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Influential share: The 13 ports controlled by the Union government loaded a combined 560 million tonnes of cargo in the year to March. Photo: Adeel Halim/Bloomberg

Influential share: The 13 ports controlled by the Union government loaded a combined 560 million tonnes of cargo in the year to March. Photo: Adeel Halim/Bloomberg

Port tariff regulation faces toughest test

Port tariff regulation faces toughest test

Bangalore: India’s tariff regulator for Union government-owned ports and companies that run private terminals at Navi Mumbai and Chennai seem to be spoiling for a fight. The companies have kept tariffs unchanged in the face of orders issued by the Tariff Authority for Major Ports (TAMP) seeking cuts.

There has been no stay by the courts against the pared rates, although all three have sought judicial intervention seeking this.

The date for implementing the orders has passed, with the last one having been more than two months ago. That the regulator and the companies were on a collision course is apparent from the manner in which the rate cuts were ordered—all stemmed from requests by the terminals concerned for a raise in rates.

Influential share: The 13 ports controlled by the Union government loaded a combined 560 million tonnes of cargo in the year to March. Photo: Adeel Halim/Bloomberg

The stakes couldn’t be higher—all three terminals are run by companies that are global giants in the maritime business.

India can ill-afford such a conflict at this time. The country’s inadequate infrastructure, which includes such critical elements as ports, is among factors hampering economic growth, which slumped to a nine-year low in the quarter ended March. Prime Minister Manmohan Singh, in a bid to revive the economy and boost flagging investor sentiment, said on 6 June that India would spend 14,000 crore on port projects this fiscal year as part of an infrastructure push.

This is the first time that TAMP’s orders have been ignored since it began functioning in April 1997, after India opened its port sector to private investment, thus also necessitating the need for an independent authority to approve rates for services provided by the Union government-controlled ports (referred to as major ports) as well as private firms running cargo terminals at these ports.

The row comes as demands intensify from some quarters for the freeing of major ports from tariff regulation for various reasons. For one, it puts the the major ports at a disadvantage with respect to ports such as Mundra, Pipavav, Hazira, Krishnapatnam, Gangavaram and Karaikal that are owned by the state governments and given to private firms for development and operations. Ports owned by the state governments are not subjected to tariff regulations.

“TAMP should not be there," said N.N. Kumar, Jawaharlal Nehru port’s deputy chairman. “If at all it is there, it should cover all the ports. Otherwise, private players will be hesitant to come and bid for public-private-partnership (PPP) projects at major ports because they know that operations will be limited or stifled by the tariff regulations. It will be detrimental to the success of PPP projects at major ports. So, there should be level playing field between major ports and non-major ports."

In the past few years, several orders of TAMP have been stayed by the courts after aggrieved private terminal operators filed petitions against their implementation. In all such cases, terminal operators secured stays before the date of implementation set by the regulator.

The three orders

On 8 February, TAMP notified a rate cut of 44.28% at the facility run by Gateway Terminals at Jawaharlal Nehru port (JN port) in Navi Mumbai after the firm sought a rate increase of 8.72%. Gateway Terminals is majority owned by Denmark’s APM Terminals Management BV.

A week later on 14 February, the regulator notified a rate reduction of 12.23% at Chennai International Terminals Pvt. Ltd in Chennai port when the terminal had asked for a hike of 15%. Chennai International Terminals is fully owned by Singapore’s PSA International Pte. Ltd.

On 1 March, TAMP notified a rate cut of 27.85% at Nhava Sheva International Container Terminal Pvt Ltd (NSICT), the facility run by Dubai’s DP World Ltd at JN port, when the firm asked for a 30% raise.

All three filed individual petitions against the rate cuts in the Delhi high court, but they were dismissed on 23 March on jurisdictional grounds— the terminals are in Mumbai and Chennai. The terminal operators approached the Supreme Court with special leave petitions, which were not admitted by the apex court on 10 May.

A TAMP order typically takes effect 15 days after it is published in the gazette of India unless it is stayed by the courts. Since the courts have not stayed the orders, the rate cuts came into force on 23 February in the case of Gateway Terminals, 29 February for Chennai International Terminals and on 16 March for Nhava Sheva.

“These terminals have not started implementing the new rates," said Deepak Tewari, chief executive officer of MSC Agency (India) Pvt. Ltd, the Indian unit of Geneva-based container shipping firm Mediterranean Shipping Co. SA. Tewari is also chairman of the Container Shipping Lines Association (CSLA), a grouping of shipping lines, the only customers of the port terminals.

P.K. Agrawal, chief executive officer of Gateway Terminals, said it has implemented the regulator’s order. “We have implemented the TAMP order with certain disclosures which have been clearly mentioned in the invoice," he said.

Shipping lines have contested this claim.

“They are raising invoices based on old rates saying that the matter is sub judice. No credit note is being generated," Tewari of MSC said.

“Both Nhava Sheva and Gateway Terminals have written to us saying that they have implemented the TAMP orders," said JN port’s Kumar. “I have no reason to doubt them as they are global companies with best management practices."

DP World declined to comment.

“We are taking legal opinion ahead of issuing a notice to Chennai International Terminals for not implementing the TAMP order," a Chennai port official said, requesting anonymity.

PSA declined to comment.

The tariff regulations at major ports have a unique feature. It regulates tariffs in a business-to-business set-up where the users are not directly involved as with the power and telecom sectors.

The tariff regulator does not have the powers to enforce its own orders, a spokesperson for TAMP said, adding that “only the courts have the powers to enforce or stay the orders of TAMP".

Port industry experts say terminal operators are bound to implement the orders of the tariff regulator unless they are stayed by the courts. This is clearly mentioned in the licence agreement signed by the port authorities and private firms.

“The regulator has done its job, however displeased we may be with its performance," said S.N. Srikanth, founder and senior partner at Chennai-based port consultancy Hauer Associates. “It is for the port authorities to enforce the provisions of the agreements they have entered into with the terminal operators. The shipping ministry, too, can enforce the tariffs since they have been gazetted by the government of India," he said.

Non-implementation of TAMP orders will be construed as a default by the licensee (terminal operator) and “the licensor (the port authority) shall without prejudice to any other rights and remedies available to it under this agreement be entitled to terminate this agreement, holding the licensee to be in breach," according to the agreement followed for all privatization contracts.

A shipping ministry spokesperson declined to comment.

The 13 ports controlled by the Union government loaded a combined 560 million tonnes of cargo in the year to March, accounting for some 65% of India’s external cargo by volumes shipped through the sea route.

Competitive disadvantage

Private firms running cargo loading terminals at major ports are now opposed to tariff regulation. The Union government-controlled ports also support this stand to negate the advantage enjoyed by non-major ports (those controlled by the coastal states) that are free from such regulation and hence considered a better investment proposition than major ports.

“Ninety-six per cent of the logistics costs incurred by exporters and importers in India remain unregulated. Port tariffs constitute about 4% of the logistics costs. Yet there is a continued thrust from the government to control and over-regulate port tariffs for a cost head that has little or no impact on the overall logistics costs," said a spokesman for the private port lobby Indian Private Ports and Terminals Association (IPPTA). “In a period where there is ample competition and growing demand, terminal operators should be allowed to charge rates based on market forces."

“The current regulatory regime benefits shipping lines because there is no mechanism to ensure that the benefits of lower rates ordered by TAMP are passed on by lines (the only customers of the terminals) to the trade (exporters and importers). It never percolates down to the trade," said Kumar of JN port.

Meanwhile, The Energy and Resources Institute (Teri), which was mandated by the shipping ministry to frame new guidelines to be followed by TAMP to set rates for port services, submitted its report in March. The existing tariff-setting guidelines framed by the shipping ministry are due for revision after a five-year run.

The Teri report does not solve the problems of terminal operators, the IPPTA spokesman said.

But, it makes one key suggestion by asking the shipping ministry to consider “whether the private terminals and cargo-specific terminals at (Union government-controlled) ports should be freed from tariff setting and allowed to compete between themselves and non- major ports".

“TAMP and/or the Competition Commission of India (CCI) could step in if competition is unfair or charges usurious," it added.

The ministry is discussing the report internally after consulting the stakeholders.

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