BackUnion govt-owned ports set to reap a rate hike bonanza of 35%
The 12 port trusts will be allowed to seek a 15% hike on the indexed rate every year from the port tariff regulator
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Bangalore: The dozen ports controlled by the Union government, some of which are cash-strapped, will get a rate-hike bonanza of as much as 35% over existing rates for the services they provide, according to a proposal drafted by the shipping ministry.
If the new rules are finalized in their current form, exporters and importers will have to pay 35% more for sending and receiving cargo through these 12 ports, which account for about 42% of India’s external trade by sea.
The rates charged by these trusts from customers for cargo and vessel-related services are calculated on the basis of guideline framed in 2005. The shipping ministry’s move forms part of an overall plan to migrate the rate regime for existing services that are governed by the 2005 guideline to the market-linked rate regime announced on 31 July 2013 for cargo handling projects given to private firms since then or run by the government-owned port trusts themselves.
To migrate those operating under the 2005 tariff-setting guideline, the ministry has decided to have a separate rate framework for services provided by the port trusts and private investors. The 2005 guideline—due for revision after a five-year run—is applicable to both port trusts and private firms running cargo terminals at these ports.
While the new rate framework for port trusts has been drafted, the new rate-setting rules for existing private cargo handlers are yet to be worked out.
The port trusts that run the 12 harbours will have the flexibility to raise rates every year for services based on market conditions, subject to a cap, if they adhere to some performance standards, according to the proposal drafted by the Union shipping ministry. The plan mostly follows the guideline announced in July last year for new projects, with a few modifications.
According to the proposal, each of the 12 port trusts will be allowed to re-work their existing base rates for cargo and vessel-related services to the extent needed for meeting their annual revenue requirement.
The annual revenue requirement will be the average of actual expenditure for the past three years plus 16% return on capital employed that includes net fixed assets, working capital and capital work in progress.
“Based on the annual revenue requirement, each of the 12 ports will have the flexibility to adjust the existing rates subject to a maximum tariff hike of 35% and (re) draw the base rates," according to the rules drafted by the shipping ministry reviewed by Mint.
The base rate so worked out by the trusts will be fully indexed to the wholesale price index (WPI), a measure of costs, for the current year to set a reference or the ceiling rate for cargo and vessel-related services. The rate will apply for five years.
The port trusts will be allowed to charge maximum 15% more (termed a performance-linked tariff) than the indexed rate, during each subsequent year if they meet certain performance standards.
The performance parameters for the port trusts will be the annual targets set by the shipping ministry in the result framework document (RFD) for cargo and vessel-related services.
The port trusts will be allowed to seek a 15% hike on the indexed rate every year from the Tariff Authority for Major Ports (the port tariff regulator) if they meet the excellent grading mentioned in the result framework document of the shipping ministry.
Even if the port trusts don’t meet the performance criteria set out in the result framework document, they will still get a rate hike every year because the rates are 100% indexed to WPI to account for inflation.
The ports trusts have been struggling to get rate hikes from the tariff regulator mainly due to the inflexible guideline for drawing up the tariff.
The revised rate regime proposed for port trusts largely follows the tariff–setting guideline announced for new projects on 31 July except that the automatic indexation is limited to 60% of WPI in the latter.
The proposed rate framework will give flexibility to the port trusts to react to market forces and encourage them to perform better, a spokesman for Chennai port, one of the 12 owned by the Union government, said.
“This will bring parity in the tariff regulation mechanism between Union government owned ports and those owned by the state governments that are already free from any regulations on rates," said a spokesman for Kandla port, also Union government-owned.
Among the 12 ports, Kolkata, Mumbai, Mormugao and Cochin are loss-making.
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