BackWill next govt bite the bullet on Rakesh Mohan panel’s recipe for port reforms?
The panel has gone much beyond mere corporatization and its recipe is a game changer for ports owned by the Indian government
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Rakesh Mohan, a former deputy governor of India’s central bank, is considered an expert on infrastructure. He has authored many reports that helped change the paradigm of India’s infrastructure.
It comes as no surprise then that he has brought out another report recently, which, if and when accepted and implemented, would fix the problems afflicting ports owned by the Indian government and help attract greater private capital.
The Rakesh Mohan panel was tasked by the Indian government in 2010 to prepare a Transport Development Policy. Its report titled India Transport Report: Moving India to 2032 is a herculean effort.
Ports in India, essentially the major ports or those owned by the Indian government and run as trusts, widely follow a hybrid format of the long obsolete service port model and the preferred landlord model of port management followed globally. This has resulted in a conflict of interest between the port trusts and the private sector, with the former acting both as port regulators and providers of commercial services in many instances.
In the service port model, the port authority owns the land and all available assets—fixed and mobile—and performs all regulatory and port functions. Here, the port trust is both the landlord and the terminal operator.
While the service port model in India was consistent with a centralized economy, it does not fit well in a market-oriented economy.
In the landlord port model, the publicly governed port authority acts as a regulatory body and as landlord while private companies carry out port operations—mainly cargo handling activities. Here, the port authority maintains ownership of the port while the infrastructure is leased to private companies that provide and maintain their own superstructure and install their own equipment.
Currently, most of the major port trusts in India carry out terminal operations as well, resulting in a hybrid model of port governance.
According to the Rakesh Mohan panel report, there is an immediate need to make appropriate legislative and policy changes to expedite the move to a full-fledged landlord model and to transform the port trusts into statutory landlord port authorities.
The next logical step under the landlord port model is to unbundle the terminal operations of the port trusts and corporatize them as public sector corporations, the panel wrote in the report.
Then, both private and corporatized public sector terminal operators would compete under the aegis of the landlord port authority.
This arrangement is critical because the involvement of the port authorities in terminal operations leads to a conflict of interest and works against objectivity. The neutrality of the landlord port authority is a basic requirement for fair competition between port service providers, particularly the terminal operators, both public and private.
The role of the landlord port authority would be to carry out all public sector services and operations such as the award of bids for container and other terminals and dredging.
The corporatized public sector terminal operators could potentially be disinvested, listed on the stock exchange and possibly privatized at a later stage.
On pricing of port services, which is another key issue, the panel has suggested that tariff setting should be left to market forces.
Only in cases of inadequate competition or serious market imperfections may some pricing control be required. Accordingly, the Tariff Authority for Major Ports (TAMP), the port tariff regulator, should be restructured under a new Major Ports Authority Act and allowed to regulate tariff setting on a normative basis (without any relation to the actual cost of the projects) till such time that it is found essential for lack of competition.
TAMP could also act as the appellate tribunal for all tariff related matters where the rates are set by the service providers themselves based on market conditions. TAMP should naturally cease to exist with time as port operations become competitive and tariff regulation is no more required.
Tariff regulation by exception rather than by rule should be the operating principle and the role of TAMP should be transformed to limiting abuses of competition and applicable to all commercial ports in the country.
Another key government priority, according to the panel, should be to set up 4-6 mega ports over the next 20 years as part of a national strategy for the ports sector.
These mega ports can be established either by transforming some of the existing major or non-major ports (those owned by India’s federal states) into mega ports, by combining some major and non-major ports or by setting up totally new mega ports. While other large economies have a few mega ports—Shanghai and Shenzhen in China, Los Angeles and New York in US, Hamburg and Bremen in Germany—India has none.
Inadequate depth has always been a bane of India’s ports, entailing extra time and costs for India’s exporters and importers as cargo originating from and bound for India is routed through trans-shipment ports such as Singapore and Colombo. The depth at major ports should be deepened to 17 metres by 2020 to help dock larger vessels and the investment for this has to come from the government.
The proposed mega ports with a depth of 17 metres can accommodate larger ships resulting in a reduction of up to 40% of transport costs. In addition, mega ports provide very significant economies of scale for advanced handling equipment which can dramatically reduce turnaround time of vessels, another aspect where India’s ports are woefully short of global standards.
The combination of strategic decisions on investment in mega ports and movement to a landlord port system would help accelerate the investment in and modernization of Indian ports, the report concluded.
The next government that comes to power in India after the April-May polls should show the necessary resolve to push through with the recommendations, which involve a strategic institutional shift because the concept of port corporatization has always been resisted by the workers’ unions and, hence, seen as politically sensitive. The panel, in fact, has gone much beyond mere corporatization and its recipe is a game changer for ports owned by the Indian government.
P. Manoj looks at trends in the shipping industry.
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