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P. Manoj

New Delhi , Feb. 7

THE Shipping Ministry is divided over a submission made by PSA-SICAL Terminals Ltd, the private entity operating a three-lakh twenty-foot equivalent unit (TEU) capacity container terminal at Tuticorin Port, to switch over from the existing royalty format to a revenue sharing arrangement with the Port Trust.

This is the first instance of a private container terminal operator at a major port seeking a shift from royalty to a revenue share format after it was awarded the contract on the earlier method of private participation at major ports.

In line with the then prevailing policy, the Government had awarded the contract in 1999 to a consortium led by PSA Corporation Ltd, a wholly-owned subsidiary of Temasek Holdings Pvt Ltd, the investment arm of Singapore Government, for operating a container terminal at Tuticorin Port for a 30-year licence period on a royalty per TEU format. Under this method, PSA-SICAL will have to pay a certain royalty per TEU handled at the terminal to the Tuticorin Port Trust.

Subsequently, in 2001, the Government decided to award contracts for developing container terminals at major ports with private investments on the revenue share format.

According to this criteria, the bidder quoting the highest percentage of revenue share from its annual operating gross revenues to the Port Trust would be awarded the contract. In its submission to the Ministry, PSA-SICAL had made two demands.

One is to treat the royalty currently paid by them to the Port Trust as a cost item for fixing/revising tariffs at the terminal. Secondly, the private operator has sought a migration from the royalty to the revenue share format.

While the Ministry is amenable to grant an exemption from its July 2003 policy guideline to PSA-SICAL on its demand for allowing royalty as an admissible item of cost while fixing tariffs at the terminal, there is no unanimity within the Ministry on the demand for shifting from royalty to the revenue share format.

A section within the Ministry feels that this demand should be considered if India is to attract more private investments into the ports sector. Whereas, the other section is of the view that the shift from a royalty to a revenue share format mid-way through the concession and licence agreement period would create problems in the absence of a benchmark.

"There is no problem in allowing royalty as a cost item while fixing tariffs as the percentages in this regard can be worked out. But, on what basis would we shift from a royalty per TEU to a revenue share arrangement. How will the percentages be worked out," a Ministry official asked.

"Besides, the royalty per TEU increases every year. Whereas, the revenue share percentage is fixed throughout the concession and license period", he stated. Though, the Government had earlier allowed private operators to treat the royalty/revenue share paid by them to the port trusts as a cost item for fixing tariffs at the terminals, it had through a policy guideline issued on July 29, 2003 discontinued with this system.

However, even after issuing the guideline, the Ministry had given an exemption to P&O Ports, which runs a container terminal at Chennai Port, to treat a big part of its revenue share paid to the port trust as an admissible item of cost.

On the basis of a policy direction issued by the Ministry in November 2003, the Tariff Authority for Major Ports had allowed P&O ports to revise tariffs 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 the private operator to Chennai Port Trust as per the concession agreement.

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