BackEnnore port get its act together as a corporate entity
Management tells prospective bidders for a container-loading facility that it will not follow govt norms to set rates for cargo services
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Ennore Port Ltd, the state-owned entity that runs Ennore port in Tamil Nadu, has finally freed itself from the grip of operational uncertainty and ambiguity. Last week, the port management informed prospective bidders for a container-loading facility that it will not follow federal shipping ministry guidelines to set rates for cargo services.
In the first place, Ennore is not required to follow these rules that were announced on 31 July because it is the only port among the 13 owned by the Indian government that is run as a company. The rest are run as trusts under a law framed about four decades ago.
Ennore port was established as a firm under the companies law when it was opened in 2001. In the initial few years of operations, Ennore being a firm and outside the scope of the trusts set-up, was free to fix its own rates. This was precisely the reason why the then National Democratic Alliance (NDA) government led by the Bharatiya Janata Party (BJP) chose to set it up as a firm.
It was also the time when India vigorously pursued converting the 12 ports into firms from a trustee set-up to derive benefits, including independent tariff-setting, faster decision-making, increased accountability of management, commercial orientation and professionalism.
However, from 2008, for inexplicable reasons, Ennore started following the earlier norms on tariff-setting that was in force for the other 12 ports. The only possible reason given for this was that all ports owned by the government had to follow the public-private partnership (PPP) model for port development and so, by default, the rules for tariff-setting applied to Ennore as well.
Ennore, though, did not get its rates set by the Tariff Authority for Major Ports (TAMP) for a container terminal that was awarded to a Spanish-led group because the tariff regulator dealt only with ports that are run as trusts. So, Ennore got its rates set by another entity, of course by following the same principles for tariff-fixing as the other 12 ports. This introduced an element of back-door regulation for the port that was formed with the sole intent of reaping the benefits of being a firm.
The container terminal awarded to the Spanish consortium did not come up and had to be scrapped because of the difficulties faced by the group in arranging funds for the project due to the global recession. An inflexible tariff framework also contributed to the collapse of the project.
In the process of re-tendering the project, which is currently underway, the port’s board has decided to chart its own course—and rightly so—as far as the key rate-setting is concerned and which will have a significant bearing on its ability to attract private investors to set up cargo facilities.
So, for all upcoming cargo-handling projects that are bid out, Ennore port will first notify a reference rate with the help of consultants. The entity winning the project would be free to charge a market-linked tariff, or a so-called actual tariff, from the customers of the facility without any conditions.
The reference rate will rise every year to account for rising prices because it is indexed to the Wholesale Price Index (WPI), a measure of costs, to the extent of 60%.
The annual revenue share payable by the cargo handler to the port (the sole criterion for evaluation of bids) over a 30-year contract period shall be determined based on the higher of the two tariffs—the applicable reference tariff or the actual tariff.
For ports that are run as trusts, TAMP will notify the reference rate, which will be indexed to WPI to the extent of 60%. But, over and above the WPI reference, cargo handlers will be allowed to charge a maximum 15% more (termed as performance-linked tariff) than the indexed reference rate, during each year of a 30-year port contract. This will, however, depend upon them meeting certain performance standards prescribed by the regulator.
This is the main difference between the Ennore way of setting rates and the other ports owned by the Indian government. To put it simply, firms running cargo facilities at Ennore port will now have full freedom to set rates based on market forces, without any conditions, while for those in ports that are run as trusts, there is a cap on levying market-linked rates, which is again subject to conditions.
Ennore, thus, is in a better position to compete with the ports that are outside the control of the Indian government and have full freedom to fix rates based on market forces. Ports outside the control of the Indian government have attracted more investors because of this freedom.
It has not been smooth sailing for Ennore despite functioning under a corporate set-up. But, there is more clarity now and this bodes well for the two new ports planned by the Indian government at Sagar Island in West Bengal and Dugarajapatnam in Andhra Pradesh. The new ports will be set up as companies and not trusts.
P. Manoj looks at trends in the shipping industry.
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