Port policy must foster free, fair competition

Port policy must foster free, fair competition

A policy, introduced in 2007, to shortlist a maximum of six firms in a tender was challenged in the courts by affected parties, delaying the finalization of several contracts and the government’s plan to boost cargo-handling capacity at the 12 ports.

Even after qualifying on financial and technical parameters, several groups found themselves excluded from the financial bidding stage. This was because bidders were ranked on the basis of experience and the top six made it to the final list. This rule made way for global construction majors to enter the final round of auction, leaving specialist port operators ineligible for the contract.

The short-lived experiment with the six-bidder rule has proved to be costly for the government, setting back the process of boosting port capacity by at least three years.

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In fact the shipping ministry recently admitted that the port capacity addition projected for the 11th Plan period (2007-12) will fall short of the target by about 40%.

The Union government plans to double the cargo handling capacity of the 12 ports to 1016 mt by 2012 from 574.77 mt now as economic growth strains existing facilities.

The additional 442 mt capacity will require an investment of close to Rs55,804 crore out of which Rs36,868 crore will come from the private sector.

Despite India’s reasonable impressive economic growth, the flow of funds into the ports sector has been tardy.

Capacity expansion projects at the Union government owned ports have attracted only $3.21 billion in investments since the beginning of the 11th Plan period, less than a quarter of the $22 billion anticipated during this period, according to the Associated Chambers of Commerce and Industry (Assocham), an industry lobby.

The slippage in target has been attributed by the ministry mainly to a delay in awarding public-private partnership (PPP) projects in the first two years of the Plan period (from 2007 to 2009).

The removal of the cap on the number of bidders is thus expected to make the auction process smoother, faster and promote greater competition between bidding groups.

After removing a rule that virtually stalled the capacity expansion plans for three years, the shipping ministry is now focusing on another potential area of concern—the emergence of a private monopoly while developing cargo-handling facilities with private funds.

A few days ago, the ministry issued draft policy guidelines to check the private monopoly in ports owned by the Union government.

According to the draft policy, if there is only one private terminal operator in a union government port for handling a specific type of cargo, it will not be allowed to bid for the next terminal/berth for the same cargo in the same port.

Secondly, an existing private operator in a port will be allowed to bid for the next project, only if, with the award of the project, it does not have more than two projects for handling the same cargo at the port or at any port within a radius of 100km.

This means, if a firm operates a facility for a particular cargo at a Union government-owned port and another at a port owned by a state government located within a 100km radius, it cannot bid for additional projects for the same cargo at the former.

The proposed policy is similar to the one that is followed today by the 12 ports while auctioning cargo-handling projects. The only difference is the added caveat of a 100km radius in the new policy.

Also, the ministry has decided to issue the new policy under section 111 of the Major Port Trusts Act to give it legal backing. The existing policy has been challenged in courts by private firms claiming it was an administrative decision and not law.

The policy is targeted more at container terminal operators. Container terminals are the most sought after segment of cargo handling at India’s ports. The share of Indian goods shipped in steel containers is still below the global average and hence a lucrative area of business because of the growth potential.

Today, two of the world’s top four container port operators handle more than 50% of cargo containers shipped through India’s ports. They cannot be faulted for this. These firms have won contracts through open, global competitive bidding process. Moreover, the terms of the agreement are set by the government and the tariff is regulated by the Tariff Authority for Major Ports. Government policies should promote free and fair competition.