HC stay on rate cuts at JN port terminals

HC stay on rate cuts at JN port terminals

Bangalore: Two private container terminals run separately by DP World Pvt. Ltd and APM Terminals Management BV at Jawaharlal Nehru (JN) port have secured a so-called ad-interim stay from the Mumbai high court on rate cuts ordered by India’s port tariff regulator in February and March.

The two terminals had filed petitions in the Mumbai high court seeking to stay the rate reductions.

Gateway is one of the two private terminals operating at JN port, India’s busiest container gateway.

Nhava Sheva International Container Terminal Pvt. Ltd (NSICT), the facility run by Dubai’s DP World Ltd at JN port, also confirmed that the court has granted an interim stay on the rate reduction ordered by the Tariff Authority for Major Ports (TAMP).

On 8 February, TAMP had notified a rate cut of 44.3% at the facility run by Gateway Terminals after the firm sought a rate increase of 8.72%. On 1 March, TAMP notified a rate cut of 27.9% at NSICT when the firm sought a 30% raise.

JN port, located near Mumbai, loaded 4.32 million standard containers, or 55.6% of India’s container cargo shipped through the 12 ports controlled by the Union government in the year to March 2012.

Out of this, Gateway Terminals loaded 1.89 million standard containers while NSICT handled 1.4 million standard containers.

“It’s (the stay) a good start," said a spokesperson for NSICT. “It’s definitely a relief."

The two petitions will come up for hearing again on 6 August.

The stay by the Mumbai high court came just a day before NSICT’s royalty was due for annual revision, according to the terms of the contract signed with the state-owned port in 1997.

The earliest container terminal privatization contracts, such as the one followed for NSICT, was based on the royalty model. The terminal operator, in this case, had to pay a certain royalty specified in the contract on each container handled at the terminal to the government-owned port.

NSICT was earning 2,505 on each standard container handled at the terminal. But, after the rate cut, it could charge customers only 1,808 per container.

From 3 July, NSICT is contractually mandated to pay a royalty of 2,361 on each container handled at its facility to JN port, according to the contract terms. Prior to 3 July, the royalty was 2,218 per container.

The Union government-owned ports have since switched to the revenue-share model for port privatization contracts, including the one for Gateway Terminals. Under this, the bidder willing to share the most from its annual revenue with the government-owned port wins the contract.

Gateway Terminals is contractually mandated to share 35.5% of its annual revenue with JN port.

The two private terminals at JN port had filed individual petitions against the rate cuts in the Delhi high court, but they were dismissed by the court on 23 March on jurisdictional grounds—the cases were filed in Delhi whereas the terminals are located in Mumbai.

The operators then approached the Supreme Court with special leave petitions that were not admitted by the court on 10 May.

Meanwhile, The Energy and Resources Institute (Teri), which was mandated by the Union shipping ministry to frame new tariff-setting norms, which are to be followed by TAMP to set rates for port services, submitted its report to the ministry in March. The existing tariff-setting guidelines framed in 2005 are due for revision after a five-year run.

“We want the government to ratify the new guidelines at the earliest," said Lal.

The Indian Private Ports and Terminals Association (Ippta), a private port industry lobby, wants the government to take a “re-look" at the approach used by Teri in recommending the new norms for setting tariff.

Teri has recommended that the optimal capacity of a container terminal be determined as the higher of the optimal quay (berth) capacity and optimal stack yard capacity. Ippta wants the optimal terminal capacity to be determined as the lower of the two capacities.

“Capacity is a factor that determines tariffs," said Lal.

The flaw with the 2005 guidelines is that it penalizes efficiency, he said. “What this means is that the more containers a terminal handles at its facility, the greater will be the tariff cut. In other words, should the terminal or port operators chose to do less, they will be rewarded through tariff increases by TAMP, as per the 2005 guidelines," Lal said.

The existing guidelines allow only 50% of the efficiency gains (revenue) arising from handling volumes in excess of the projected levels to be retained by the terminal operator and the balance 50% is passed on to the users by reducing terminal tariffs.