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New tariffs cleared by regulator based on ‘hypothetical project’

New tariffs cleared by regulator based on ‘hypothetical project’
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First Published: Sun, Mar 29 2009. 09 54 PM IST

Policy blues: Jawaharlal Nehru Port near Mumbai is in the process of developing a 330m container terminal and another facility in 2-3 years. Ashesh Shah / Mint
Policy blues: Jawaharlal Nehru Port near Mumbai is in the process of developing a 330m container terminal and another facility in 2-3 years. Ashesh Shah / Mint
Updated: Sun, Mar 29 2009. 09 54 PM IST
Bangalore: Applying new rules to fix tariffs for a new container terminal at India’s busiest port has thrown up a rather peculiar issue.
The Tariff Authority for Major Ports (TAMP) recently cleared a proposal by Jawaharlal Nehru (JN) Port to set tariffs for a small container terminal, ahead of inviting bids for the project.
But some people familiar with the development say the Rs3,434 tariff cleared by the regulator for handling a loaded standard container at the new terminal is based on a “non-existent/hypothetical project”.
Under the new rules framed by the Union government last year for fixing tariffs at the 11 state-owned ports, handling charges have to be set generally for the port as a whole on a normative basis and not with reference to a specific project.
Policy blues: Jawaharlal Nehru Port near Mumbai is in the process of developing a 330m container terminal and another facility in 2-3 years. Ashesh Shah / Mint
Under the normative approach, tariffs will be worked out on the basis of certain defined criteria and assumptions on capital costs and operating expenses that are unrelated to actual costs.
JN Port near Mumbai is in the process of developing a 330m container terminal, its fourth, and another facility with a berth length of 2,000m in the next two-three years. The new Rs600 crore terminal will be able to handle 600,000 standard containers a year.
“State-run ports are expected to propose upfront tariffs for projects to enable the bidders to formulate their price quotations,” said an executive at ABG Infralogistics Ltd. “A port cannot just propose upfront tariff for some dream project and apply them to projects for which they have floated tenders.”
The executive, asking not to be named, said the capacity, capital expenditure and operating cost estimates should be re-worked and the upfront tariff be set “in respect of the new terminal having a berth length of 330m”. “Our analysis shows that the tariff should be around Rs2,078 for handling a loaded standard container.”
Another executive at Essar Shipping, Ports and Logistics Ltd said, “The basis for calculation of costs and tariffs for both the terminals would be significantly different, and it is not correct to replicate the tariff workings of a 1,000m terminal project for the 330m terminal project.”
The port privatization policy followed so far required the winning terminal operator to share annual gross revenues with the government-run port. The bidder quoting the highest revenue share percentage would get the contract.
The tariffs were fixed subsequently with the approval of the regulator. These tariffs were fixed by adding 16% to the actual costs.
The new upfront tariff guidelines say the charges once set would apply to all terminals that are bid out in the same port over the next five years for handling identical commodity or providing similar services.
In line with the new rules, JN Port had approached TAMP to set tariffs for the new terminals on the basis of a representative container terminal with a berth length of 1,000m.
“Using the parameters and costs of any of the two terminals for setting tariffs for the next five years would carry an inherent bias towards one of the projects,” a JN Port official said, defending its stand. “Hence, a representative container terminal at JN Port is being taken to set upfront tariffs, which shall apply to all projects bid out subsequently in the next five years.” The official, on condition of anonymity, said the port was merely following the new rules.
“The representative container terminal captures all the essential features and requirements of any container terminal to be developed at the port, and the unit cost of various items of expenditure considered will not significantly vary between projects,” he added.
Prospective bidders disagree with the port on this issue. For one, the lease period for the 330m terminal is 18 years compared with 30 years for typical port contracts. Moreover, the two terminals are different in terms of construction cost, size and design.
“A single tariff for all terminals within a port is not feasible as project-specific parameters differ for different terminals (executed during the course of five years) based on construction cost, price fluctuations in the major cost determinants such as steel, cement, currency fluctuations, technology levels and associated costs,” said an executive at APM Terminals Management BV, the container terminal operating unit of Danish shipping and oil conglomerate AP Moller-Maersk AS.
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First Published: Sun, Mar 29 2009. 09 54 PM IST