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Business News/ Companies / News/  Attorney general’s opinion sought on new tariff for old cargo handlers
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Attorney general’s opinion sought on new tariff for old cargo handlers

Shipping ministry has sought the opinion of the attorney general on migrating old cargo handlers to a new market-linked rate regime

The shipping ministry has been discussing the migration terms with the private terminal operators for many months without reaching a conclusion. Photo: AFPPremium
The shipping ministry has been discussing the migration terms with the private terminal operators for many months without reaching a conclusion. Photo: AFP

Bengaluru: The shipping ministry has sought the opinion of the attorney general on migrating old cargo handlers to a new market-linked rate regime announced in July 2013 for new projects. A critical issue in this exercise is how to deal with the surplus earned by these terminal operators that’s 2,000 crore more than what is permitted.

Some 16 cargo-handling facilities run by private firms including global entities such as DP World Ltd, APM Terminals Management BV and PSA International Pte Ltd are governed by tariff-setting guidelines framed by the ministry in 2005.

The government framed fresh tariff-setting norms in July 2013 for projects bid out since that date. This has led to demand from old private cargo handling firms to migrate to the new regime to create a level-playing field.

The ministry has been discussing the migration terms with the private terminal operators for many months without reaching a conclusion.

The biggest impediment in this plan is the court cases filed separately by seven private terminals, some of which dates back to 2007, seeking to overturn the rate cuts ordered by the port tariff regulator—the Tariff Authority for Major Ports or TAMP—for their respective terminals.

While courts in their respective jurisdictions have stayed the rate cuts, the cases are yet to be settled/decided.

“We want to hear from the attorney general whether the migration is legally and contractually tenable," a spokesman for the ministry said.

In their petitions seeking to stay the rate cuts, the terminal operators have even questioned the shipping ministry’s powers to issue tariff setting guidelines in 2005 under Section 111 of the Major Ports Trusts Act followed by the regulator to work out the rates, citing a conflict of interest.

Under the 2005 guideline, tariffs were set by TAMP after the cargo facility was constructed, usually by adding 16% to the actual costs.

The validity of the cost-plus tariff setting guideline framed in 2005 ended in 2010 after a five-year run but has been continually extended since then and are valid till 31 December 2014.

Cargo handlers say that there are several flaws in the 2005 guideline that penalize them for efficiency (handling more than the projected volumes).

According to the new rate regime announced in July 2013, TAMP will first notify a port-wise reference or ceiling rate for various commodities.

Cargo handlers will be allowed to charge a maximum 15% more (termed a performance-linked tariff) than the indexed reference or ceiling rate during each year of a 30-year contract.

This will, however, depend upon cargo handlers meeting certain performance standards prescribed by the regulator in the previous year.

The old cargo handlers have proposed a three-point formula to re-calculate the surplus and facilitate migration. These include permission to retain up to 20% of the surplus earned from handling more than the projected cargo volumes during a tariff cycle of three years.

Currently, 50% of the surplus is allowed to be retained by the operator while the balance 50% is passed on to the users in the form of reduced cargo handling rates.

The cargo handlers also want the full contractually-mandated royalty paid by them to the landlord port every year as pass-through while setting rates. According to the 2005 tariff guidelines, royalty is allowed as an item of cost but only to the extent quoted by the second highest bidder in the auction process.

Thirdly, the old cargo handlers want the surplus to be re-calculated based on the discounts given by them to the shipping lines and not on the rates set by the tariff regulator.

Each terminal operator has also submitted a letter to the shipping ministry giving an undertaking to withdraw the court cases if the surplus was re-calculated by adopting the formula, the ministry spokesman said.

The ministry will take a proposal to the cabinet based on the opinion of the attorney general, he added.

“It is a workable proposition," said a port industry executive. “The past issues have to be sorted out in a bid to migrate to the new regime. Without such a policy support, fresh investments will not come," he added.

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Published: 24 Nov 2014, 12:41 AM IST
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