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Business News/ Politics / Policy/  State-owned ports to turn corporate entities in two-stage reform
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State-owned ports to turn corporate entities in two-stage reform

Shipping ministry drafts a two-stage plan to convert 11 of the 12 ports owned by the govt into corporate entities from the existing trustee setup

The 12 ports loaded a combined 581.34 million tonnes (mt) of cargo in the year to March, clocking a year-on-year growth of 4.65%. Photo: BloombergPremium
The 12 ports loaded a combined 581.34 million tonnes (mt) of cargo in the year to March, clocking a year-on-year growth of 4.65%. Photo: Bloomberg

Bengaluru: The shipping ministry has drafted a two-stage plan to convert 11 of the 12 ports owned by the Union government into corporate entities from the existing trustee setup in a much-delayed structural reform of these harbours that handle about 57% of the country’s overseas cargo shipped by sea.

As a first step, these so-called major ports—Chennai, Cochin, Jawaharlal Nehru port, Kandla, Kolkata, Mumbai, New Mangalore, Mormugao, Paradip, V.O. Chidambaranar and Visakhapatnam—will be brought under a new law called Major Port Authorities Act, 2015.

Currently, these 11 ports function as trusts under a law framed more than five decades ago called the Major Port Trusts Act 1963.

Kamarajar Port Ltd is the only exception in this regard. Kamarajar, which runs the port at Ennore near Chennai, was formed as a company under the companies law of 1956 when it was opened in 2001.

The 12 ports loaded a combined 581.34 million tonnes (mt) of cargo in the year to March, clocking a year-on-year growth of 4.65%.

“The port authority of each major port operating as a trust may change its structure and become a company subject to prior approval of the central government and passing of special resolution through its board in that behalf," according to the draft Major Port Authorities Act. Mint has reviewed a copy of the draft law.

The new law, which seeks to repeal the Major Port Trusts Act, also provides for stake sale in these ports.

“In the event of conversion of the port authority from trust to company, the board of that port authority may raise additional capital over and above the capital reserves and holdings of that port authority from any person resident in India by way of sale or disinvestment of the holdings in the port authority subject to prior approval of the central government as per the applicable disinvestment policy," according to the draft law.

The new law, once cleared by Parliament, will give these 11 ports the freedom to set rates based on market forces. Currently, rates at these ports are set by the Tariff Authority for Major Ports (TAMP), the rates regulator.

Each port authority of a major port will be operated, regulated and administered by a board. Once the new law comes into force, the existing board of trustees under the Major Port Trusts Act will become the board for all purposes of the new law.

The board will comprise a chairman, at least four members from among the functional heads in the major port including heads of operations, finance, works and business development in that major port, minimum two and not exceeding four independent members, one government nominee member and one nominee from the workers’ unions.

The respective board of each port authority would be allowed to raise loan for capital expenditure and for working capital requirements in any currency from any scheduled bank or financial institution located within India and financial institution in any country outside India in compliance with the applicable laws or regulations prescribed by the central government.

Loans can be raised by the board of each port authority in the open market within India and outside through securities such as debentures, bonds and stock certificates issued by the port authority or from the central government or a state government.

“As the success of so-called minor ports (those owned by the state governments) has shown, ports can be an attractive investment possibility for the private sector. Ports in the public sector need to both attract such investment as well as leverage the huge land resources lying unused with them. To enable us to do so, ports in public sector will be encouraged, to corporatize, and become companies under the Companies Act," finance minister Arun Jaitley said in his 28 February budget speech.

A number of measures have been taken by the government to augment capacity and improve the operational efficiency of major ports (a term used to describe ports owned by the Union government). However, under the restrictive ambit of the MPT Act, major ports are finding it difficult to operate in a highly competitive environment and respond to market challenges, a spokesman for the shipping ministry said.

“The board of trustees is very large and comprises representatives of disparate interests including port users, labor and trade associations which make decision making cumbersome. Even after delegating more powers and making some amendments to MPT Act from time to time, the basic objective of offering efficient services to port users has not been achieved fully", the ministry spokesman said.

The continuing fall in the share of cargo handled by the dozen ports from about 90% in the early nineties to 57% now has been a matter of concern for the government.

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Published: 18 Nov 2015, 09:25 PM IST
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