The ministry of shipping may soon make changes to the model concession agreement (MCA) for bidding out port projects on a public private partnership (PPP) basis. The MCA, which was authored by the ministry itself, does not have a cap on the liability to the government of India in case of termination of a project mid-way. This omission can create huge problems for the government, which may have to shell out hundreds of crores in case of the termination of a contract. The decision has come after the Planning Commission repeatedly pointed out this loophole in the ports MCA.

“We have decided to change the clause and put a freeze on the liability to the government. However, what needs to be decided is which cost estimate will form the basis of the liability cap,” a senior government official said. There is a cost mentioned in the feasibility report of the project before the project is awarded, there is an actual cost incurred and there is a cost estimate that is accepted by the lenders and financiers of the project.

The problem with the feasibility report cost estimates is that there is substantial variation on ground when the project construction actually takes off. If government liability on termination is fixed at this, it will be a great negative for the bidder and bids for port projects may decline, the official said. On the other hand actual cost is prone to significant manipulation at the ground. Lenders accepted cost can also be manipulated to get a higher loan, fears the ministry.