Rollout Of SAROD-Ports For Dispute Resolution Credit Positive: ICRA

The rollout of SAROD-Ports for affordable and timely resolution of maritime-related disputes is a credit positive for the sector even as its success remains to be seen, ratings agency ICRA said on Thursday.

Launched on Sept. 10, 'SAROD-PORTS' for dispute resolution in maritime sector, comprising of major ports, the PPP players operating at these ports as well as non-major ports, the initiative is targeted towards attracting more private sector investments, ICRA stated.

"The launch of 'SAROD-Ports' is a step to address such disputes through an alternative route to ensure faster resolution and in a cost-effective manner and should be positive for the sector," ICRA said in a release.

In the last two decades, there has been an increasing shift towards PPP projects and landlord port models by the major ports, where terminals for specific cargo segments are developed and operated by private players on Build-Operate-Transfer basis, it said.

However, in many cases there have been disputes with the major Port Trust related to terms of concession including revenue share, meeting of guaranteed standards and volumes, facilities and maintenance work to be done by the Port Trust, among others, apart from disputes with regulatory authorities like TAMP, it said.

These disputes in many instances have dragged on for several years, as the parties may first go for arbitration and then fight the cases in higher courts. This results in high arbitration and litigation costs for both the ports as well as the private players.

"The credit profile of several port sector entities has been impacted by large contingent liabilities arising from prolonged disputes and hence the launch of SAROD-Ports should be credit positive for the sector. However, the success of the mechanism remains to be seen, as it will depend on willingness of existing concessionaires to opt for it," said K Ravichandran, Senior Vice President and Group -Head, ICRA Ratings.

The mechanism should be more useful for disputes, where the quantum of liability is smaller and it will be prudent for both parties to settle in a speedy manner, he said.

"Further, the provision to bring in experts in the arbitration process should also be a favourable factor, as industry members have at times cited dissatisfaction with arbitrators not having sufficient understanding of the port sector," Ravichandran said.

SAROD-Ports will consist of members from Indian Port Association and Indian Private Ports and Terminal Association and the empanelled arbitrators will comprise of retired chairman or deputy chairman of major Port Trusts or retired or serving members of the Judiciary, civil servants, public sector undertakings who have experience in port sector and arbitration process.

Stating that the mechanism is a much-needed alternative step to resolve/reduce the disputes in the ports sector in less time and in a cost-effective manner, ICRA said, initiative is targeted towards attracting more private sector investments and should be favourable for the sector if it is able to resolve disputes at low costs and in a time-bound manner.

The SAROD mechanism has already been in place for some time in the road sector, where it has been quite helpful and private players, thereby reducing pendency and reducing cost of arbitration.

The port sector's ability to attract investments will also be contingent on resolution of policy issues which led to disputes in the first place. Further, while the government has announced several policy measures over the last few years, they are in various stages of implementation," said Sai Krishna, Assistant Vice President and Associate Head, ICRA Ratings.

According to Krishna, early implementation of the planned measures, passage of important bills like The Major Port Authorities Bill, 2019 which will allow more flexibility to major ports and timely execution of projects under Sagarmala initiatives will be crucial to attract additional private sector investments.