The decision of PSA International to limit its container handling at Tuticorin port after its case for raising tariffs was rejected will hopefully focus attention on the fact that while port sector regulation does too little in some areas, it gets into micro-management in others.
The Tariff Authority for Major Ports (TAMP), which regulates tariffs in the country’s 12 major ports, does not have its own Act, being created by a few clauses in the Major Port Trusts Act. Unlike other infrastructure regulators which also look at broader issues such as service quality and market development, TAMP’s role is basically limited to prescribing tariff rates. Even here, it seems trapped in ambiguity.
The question in the Tuticorin case is, how did TAMP arrive at the rate that is currently under judicial appeal? Because the concessionaire’s decision to limit container handling implies that this rate does not cover even the marginal costs—in other words, each container handled increases the loss.
Ironically, as far as port tariff regulation is concerned, it gets too intrusive. TAMP determines a variety of rates, e.g., charges for moving a container from yard to ship, for trans-shipping from one ship to another, for moving a container without taking it off the ship, and also visitor entry passes! To add to this confusion, concessionaires insist that detailed cost data is commercially confidential, an odd argument under a system of detailed cost-plus regulation, where there should be no secrets between the regulated entity and the regulator. But in this, TAMP seems toothless.
The Tuticorin case gets further complicated by the fact that under a “memorandum of compromise” for resolving an earlier dispute, various adjustments are needed to neutralize any advantage the concessionaire may have enjoyed in the interim. So, the points of contention can be many, but, three of them seem to be critical in this instance.
First, current policy states that the royalty paid to government can’t be treated as an expense, unless the concessionaire is making a loss and in that event, the expense allowed is limited to that proposed by the second highest bidder. This begins to explain the concessionaire’s decision, since, in Tuticorin, the royalty is measured per Twenty foot Equivalent (teu) container— reducing the number of boxes reduces its expenditure.
Second, guidelines say that efficiency gains, which the concessionaire shares, be calculated with respect to a terminal’s own past performance. Apparently, this is because a working group failed to reach a consensus on common efficiency norms across ports. So, a more efficient terminal benefits less than other terminals, whose improvement, given their low base, is more. Despite being acknowledged as among the more efficient operators in India, most of PSA Internationals’ efficiency-related revenue claims were excluded!
Third, there are guidelines for cost increases which need to be based on general inflation and apply even where non-controllable costs, such as power, rise by much more. Coupled with the operator’s refusal to share cost details, this ensured that many of its expenditure increases were disallowed.
In all of this, the government seems to more culpable than the regulator, who is hamstrung by shoddy guidelines and does not seem to have the power to compel concessionaires to provide information. The latter may well be gaming the regulator and using hardball tactics, but the regulatory structure does not inspire confidence. No wonder a large user such as Posco chooses to set up its own port rather than be subject to TAMP oversight. It is time that the government improves the regulatory framework and remedies the lack of competition oversight, which has led to a situation where almost all key container ports have only a single operator. Else, Tuticorin will be the first of many disappointments.
Is port regulation inspiring investor confidence? Write to us at firstname.lastname@example.org