Why does India have a tariff regulator for only its Union government-owned 11 major ports? This question is often raised by speakers at conferences on ports, shipping and logistics.
These 11 ports located at strategic locations such as Mumbai, Chennai, Kolkata, Kochi, Mangalore, Goa, Tuticorin, Vizag, Paradip and Kandla, account for 75% of India’s overseas cargo handled at its ports.
Till a few years back, these were the only ports through which India could import raw materials and export finished goods. As a result, these ports formed a kind of cartel and squeezed exporters and importers, charging high tariffs for services that left much to be desired.
So, when New Delhi decided to invite private firms to set up cargo handling facilities at its major ports, setting up a tariff regulator became an essential prerequisite. The Major Port Trusts Act, 1963, which governed these 11 major ports, was amended in 1997 to clear the deck for a regulator, now known as the Tariff Authority for Major Ports (TAMP).
Till then, major ports set their own tariffs with the approval of ministers and bureaucrats sitting in the Union shipping ministry.
Since 1997, cargo-handling terminals run by government-owned ports themselves as well as private operators at major ports have been required to take clearance from the tariff regulator before fixing and revising tariffs, once in two-three years, for the services rendered at their berths and terminals.
The lone exception is Ennore Port in Tamil Nadu, the newest addition to the major ports club, which is India’s only corporate major port set up under the Companies Act.
But, with global economic growth in general, and India’s growth in particular, boosting demand for more goods, new ports such as the ones at Mundra and Pipavav in Gujarat have come up or are being developed elsewhere, outside the Union government control, to cater to the growing demand. These new-generation ports belong to the respective state governments. Prominent among them are Gujarat, Maharashtra, Tamil Nadu, Andhra Pradesh, Orissa, Karnataka and Kerala.
With none of the restrictions placed on them by the Major Port Trusts Act, these new ports have operational and regulatory freedom, including the freedom to set their own tariffs.
The cargo-handling capacity of India’s ports (both major ports and those owned by the state governments, but given to private firms for development and operations) has to be doubled to at least 1,500 million tonnes (mt) a year by 2012 from about 756mt now.
Most of the capacity creation is expected to come up at ports outside the Union government control that have limitations on expansion.
The 12 major ports handled 519mt of cargo in the 12 months to March, against a capacity of 528.75mt. Ports outside the Union government control handled 185.54mt of cargo in the same period, compared with a capacity of 228.31mt a year. The cargo-handling capacity of India’s non-major ports is expected to rise to 839.16mt a yearby 2012.
Thus, from a market share of zero a few years back, these non-major ports have garnered about 25% of India’s port traffic now and this is expected to rise to 40-50% in the next few years.
So, why should just one set of ports be regulated and others not? This is all the more important because 95% of India’s external trade by volume and 70% by value moves by sea.
If the purpose of a regulator such as TAMP is to protect the interests of customers and the trade, then, by the same logic, these interests are not protected at non-major ports in the absence of a regulator. This is not the case.
The shipping ministry has been resisting demands from private investors to dismantle TAMP and leave tariff setting to market forces, arguing that competition for cargo handling at major ports has not reached the desired level for this. The shipping ministry’s definition of competition is an excess capacity of 30-40%.
With more choices of ports now to pick from, this decision could be better left to the importers and exporters. Unless port operators are able to provide cost-efficient and reliable services, customers will not come. The market will pay only what it can afford to. This has been amply demonstrated by the success stories of non-major ports such as Mundra, Pipavav and Kakinada. This will also determine the success of such new ports located at Gangavaram, Krishsnapatnam, Karaikal, Puducherry, Vizhinjam, Vijaydurg, Rewas, Dighi and scores of others in Gujarat.
Also, if the intention of a tariff regulator is to protect the interests of customers and the trade, then the best bet would be to make investments as attractive as possible at both major as well as non-major ports so that it inspires confidence among private firms to invest in port infrastructure in the world’s second fastest growing major economy.
P. Manoj is Mint’s resident shipping expert and will write on issues related to shipping and logistics every other Friday.
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