Review role and need of port tariff regulator: Kelkar panel

The panel endorsed private cargo terminal operators’ demand to migrate to a new tariff-setting regime, but asked the govt to frame the terms for such a shift


The private terminal operators are not in favour of putting their facilities up for a re-bid. Photo: Bloomberg
The private terminal operators are not in favour of putting their facilities up for a re-bid. Photo: Bloomberg

Bengaluru: The government must review the role and need of the Tariff Authority for Major Ports (TAMP), the rate regulator for 11 of the 12 ports owned by the Union government, according to an expert panel set up by the government to revisit and revitalize the public-private-partnership model in infrastructure.

The nine-member panel led by Vijay Kelkar, chairman of the New Delhi-based National Institute of Public Finance and Policy, endorsed private cargo terminal operators’ demand to migrate to a new tariff-setting regime, but asked the government to frame the terms for such a shift.

“The methodology and guidelines adopted for determining the ceiling tariff has been revised periodically by the Tariff Authority for Major Ports (TAMP) in 1998, 2005, 2008 and 2013. Frequent revisions have resulted in multiple business frameworks for similar nature of projects, depending on the period of their concession, which has led to concerns of developers who are evaluating and bidding for projects all the time. It is suggested that a path for moving from pre-TAMP to current TAMP method be provided,” the committee wrote in its report submitted to the government in November.

The report was put up on the finance ministry’s website on Monday.

The Kelkar panel’s suggestion comes when the shipping ministry and the port industry are discussing a potential migration of some 16 existing port contracts (10 of them private)—some operating from as far back as 1997—from a regulated set-up to a market-driven pricing regime announced in 2013 for projects put to bid since then.

On an average, the existing contracts have about 12 years or more left till the end of their term of 30 years.

A shipping ministry-mandated study by Deloitte Touche Tohmatsu India Pvt. Ltd has recommended modalities for migration, including setting a reserve price for re-bidding, the terms for granting the right of first refusal to the existing cargo handler and closure payment if a new entity wins the right to run the facility.

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, according to the study by the consultancy firm.

This is in line with the shipping ministry’s view that the existing cargo handlers should share the higher revenue earned from migration to a deregulated regime as it will get the freedom to set rates. This right can be construed as a change in the initial bidding terms leading to a financial benefit for the existing operator, according to the ministry.

The private terminal operators, though, are not in favour of putting their facilities up for a re-bid.

To be sure, this is not the first time that an expert panel has suggested a review of the role of and need for TAMP to put the ports owned by the union government on par with those owned by state governments, which already have the freedom to set rates based on market forces.

A decision on this issue has been delayed due to conflicting stands taken by stakeholders.

The shipping ministry also lacked clarity on the process for winding down TAMP.

The Kelkar panel has favoured reorienting the model concession agreement (MCA) by adopting best practices including models followed in some minor ports (as in Gujarat) in terms of stipulating specified cargo handling capacity and qualitative parameters of facilities. A concession agreement sets out the terms of a port contract.

The concession agreement may also make the public authority responsible for providing support infrastructure facilities (including land, reliable access to utilities, dredging, rail and road evacuation infrastructure) through enforceable obligations.

It has also underlined the need for clarity regarding assessment of stamp duty on concession agreements in the ports sector. Currently, there is considerable ambiguity and uncertainty on whether the concession agreement is to be treated as an agreement, lease or licence.

In 2012, one of India’s biggest port tenders at Jawaharlal Nehru Port collapsed after the successful bidder declined to sign the concession agreement, saying it will not bear the stamp duty for registering the agreement.