Regulator seeks change in dollar-billing policy

Regulator seeks change in dollar-billing policy
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First Published: Mon, Nov 24 2008. 12 21 AM IST

Calculating risk: Jawaharlal Nehru Port in Mumbai. Dollar-denominated tariffs account for some 75% of a port’s revenues, and are typically arrived at after factoring in possible currency fluctuations.
Calculating risk: Jawaharlal Nehru Port in Mumbai. Dollar-denominated tariffs account for some 75% of a port’s revenues, and are typically arrived at after factoring in possible currency fluctuations.
Updated: Mon, Nov 24 2008. 12 21 AM IST
Bangalore: Following the high volatility in currency exchange rates this year, the tariff regulator for India’s 12 state-owned ports has asked the shipping ministry to review a 17-year policy of billing certain port charges in dollars but collecting in rupees.
“Denominating vessel-related charges in dollar terms introduce uncertainty in tariff fixation,” said an official at the Tariff Authority for Major Ports (TAMP).
Calculating risk: Jawaharlal Nehru Port in Mumbai. Dollar-denominated tariffs account for some 75% of a port’s revenues, and are typically arrived at after factoring in possible currency fluctuations. Ashesh Shah / Mint
“Because of this, there could be a windfall profit for some ports while others could suffer seriously depending on the movement in exchange rate.”
While a change in policy would lend certainty to ports when fixing long-contract tariffs, it would reverse the tide for ships that earn revenues in dollars.
Foreign ships and Indian vessels going overseas have to pay marine charges such as port dues, berth hire and pilotage that are billed in dollars. These are recovered in rupees after conversion at market buying rates notified by State Bank of India (SBI) and other commercial banks.
However, marine charges for ships engaged only in India’s coastal trade, as well as cargo-related charges such as wharfage, crane hire, storage, warehouse, demurrage and estate rentals are denominated and collected in rupees.
Dollar-denominated tariffs account for some 75% of a port’s annual revenues, and are typically arrived at for three-year periods after factoring in possible fluctuations in foreign exchange rates. But, with the rates swinging wildly in the past 12 months, it has become difficult to forecast such variations when seeking hikes in tariffs.
The rupee closed at 50.15/16 to a dollar on Friday, a 22% drop against the greenback in 2008. The rupee had started the year at 39 against the dollar.
Some of the 12 state-owned ports, which account for about 72% of India’s external trade, have requested the regulator to denominate and collect the vessel-related charges in rupees.
“We have endorsed their stand and have asked the government to review its policy of denominating vessel-related charges in dollar terms but collected in rupees,” said the official mentioned earlier. He didn’t want to be named as TAMP has not authorized him to speak with the media on this issue.
An official with the shipping ministry said the Union government would take a decision shortly.
Ship owners are worried about the impact of a possible change in policy.
“It will be difficult to judge what our expenses will be because the earnings will be in one currency (dollars) while the expenses (such as vessel-related charges) will be in another,” said Hanoz Mistri, vice-president (chartering) at Mumbai-based bulk carrier operator Five Stars Bulk Carriers Pvt. Ltd.
If ports hike vessel-related charges half-way through a long-term shipping contract, the calculations of shipping firms would go haywire because they collect their freight charges in dollars, he said.
India had decided to denominate its vessel-related charges at ports in dollars and collect in rupees in 1991, when the local currency underwent a major devaluation. The rupee had ended the year at 25.79 against the dollar after starting at 18.12.
“The principle behind this was when India’s exporters and importers pay in dollars for shipping goods into and out of India, why should India’s ports not be benefited in dollar denomination when ships call at ports,” said an official at Kandla Port.
“But 17 years on, we have to see whether the assumptions that were taken in 1991 to denominate the vessel-related charges in dollars is relevant today or not and relooked into,” said another official at Mumbai port.
“... we lost heavily (in fiscal 2008) because the rupee was strong. This year, we have gained because the rupee is weak,” the official added.
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First Published: Mon, Nov 24 2008. 12 21 AM IST