DP World hikes tariffs at its Jawaharlal Nehru Port facility

DP World hikes tariffs at its Jawaharlal Nehru Port facility

Bangalore / Mumbai: Dubai government-owned DP World Ltd has raised tariffs at its container handling terminal at Jawaharlal Nehru Port, or JN Port, in Navi Mumbai by 10.3% from 1 October, after regulatory approval.

This ends two rate revisions by the tariff regulator in 2005 and 2006 that cut container handling charges by 25%. The new rates will apply till 30 September 2009.

The world’s fourth biggest port operator had sought a 46% hike on the Rs2,640 per TEU, or twenty-foot equivalent units, it charges customers transporting cargo containers through the Nhava Sheva International Container Terminal Pvt. Ltd. A TEU is an industry measure of container capacity.

DP World last revised the tariffs at the terminal in November 2000, when the rate was set at Rs3,480 per TEU.

From July this year, DP World has started paying a higher royalty of Rs1,542 a TEU to the Union government-owned port, accounting for 55% of its revenues.

According to the terms of the contract signed in 1999, DP World has to pay a royalty on each container handled at the terminal to port authorities. The royalty is revised in July every year according to a formula finalized at the time the contract was signed.

Accordingly, the royalty per TEU will rise to Rs1,960 in July 2009 and Rs2,086 in July 2010.

DP World had argued in a March 2008 application filed before the tariff regulator that the two downward revision in rates had “substantially and adversely affected its potential to earn a reasonable return."

“If the tariff is not increased, the only alternative will be to reduce losses by reducing volumes," it had said in the application.

Such a decision would have been disastrous for the JN Port, India’s biggest container port that handles some 60% of the boxed cargo managed at all ports in the country.

The port is currently facing an acute capacity crunch as all its three container handling facilities are operating at beyond their designed capacities. Capacity expansion will not come before 2010-11.

The DP World terminal, for instance, handles 1.47 million TEUs a year, more than double the original designed capacity of about 600,000 TEUs.

“If we handle 1.47 million TEUs, our loss in the next four years will be around Rs600 crore at existing tariff," DP World said in the application.

After studying the proposal, the tariff regulator said there was a “need to reward performance that enhances cargo volumes due to efficient use of resources."

“Tariff fixation cannot be a mere arithmetic exercise, but one which balances the interests of port users and port operators. It needs to take into account the long-term financial viability of operators so as to encourage flow of much needed private investments into the ports sector," Brahm Dutt, chairman of the Tariff Authority for Major Ports, wrote in an order dated 29 September.