How Patenga terminal operation slips out of Ctg Port’s hand

The Patenga Container Terminal (PCT), built with Tk1,230 crore from the Chittagong Port Authority (CPA)'s own fund, was supposed to add half-a-million twenty-foot equivalent units (TEU) to the prime seaport's container handling capacity.

Since the terminal was built more than two years back, its foreign operator Red Sea Gateway Terminal International (RSGTI), could utilise less than 8% of the terminal's capacity due to lack of equipment, yielding much less return on investment for the port and depriving users the desired services.

Port authority earns a fraction

The port authorities earn just $18 for each container handled – a mere fraction of $80-$90 currently charged at Chittagong Port's other terminals. It makes one wonder why Chittagong Port rushed to rope in a foreign operator while it had all the funds and equipment to run Patenga terminal itself.

The Saudi Arabia-based operator, which took six months to start only partial operation, could handle an average of 178 TEUs a day against the Patenga terminal's capacity to handle 1,369 TEUs daily, according to the operator's four-month performance statement since it started operation in June this year.

AL "influential" tipped the balance

This is something that some port authority officials had warned long before the "equip, operate and maintain" contract was signed with RSGTI in December 2023 under public-private partnership arrangement.

Engaging a foreign operator for the ready-to-use terminal would mean a straight Tk1,000 crore in lost revenue for the port and lost opportunities for users for roughly two years' delay anticipated until the foreign firm would be able to start full-scale operation, according to a brief prepared by the port authorities.

The warnings were ignored, the port's chairman was changed and the deal was signed accordingly as an "influential quarter" within the then Awami League government was allegedly hell-bent to get it done, as suggested by official documents and remarks of former top port officials.

The Patenga Container Terminal at Chattogram port. File Photo: Mohammad Minhaj Uddin/TBS

Gaining without much spending?

Port users attribute the PCT's poor show to a lack of adequate investment and equipment by the operator as it needs two years to be fully equipped.

The PCT cannot handle non-geared vessels as the operator does not have equipment like a crane to unload containers from ships. It does not even have a scanner, so they cannot handle imported goods.

As per customs rules, all containers laden with 38 specific imported items must be scanned or physically examined before sending them to inland container depots. Manually examining all import consignments is almost impossible, port users said, explaining why PCT's operation is only limited to handling a few export containers.

Khairul Alam Sujan, vice president of the Bangladesh Freight Forwarders Association, said, "The investor RSGTI does not have a scanner so they cannot handle import goods. Even after nine months of signing an agreement they could not go on full operation.

"The port would benefit by operating it, we businessmen would benefit from it. Now we are not getting any benefits," he said.

Officials say RSGTI was to invest Tk1,500 crore, 70% of it by taking loans. It has already sought loans from various entities including Infrastructure Development Company Ltd.

The terminal's operation was handed over to the Saudi company for only Tk220 crore as an upfront concession fee, which is only 9% of CPA's total investment in the Patenga terminal, which would amount to Tk2,500 crore if land value and development cost are added to jetty construction costs.

According to former CPA chairman M Shahjahan and two other CPA officials who wished to be anonymous, RSGTI is benefiting without significant upfront investment. They claimed the company is using earnings from the PCT to purchase equipment.

However, in response to a TBS email to Erwin Haaze, CEO of RSGT Bangladesh, their communication department said, "RSGT has invested a substantial $40 million [around Tk480 crore] in Bangladesh. Over the next two years, we plan to invest an additional $170 million to further modernise terminal equipment and infrastructure."

Fazle Ekram Chowdhury, president of the Berth Operators Association, told TBS that if the port authorities had managed the terminal itself, either through a local or foreign operator instead of leasing it to a foreign company, the port's capacity would have increased, and a significant amount of foreign currency would have stayed in the country.

He also called for the interim government to review the agreement and take appropriate action.

The way PCT slips out of CPA's hand

On 31 July 2019, the shipping ministry signed an MoU with Red Sea Gateway Terminal Company Limited of Saudi Arabia, intending the contract to be under Public Private Partnership (PPP) model on a G2G (government-to-government) basis.

However, the final agreement was signed with RSGTI, a company registered in the UK on 7 June 2022.

PPP projects are typically intended for "greenfield" sites, where no infrastructure exists. In contrast, the PCT was constructed at a "greyfield" site, where the CPA had already completed the terminal's construction.  

"We are unfortunate that we have signed a deal with RSGTI for operating PCT after building all the infrastructure. We signed an MoU with RSGT, not RSGTI. How did RSGTI come into the picture?"

Former CPA member (admin and planning) Zafar Alam

Soon after completion of the construction work in July 2022, the CPA was gearing up to commence commercial operation of the Patenga terminal with its own resources. A successful trial operation with berthing a rice-laden vessel from Myanmar in November that year followed by handling of another ship in January next year was a testimony of the country's prime seaport's capability of operating the terminal on its own.

But the then Awami League government decided to engage a foreign operator for Patenga terminal and finally handed its operation over to RSGTI for 22 years in December last year.

The deal came as a surprise for the port authority that had aired its concerns against the move and questioned its rationale long before the deal was signed.

The port authority then said it was able to manage the Patenga terminal all by itself and earn Tk1.6 crore every day in foreign currency, reaching Tk546 crore in a year just by handling containers at the terminal's three berths.

Roughly Tk460 crore would be required to buy some equipment which could be recovered from the terminal's income only in a year, the port authority had said in a brief prepared for the shipping ministry.  

If such a deal with a foreign operator was inevitable, it could be like the one of berth operators already engaged by the port who use the port's equipment and share revenues from container handling, it suggested.

Rear Admiral M Shajahan, the port authority's chairman at that time, in a letter (seen by The Business Standard) to the then prime minister Sheikh Hasina on 5 April 2023 mentioned the potential damage such a deal could cause to the port and the country.

Shahjahan was replaced within a week by Rear Admiral Mohammad Sohail, who was the port chairman when the RSGTI deal was finalised in December last year.

Deal signed under influence?

Officials who were involved in the process started speaking out since the regime change on 5 August, though many were still unwilling to be quoted. Even a former Bangladeshi staff of the IFC, the transaction adviser for the port authority, said in a social media post on 12 August that she "was ousted from the agency's South Asian team" for raising voice against the deal that she thought would undermine the country's interests.   

Talking to The Business Standard this week, Shahjahan said the terminal's full operations were delayed by two years due to the "influence" of former prime minister's private sector adviser Salman F Rahman and former state minister for shipping Khalid Mahmud Chowdhury to hand it over to the foreign company.

"We were under extreme undue pressure to expedite the process anyhow and compromise the quality of the due diligence"

Sumaya Mahmud, a former IFC official who was directly involved in drafting the agreement

Another former port official also spoke out.

"We are unfortunate that we have signed a deal with RSGTI for operating PCT after building all the infrastructure. We signed an MoU with RSGT, not RSGTI. How did RSGTI come into the picture?" said former CPA member (admin and planning) Zafar Alam, who served the port for eight years and was involved in signing the MoU.

Lost revenues

Some CPA officials allege the lease agreement for the PCT has sacrificed the country's interests by providing excessive benefits to the Saudi company.

For example, the CPA currently earns $80-$90 per TEU container handled at the port terminal, while it pays berth and terminal operators $8-$10. However, at the PCT, RSGTI will pay the CPA only $18 per TEU.

Additionally, the CPA would only receive this $18 for the first 2.5 lakh TEUs handled annually, even though the terminal has the capacity to handle five lakh TEUs. For any additional TEUs beyond this limit, the CPA would receive only half of the per TEU tariff.

Besides, the CPA would receive only 30% of the revenue surplus, while RSGTI would receive 70%.

"Our tariff structure is strictly regulated by the published rates of the CPA tariff book. While the specifics of the concession agreement remain confidential, we can assure you that its terms adhere to global industry standards," the company explained in an email reply.

"These terms encompass upfront payments, fixed monthly payments, monthly royalty fees, minimum volume guarantees, key performance indicators with associated penalties, and revenue sharing," it said.

IFC's conflict of interest

The World Bank's private sector lending arm IFC was set to invest in PSA Singapore to develop the Bay Terminal Project of the CPA spending over $1.5 billion.

PSA Singapore will secure the fund from the IFC, said two former CPA chairmen Mohammad Sohail and M Shahjan in several media events.

When the PPP Authority intended to appoint the IFC as a transaction adviser to structure the business model for the PCT and formulate the concession agreement with RSGT, the CPA opposed the decision as the entity which will formulate the guideline is also an investor, according to Shahjahan.

He said since the PCT serves as the benchmark concession agreement for the CPA, the terms and conditions established in this agreement will be referenced for future projects, such as the Bay Terminal and the Matarbari Deep Sea Terminal Project.

Whistleblower's alarm

Sumaya Mahmud, a former IFC official who served as an investment analyst in the agency's South Asia team between June 2022 and April 2023, and was directly involved in drafting the agreement, has recently raised several allegations, including claims that the agreement undermined the country's interests while favouring RSGTI.

"We were under extreme undue pressure to expedite the process anyhow and compromise the quality of the due diligence," she wrote in an elaborate social media post on 12 August.

Talking to TBS later, Sumaya claimed to have reported this to senior IFC officials but was forced to resign and removed from the treaty-making process.

Steven K Shalita, Director of Communication and Outreach at IFC, responded to an email from TBS regarding Sumaya's allegations.

In his response, Steven stated that IFC assisted the Chittagong Port in drafting agreements aimed at attracting foreign investment through revenue-sharing, while ensuring transparency and accountability in line with international standards in the port sector.

He also emphasised that the IFC takes complaints from both former and current officials seriously and adheres to strict internal policies to ensure a fair resolution of such matters.

CPA defends the deal

A letter was sent to the CPA's current chairman Rear Admiral SM Moniruzzaman on 8 September, seeking clarification on various issues related to the contract, but the organisation initially declined to provide a written response due to contract obligation.

However, on 30 September CPA Secretary Mohammad Omar Faruk, in a message, told TBS that the contract did not harm the interests of the CPA or the country.

"The contract permits nearly all controls of CPA, including tariff rates, security, and Marine services which put it in a financially advantageous position as the landowner," the port official said.

Regardless of how many containers the Saudi company handles, the CPA will receive a tariff based on at least 2.5 lakh TEUs, the CPA secretary said.

The port hopes to earn a handsome amount of money over 22 years without any further investment. "The port will receive at least 4/5 times of their investment from RSGTI over the contract period solely from tariff shares. Moreover, Bangladeshi officers and employees will operate the terminal which will ensure huge income of foreign currency," the official added.

Moreover, it has an impact on the diplomatic relationship between Saudi Arabia and Bangladesh. By technology sharing, it will enhance the competitiveness of CPA with the modern ports of the world, the CPA secretary said.