ATTRACTING PRIVATE FUNDS
Milind Deora, who took charge as Minister of State for Shipping last week, listed his priorities, which include building more port capacity, getting global orders for domestic shipyards and addressing the policy issues hurting the shipping lines.
Anyone in the maritime sector will agree that the minister has got his priorities right. Growth in the port sector has been throttled by a discriminatory tariff regime and apathy on the part of the policy-makers. Domestic shipyards are starved of new orders and local shipping lines have been burdened by the rigid fiscal regime and the prolonged slump in freight markets. So, these areas should naturally rank high on the new minister’s agenda.
Given the complexities of the issues, it may not be smooth sailing for Deora. But shipping circles expect Deora, who is also from Mumbai, a major shipping hub, to play the Captain’s role and steer the sector out of choppy waters.
Private funds are crucial to create additional port capacity. According to the 12th Plan, the capacity in Government-owned major ports has to be expanded by 526 million tonnes to 1,229 million tonnes by 2017 to meet the projected rise in cargo traffic. Major ports need investments totalling Rs 77,000 crore during this period. Of this, about Rs 51,000 crore is expected to come from the private sector.
If the recent developments at some major ports are any indication, it seems all is not well with the privatisation policy and the criteria on which projects are awarded.
In September, the Jawaharlal Nehru Port was forced to terminate the contract awarded to a consortium of PSA of Singapore to build the Rs 6,700 crore container terminal, as the bidder refused to sign the concession agreement even after a year. A fortnight later, Spanish firm Grup Maritime pulled out of the Rs 1,400 crore Ennore Port container terminal saying that it could not raise funds for the project, even after being granting extra time.
Last week, Haldia Bulk Terminal, a private venture, walked out of the Haldia port in West Bengal stating unsafe work conditions. These may be separate incidents but they reflect the flaws in the norms governing port projects based on the public-private-partnership (PPP) model.
While bidders of new projects are backing out after winning them due to various reasons, some private operators of the existing terminals at major ports are taking legal recourse against the tariff regime. At major ports, tariffs are fixed by the Tariff Authority for Major Ports (TAMP), based on the guidelines issued by the Shipping Ministry.
Currently, there are two sets of guidelines; one issued in 2005 and the other in 2008. A majority of the existing private terminals are governed by the 2005 guidelines, a basic principle of which is that the operator should share excess gains with port users by reducing tariff. However, over a period of time, this has proved to be counter-productive. The charge is that the regulations led to a regime where efficiency is punished. If a terminal operator handled more cargo than his standard capacity, he will be subjected to tariff cut.
At the beginning of this year, TAMP cut rates at the private terminals at Jawaharlal Nehru Port — Gateway Terminals by 44.8 per cent and Nhava Sheva International Container Terminal (NSICT) by 27.85 per cent. Both terminals handled more cargo than their standard capacity. The operators challenged the ruling and secured interim stay orders.
To rectify the drawbacks in the existing guidelines, the Shipping Ministry is now drafting a new set of ‘simplified’ guidelines to fix tariff at major ports. However, this is unlikely to help resolve the regulatory issues hurting the private terminal operators at these ports. This is because the new norms will not apply to existing terminals; they will be applicable only to new projects. So, there will be private terminals at Major Ports, governed by three different sets of tariff guidelines.
As a solution, two options are being suggested. One, allow those terminals which are governed by the 2005 guidelines to migrate to the 2008 guidelines. Two, make the new guidelines applicable to all operators.
According to port officials, the problem with this would be that the Government may lose some revenue and the bureaucrats would not like to take this risk, fearing likely questions from Vigilance or Comptroller and Auditor General in the future. The sad part is that port terminals are treated as a source of revenue rather than a vital infrastructure facilitating the country’s international trade.
Another option would be to dismantle TAMP. But this requires amendments to the Major Port Trust Act. At the India Maritime 2012 conference held in Goa, Ministry officials said that TAMP would be scrapped in the second stage, but they have no time-table for it.
According to L. Radhakrishnan, Chairman of JNPT, exporters and importers do not get even one rupee benefit from the rate cuts at JNPT. Foreign shipping lines, which are not regulated in India and are free to pick up the country’s cargo are the only ones to get the benefit.
While tariff at major ports are regulated, non-major ports are free to determine their tariff, only reflects the dichotomy in the port sector. Unless the regulatory issues are resolved, Deora may find it difficult to attract private funds into port projects.
India introduced tonnage tax to (TT) help domestic shipping lines acquire more tonnage. It helped them in the initial years. But subsequently, several other levies not only wiped out the TT benefits but made Indian flag unattractive, forcing companies to flag out. Today the share of Indian ships in the country’s own cargo is less than ten per cent despite the fact that India depends largely on imports to meet its energy needs — crude, LNG and coal. It doesn’t need any explanation to understand the importance of having India’s own shipping fleet to carry these commodities. There have been talks about evolving a transport policy for the hydrocarbon sector. It is more crucial now than ever to have such a policy both from the point of view of oil importers and the shipping firms.
Building ships in Indian yards is considered costly compared to those in China, South Korea or Japan. There are several reasons for this, including high cost of inputs, low productivity, lack of fiscal and financial support. Indian yards are not even able to attract repair business, which has huge potential. Many Indian ships do their annual dry docking at overseas yards. Most of India’s competitors in shipbuilding get direct and indirect Government support. So, a policy supporting domestic yards could help them get orders.
Given that Deora is wearing two hats — he is also the Minister of State for Telecom and Information Technology, it remains to be seen how much time he will be able to devote to shipping. Yet, many of the issues affecting the sector can be resolved, if there is a will to take decisions with an open mind.