Mumbai: Container ships calling at the central government-owned Tuticorin port will have to wait longer to load or unload cargo from 15 July. That’s because PSA-SICAL Terminals Ltd, the port operator has decided to reduce its cargo handling capacity in reaction to the government’s refusal to allow it to raise tariffs which it claims are among the lowest in the world.
This will mark the first time a private operator is scaling down capacity of a container terminal after India allowed private sector firms to set up cargo handling facilities at union government-owned ports in 1999. PSA-SICAL Terminals, a joint venture between PSA Corp. of Singapore and local firm SICAL Logistics Ltd, has been operating the terminal since 1999 and plans to cut cargo handling capacity by one third to 300,000 teus a year, the minimum mandated by the government.
“We have done so much for the efficiency of the Tuticorin Container Terminal, but it has the lowest tariffs in the world,” said S. R. Ramakrishnan, managing director, PSA-SICAL Terminals.
Last year, PSA-SICAL approached the tariff regulator, Tariff Authority for Major Ports (TAMP) that sets prices for cargo handling in the 12 Union government owned ports in the country asking for an increase of around 30% on the Rs2,100 it was charging users per teu. A teu (twenty-foot equivalent unit) is the standard size of a container and is a common measure of capacity in the container business.
TAMP reduced the tariff by around 54% in response. PSA-SICAL challenged this decision in the Chennai high court that stayed tariffs at Rs2,100 while it heard the case. A final decision is pending. PSA Corp operates 26 ports in 15 countries.
“The decision by the tariff regulator in September 2006 to halve the revenues of the terminal has made it commercially unviable. The much reduced revenue per teu is not able to cover the cash operating expense and the royalty payment per teu to the government,” PSA-SICAL said in a statement.
According to the terms of the operator’s agreement with the government, it will start paying a higher royalty of Rs1,010 per teu to the government starting 15 July. The current royalty is Rs780 per teu.
PSA-SICAL runs a 450,000 teu capacity terminal at Tuticorin port. PSA Corp owns a 57.5% stake in PSA-SICAL Terminals Ltd, the special purpose vehicle that owns and manages the terminal. SICAL Logistics holds 37.5% stake in the SPV while an individual investor S. Chandra Das holds the balance 5% stake. As per the agreement signed with the Tuticorin Port, PSA-SICAL Terminals is mandated to handle a minimum guaranteed throughput of only 300,000 teus a year.
Throughput is the actual amount of cargo handled while capacity refers to the maximum cargo that can be handled at a terminal. The Tuticorin container terminal handled 377,000 teus in the 12 months to March 2007.
“After careful deliberation, PSA-SICAL decided it has no choice but to right-size its operations to match its contractual commitment to the government by handling 300,000 teus a year,” PSA-SICAL’s statement said. As a result, from 15 July 2007, PSA-SICAL will be operating with only two quayside cranes as against the existing three cranes.
“Some ships will likely experience a longer port stay as a consequence,” the statement added.
An official at the shipping ministry said that the agreement signed between the two parties makes it mandatory for PSA-SICAL to operate three quay side cranes.
“PSA-SICAL cannot reduce it to two cranes. It is against the agreement,” added the official who did not wish to be identified.
PSA-SICAL and TAMP have had previous run ins. In September 2002, the tariff regulator had cut tariffs by about 15% when the operator sought a 28% increase in tariffs. PSA-SICAL had challenged the TAMP order in the Chennai high court.
In response, the high court had granted an interim stay on the TAMP order and allowed PSA-SICAL to continue levying the tariff that was prevailing prior to the TAMP order. Subsequently, PSA-SICAL withdrew its case after it signed a “memorandum of compromise” with the central government’s shipping ministry and TAMP. The terms of the compromise are not known.
Ramakrishnan asked the government to come out with a modified tariff policy that will promote efficiency and make port projects attractive to private investors. The government insists that the royalty or revenue share paid by private operators to the respective government-owned ports cannot be included as a cost for determining tariffs.
“Unviable tariffs penalise performance,” said Ganesh Raj, senior vice president and managing director, sub-continent, DP World. That is because as operations at ports become more efficient, TAMP lowers tariffs, he added , depriving operators of the benefits of the process improvement.