The Hindu Business Line : Royalty to Tuticorin Port Trust

Globally, royalty/revenue share is admitted as a cost item for fixing tariffs at ports and the flow of private funds will be hampered if this was not allowed in India.

THE Shipping Ministry is set to allow PSA-SICAL Terminals Ltd to treat the royalty paid to the Tuticorin Port Trust (TPT) as a cost item while fixing/revising tariffs at its container terminal in the port.

Recently, top officials from the Singapore Government-owned port operator, PSA Corporation Ltd, and its local partner, SICAL, had met senior officials in the Shipping Ministry to submit a formal proposal in this regard.

This would be the second instance of the Ministry granting exemption to a private operator from its July 29, 2003 policy guideline, which ruled that the royalty/revenue share paid by private operators to the port trusts shall not be admitted as a cost item while computing tariffs.

Earlier on November 7, 2003, the Ministry had issued a policy direction to the Tariff Authority for Major Ports (TAMP) under Section 111 of the Major Port Trusts Act, 1963 for reviewing and revising the tariffs of Chennai Container Terminal (CCT), taking into consideration the revenue share paid by P&O Ports to Chennai Port Trust as a cost item for tariff fixation.

The Ministry feels that there is a good case for allowing the royalty per twenty-foot equivalent unit (TEU) paid by PSA-SICAL to Tuticorin Port Trust as a cost item for tariff fixation similar to the exemption granted to CCT. "If the country wants to attract private investments into the major ports sector, we have to be flexible," exclaims Mr D. T. Joseph, Secretary, Ministry of Shipping. As in the case of CCT, the Ministry is soon expected to issue a policy direction to TAMP to consider royalty as a cost element for tariff fixation and review and revise the tariffs of PSA-SICAL Terminals Ltd.

"The July 2003 policy guideline issued by the Ministry came much after we started operations at the Tuticorin Port in 1999. So, we should not be covered by the ruling", a PSA Corp official told Business Line. So was the case with CCT that commenced operations in 2001. Moreover, the Ministry had in its July guideline categorically stated that the policy of not allowing royalty/revenue share as a pass through item in calculating tariffs would take effect prospectively and not retrospectively.

In other words, the policy would only be applicable to those who started operations after July 29, 2003 such as the Visakha Container Terminal Private Ltd (VCTPL) run by United Liner Agencies-Dubai Ports International at Vizag Port, the new container terminal to be developed and operated by the Maersk-Concor consortium at Jawaharlal Nehru Port and the international container transhipment terminal to be developed by DPI at Cochin Port, among others.

Significantly, much before the Ministry issued the policy guideline in July 2003, TAMP had taken the stand that the royalty/revenue share paid by private operators shall not be admitted as a cost item while fixing/revising tariffs.

In line with this stance, TAMP had turned down submissions from both P&O Ports and PSA-SICAL to include revenue share in the case of CCT and royalty for the container terminal at Tuticorin as a cost item for computing tariffs in their respective terminals. Private operators have argued that, globally, royalty/revenue share is admitted as a cost item for fixing tariffs at ports and the flow of private funds will be hampered if this was not allowed in India.

P&O Ports had submitted before the Ministry that the CCT was incurring losses mainly due to TAMP's decision to dis-allow the revenue share as an element of cost. In response, the Ministry had directed TAMP to review and revise tariffs of CCT taking into account the revenue share as a cost for tariff fixation subject to a maximum of 27 per cent out of the total revenue share of 37.128 per cent of the annual gross revenues paid by P&O Ports to the Chennai Port Trust as per the Concession Agreement.

The Ministry made it clear that this treatment may continue to be allowed for such remaining period of the agreement with CCT as may be necessary to avoid likely loss to CCT due to exclusion of revenue share from tariff fixation. But, the moment CCT starts making profits, this concession will go, it said. Subsequently, TAMP had approved an across-the-board increase of 17 per cent in the tariffs of CCT.

The case of PSA-SICAL is slightly different. For one, it is not incurring losses from its terminal operations. However, it fears that the terminal may run into losses if it implements the TAMP order of September 20, 2002 and notified in the Gazette on October 4, 2002 slashing the rates by 15 per cent. As against a proposal submitted by PSA-SICAL seeking to revise tariffs by 28 per cent, TAMP had reduced the then existing tariffs at the terminal by 15 per cent across-the-board much to the chagrin of the private operator. This marked one of the rare instances where TAMP had reduced the rates when the private operator had sought an increase in tariffs.

The terminal operator filed a writ petition in the Chennai High Court challenging the TAMP order. The High Court granted an interim stay on November 8, 2002 staying the operation of the TAMP order and permitting PSA-SICAL to levy the tariff that was prevailing prior to the TAMP order of September 20. "We should not be penalised for our efficiency," the PSA official said.