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Tuesday, January 21, 2014
Plan to bring port operators under single tariff regime unlikely to take off
With IPPTA primarily seeking migration of those operating under the 2005 guideline to the new tariff regime, other IPPTA members such as Sesa Sterlite Ltd, Essar Ports Ltd, IMC Ltd and ABG Infralogistics Ltd operating under the 2008 guideline, are demanding that they be allowed to operate under the new rules as well.Mumbai/Bangalore, January 21, 2014.: The government’s plan to bring all port operators under a single tariff regime is unlikely to take off in the near future as at least half a dozen port companies are contesting various tariff-related issues in courts across the country.
Even so, the government is trying to restructure existing and unviable port projects to try and send the right signal to domestic and international investors in the maritime sector.
Foreign port companies, including DP World Pvt. Ltd and Gateway Terminals India Pvt. Ltd, are among those entangled in litigation on the issue of port tariffs.
Port contracts at Union government-controlled ports are governed by two sets of tariff guidelines, framed in 2005 and 2008, respectively.
The ministry announced a new tariff regime, allowing some flexibility to operators to raise rates once a year based on performance benchmarks to draw in more private investment.
The regime, however, was applicable only for projects where bids were called for after 1 August.
While flexibility has been provided to new projects, making changes to existing guidelines could take time, shipping secretary Vishwapati Trivedi said in an interview last week. “The old guidelines need to be re-looked. I cannot give you a timeline because there are several legal and contractual issues,” he said. “There are legal issues spread out in five to six high courts. We have to coalesce these cases together. I am working on it.”
Increased investment in ports is critical as India’s major harbours play a key role in facilitating overseas trade, which accounts for 40% of the country’s gross domestic product.
Port operators argue that delaying clarity on tariff guidelines will push back investments and urge the government to proceed with the planned changes despite the legal tussles.
“There are several legal proceedings progressing against telecommunication companies in India. But that does not stop Indian government from making necessary changes in the current policy framework,” an executive from an international port company said, requesting anonymity.
Under the 2005 guideline, tariffs were set by the Tariff Authority for Major Ports (TAMP) after the cargo facility was constructed, usually by adding 16% to the actual costs. The tariff set by TAMP on a cost-plus basis is generally revised every three years. The validity of this guideline, under which 14 cargo terminals operate, ended in 2010 after a five-year run, but have been continuously extended.
This model was changed in 2008, following which rates were set on a normative basis (factoring 16% return on capital) ahead of calling price bids for new cargo handling projects. The bidder willing to share the most from its annual revenue with the government-owned port was awarded the contract.
The upfront rate so set would remain valid for the entire duration of the 30-year contract. The tariffs, though, would increase every year, to account for rising prices because they were indexed to the Wholesale Price Index (WPI) to the extent of 60%. Three cargo projects operate under this model.
According to the new rate regime announced in August, TAMP will first notify a port-wise reference or ceiling rate for various commodities. These will typically be the highest prevailing rate set on the basis of the 2008 guideline for handling a particular commodity in a port.
While adopting the highest tariff, the base rate set under the 2008 tariff guideline will be escalated to the extent of 60% of WPI, a measure of costs, per year, to determine the ceiling tariff for a new project. The tariff so notified will be applicable for five years.
Cargo handlers will be allowed to charge a maximum 15% more (termed a performance-linked tariff) than the indexed reference or ceiling rate during each year of a 30-year contract.
This will, however, depend upon them meeting certain performance standards prescribed by the regulator in the previous year.
“Most of the private terminals operating under the tariff regime of 2005 and 2008 are under heavy losses. Though the government has reiterated that these ports would be migrated to new regime, nothing has happened so far,” said another private port executive, requesting anonymity. “No new foreign investors will come to India without addressing existing port operators.”
In a letter dated 26 December, Indian Private Ports and Terminals Association (IPPTA), an industry lobby group, wrote to the shipping secretary requesting that existing port operators be allowed to migrate to the new tariff regime to help improve the financial viability of private terminal operators.
With IPPTA primarily seeking migration of those operating under the 2005 guideline to the new tariff regime, other IPPTA members such as Sesa Sterlite Ltd, Essar Ports Ltd, IMC Ltd and ABG Infralogistics Ltd operating under the 2008 guideline, are demanding that they be allowed to operate under the new rules as well.
“We told the shipping ministry that 2005 cannot be allowed to migrate on a stand-alone basis. Everybody should be allowed to migrate,” said an executive with a cargo handling firm operating under the 2008 tariff guideline.
The shipping secretary said last week that his ministry is looking into the issue, but declined to give a time frame on resolving the matter.
Trivedi said the government has started restructuring existing port projects that have been lying idle and have become unviable, to lure investors.
“We restructure the projects immediately. For instance, Chennai port’s iron ore project, we know that iron ore is not going to come in the very near future. So we have restructured the project and the board (of the port) has taken a decision to handle car exports at that piece of land instead of iron ore. We restructure the projects to suit the market,” Trivedi said.
Following two failed attempts, the Chennai port has also decided to drop its plan to develop a mega container terminal and is now planning to develop a multi-purpose terminal to handle different types of commodities.
Trivedi said during 2013-14, his ministry had planned to augment port capacity by 220 million tonnes per annum through 30 port projects.
“Out of these, 20 port projects with a capacity of approximately 100 million tonnes have already been approved. The remaining port projects, including the ambitious Rs.8,000 crore Jawaharlal Nehru port’s fourth container terminal, are likely to be approved during the fourth quarter of the current fiscal,” he said.