The Hindu Business Line : Steering port tariffs into fair waters

Even as there is congestion at both the container terminals at the Jawaharlal Nehru Port on the West Coast, charges for handling a standard-size container (of twenty feet unit or TEU) could vary by as much as 35 per cent depending on the terminal it is handled at.

If you routed the cargo through the terminal operated by Gateway Terminals India Private Ltd, it would, set you back by a minimum of Rs 3,068 while at the neighbouring terminal run by Nhava Sheva International Container Terminal Ltd, another private operator, the bill would come to only Rs 2,288.

It is pretty much the same story in Gujarat. At the ABG Kandla Container Terminal, at Kandla, the private operator must manage within Rs 2,250 per TEU — the rate fixed by the tariff authority — to earn a profit. But at the Mundra Port (just 40 km away) the operator charges Rs 3,600 as he is not subject to tariff regulations and therefore can fix the rate at the level the traffic can bear.

The tariffs vary because of several factors, including the vintage of equipment used, major versus minor ports and even the timing of the port concession agreement. The JNPT terminal run by Gateway uses newer equipment and hence is allowed a higher tariff but the one run by NSICT has older equipment and is, therefore, allowed only a lower rate by the Tariff Authority for Major Ports (TAMP).

Discrimination

If it was only a matter of depreciation charge in the tariff estimation, there would perhaps be no heartburn among the more recent entrants to port operations. But the port privatisation policy, as it has evolved over the years, has introduced another distinction between those that set up shop before 2003 and those that came after.

The Shipping Ministry’s order of 2003 explicitly stated that the revenue share paid to the government — the criterion on which the successful bidder won the mandate to operate a private terminal — would not be treated by the terminal operator as a “pass-through” cost while setting the maximum tariff. That meant that a 15 per cent return on capital employed, allowed to operators, while setting a ceiling tariff, would not only shrink but make their operations unviable. The private port terminal operators contend that the relationship between operating costs and the profit element is so heavily skewed in favour of the former that any revenue share out of the final sanctioned tariff dents return on investment, and even results in losses. The Government has furthered its own cause through the formula for tariff setting in all cases of pre-2003 concession. Instead of allowing the full percentage of revenue surrendered to the government as a cost, it chose to concede only the percentage quoted in the next best tender.

The concessionaires who came in after 2003 have argued that there is little justification to regard revenue share as being explicitly contemplated in the older tenders either. Or else, they argue, why would these successful bidders settle for a lower amount to be incorporated as a ‘pass-through’ even though they were passing on a higher percentage of revenue as the Government’s share?

The Government’s predicament on the question is understandable. Reimbursing the revenue shared with the Government as an additional element of cost in tariff setting would lead to an odd situation where bidders could quote, with impunity any percentage as the Government’s share (even above 100 per cent of the revenue) and walk away with the contract, secure in the belief that it is any way going to be reimbursed through a higher tariff.

Private ports’ appeal

In this backdrop, the Indian Private Ports and Terminals Association (IPPTA) has demanded that the Government rework the tariff regime in a manner that allows for enough flexibility. “There should be a ceiling and a floor prescribed with enough gap between the two,” it has said.

Now, faced with these demands, the Shipping Ministry and a task force set up under the Planning Commission are reworking the tariff setting mechanism and have suggested that a normative method be followed for deciding the tariffs.