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Govt may intervene in tiff over port tariff

Govt may intervene in tiff over port tariff
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First Published: Sun, Jun 27 2010. 09 51 PM IST
Updated: Sun, Jun 27 2010. 09 51 PM IST
Mumbai: The government may intervene in a tiff between port operators and the tariff regulator to ensure smooth export and import of cargo at major ports.
The shipping ministry is reviewing a directive of the Tariff Authority for Major Ports (TAMP) asking the terminal operator of the Port Jawaharlal Nehru Trust (JNPT) to reduce tariffs by 10% from April.
Gateway Terminals India Pvt. Ltd, the country’s largest container terminal operator, had asked the tariff regulator to increase rates by 2% on the back of capacity additions and increased volumes.
“The government is planning to review TAMP guidelines to see that efficiency of a terminal or higher investments to increase capacity is not penalized,” shipping secretary K. Mohandas said, declining to say when the review would be done.
“Lowering tariff rates is unfair. Increasing volumes at our terminal not only helps us but also benefits Indian trade,” Gateway chief executive Arvind Bhatnagar said.
After TAMP asked Gateway to pare rates, the operator has been apparently going slow in conducting business. At least three representatives of large international shipping lines said on condition of anonymity that Gateway has asked them to reduce additional volumes at the terminal.
“The terminal has asked us to bring down the additional volumes,” said a senior executive at a large international shipping line that uses Gateway’s services. “But I can’t blame Gateway on this issue as TAMP is penalising the terminal for its productivity.”
According to industry experts, any slowdown in cargo movement through ports will have an adverse impact on the reviving economy and will trigger cargo backlog at ports as JN port is already seeing containers destined to inland container depots (ICDs) piling up.
A go-slow at any terminal during the monsoon, typically a time of brisk business, would have a domino effect down the supply chain.
Bhatnagar denied any slowing and said his company would stick to agreed upon volumes with clients “to optimize berth capacity and render good customer service”.
Gateway is a 50:50 joint venture between Container Corp. of India Ltd, and APM Terminals Management B.V., the port division of A.P. Moller-Maersk Group.
Designed to handle 1.8 million standard containers a year, current volumes suggest Gateway could end up handling at least two million containers.
A TAMP official said the tariff regulator fixes rates at a terminal “based on the policy directives set by the Indian government”. He declined to be named. A tariff rate, he explained, is determined on the basis of cost plus 15% return of the capital employed. The royalty paid by a terminal to the port and finance costs are excluded.
Currently, Gateway shares 35.50% of its revenue with state-owned JN port, India’s busiest container port located near Mumbai.
Gateway, however, is facing resistance from within the trade, with industry lobby group Indian Merchants’ Chamber (IMC) contesting its logic for increased tariffs.
According to the licence agreement, Gateway had projected the capacity at 1.3 million standard containers for 2009 through 2011, whereas it has already handled more than 1.3 million as early as 2009, or the third year of its operations, IMC said in response to TAMP’s consultation paper in March ahead of the tariff reduction.
“In the light of huge volumes being handled by the concerned terminal, instead of the tariffs being reduced, the terminal operator seeks an upward revision. Since Gateway has already been compensated by huge volumes being handled, it would be appropriate that TAMP either retains the existing tariff, or in all fairness and taking into account the present scenario and conditions, reduce tariff by more than 40%,” IMC said.
Investors in the logistics business see TAMP’s move as a punishment for good behaviour.
“Ideally Gateway should be reaping the benefits of efficiency,” said Vishal Sharma, managing director and chief executive at Tuscan Ventures Pvt Ltd, a Mumbai-based venture capital firm that focuses on the logistics sector. “Instead, the tariffs have been struck down.”
“Broadly, the current structure of the tariff setting reduces the charges that the newly privatized major ports can levy as the volume goes up in order to maintain a target internal rate of return at around 15%,” he said.
“This inherently reduces the incentive for the operator to produce more efficiently as he does not get the benefit of efficient operations,” Sharma said, adding that at a time when India needs more investment in infrastructure, such pricing structures would not help.
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First Published: Sun, Jun 27 2010. 09 51 PM IST