BackCargo handlers may get to opt for market-driven pricing regime
The move gives a much-needed clarity to the government on how to move forward with the plan without courting controversy
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Bengaluru: A shipping ministry-commissioned study by a global consulting firm has suggested a roadmap to migrate existing cargo handlers to a market-driven pricing regime, giving much-needed clarity to the government on how to move forward with the plan without courting controversy.
The study by Deloitte Touche Tohmatsu India Pvt. Ltd has suggested that the most suitable option for the government would be to go for re-bidding of the projects for the market to determine suitable revenue share that can be expected from the respective projects in a deregulated scenario.
The Deloitte study comes at a time when the ministry and the port industry are discussing a potential migration of 16 existing port contracts, some operating from as far back as 1997, from a regulated set-up to a market-driven pricing regime.
First, Deloitte says migration should be optional. If the existing terminal operator opts to migrate, the existing revenue share or royalty per container or per tonne of cargo, as the case may be, paid by the private developer to the government-owned port, will be the reserve price for the re-bidding process.
All projects put to re-bid will be decided on the basis of revenue share as is currently being done.
This would require projects that are currently run on a royalty model to convert to the revenue-sharing model.
For this purpose, the net present value (NPV) of future royalties can be calculated (on the same rate as at the time of the bidding process) to determine equivalent royalty and the same can be converted to estimated revenue share by calculating equivalent royalty as percentage of average tariff for the last three years.
The existing operators of each of these terminals would be given the right of first refusal to match the highest price quotation and take the contract on fresh terms.
If the existing operator doesn’t emerge as the highest bidder or doesn’t exercise its right of first refusal to match the quote from the highest bidder, the project would have to be awarded to the highest bidder, i.e. to a new entity.
In such a case, the existing operator should be suitably compensated with a “closure payment", to be paid by the new entity, as it would be getting the benefit of assets developed by another company.
To ensure that the highest bidder doesn’t suffer any financial loss because of the existing operator exercising the right of first refusal, a pre-specific compensation should be provided by the existing cargo handler to the highest bidder, towards the estimated cost of bidding.
If the existing cargo handler chooses not to migrate, the government would need to appoint a competent authority to determine rates after the tariff regulator is wound up through an amendment to the law, Deloitte suggested.
The Indian Private Ports and Terminals Association (IPPTA), an industry lobby, declined to comment.
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