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Business News/ Opinion / India’s port tariff reforms gather speed
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India’s port tariff reforms gather speed

The shipping ministry has laid the framework for a post-TAMP scenario rather than wait for Parliament to first pass the amendment to undertake this task

The stage is set for fairer competition between central government-owned ports and private ports. The investment climate at central government-owned ports will get a boost. Photo: MintPremium
The stage is set for fairer competition between central government-owned ports and private ports. The investment climate at central government-owned ports will get a boost. Photo: Mint

Efforts to reform tariff-setting practices at the 13 ports owned by the Indian government have gathered speed. Two key developments in the last fortnight bear this out. First, India’s attorney general, the government’s chief legal advisor, agreed with a shipping ministry plan to move private cargo handlers operating under a tariff guideline framed in 2005 to a new market-linked tariff regime announced in July 2013 for new projects.

Secondly, the government issued policy guidelines to set rates for services provided by the government-owned port trusts, which had thus far been governed by the 2005 guidelines.

These two developments are significant in many ways. But, more importantly, it shows how the shipping ministry has moved smartly to dilute the role of the Tariff Authority for Major Ports (TAMP), the port tariff regulator, even while it braces to introduce an amendment to the Major Ports Trusts Act in Parliament to transform TAMP from being a rate setter to a performance monitoring and grievance redressing authority.

The ministry has laid the framework for a post-TAMP scenario rather than wait for Parliament to first pass the amendment to undertake this task.

TAMP has drawn flak from port trusts and private firms running cargo handling facilities at these ports for different reasons. While private firms say that TAMP penalized them for being efficient (by reducing rates) for handling cargo in excess of the levels assessed to set the rates, port trusts said that the rate setting guidelines of TAMP were inflexible.

Of course, the old private cargo handlers will have to wait till the cabinet signs off on the proposal to move to the new rate regime. But, with the attorney general offering favourable legal advice, this now looks a foregone conclusion.

The planned migration of the old cargo handlers and the new tariff setting policy for services provided by port trusts seeks to achieve a single objective—to bring all those operating under different rate regimes under a common platform.

In effect, rate setting will move from a cost-plus method to a normative cost-based system wherein tariffs are worked out on the basis of certain defined criteria and assumptions on capital costs and operating expenses that are unrelated to actual costs.

Under the 2005 guideline, tariffs were set by TAMP after the cargo facility was constructed, usually by adding 16% to the actual costs. In future, TAMP will first notify a port-wise, upfront reference or ceiling rate for various commodities/services rendered by a private firm.

The upfront rate so set would remain valid for the entire duration of the 30-year contract. The tariffs, though, would increase every year, to account for rising prices because they are indexed to the Wholesale Price Index (WPI), a measure of costs, to the extent of 60%.

Over and above this, private 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 if they meet the performance standards prescribed by the regulator in the previous year.

The port trusts, on the other hand, will be allowed to re-work their rates for different services to the extent needed for meeting their annual revenue requirement (ARR).

The port trusts will have the flexibility to determine rates to respond to market forces on its commercial judgement within the ceiling of ARR.

While resetting the rates, the port trusts will have to ensure that there will not be any loss of traffic. The responsibility of ensuring this would rest with the chairmen of the port trusts.

The rates so set by the trusts will be valid for three years and automatically fully indexed to WPI every year. However, the annual indexation of rates to WPI will be linked to achievement of performance standards committed by the port trusts. If a port trust does not fulfil the performance standard, no indexation would be allowed during the subsequent year.

With this procedure in place, the role of TAMP will be limited to scrutinizing and setting the upfront ceiling rates. The procedure will take care of the subsequent rate revisions.

There are compelling reasons for the ministry to fast-track tariff reforms at its ports. That the rate-setting freedom has played a big role in the success of ports is borne out by the growing market share of harbours owned by the state governments that are given to private firms for development and operations in the past decade.

From virtual monopolies till the late 1990’s, the market share of ports owned by the central government has dropped to 58%, while the share of the other set of ports has risen to 42%.

“Non-major ports (owned by the states) have expanded rapidly and now have a substantial presence which accounts for about 42% of the cargo share (of India’s external trade shipped by sea route). Further, there is no parity in the regulatory mechanism between the major port trusts and the non-major ports. Whilst tariffs of major port trusts are regulated following cost plus return approach, non-major ports are not covered by any tariff regulation. A need is, therefore, felt to give flexibility to the major port trusts to react to the market forces and also to encourage them for better performance," a spokesman for the shipping ministry said.

The port trusts will have to exercise their new-found flexibility judiciously to improve productivity/efficiency and competitiveness to attract more cargo. It’s a fact that rates at new generation private ports are higher than the public ports. Yet, shipping lines patronize these ports because they don’t have to wait for berths and they provide higher productivity in loading and unloading cargo. That’s the trade-off.

Port trusts cannot afford to have higher rates with the existing performance and productivity standards. The new tariff setting policy for port trusts will weed out inefficiencies by putting a limit on the management and general administration overheads and one-time expenses like wage arrears, gratuity/pension arrears, ex-gratia payments arising out of wage revision and contribution to pension fund while calculating the ARR.

The stage is set for fairer competition between central government-owned ports and private ports. The investment climate at central government-owned ports will get a boost.

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Published: 06 Feb 2015, 12:38 AM IST
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