Mumbai: Thursday’s approval by the Union cabinet to a new type of agreement between companies wishing to set up cargo handling terminals and the ports, where these will be set up, will speed up the process of finalization of several of these projects at the 12 major ports owned by the government.
The resulting increase in cargo handling capacity will meet growing demand to ship in and out raw material and finished products to and from the world’s second fastest growing major economy.
The so-called model concession agreement sets out the terms and conditions to be followed by the private firm (or consortium of firms) operating the cargo terminal. Such an agreement is signed between the private operator selected through a competitive bidding process and the government-owned port where the cargo terminal will be based.
Rate revision: Tariffs will be based on estimated capital, operating costs of building and operating a terminal. (Photo: Ashesh Shah/Mint)
The cabinet’s nod should accelerate the bidding process for several cargo handling terminals such as the proposed coal and iron ore berths at Paradip Port, the liquid and bulk terminals at Visakhapatnam port, the multipurpose berths at Kandla port, and new container terminals at the Tuticorin, Ennore and Jawaharlal Nehru ports.
“The time frame for finalizing contracts will be reduced as there will be less discussions on the concession agreement,” said Kshitiz Bhasker, head, business development at Gammon Infrastructure Projects Ltd, which is bidding for the coal and iron ore berths at Paradip Port.
The Union shipping ministry will also shortly notify new guidelines for setting tariffs at cargo handling berths and terminals run by private entities as well as the terms for bidding for such projects.
These projects have been delayed pending the finalization of the new concession agreement and the new tariff setting guidelines.
The new concession agreement cleared by the cabinet includes, for the first time, performance standards to be followed by the private firm operating the terminal, said a ministry official, who did not wish to be identified.
The agreement provides for penalizing the private firm if it falls short of the set performance standards. “The performance standards will be monitored and the private operator will have to pay damages if he fails to meet the standards specified in the agreement. This will go a long way in protecting the interests of the port users,” the official said.
The new tariff setting norms, being notified by the ministry, provide for automatic revision of rates by private firms by around 3% every year. This is because the rates will be linked to the Wholesale Price Index, a measure of inflation, to the extent of 60%. India’s average inflation rate has been hovering in the region of 5%.
Under the new plan, tariffs will be fixed initially by the Tariff Authority for Major Ports on the basis of an estimate of capital and operating costs of building and operating a cargo handling terminal of a particular capacity, rather than on a cost-plus model, as is the practice, after winning bids are chosen. The tariff will also factor in a 16% return on capital employed.
The authority is the tariff regulator for the 12 government-owned major ports in the country. The tariff thus fixed will be included in the bid documents. Winning bids will be selected on the basis of the proportion of the revenue bidders are willing to share with the port where the terminal is being set up.
The 12 ports, at present, have the capacity to handle 508 million tonnes (mt) of cargo a year. These ports handled 464mt of cargo in the year through March 2007, accounting for 70% of the 649mt of cargo handled by all Indian ports.
The government plans to modernize and upgrade cargo handling terminals at the 12 major ports with an investment of over Rs50,000 crore through private funds to add around 500mt a year of capacity by 2012.