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New pvt operator at Ennore Port won’t have freedom to fix tariffs

New pvt operator at Ennore Port won’t have freedom to fix tariffs
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First Published: Fri, Jan 25 2008. 11 49 PM IST
Updated: Fri, Jan 25 2008. 11 49 PM IST
Mumbai: The private firm that will win the deal to develop a new Rs1,300 crore container cargo handling terminal planned at the government-owned major port at Ennore in Tamil Nadu will not have the freedom to fix tariffs, though the port is not regulated by the Tariff Authority for Major Ports, or TAMP.
The port has decided to fix tariffs upfront in accordance with the soon-to-be-issued guidelines on regulating tariffs at major ports before inviting price bids from shortlisted bidders .
This marks a deviation from the existing practice. Ennore Port Ltd was set up as a corporate port under the Companies Act, 1956, and hence, is not regulated by the tariff regulator for major ports.
In comparison, all other 12 government-owned major ports are governed by TAMP because they operate as trusts under the Major Port Trusts Act, 1963. TAMP was created in 1997 by amending the Major Port Trusts Act when the Union government opened the ports sector to private investments.
Since starting operations in 2001, Ennore Port has awarded rights to set up terminals for handling cargo such as coal, iron ore and liquid cargo, and the private firms selected by the port have had the freedom to fix tariffs for the services provided at these terminals.
“In the case of the proposed container terminal project, the successful private operator will not have the freedom to set tariffs,” said A. Rajagopalan, director (operations), Ennore Port. “The move is aimed at protecting users from high rates charged by the terminal operator,” he added.
Container handling rates in India vary from port to port and between different terminals of the same port. For instance, Jawaharlal Nehru Port (JNP) has three container terminals, run by separate entities, offering different rates.
The decision to set tariffs before inviting price bids is part of the new tariff guidelines. However, this was supposed to be applicable to all upcoming projects aimed at boosting cargo handling capacity at the 12 government-owned major ports, excluding Ennore.
However, the Planning Commission, which is acting as the secretariat for the Prime Minister’s committee on infrastructure, has asked Ennore Port to bring the planned container terminal project also under the new rule because it would be implemented as a public-private partnership (PPP) project.
Currently, tariffs for cargo handling services at major ports, excluding Ennore, are fixed by the private operators with the approval of TAMP on a cost-plus-model after winning the deal.
Under the new plan, tariffs will be fixed upfront by TAMP. For this purpose, the tariff regulator will follow a cost-based approach that recognizes capital and operating costs estimated on certain norms. It will also include a 16% return on capital. The tariffs will be linked to the wholesale price index, a measure of inflation, to the extent of 60%. This will provide for automatic revision of rates every year to account for rising costs.
“For the Ennore container terminal project, the upfront tariff will be set by the port-owning company itself because we are not regulated by TAMP,” Rajagopalan said.
The upfront tariff thus fixed will be included in the bid documents.
Winning bids, under the new plan, will be selected according to those willing to share the highest proportion of annual gross revenues with the port where the cargo handling terminal is being set up.
Rajagopalan said Ennore Port will float tenders in the next few days for the 1.5 million 20-foot equivalent unit (teu) capacity a year terminal, which will augment cargo handling capacity of the port by 18 million tonnes a year.
A teu is the standard size of a container and is a common measure of capacity in the container business.
Indian ports are adding capacities to meet the rising demand for handling cargo in the world’s second fastest growing economy. The 12 major ports handled 5.43 million teu in the 12 months to March 2007.
The container traffic at major ports is estimated to grow to 11.7 million teu by 2011-12, according to the Union shipping ministry.
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First Published: Fri, Jan 25 2008. 11 49 PM IST