The Hindu Business Line : Container handling rates — A new approach to tariff-setting

That widely varying tariffs are levied for container handling at various Indian ports has been an issue bothering the shipping trade. The Planning Commission has taken serious note of this stating that “it would be better to substitute the present arrangement by notifying a price cap for all ports or a group of ports.”

The Planning Commission has observed that, from the perspective of users, such variations may appear ‘irrational and unjustified.’ Moreover, such divergent tariff levels are not conducive to inter-port/or intra-port competition.

This observation of the Planning Commission was included in the Report of the Task Force on Tariff Setting and Bidding Parameters for PPP (public-private-partnership) projects in Major Ports headed by Mr Anwarul Hoda, Member, Planning Commission, and consisting of members from the Shipping Ministry, Department of Economic Affairs and the Indian Ports Association. The observation is significant as there are seven container terminals in the country, and a few more, including one in Chennai, are in the pipeline.

According to directives issued by the Department of Shipping, the determination of tariffs for port terminals is required to be undertaken by the Tariff Authority for Major Ports on a ‘cost-plus’ basis, including an annual return of 15 per cent on capital employed.

However, the tariff for handling containers (see Table) at different ports ranges between Rs 971 and Rs 3,540 per container. Even for different terminals at the same port (JNPT), the tariffs range between Rs 2,550 and Rs 3,540. Moreover, in some cases, there has been an increase in unit rates while in others, there is a decline, the Planning Commission said.

Price cap on tariffs

It would be better to substitute the present arrangement by notifying a price-cap for all ports or a group of ports. All concessionaires should be free to determine their own tariffs subject to a price cap, which can be suitably indexed to neutralise the impact of inflation. Over time, the tariff cap should also be calibrated downwards to reflect efficiency improvements.

For this, the well-accepted approach based on RPI-X (retail price index) could be considered. A ‘safety valve’ may also be stipulated for modification of tariffs, once in five-ten years, to reflect exceptional and unforeseen events. It could be argued that tariffs for handling containers could be fixed at say Rs 2,750 per container, it said.

It also suggested two options that the Tariff Authority for Major Ports could follow while determining the tariff cap for each class of commodities at the respective ports.

Option 1

The Planning Commission suggested a common tariff revision method — the applicable tariff caps may be increased every year, as on April 1, to the extent of 70 per cent of the variation in the WPI occurring between January 1, 2007 and January 1 of the year of revision. These tariff caps may be reviewed once in five years and the revised limits would apply only to those agreements entered into after such revision.

As per the first option to compute tariff limits, the average tariff may be computed for any given category of commodities by adding the applicable tariff at 12 major ports as on April 1, 2007 and dividing the sum by 12. Tariff caps for the various port trusts may be determined within a band of 25 per cent above or below the average tariff. The tariff caps so determined may be notified by Department of Shipping/TAMP as the applicable tariff for 2007-2008.

Option 2

According to the second option, the Planning Commission had suggested that TAMP may determine the tariff cap for each group of commodities at various ports by allowing for 15 per cent annual return on the capital cost, financing cost and operating cost of building a new terminal for a specific commodity group and by assuming an optimal size of the terminal.

It specified that the capital cost should include the costs of construction and financing. The annual operating cost of the aforesaid terminal should be determined assuming a reasonably efficient operation by the concessionaire, and based on capacity utilisation equivalent to 75 per cent of the installed capacity. The costs and tariffs should be fixed with reference to the WPI, as on January 1, 2007.