BackExisting major port projects to benefit from policy change
Existing major port projects to benefit from policy change
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Mumbai: The government’s plan to change the bidding criteria for all upcoming private cargo handling terminal projects at state-run major ports is also likely to benefit existing projects. These include container handling facilities run by global port operators such as the Dubai government-owned DP World, which runs container terminals at Mumbai’s Jawaharlal Nehru port and Chennai, Cochin and Visakhaptanam ports; APM Terminals, which operates a terminal at Jawaharlal Nehru port and the Singapore government-run PSA Corporation, which operates a terminal at Tuticorin. The projects were hit by a policy guideline issued by the ministry of shipping on 29 July 2003.
The guideline ruled that royalty or revenue share paid by the private operators to the respective port trusts where the terminal was operating will not be allowed as a cost item while computing tariffs.
The existing port privatization policy requires the terminal operator to share annual gross revenues with the government. The bidder quoting the highest revenue share percentage gets the deal.
The tariffs for the services provided at the terminal are fixed subsequently with the approval of the ports regulator. The tariffs are currently fixed by adding 15% to the actual costs. Since the royalty and revenue sharing amounts paid by a private entity to the government, as part of the contract terms, are not included in the cost while fixing the tariff, it has impacted the revenues of private operators.
Besides, the tariff regulator had cut the terminal tariffs at Jawaharlal Nehru port and Tuticorin port when DP World and PSA-SICAL, the respective terminal operators, had sought a hike in tariffs in the past.
The private operators had claimed that they were losing money because of the policy guideline as well as the regulators’ decision to cut tariffs when they had sought a raise.
These operators had then approached the Planning Commission under the banner of the Indian Private Port Terminal Operators Association with proposals to change the bidding criteria as well as alter the method of fixing terminal tariffs to make the sector attractive to private investments.
The Anwarul Hoda panel, which was set up by the Prime Minister’s committee on infrastructure to refine the port privatization policy, had acknowledged that the existing system was “flawed".
It has suggested that the government should first fix the tariffs on the basis of normative approach and then invite bids on the basis of revenue share to award contracts for all new cargo handling projects at major ports.
Following the recommendation, the ministry of shipping has asked the National Institute of Port Management to prepare a report that will set out the norms for fixing tariffs. Under the normative approach, tariffs are worked out on the basis of certain criteria and assumptions that have no relation to the actual costs.
The new bidding criteria and system of fixing tariffs will be incorporated in the revised model concession agreement for major port projects.
The government plans to modernize and upgrade cargo handling terminals at major ports with an investment of Rs50,000 crore through private investments over the next five years.
While the government was keen on making all new port projects attractive to private investors, it would also find a solution to the problems facing the existing projects.
“The grey areas in existing projects will also be rectified when tariffs are fixed on the basis of normative method. This will take care of issues such as royalty/revenue share. But this will be done only at the time of the next revision in tariffs of these projects after the new policy is implemented," said an official at the ministry of shipping who did not want to be named.
“Any improvement in the system should flow to all terminals, both new as well as existing ones," said Ganesh Raj, senior vice-president and managing director, sub-continent, DP World.
Raj said that the tariffs so fixed should provide flexibility to the operator to recover costs. “If the tariffs fixed upfront does not give us sufficient flexibility, we will be back to square one," he said.
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