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Regulator adopts new model for fixing tariffs at major ports

Regulator adopts new model for fixing tariffs at major ports
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First Published: Fri, Jan 16 2009. 10 39 PM IST

 Boosting revenues: The regulator said its revised approach will allow DP World Ltd to raise cargo handling rates by 18% at its container terminal in Jawaharlal Nehru Port, the country’s busiest port.
Boosting revenues: The regulator said its revised approach will allow DP World Ltd to raise cargo handling rates by 18% at its container terminal in Jawaharlal Nehru Port, the country’s busiest port.
Updated: Fri, Jan 16 2009. 10 39 PM IST
Bangalore: Private terminal operators at state-owned ports can now set cargo handling rates based on standard capacity of their facilities rather than on actual volumes handled, after the tariff regulator for India’s 12 government-owned ports confirmed a new model for fixing the rates.
Boosting revenues: The regulator said its revised approach will allow DP World Ltd to raise cargo handling rates by 18% at its container terminal in Jawaharlal Nehru Port, the country’s busiest port. Ashesh Shah / Mint
The new approach, effective immediately, will be applied in tariff revision cases at all container terminals operated by private firms at state-owned ports, said an official with the Tariff Authority for Major Ports, or TAMP.
In an order notified on 13 January, the tariff authority said it has firmed up a revised approach that will allow DP World Ltd to raise cargo handling rates by 18% at its container terminal in Jawaharlal Nehru Port, the country’s busiest port.
The regulator had earlier allowed the DP World-run Nhava Sheva International Container Terminal Ltd (NSICT) to temporarily raise rates by 10.3% from 1 October based on the standard capacity and efficiency of the terminal, as stated in an order notified on 29 September.
“The new approach will reduce the tariff impact on port users,” the tariff authority’s official said on condition of anonymity because he’s not authorized by the regulator to speak to the media. “It also encourages an efficient terminal operator to handle higher volumes to improve his returns. The additional revenues thus earned could be used to meet the annual revenue share payouts to the government.”
The new model, however, will apply only to terminals that have improved efficiency in marketing and operations, or have invested more capital to be able to handle containers in excess of their designed capacity. In a discussion paper circulated among stakeholders, the regulator admitted the previous efficiency parameters for revising tariffs were “restricted in its application to cost reduction alone”.
“Providing cushion for cost reduction may not always reward the whole range of efficiencies, particularly the volume increase beyond capacity levels,” the regulator had said.
Operators including DP World, the world’s fourth-biggest port operator, had asked for fixing tariff with reference to standard capacity and not based on actual traffic so that the benefits of volume efficiencies would be available to them.
The NSICT terminal, for instance, handles 1.47 million standard containers a year, more than double the original designed capacity of about 600,000 containers.
Yet, between 2005 and 2006, the regulator cut rates at NSICT cumulatively by 25%. Last month, it cut rates at the Tuticorin container terminal by 34%. Under the previous cost-plus model, the tariffs were fixed by adding 15% to the actual costs.
DP World and PSA International Pte Ltd, which runs a terminal at Tuticorin port, have argued that their facilities were hit by a policy issued by the ministry of shipping on 29 July 2003, much after they started operations.
The policy ruled that royalty or revenue share paid by private terminal operators to the port trusts would not be allowed as a cost item while computing tariffs.
The ministry had issued this policy after it found that private firms were quoting steep revenue share to the government to win projects and then recovered the same from port users. This resulted in high container handling rates for port users.
The port privatization policy requires the terminal operator to share annual gross revenues with the government. The bidder quoting the highest revenue share percentage gets the deal. Since the royalty or revenue share paid by a private entity to the government is not included in the cost while fixing the tariff, these entities had argued that it was making their operations commercially unviable.
After private operators represented that they were losing money because of the policy, the shipping ministry issued another guideline to the regulator to allow the annual revenue paid by them to the government as a cost item for fixing tariffs.
This, however, came with a rider. To avoid likely loss to the operator, the ministry said the extent of passthrough of revenue share into tariffs would be limited to the maximum quoted by the second highest bidder in the tendering process.
By adopting the standard capacity model, the regulator hopes to progressively phase out even the benefit of partial passthrough of royalty or revenue share in computing tariffs available to terminal operators, and free the port users from this burden.
For instance, as per the ministry’s directive, NSICT is entitled to claim 69.5% of the annual revenues it pays the Jawaharlal Nehru Port as part of the contract, as a cost item while setting tariffs. “But with the new model, this percentage is reduced to about 46%,” the authority official said.
For port projects finalized after July 2003, the annual revenue paid by the private operators to ports are not considered for setting tariffs.
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First Published: Fri, Jan 16 2009. 10 39 PM IST