Rough seas ahead as DP World sails into Indian port dispute

PUBLISHED : Friday, 14 April, 2006, 12:00am
UPDATED : Friday, 14 April, 2006, 12:00am

After seeing its North American ambitions run aground in the face of US political opposition, Dubai Ports World is sailing into stormy waters in India.

The takeover of Britain's 163-year-old ports and ferries operator, P&O Group, last month gave DP World access to 51 terminals in 31 countries, including three key ports in India.

However, some Indian officials have expressed concerns over DP World's status as a monopoly operator because of its existing stake in two more ports.

To head off strong opposition from American politicians, DP World has already agreed to give up control of the six ports in the United States it acquired as part of its US$6.9 billion takeover of P&O.

However, in the latest twist in the continuing saga involving the Dubai-based ports operator's recently acquired assets, two state government bodies in India pointed out another reason to block the DP World deal - the breach of a concession agreement by P&O.

DP World chief executive Mohammed Sharaf is unfazed.

'The Indian market will continue to grow and there are other players besides us in the market. No, we cannot be termed monopoly operators,' Mr Sharaf told the South China Morning Post.

Indian Minister for Commerce and Industry Kamal Nath met top DP World officials recently in Dubai and endorsed the firm's acquisition of three Indian container terminals operated by P&O - Nhava Sheva in Mumbai, Chennai port in Tamil Nadu and Mundra in Gujarat. He dismissed criticisms that the takeover would give DP World monopoly status.

The Dubai company already runs two other terminals - Kochi, in Kerala state and Visakhapatnam in Andhra Pradesh.

Earlier, the Gujarat Maritime Board, the state's regulator for ports, had asked DP World why its licence to operate the Mundra International Container Terminal in Kutch should not be cancelled amid these issues.

Now even the Chennai Port Trust has sought approval from the ministry of shipping, road transport and highways to issue a notice for termination of the concession agreement between the trust and Chennai Container Terminal, which was operated by P&O Ports.

The trust has already written to the ministry that the sale of the Chennai terminal operations business by P&O to DP World without its approval 'violates the provisions of certain concession agreement clauses'.

The Gujarat authorities have also asked Gujarat Adani Port, with whom P&O had a sub-concession agreement to operate the Mundra International Container Terminal, to explain why its licence should not be terminated. According to reports, the takeover was a breach of the concession agreement.

The maritime board has also raised the issue of dilution of equity of P&O Ports and transfer of property, assets and undertakings of the Mundra terminal without previous permission.

Ganesh Raj, senior vice-president and managing director of DP World's Indian subcontinent operations, said the concession structure remained the same.

'There is no change in the equity pattern nor in the fundamental structure of the agreements entered into with the Indian ports,' Mr Raj said. 'However, we are committed to clarify these issues and we do not foresee any roadblocks in the continued operations of existing concessions in India.'

The acquisition of P&O has made DP World the world's third biggest port operator with a capacity of more than 50 million 20-foot equivalent units per year. The top two are Hutchison Whampoa and PSA International of Singapore.

The Indian twist comes just after DP World agreed to sell to an American entity the six US ports it acquired in New York and New Jersey, Philadelphia, Baltimore, New Orleans and Miami from P&O.

DP World chief executive Edward Bilkey said the decision was aimed at preserving 'the strong relationship between the United Arab Emirates and the United States'.

The terms of the disposal are unresolved.

'We are negotiating with the US authorities to settle this issue,' Mr Sharaf said. 'We will complete the procedure without incurring any loss.'

Though the value of the US assets was not disclosed, experts said it could be about US$700 million.

The six container terminals represented less than 10 per cent of the P&O assets in the US, according to DP World.

Arab investments in overseas assets have been on the increase with the record rise in the price of oil. In the past year, more than US$5 billion has been spent by various companies, increasing a strong foreign portfolio that includes Tussauds Group, Inchcape Shipping Services, and a billion-dollar stake in DaimlerChrysler.

In late January, Dubai International Capital, the investment arm of emirate-owned Dubai Holdings, announced plans to set up a US$15 billion fund to invest in global blue-chip firms.

However, the political backlash against DP World in the US has raised concerns among American companies. For instance, Boeing fears that industrial orders from the wealthy United Arab Emirates may be diverted to its main rival, Airbus.

Boeing has orders worth US$9.7 billion from Emirates airline for 42 Boeing 777s.

To project a friendlier Arabic face, the American Business Group of Abu Dhabi, which has more than 500 members including Boeing and ExxonMobil, is planning to invite The Oprah Winfrey Show and other talk shows to visit the UAE and film a segment there to convince Americans that the emirates are not a threat to US national security, according to Kevin Massengill, a board member of the group.

Still, N. Janardhan, of the Gulf Research Centre in Dubai, said the American attitude amounted to a double standard.

'This could be protectionism to a large extent with some political colouring,' he said. 'Obviously, the US is not playing the game it is preaching.'

In his opinion, the US action will not advance efforts to promote globalisation and open up the Middle East to the world economy.

'The move will be marked as raising protectionist barriers,' he said.