A file photo of Jawaharlal Nehru port near Mumbai. The shipping ministry plans to bid out 30 port projects worth `24,633 crore by March 2014 to add 288.48 million tonnes of cargo handling capacity at the 12 ports owned by the Union government. Photo: Mint (Mint)
A file photo of Jawaharlal Nehru port near Mumbai. The shipping ministry plans to bid out 30 port projects worth `24,633 crore by March 2014 to add 288.48 million tonnes of cargo handling capacity at the 12 ports owned by the Union government. Photo: Mint
(Mint)

Proposed free pricing regime for port services runs into rough weather

A secretary reshuffle in shipping ministry has led to major changes in the final draft on free pricing for services at Union govt ports

Bangalore: The final draft of a guideline on free pricing for port services at Union government-controlled ports has undergone significant changes, following a secretary reshuffle in the shipping ministry.

The draft guidelines had been signed off by the previous shipping secretary.

The Planning Commission has raised concerns on some of the provisions mentioned in the draft guidelines.

On 1 July, Vishwapati Trivedi assumed office as the shipping secretary replacing Pradeep Kumar Sinha, who was moved to the power ministry.

The changes in the draft include removing a reference to the Competition Commission of India for opinion if port users are aggrieved by the market-linked tariff proposed to be charged by the terminal operator, a spokesman for the shipping ministry said.

Based on the opinion given by the Competition Commission, the market rates could either be confirmed or revised. This was a key clause in the final draft of the guidelines approved by Sinha and submitted to shipping minister G.K. Vasan for consent.

Also, the Tariff Authority for Major Ports (Tamp) is back into the reckoning in the new draft, holding powers to look into performance standards and adherence by operators.

According to the new draft of the norms that are designed to link rates to market forces, Tamp will first notify a port-wise reference rate for various commodities. Such a tariff will typically be the highest prevailing rate that was set on the basis of guidelines framed in 2008 for handling a particular commodity in a port.

The reference tariff so set will be applicable for five years and indexed to inflation to the extent of 60% of the variation in the wholesale price index, a measure of costs.

Cargo handling projects will be bid out on the basis of the reference tariff. The entity willing to share the most from its annual revenue with the government-owned ports will win the contracts.

But at the time of starting commercial operations of their cargo terminals, private firms and government-owned ports will be free to set tariffs for services that may be higher or lower than the reference tariff, according to the new draft guidelines, reviewed by Mint.

The proposal for levying market-linked rates shall be submitted by the terminal operator to Tamp along with details of the performance standards proposed to be achieved in the ensuing year. The proposal should include a certificate from an independent engineer appointed under the concession agreement (a document that sets out the terms and conditions of a port contract) indicating the achievement of performance standards in the previous 12 months.

“The acceptance or rejection of the actual tariff (market rates) proposal by Tamp will depend upon achievement or otherwise of performance standards by the terminal operator," according to the new draft guidelines.

The Planning Commission raised concerns on the guidelines for market-linked rates for port services at an inter-ministerial meeting on 12 July, according to two officials who attended the meeting.

The reference tariff notified by Tamp will apply only for the first year of the concession period, according to the Planning Commission. “This implies that there will never be any cap on tariff nor will TAMP apply its mind in regulating tariffs after the first year," says a note prepared by the plan body after the meeting on the draft guidelines. “This may not be consistent with law". Mint has reviewed a copy of the Planning Commission’s note.

Tamp was set up in 1997 by amending the Major Port Trusts Act 1963.

The Planning Commission has also asked the shipping ministry to clarify how the actual tariff (market rate) will be determined and whether the function of setting performance standards for terminal operators is to be transferred to Tamp.

Currently, the performance standards are laid down by the model concession agreement that was finalized by the government in 2009 for port contracts.

In October, the Planning Commission had circulated the draft guidelines for port tariffs to remove the lacuna in the existing norms, but this was not accepted by the shipping ministry. “Instead of making amendments in the earlier draft, it is now proposed to consider a completely new draft which may require fresh round of consultations and may delay the process significantly," the Planning Commission note said.

The shipping ministry plans to bid out 30 port projects worth 24,633 crore by March 2014 to add 288.48 million tonnes of cargo handling capacity at the 12 ports owned by the Union government.

The free pricing regime will apply prospectively to cargo handling projects bid out after it is notified. Hence, 19 private cargo terminals will continue to operate under the tariff setting guidelines framed in 2005 and 2008, respectively, until the government takes a decision to free this group also from the control of the port tariff regulator.

Rates at 11 of the 12 ports controlled by the Union government are currently regulated by Tamp.

Tariff-setting by Tamp and the issues involved have become a sticky issue between the government and port operators even as the shipping ministry is struggling to attract investments into ports.

Tariff regulatory risks are perceived as a major impediment to investing in port terminals.

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