equity and Reserves are specified supported by working sheets. 7.3 Annual review of the financial model Financial evaluation is an ongoing process and requires regular annual review to: Respond to fluctuations in traffic throughput, number of vessel calls, tariff revisions and variations in expenditure elements. Respond to new or additional activities, investments as a result of market studies. Respond to changes in interest and tax liabilities etc. The financial model as developed in the Business plan is recommended to be the starting point and the format for future accounting tasks of EPL. A regular annual review is recommended. The Annual Review shall be undertaken by the Finance Unit of EPL and the Head of the Finance Unit will be the nodal officer. The Annual Review requires inputs from: EPL Operations unit EPL Marine Services unit EPL Finance Unit Stakeholders (BOT Operators, etc) Section 7: Financial Model 7-72

92 The proposed time frame for the annual review of the financial model will be the first three months of the financial year (April June) side by side with finalisation of the Annual Accounts. The results of the review shall be presented to the Board of Directors in July. The Statements of the Financial Model are in Annexure 9. (Separate Attachment) Section 7: Financial Model 7-73

93 8. ANNEXURES Annexure 1: Commercial Terms of Concluded BOT Contracts 8-75 Annexure 2: Productivity Benchmarks 8-78 Annexure 3: Container Terminal Layout 8-79 Annexure 4: Financial Analysis of Container Terminal 8-80 Annexure 5: Year wise phasing of EPL Investments (Position as on ) 8-88 Annexure 6: Projected Profit and Loss Account 8-90 Annexure 7: Projected Balance Sheet 8-91 Annexure 8: Projected flow of Funds 8-92 Annexure 9: Financial Model (Separate Attachment) 8-93 Annexure 10: Documents and References 8-93 Section 8: Annexures 8-74

94 Annexure 1: Commercial Terms of Concluded BOT Contracts Common User Coal Terminal BOT-Period: 30 years Completion 30 month Period: Capital Investment of EPL: Capital Investment of Licensee: Obligation of Licensee: Services and facilities provided by EPL: Tariff setting EPL: Tariff setting Licensee Payments to EPL Capital dredging required Raising of ground level of stackyard Rail connectivity up to the exchange point of the holding yard and the main lines Road access up to the boundary limits Berth and accessories with approach Cargo handling equipment at berth Conveyors connecting berth and stack yard Stackyard for transfer of cargo to rail, road and conveyors linking to user premises Stacking and Reclaiming System Delivery System Railway Sidings and locomotive Road and Utilities Operation, maintenance and repair of the terminal including maintenance of depth alongside berth. Environmental stipulations: Comply with the conditions specified by the Ministry of Environment and Forests in the Environmental clearance. Comply with the directions of the Governmental and other enforcement authorities as per annual review. According to applicable National laws According to Industrial standards and practices. All marine services Maintenance of waterways to the required depth Safety of navigation Provision and maintenance of general port infrastructure Port dues, pilotage fees and shifting charges and any other vessel related charges except berth hire for the berth built by Licensee Rates and user charges for the coal terminal including berth hire charges Land Lease and Right of Way Revenue Share: percent Minimum Annual Guaranteed Revenue increasing from Rs.50 million (1 st year) to Rs.206 million (30 th year). Section 8: Annexures 8-75

95 Common User Iron Ore Terminal BOT-Period: Completion Period: Capital Investment of EPL: 30 years 30 month Capital dredging required Raising of ground level of stackyard Rail connectivity through a siding to the main lines Road access up to the boundary limits Capital Investment of Licensee: Berth and accessories 50m of retaining berth parallel to shore line Ship loaders Conveyors connecting berth, stack yard and reclaimers Stackyard Stacking and Reclaiming System Railway rake receiving, dispatch and unloading system Road and Utilities Obligation of Licensee: Operation, repair and maintenance of the terminal Environmental stipulations: Comply with the conditions specified by the Ministry of Environment and Forests in the Environmental clearance. Comply with the directions of the Governmental and other enforcement authorities as per annual review. According to applicable National laws According to Industrial standards and practices. Services and facilities provided by EPL: Tariff setting EPL: Tariff setting Licensee All marine services Maintenance of waterways to the required depths. Safe navigation Provision and maintenance of general port infrastructure Port dues, pilotage fees and shifting charges and any other vessel related charges except berth hire for the berth built by Licensee Rates and user charges for the iron ore terminal including berth hire charges Payments to EPL Land Lease and Right of Way Revenue Share: 51.6 percent Section 8: Annexures 8-76

96 Marine Liquid Terminal BOT-Period: Completion Period: Capital Investment of EPL: Capital Investment of Licensee: 30 years 24 month Capital dredging required Berth and accessories Mooring dolphins and loading arms Pipe trestle and pipe lines Fire fighting equipment Storage tanks Oil containment booms and skimmer Utilities Obligation of Licensee: Operation, repair and maintenance of the terminal Services and facilities provided by EPL: Tariff setting EPL: Environmental stipulations: Comply with the conditions specified by the Ministry of Environment and Forests in the Environmental clearance. Comply with the directions of the Governmental and other enforcement authorities as per annual review. According to applicable National laws According to Industrial standards and practices. All marine services Maintenance of the waterways to the required depths. Safety of navigation Provision and maintenance of general port infrastructure Port dues, pilotage fees and shifting charges and any other vessel related charges except berth hire for the berth built by Licensee Tariff setting Licensee Rates and user charges for the marine liquid terminal including berth hire charges and tank usage Payments to EPL Land Lease and Right of Way Revenue Share: percent Minimum Annual Guaranteed Revenue increasing from Rs.25 million (1 st year) to Rs.103 million (30 th year). Section 8: Annexures 8-77

97 Annexure 2: Productivity Benchmarks Berth Ship unloaders/cranes Productivity Length Depth No. Capacity General Bulk (Coal and Iron Ore) Gijon, Spain Muelle de Marcelino Leou m 2 50 t 2,600-2,800 t/h Wilhelmshafen Niedersachsenbrücke m-15m 1 1,000 t/h Nordenham, Germany Midgard Terminal 3 25 t 30,000 t/day Specialised Iron Ore Hamburg Hansaport, unloading m iron ore 35,000 t/d Hansaport, loading 290 9m 1 iron ore 1,500 t/h Dampier, Australia East Intercourse Island ore jet m 1 iron ore: 9,000 t/h Parker Point Ore Jetty m 1 iron ore: 7,500 t/h Esperance, Australia Berth No m 1 iron ore: 4,500 t/h Port Headland, Australia BHP Iron Ore Nelson Point m 2 6,500 t/h mainly iron ore Specialised Coal Hamburg Hansaport, unloading m coal 20,000 t/d Hansaport, loading coal 1,000 t/h Port Kembala Coal Terminal Berth m 2 5,000 t/h coal Sepetiba, Brazil Coal Terminal m 2 1,500 t/h coal Newcaslte, Australia Dyke Berths 4& m 3 coal: 7,500 t/h Source: Lloyds Ports of the World 2007, HPC Selected Container Terminals Productivity indicators TEUs per berth metre EUROPE Felixstowe ,069 1,107 1,083 1, Southampton ,019 Antwerp Scheidt ,046 Rotterdam - major terminals Bremerhaven Hamburg - major terminals Algeciras 999 1, ,045 1,028 Gioia Tauro ,046 INDIA Jawahralal Nehru CT ,071 1,526 NSICT 572 1,158 2,002 2,051 2,052 EAST ASIA Singapore - PSA 1,739 1,612 1,554 1,660 1,512 1,636 1,755 Hong Kong - HIT & Cosco/HIT 1,696 1,553 1,648 1,809 1,709 1,816 1,607 Hong Kong - MTL 1,118 1,376 1,424 1,688 1,737 1,951 1,785 Taiwan - Kaohsiung ,108 1,091 Japan - Yokohama NORTH AMERICA Los Angeles Long Beach Containers per gantry crane EUROPE Felixstowe Southampton Antwerp Scheidt Rotterdam - major terminals Bremerhaven Hamburg - major terminals Algeciras Gioia Tauro INDIA Jawahralal Nehru CT NSICT EAST ASIA Singapore - PSA Hong Kong - HIT & Cosco/HIT Hong Kong - MTL Taiwan - Kaohsiung Japan - Yokohama NORTH AMERICA Los Angeles Long Beach Source: Ocean Shipping Consultants Ltd, HPC Section 8: Annexures 8-78

98 Annexure 3: Container Terminal Layout Section 8: Annexures 8-79

99 Annexure 4: Financial Analysis of Container Terminal Commercial Modalities of the Project Within the given commercial and financial strategy of EPL is proposed to create also this terminal as a BOT project with a maximum of private participation. The key parameters are recommended as follows: BOT-Period: Completion Period: Capital Investment of EPL: Capital Investment of Licensee: Obligation of Licensee: Services and facilities provided by EPL: 30 years 30 months Extension and dredging of harbour basin to enable construction of 700m of container quay to 15m CD in stage I and an additional 300m in stage II. Removal of existing iron ore loading lines Removal of rocks and boulders from the designated container terminal area Rail connectivity up to the exchange point of the holding yard and the main lines (if required) Road access up to the boundary limits Raising of ground level of terminal area Pavement and illumination of terminal area Berth and berth furniture All cargo handling equipment and IT-systems required for the operation of a state-of-art terminal Buildings, workshop and truck inter-change facilities Railway sidings for container handling (if desired) Internal roads and utilities Operation, maintenance and repair of the terminal Environmental stipulations: Comply with the conditions specified by the Ministry of Environment and Forests in the Environmental clearance. Comply with the directions of the Governmental and other enforcement authorities as per annual review. According to applicable National laws According to Industrial standards and practices. All marine services Maintenance of entrance channel and harbour basin to 15.5m Safety of navigation Section 8: Annexures 8-80

100 Provision and maintenance of general port infrastructure Tariff setting EPL: Port dues, pilotage fees and shifting charges and any other vessel related charges except berth hire for the berth built by Licensee Tariff setting Licensee Rates and user charges for the container terminal including berth hire charges Payments to EPL Land Lease Revenue Share Given the pioneer function of Ennore port it should be considered to allow alternative proposals to the bid as this might open some additional perspectives for the development of container traffic at Ennore port. The technical evaluation will surely become more complex under a more open tender structure; however, the chances for a broader perspective should outweigh this. It may be considered to exclude the current operator of the container terminal at Chennai port as well as the prospective operator of the envisaged second container terminal from the EPL bid to foster competition in the region. Capital Expenditure Capital expenditure comprises civil works and equipment and machinery. Main components of civil works are: Dredging of the berth area Preparation of site 700 m length of container quay in stage I Preparation and pavement of container stacking yard Buildings and utilities. A breakdown is given in Table 8.1 below. The table includes expenditures expected to be borne by EPL according to the proposed commercial modalities of the project. Expenditure in a railway terminal are not yet included in the calculation as existing rail connectivity restrictions might discourage investors to invest in such a facility at least in the initial stage of the terminal. Likewise EPL investments in the pertinent immediate rail connectivity have not been taken into account. Customs duty of 30 percent (basic duty, CVD and SAD) has been taken into account to calculate the cost of imported equipment and other material required for the development of the terminal. Section 8: Annexures 8-81

101 Table 8.1: Civil Works for Container Terminal Item Unit Price (Rs) per Unit Quantity Total (million Rs.) Land excavation cum , Dredging Stage I cum 150 4,000, Mob/demob & others Stage I lumpsum Dredging Stage II cum 150 2,000, Mob/demob & others Stage II lumpsum Site clearing lumpsum 10.5 Removal of railway siding lumpsum 1.3 Removal of rocks and boulders tonnes 80 60, Landfill and levelling cum 35 40, Stage I Quay (including bollards and fenders) m 2,300, ,610.0 Crane rails incl. foundation m 4,200 1, Heavy Duty Pavement (Container) sqm 1, , Illumination sqm , Drainage Works sqm , Electrical System sqm , Fencing m 3,300 1, Stage II Quay (including bollards and fenders) m 2,300, Crane rails incl. foundation m 4, Heavy Duty Pavement (Container) sqm 1, , Illumination sqm , Drainage Works sqm , Electrical System sqm , Fencing m 3, Administration Building/Canteen sqm 10,500 1, Gate, Interchange Area sqm 1,300 11, Workshop sqm 7,000 2, Power Substations lumpsum 19.0 Truck Weigh Bridges lumpsum 10.0 Subtotal 4,496.8 Contingencies/Engineering (10%) 10% Total 4,946.5 Thereof EPL 1,298.4 Thereof Licencee 3,648.1 Capital investment in equipment has been assessed according to the operational concept. A breakdown for expected expenditure from to is given in Section 8: Annexures 8-82

102 Table 8.2. It should be noted that the table also contains replacement investment according to the expected economic life of the equipment. Table 8.2: Equipment Investment for Container Terminal Year Economic Life (years) Price per Unit (million Rs) Number Units Total (million Rs.) Quay Cranes ,150.0 RTGs ,217.5 Terminal Tractors Terminal Chassis Empty Container Handlers Reach Stackers Forklifts & Vehicles IT-System Grand Total 7,229.8 The financial evaluation of the project is based on a cash-flow analysis. The following financial indicators are calculated: Internal Rate of Return (IRR) Net Present Value (NPV) A sensitivity analysis is being carried out showing the effects on the IRR of a deviation of revenue (traffic volume), operating costs and capital investment costs by +/- ten percent from the planned figures. Financial evaluations are based on the projected investment programme and on the expected cash flow development. At this stage of the business plan preparation the financial evaluation will not assess possible financing conditions and their leverage effects. The analysis has been carried out on basis of a project cash flow, not distinguishing between internal and external capital. Corporate taxes have also not been taken into consideration. The calculation methodology is thus a simplified Discounted Cash Flow approach. All costs and revenues are at 2006 level with no allowance being made for future inflation rates. This has an effect on the discounting factor applied as it excludes general inflationary trends (constant price approach). All figures are in million Indian Rupees (Rs); foreign exchange expenditures are converted at the exchange rate as per 31. January 2007, i.e. Rs.44 = 1 US Dollar. Revenue Projection Revenues are based on the expected traffic to be handled at the terminal. As the entire project is being evaluated revenue of both, the BOT Licensee (Operator) and EPL are to be analysed. Section 8: Annexures 8-83

103 Handling rates of the operator have been assumed at Rs.3,200 per TEU. This is approximately 10 percent above the Rs. 2,920 per TEU - the recorded average revenue earnings of M/s CCTPL at Chennai port in This estimate as rather conservative. It takes into account inflation experienced since Furthermore, it is expected that sufficient container storage space and good road connectivity will enhance the earning potential of the new terminal at Ennore. The assumed average revenue is also within the range of the average container handling rate of South East Asian terminals given at 92 USD by Drewry s survey of 2002 for the movement from ship s hold to stack to truck (or vice versa) only. At the current exchange rate and prevailing 20ft/40ft container pattern this amounts to approximately Rs.2,920 per TEU (excluding container storage, extra moves and services etc.). It might further be noted that amongst all surveyed ports worldwide South East Asia had the lowest average tariff in the survey, with little variation within the region at country level. Main reasons for this are low regional average wage levels by international standards and regulated ceilings on tariffs imposed by a number of South East Asian governments. Revenue of EPL is estimated as per container vessel forecast and the current tariff of EPL. Revenue streams between the EPL and the Licensee (land lease, revenue share etc.) have not been considered as the analysis is done on a project level. Operating Expenses Operating expenses of the Licensee comprise Labour costs including administration and management Fuel and electricity Insurance General overheads Repairs and maintenance on equipment. A standardised South Asian rate of Rs.500 per TEU is being used. It is based on international surveys and tallies with rates used in the feasibility studies prepared for Ennore Port and Chennai Port 2 nd Container Terminal. Operation costs of EPL are based on a tentative analysis and projection of the present cost composition (financial years and ) as highlighted in the Inception Report. It suggests an average cost of Rs.300 per TEU once the four new terminals (coal, iron ore, MLT and containers) are in operation with subsequent better utilisation of existing marine facilities. Capital Investment Capital investments have been analysed in Table 8.1 and Table 8.2 above. Investments in civil works have been allocated to the various years according to the foreseen construction sequence. It is assumed that initially about half of the terminal Section 8: Annexures 8-84

104 area will be paved by the Licensee and the remaining area in when the additional area is likely to be required. Investment in equipment follows the capacity requirements. Replacement costs as per economic life is also included. Figure 8.1 shows the expected distribution of expenses until Figure 8.1: Estimated Capital Expenditure of Container Terminal million Rs Civil Works Equipment Cash Flow Analysis Results of the cash flow analysis of the proposed container terminal at Ennore port are as follows: Internal Rate of Return: NPV at 12 % discounting rate: 27.3 percent Rs.8,665 million Details of the analysis are given in Table 8.3 below. Section 8: Annexures 8-85

105 Table 8.3: Cash Flow of Container Terminal Year Revenue Operating Expenses Investment Expenses Cash Flow ,151-1, ,563-1, ,274-2, , , , , , , , ,331 1, , ,507 2, ,443 1,200 1,116 3, ,443 1, , ,443 1, , ,443 1, , ,443 1, , ,443 1, , ,443 1, , ,443 1, , ,443 1, , ,443 1, , ,443 1, ,900 Residual Value -5,329 5,329 A sensitivity analysis is shown in the Figure 8.2. Section 8: Annexures 8-86

106 Figure 8.2: Sensitivity Analysis of Container Terminal 31,0% 30,0% 29,0% 28,0% IRR 27,0% 26,0% 25,0% 24,0% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% -6% -7% -8% -9% -10% Variation of... Revenue/Traffic Operation Costs Investment Costs It shows the effect of variations of revenue/traffic, operation costs and investment costs on the financial performance of the project in terms of IRR. The right end of the diagram indicates the value of IRR if the above parameters are 10 percent below exceptions, e.g. in case of revenue this would reduce the IRR to 23.5 percent. Section 8: Annexures 8-87

107 Annexure 5: Year wise phasing of EPL Investments (Position as on ) (Inputs from EPL & Consultant s Analysis) Sl.No. Name of Project Project Scheldule Phasing of Expenditure(Rs. In millions) Cost (Rs. Commence Complete Capital Dredging Phase -I (MLT, Coal & Iron ore berths to -15 m) Phase -II Dredging Iron ore berth to -18m Phase -III Dredging container berth to -15m Sub Total Road Connectivity a. Widening South Port Road b. Development of North Port Road c. Link from NPA Road to Northern Gate d. North South Link Road e. Security Road f. Strengthening the road leading to SBW g. Spinal Road W of C Stackyard h. Extension to NCTPS Road i. Northern Port Access Road * 500* - j. Village Access Road k. Widening of TPP Road (Equity Contribution) ** l. Strengthening of NCTPS Road and Port access road m. Upgrading ash slurry road Sub Total (including Feasibility Studies) * Rail Connectivity a. Rail connecting to coal, iron ore and container stackyards b. Puthur - Athipattu new Railway line (Equity contribution) *** 250*** Sub Total Miscellaneous investments a. Land Excavation b. Removal of Rock boulders c. Removal of Railway sidings d. Land development Green belt & environmental e. measures f. Shore protection structures g. Land Acquisition (Additional) * Equity contribution to SPV for the new Northern Port Access Road ** Equity contribution to SPV for widening TPP Road *** Equity contribution to SPV for the new Puthur - Attipattu Railway line Section 8: Annexures 8-88

108 EPL - Investments Abstract of yearwise -Phasing Phasing of Expenditure(Rs. In millions) Sl.No. Name of the Project Capital Dredging Phase I, II & III Road Connectivity ** * * - 3 Rail Connectivity *** 250*** 4 Miscallaneous Works * Equity contribution to SPV for the new Northern Port Access Road ** Equity contribution to SPV for widening TPP Road *** Equity contribution to SPV for the new Puthur - Attipattu Railway line Section 8: Annexures 8-89

109 Annexure 6: Projected Profit and Loss Account Note: Other operational income in and includes upfront fee received in advance. The financial implications of recommendations contained in section of the report are reflected in the above statement Section 8: Annexures 8-90

110 Annexure 7: Projected Balance Sheet Note: 1. Current assets, Provisions and Short-term liabilities are assumed to be at figures. 2. The financial implications of recommendations contained in section of the report are reflected in this statement. Section 8: Annexures 8-91

111 Annexure 8: Projected Flow of Funds Note: The financial implications of recommendations contained in section of the report are reflected in this statement. Section 8: Annexures 8-92

112 Annexure 9: Financial Model (Separate Attachment) Annexure 10: Documents and References 1. Ennore Port Brochure: The Energy-cum-Industrial Port of the Millennium 2. Memorandum and Articles of Association of Ennore Port Ltd. (1999) 3. Ennore Port Ltd: First Annual Report (11 th October 1999 to 31 st March, 2001) 4. Ennore Port Ltd: Second Annual Report Ennore Port Ltd: Third Annual Report Ennore Port Ltd: Fourth Annual Report Environmental Impacts and Risk Assessment of Ennore Port Ltd Expansion Proposals including Capital Dredging, July Ennore Port Ltd Ennore Port Expansion Proposals for Development of Terminals for Marine Liquids, Coal, Iron-Ore and Containers in Second Phase and Associated Capital Dredging (Application & Documents) for Environmental clearances from the MOE & F(GOI) 9. EPL Crisis Management Plan, November EPL Onsite Off-site Emergency Plan 11. Ennore Port Limited, Master Plan 2006 (October, 2006) 12. EPL Study of Rail Infrastructure at Ennore Port, Final Report (July 2004) by RITES 13. EPL Feasibility Report on Rail connectivity to connect Indian Railways mainline to Coal, Iron-ore and container yards July 2005 (Revision 1), By VCC Aarvee Associates JV, Hyderabad 14. Strategy Study for Ennore Port Connectivity by Pallavan Transport Consultancy Services Ltd, Chennai (January 2006) 15. Extracts from BOT Agreement for Marine Liquid Terminal Project ( November 2004) (Part II) 16. Extracts from RFP documents for Iron Ore Terminal Project (Vol.-I & III) 17. Extracts from RFP documents for Coal Terminal Project (March 2004) Section 8: Annexures 8-93

113 18. Auditor s Report on EPL ( EPL Presentation July 2006 (CD) 20. EPL Development of Iron Ore Terminal at Ennore Port Final Techno- Economic Feasibility Report March 2003 by L&T Ramboll Consulting Engineers Ltd. 21. DFR for LNG Terminal at Ennore for IOC by Tractebel Engineers and Constructors Pvt Ltd 22. DFR for Development of a Container Terminal at Ennore Port by IPA (January 2005) 23. National Maritime Development Programme by Ministry of Shipping (December, 2006) 24. Detail Project Report for Marine Liquid Terminal, August TIDCO Presentation on Special Economic Zone at Ennore August Concession Agreement between EPL and ETTPL for MLT Port I & II 27. RFP document for common-user Iron Ore Terminal Port I & II 28. RFP document for common-user Coal Terminal Vol. I & II and Addendum I 29. C 11 study report on potential for developing a container terminal at Ennore Port, IPA compilation a profile for major ports of India Chennai Port Administration Report Response to RFP for Iron Ore Terminal from SICAL consortium. Submitted in June Response to RFP for Coal Terminal from SICL consortium (Technical proposal and General) 34. Detailed Project Report for development of Marine Liquid Terminal at Ennore Port for which BOT contract is awarded for Ennore Tank Terminals Private Limited (July, 2006) 35. Ennore Port Expansion Proposal for Environmental clearance volume 1 & Scale of Rates Chennai Port Trust. 37. Compendium of Important circulation: Formulation, Appraisal and approval of plan schemes and projects Ministry of shipping Government of India. Section 8: Annexures 8-94

114 38. Model Concession Agreement for private sector projects in Major ports. 39. Land use plan for Ennore Port 2003 prepared by CES. 40. Economic Appraisal of Tamil Nadu Evaluation and Applied Research Department, Govt of Tamil Nadu 41. Report on Index of Industrial Production (Data) Department of Economics and Statistics, Chennai/CSO 42. Annual Survey of Industries Data Department of Economics and Statistics, Chennai/CSO 43. Detailed Project Report of Coal Terminal (December 2006) 44. Detailed Project Report of Iron Ore Terminal (January 2007). Section 8: Annexures 8-95