Bangalore / Mumbai: As part of a so-called “review and revise" exercise of its method for setting tariffs for cargo handling terminals at the 11 ports that fall under its purview, India’s Tariff Authority for Major Ports (TAMP), the tariff regulator, has called a meeting of stakeholders in Delhi on Wednesday.

Revising rules: Containers at Jawaharlal Nehru Port in Navi Mumbai. Terminal operators have in the past argued that the tariff regulator did not recognize improvements in efficiency while revising tariffs. Ashesh Shah / Mint

The plan is to shift from the existing “cost-plus" method for tariff setting to a “normative cost" approach. Under the new approach, tariffs will be worked out on the basis of defined criteria and assumptions on capital costs and operating expenses that are unrelated to actual costs. The review will also focus on rewarding terminal operators for efficiency improvements and reworking the rules on return on net assets.

“Any efforts to rectify the problems we are facing in relation to tariffs in the existing facilities will always help," said Ganesh Raj, senior vice-president and managing director (Indian subcontinent) at the Dubai government-owned DP World. Terminal operators have in the past argued that the tariff regulator did not adequately recognize efficiency improvements while revising tariffs.

The port privatization policy that was followed until February this year required the terminal operator, selected through a competitive bidding process, to share annual gross revenues with the government. The bidder quoting the highest revenue sharing percentage was awarded the contract. The tariffs for the services provided at the terminal were subsequently fixed with the approval of TAMP, usually by adding 16% to the actual costs.

Under the new policy, tariffs will be fixed by factoring 16% return on invested capital, ahead of inviting bids for new cargo handling projects, with the contract going to the bidder quoting the highest revenue share. The government has set norms for different operations and cost components for calculating tariffs on a normative basis.

A shift to a new way of setting tariffs will benefit private players, who account for a major chunk of the container cargo handled at India’s government-owned ports, and have in the past taken the tariff regulator to court for reducing tariffs at their facilities when they had asked for a raise.

“Given the number of operators, the quantum of investment and the sensitiveness involved, the review will be made initially with reference to the existing container terminal tariff, and the revised approach may be suitably extended to other areas," says a discussion paper prepared by TAMP for the Wednesday meeting. The discussion paper also concedes that the efficiency parameters now considered for revising tariffs were “restricted in its application to cost reduction alone".

“Providing cushion for cost reduction may not always reward the whole range of efficiency, particularly the volume increase beyond capacity levels," it says.

The discussion paper for the meeting says that one way to reward volume efficiency could be to determine tariff with reference to standard capacity as against the existing practice of recognizing the actual traffic achieved or achievable. Some operators have demanded that they be allowed to retain the higher returns earned from handling volumes more than the standard capacity.