‘If someone says instead of giving a hike, I have cut tariff, it’s not fair’

‘If someone says instead of giving a hike, I have cut tariff, it’s not fair’

Aformer Indian Administrative Service (IAS) officer of 1966 batch belonging to the Maharashtra cadre, Arun Laxman Bongirwar is in the spotlight these days. As the head of the Tariff Authority for Major Ports (TAMP) which sets prices for various cargo handling services provided at the 12 Union government-owned major ports in the country, he has nixed proposals for tariff hikes and actually lowered them in many cases. Tuticorin port operator PSA Sical, for instance, has taken TAMP to court over one such tariff reduction.

Even as he faces the ire of port operators over such decisions, Bongirwar is unperturbed. Late last week, the TAMP head whose term ends on 17 October spoke to Mint on tariffs, his logic for reducing them, and a range of other issues. Edited excerpts.

Of late, there has been a flurry of proposals by private operators seeking a hike in port operator tariffs. You have responsed by slashing tariffs...

Your statement that instead of giving a hike, I am reducing the tariffs by itself is a wrong statement. Whenever anybody comes to me for an increase, it does not mean that I have to necessarily give him a hike. That is not possible.

Secondly, our guidelines published in March 2005 make it very clear that we have only a cost-plus approach. So, one has to justify what is the cost that the cargo operator incurs for giving the services and we straightaway give that tariff.

Can you explain the procedure for fixings tariffs?

Our procedure is so mathematical and transparent that if you (a port operator) file an affidavit which proposes that you followed my guidelines, I may sign it blindly. To that extent, if you mathematically give me correct figures, and not fudged figures or incorrect projections, our guidelines are very transparent.

Our procedure is very tough. We have adopted a consultative approach to tariff fixing. When the proposal comes, we do the basic scrutiny, circulate it to the users, hold joint hearings. When I pass my order, I give a very detailed explanation of all the points raised and the answers to them.

So, in a transparent procedure like this, if someone says that instead of giving a hike, I have reduced tariffs, it is not fair. There have been instances when people have got hikes, but purely on merit. We have been doing our job most judiciously.

So, where is the problem? The private operators do not seem to be very happy with you.

The problem arose because revenue share and royalty is not being allowed as an item of cost while fixing tariffs.

In the ministry of shipping, the procedure followed for choosing a bidder or an operator is the amount of revenue he shares with the government-owned port trust. I shouldn’t call it a mad race; but since private firms wanted to enter the ports sector, they have been hiking the revenue share to an artificial level or to a level that cannot be sustained by a cost-plus tariff model.

In a cost-plus tariff model, what you get in addition to your expenditure is 15% return on capital employed.

It has been made abundantly clear that revenue share is not a part of the expenditure and, hence, the only source from which you can meet the revenue share is the return on capital employed. So, if you hike your revenue share to the extent of 40%, 44% or 45%, it could be higher than the return on capital. Then, there is no source from which you can fund the revenue share. In such a case, the revenue share eats into the return that you are legitimately earning.

Hence people are finding fault with this formula. The real problem is revenue share which is not allowed as a cost item for fixing tariffs. But, it is unfair to blame that on me.

Is cost-plus the best method for fixing port tariffs?

Yes, cost-plus is the best method. There could also be an alternative, say, a normative cost method. When private operators, who quote very high revenue share, find that the cost-plus model does not answer, they argue for a formula change.

Do you follow the guidelines in letter and spirit while fixing tariffs?

Naturally. These guidelines were issued by the ministry in consultation with the Authority and with the users themselves. The port operators who are now making a noise were independently consulted. The Indian Private Ports and Terminals Association (IPTA) was independently consulted by the then shipping secretary D.T. Joseph.

The port operators were also consulted in a general meeting. So, nobody can say that they were not consulted or did not know what was happening. If they actually required time to understand this formula, we are not responsible.

Is it right not to allow revenue share as a cost item, particularly to those terminals that started operations much before the ministry issued a policy guideline in this regard on 29 July 2003?

The 2003 guidelines on revenue share is part of the tender paper now. That is not an issue with the Authority.

In the case of terminals that started operations prior to July 2003, the answer would best be given by the Ministry.

We also took a stand that royalty/revenue share should not be allowed as a pass through. If royalty is allowed as a pass through, somebody will quote 99% of the revenue share and recover it through tariffs. There is no end to it.

Why should I load the users? Private operators, in order to win the tender quote a very high revenue share and then want me to load that on to the tariffs. So, our argument, our views are already amply clear in the TAMP order and we stick to that guideline.

If the ministry wants to change the formula, why should I say no. Who am I to say no. Our stand on tariff is very transparent.

Private operators are complaining that they are being penalized for being efficient…

It’s a long campaign, it’s a mischievous campaign. If you go through the new guidelines there is a specific paragraph on rewarding the operators for efficiency gains. For efficiency gains, the present level of efficiency that an operator is projecting would be the best and if you improve on that, and if the improvement is more than 20%, we will reward you. So, where is the question of not rewarding efficiency.

Why are the tariffs of cargo handling terminals at ports being regulated when other parts of the logistics chain like rail, road and ocean freight are not?

The argument that if other parts of the logistics chain are not being controlled or regulated so you shouldn’t be controlling this (terminals) is by itself wrong.

As far as the rail tariff is concerned, Concor was the only operator so far. But, in the next three years, there will be enough competition. The ministry of railways has gone on a fast track. There will be enough private sector operators and I am sure that this will control the cost.

The other part of the logistics cost is transportation by road which accounts for 70-80% of the market. Here, there is enough competition. If I want to contract a truck operator in Delhi to bring a container to Mumbai, there will be hundreds of them in line and there will be enough competition. Market forces are controlling all the other parts of the logistics chain. So the only area which is not regulated is the port tariffs.

The other (issue) is ocean freight. Freight is fixed by international shipping lines so how can anybody have control over them? It is again a function of demand and supply.

If the cost of lifting a container here is Rs3,000, imagine a readymade shirt maker who is exporting his shirt. If he pays Rs2,500 instead of Rs3000, maybe he is saving a few paise per shirt. But he is competing with a manufacturer in Thailand or Colombo, even a small margin of a few paise matters.

I am trying to help the export-import trade. It is not that I am trying to help a person in Tirupur, vis-a-vis a person in Mumbai. I am helping India to compete with Thailand and Colombo.

Are you averse to private operators making more money legitimately?

It is laid down in the guideline that he should not make more than 15% on capital employed.

Would you welcome a change in formula for tariff fixation?

As long as I am fixing my tariffs through a guideline which is finalized after due consultations, you can’t now turn around and say these are wrong guidelines. But if the ministry of shipping or Planning Commission or anybody changes the guidelines, we would welcome it. We have never said this is the only method of fixing tariffs.

We were created ten years ago when there was no guideline. We said cost-plus is one of the methods. Since then, people have been talking of alternative methods. We have ourselves talked of a normative cost method of fixing tariffs. We formed an all-India level normative cost committee which couldn’t come to a conclusion. In that committee, all the private operators were members. They have themselves signed a report which said that no normative cost can be recommended.

Now, if they turn around and say we have to use normative cost, I don’t know what to say.

You don’t have any objection to changing the guidelines?

Basically, we have no objections. Any alternative formula is welcome.

Have you being consulted on the proposed changes in guidelines?

We are part of the meetings on the proposed change.

Private operators now say there is enough competition for tariffs to be left to market forces. Do you agree with this view?

This is again a misinterpretation of what is called competition. By competition, you don’t mean...if in JNPT for example…there is more than one operator, there is competition. No, it is not competition. By competition we mean create a capacity which is at least 30% more than the demand. Then people will come to you. Coincidentally, it so happened that the third terminal at JNPT run by Maersk-Concor has the highest tariffs among all the three terminals operating there. Still, users patronize the new terminal as there is more demand/requirement. So by competition, you do not mean the number of operators in the field. By competition, you mean creating a capacity at least 30% more than demand.

The capacity now more or less matches the demand.

Private operators portray you as the villain of the piece...

I don’t know who is saying I am the villain of the story. If somebody following a guideline issued by the ministry is called a villain, then I don’t understand whether it is the correct description or not. And if serving the cause of export-import trade by reducing the tariffs, you call me a villain, I don’t know what to say.

In the past, TAMP has intervened to cut tariffs…

Basically, when we came to know that the cost has reduced, we reduced the tariff. As simple as that. Technically, when we pass an order, the operators are told that if things require a downward revision in tariff, please come to us. Naturally, when it comes to reduction, they don’t come to us.

We did it to the container terminal run by DP World in JNPT and we did it to the container terminal run by the government-owned port itself.

Do you think private operators are fudging figures to get a hike?

I won’t comment on that for the reason that our orders say that after two years, your (port operators) audited figures will be compared with the actuals submitted with the tariff proposals. So, if the audited figures are fudged, I can’t help it.

But, in the next tariff cycle, we compare the old performance (with the projected one).

That’s how we adjust the surplus made in the last round of tariff revision. Because in the previous cycle, you (the port operator) made more money than you told us. As compared with projections, performance was much higher.

We are yet to come across fudging of figures. Because projections vary, you make a lot more money than what you thought and that is what we try to adjust (by reducing tariffs).

Will your orders scare away investors from India’s ports sector?

I don’t believe that. Despite the tariff decisions of TAMP for the last many years, nobody can say there is lack of investments. Take the example of PSA-SICAL at Tuticorin port.

They are against us in the court. But, they bid and won the rights to operate the second container terminal by quoting a revenue share of a whopping 45.801%.

After more than 10 years experience with TAMP setting the prices, you still make a bid for the Chennai terminal. It shows the potential of the Indian ports sector.