CAG finds irregularities in Chennai Port

DPWorld accused of falsifying records; Suspicions on privatization confirmed


The Comptroller & Auditor General (CAG) has accused Dubai Ports World’s Chennai subsidiary of fudging its books, in his Compliance Audit Report no. 2 of 2008. The report has reprimanded the Chennai Port Trust (ChPT) and the Chennai Container Terminal Pvt. Ltd. (CCTL)- DP World’s subsidiary, for “Improper compliance of agreement for privatization of the container terminal operations.” The CAG found “no proper system to ensure the veracity of the royalty paid by the operator as well of the achievement of “non-transshipment” traffic reported by the operator.”

Though clauses 3.08(A)(i)(g) and 3.08(A)(vii) of the agreement provide for the auditing of CCTL’s books by ChPT, the auditors were blocked by CCTL from doing so. The auditors had to rely on the Terminal Despatch Reports which did not contain complete data on various types of containers handled.

As per the agreement between CCTL and ChPT in August 2001, CCTL had agreed to develop Chennai as a hub port and increase non-transshipment traffic to at least 30 percent of total traffic in four years. Non-transshipment refers to direct traffic to Chennai as different from the use of Chennai Port as an intermediate destination for shipment of goods. The CAG found “a large variation” between the number of containers reported by CCTL and the number actually recorded by the Chennai Customs based on the Bills of Entry (BE). The difference between the percentage of non-transshipment containers of total traffic, as reported by CCTL and as worked out based on BE is 22.74 percent for Dec 2003-Nov 2004 and 35.19 percent for Dec 2004-Nov 2005. The net revenue earned by Ch PT from container operation in the terminal during 2002-03 to 2005-06 worked out to Rs. 322.52 crore including the royalty and land lease charges of Rs. 265.88 crore received from CCTL.

The agreement had specified that non-transshipment meant containers not shipped from Colombo, Singapore, Port Klang, Dubai and Salalah. Yet, the CCTL has included containers shipped from these ports too. In this regard the CAG summarises that “ChPT failed to ensure the fulfillment of the agreement conditions regarding non-transshipment traffic resulting in loss of compensation equivalent to the amount of royalty payable on shortfall in non-transshipment traffic.”

Labour union Leaders like T. Narendra Rao, General Secretary of Water Transport Workers’ Federation of India (WTWFI) have been highlighting these financial irregularities. “MNCs must follow Indian Laws. Even the P&O-DPW merger was not communicated to the government. Now, these people are not even allowing government auditors in.”

The CCTL is now wholly owned by Dubai Ports World (DPW), a State run port services company of the United Arab Emirates. It is the third largest global port operator. DPW bought P&O in March 2006 but did not take the permission of the various port authorities in India, which had agreements with P&O, before taking over the assets of the latter. ChPT and the Gujarat Maritime Board had objected to this violation but the Union Minister for Commerce and Industry, Kamal Nath had then assured the UAE of smooth transfer, during his Dubai visit. WTWFI had then demanded the Monopolies & Restrictive Trade Practices (MRTP) Act be invoked as the merger foreboded the emergence of monopoly in container port service.
The CAG has also found that CCTL violated Article 3.08(A)(v) of the agreement by not informing ChPT of the life of all new equipment purchase. No clarifications have been received from DPWorld or ChPT, at the time this report was filed.

In the CAG’s Report no. 4 of 2004 (Civil): Autonomous bodies, it was revealed that the ChPT had lost Rs. 3.2 crore due to negligence in its Split coal dredging operations and had wasted Rs. 1.87 crore by availing an Asian Development Bank loan, despite the availability of adequate resources internally. The privatization of Chennai Container Terminal has cost 752 jobs. Despite the fact that the amount of Cargo handled by Indian ports has increased by 128% in the last 12 years, more than 30,000 jobs have been lost since.