Central tariff regulator: Will the idea sail this time?

Central tariff regulator: Will the idea sail this time?
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First Published: Thu, Apr 16 2009. 11 15 PM IST

Updated: Thu, Apr 16 2009. 11 15 PM IST
The Union shipping ministry’s move to bring all seaports in the country under a central regulatory authority to ensure uniform regulations and a transparent tariff structure has sparked protests by private firms that have invested thousands of crores of rupees to develop and operate these ports.
Ports in India are classified into two categories—major and non-major. Major ports are under the control of the Central government. Non-major ports, also called minor ports, are controlled by the respective state governments. Ports in India are generally governed by the Indian Ports Act, 1908. Major ports—except Ennore port—are also separately governed by the Major Port Trusts Act, 1963. Ennore, India’s first corporate major port, is governed by the Companies Act, 1956.
The Tariff Authority for Major Ports (TAMP) has the powers to set tariffs at major ports except Ennore. TAMP has no jurisdiction over non-major or private ports, which have the freedom and flexibility to set their own tariffs. The shipping ministry feels this has created a distortion in an emerging competitive market.
The ministry’s move has been dubbed by private investors as “retrogade” and “foolish”, something that will take away the unique selling proposition of ports located at Mundra, Pipavav, Hazira, Dhamra, Krishnapatnam, Gangavaram, Vizhinjam, Karaikal and many more planned to be developed by state governments with private funds. Firms running these ports currently have the flexibility to play around with the tariffs, which is not possible under a TAMP set-up.
These firms argue that there is no need for an agency such as TAMP to set tariffs in a competitive environment. TAMP was created in 1997 at a time when ports, mainly Union government-owned ports, were monopolies. Since then, several non-major ports have sprung up on India’s western and eastern coasts, creating a market situation where competition will set the prices.
Rather than have a regulator that sets port tariffs, they prefer an agency that will oversee safety, security, the environment and conservation of ports along with powers to look into tariff disputes. But the Union shipping ministry is of the view that the time has not yet come to leave port tariffs to market forces and has floated the idea of a central tariff regulatory body for all ports, both major and non-major, to aid better port development and protect users.
Such a move would require the support of the maritime states that have sold some of their ports to private investors, attracting them with the flexibility to set tariffs.
The shipping ministry also proposes to give more teeth to TAMP to enforce its own tariff orders, which it currently lacks. Ironically, the plan comes at a time when the Congress-led UPA government has diluted the role of TAMP under a new tariff setting mechanism for cargo handling projects at major ports.
The new rules finalized in 2008 require tariffs to be in place before bids are invited for new cargo handling projects. Under this approach, upfront tariffs will be worked out on the basis of some defined criteria and assumptions on capital costs and operating expenses that are unrelated to actual costs. The upfront tariff guidelines say the tariffs once set would remain valid for the entire duration of the contract. The tariffs, though, would rise automatically every year, to account for rising prices because it is linked to the Wholesale Price Index to the extent of 60%.
This was done to ensure that TAMP had no role to play in revising tariffs, which is done once in three years for terminals covered under earlier rules. The demand to let market forces decide tariffs came after TAMP had turned down operators’ plea to increase rates in many cases.
TAMP is also without a full-time chairman after the last chairman completed his five-year term in October 2007. The secretary in charge of road transport and highways is officiating as TAMP chairman.
The shipping ministry’s plan for a central tariff regulator would require a major overhaul of India’s port legislation. A similar attempt a decade ago failed because the states refused to play ball. It remains to be seen whether it will pass this time.
P. Manoj is Mint’s resident shipping expert and writes on issues related to shipping and logistics every other Friday. Respond to this column at allaboveboard@livemint.com
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First Published: Thu, Apr 16 2009. 11 15 PM IST