MUMBAI: The Centre is set to revise the port privatization policy. Confirming the development, Planning Commission member Anwarul Hoda told Mint, “For all new cargo handling projects coming up at major ports, the government will first fix the tariff and then invite bids.”
The existing policy requires the terminal operator to share its annual gross revenues with the government. The bidder quoting the highest revenue share per centage gets the deal. The tariffs for the services provided at the terminal are fixed subsequently with the approval of the Tariff Authority for Major Ports. While the revenue sharing system will continue, under the new policy, the tariff will be decided first.
The tariffs are currently calculated by adding 15% extra to the actual cost. The amount paid by a private entity to the government, as part of the arrangement, is not included in the cost while fixing the tariff. This is impacting the revenues of private operators such as DP World, Maersk and PSA.
The government plans to modernise and upgrade cargo handling terminals at major ports with an investment of Rs50,000 crore through private investments.
Hoda dubbed this system as “flawed”. “We should have something else,” he said. The Planning Commission, which is acting as the secretariat for the prime minister’s committee on infrastructure , had two options before it. One is to fix the tariffs and then invite the bids on the basis of revenue share or fix the revenue share first and invite the bids on the basis of tariffs for the service provided by the private entity.
“Our current thinking is proceeding in the direction of first fixing the tariffs and to invite bids on the basis of revenue share,”Hoda said.
The commission had initially planned to consider average of all tariffs at a port as a bench mark for fixing tariff. It also considered fixing tariff on an ad-hoc basis by averaging out the tariffs of all ports located on the coast-line where the project was planned.
“We later realised it was prudent to develop norms for fixing the tariff. The earlier plan was difficult to implement since the tariffs varied from port to port and terminal to terminal,”, Hoda stated.
The government, he said, would have to find a way to develop the norms for fixing the tariffs. The ministry of shipping has been asked to start work in this direction, he said. Under the normative approach, tariffs are worked out on the basis of certain criteria and assumptions which have no relation to actual costs.
Tariff Authority chairman A.L. Bongirwar said fixing tariffs on normative basis was a good model. However, evolving a proper scientific approach to develop the norms would be a difficult task. “The normative method of fixing tariffs would set the benchmark. Apart from reducing costs, it will improve service efficiency and better productivity,” he said.
D.T. Joseph, former secretary to the shipping ministry said the normative method of tariff fixation would remove the inefficiencies inherent in the functioning of major ports.