Allow major ports to fix own tariff for a level-playing field

In April 2013 the Tariff Authority for Major Ports (TAMP) completed 16 years. Media reports suggest that the Ministry of Shipping is in the process of winding up the TAMP. It would seem to be appropriate at this juncture to evaluate the performance of the TAMP and see whether it has made any significant contribution to the mechanism of tariff fixation and to what extent the stakeholders, namely shippers, ship owners, port investors and the respective port authorities, stood to benefit or not by its role as a regulator.

It was in 1996 that the Government took a policy decision to develop the second container terminal at the Jawaharlal Nehru Port Terminal (JNPT) via the public-private partnership route. International container terminal operators were invited to participate in the tender and P&O (Ports) Australia, the highest bidder, was awarded the concession to develop a new terminal alongside the one, which was already functioning under the JNPT’s own management. P&O (Ports) then represented to the Shipping Ministry that the power to fix tariff should not be vested with the JNPT authority, a competitor, or even with the Ministry of Shipping as the JNPT is virtually an arm of the Ministry of Shipping. The Government saw merit in their representation and decided to create an independent, quasi-judicial body to fix and revise the tariff and authorised TAMP to formulate its own rules and regulations.

Changes in port services market

The TAMP started under the Chairmanship of S. Sathyam, who should be credited with putting in place a set of rules, regulations and guidelines as to how the Authority should work and introduced the “cost-plus model” in fixing port tariff with a 15 per cent return for investors in the port sector. Some of the reforms that are seen today in port tariff structure, such as the reduction in the unit of berth hire from 24 hour basis to hourly basis, time limit of four hours for cessation of berth hire charges, concession to container and coastal vessels to promote coastal shipping, imposition of penal interest on delayed payment by users as well as delayed refund by Port Trusts, flexibility to ports to respond to market situation, standardised proforma for filing tariff proposals and well-reasoned tariff orders, are some of the achievements of the Tariff Authority.

Yet, another reason that prompted the Government to establish TAMP was the ‘partial monopoly’ enjoyed by the major ports in India. The port services market of Indian major ports prior to the establishment of the Tariff Authority can be described as an ‘oligopoly.’

The Government wanted an independent regulatory authority to fix and revise the tariff structure in view of the oligopolistic market environment — where a small number of major players control the market environment. When the Tariff Authority was formed in 1997 the major ports handled about 90 per cent of the total port traffic and the non-major ports handled the remaining 10 per cent.

But the changes that took place in the port services market in the last sixteen years have been phenomenal.

Encouraged by the success of the public-private partnership model, many maritime State Governments attracted substantial private investments in the port sector, with the result that some of the non-major ports grew enormously, handling more cargo traffic than some of the major ports.

For example, in 2012-13 Mundra port in Gujarat handled 83 million tonnes, whereas the major ports of Cochin, New Mangalore, Ennore and Tuticorin could handle only 20 million, 37 million, 17 million and 28 million tonnes, respectively. While the total port traffic handled at Indian major ports declined from 560 to 545 million tonnes in 2012-13, traffic growth at non-major ports increased to about 390 million tonnes accounting for about 41 per cent of the total port traffic.

Newly emerging non-major ports, namely Krishnapatnam, Gangavaram and Dhamra, have already handled 21, 14 and 11 million tonnes, respectively, during 2012-13.

Moreover, the number of development projects coming up at non-major ports in the ten maritime States in India would clearly suggest that the partial monopoly enjoyed by the major ports in India about 16 years ago has almost disappeared.

Major ports in India are facing very keen competition from the neighbouring non-major ports, both in respect of quality of services and in price.

Container traffic

In the field of container traffic, the competition appears to be more intense. In JNPT three container terminals are now in operation and there is intense inter-port competition among JNPT, Mundra Port, Pipavav and Hazira.

There is already keen intra-port competition among the three container terminals in JNPT, as a result all three terminals appear to have exceeded their installed capacity.

In Chennai, DP World will have to compete with a new terminal that is coming up within the Chennai port limit, in addition to Ennore port. A private port capable of handling 1.2 million TEU per annum at Kattupully, south of Ennore and north of Chennai, has recently been commissioned, creating a highly competitive port services market in container trade.

A container terminal at Krishnapatnam has been commissioned with an installed capacity of 1.2 million TEU and within a decade the port is expected to handle 6 million TEU and 200 million tonnes to become the largest port in India.

More players

The emerging trends in the port services market in India suggest that the extent of competition is expected to deepen and broaden further on completion of the ongoing port projects. In such a scenario, subjecting the major ports only to the regulatory control of the TAMP and allowing non-major ports the freedom to fix and revise their tariff structure appear to be unfair. (Ennore — a major port — is outside the jurisdiction of the TAMP, as it comes under the Companies Act). Therefore, the two alternatives the Government has before it is either to wind up the TAMP and allow major ports to compete freely with non-major ports or to also bring the non-major ports under the regulatory regime of the major port trusts.

As the non-major ports function under the maritime State Governments they would not allow their ports to be brought under a new regulatory environment under the Union Government.

Many investments have been made in the non-major ports under public-private partnership model in the belief that the investors would have the right and freedom to fix their rates. In such a scenario, the best practical alternative would be to wind up the TAMP and bring all the ports major and non-major ports into a level playing ground.

The public private partnership model has already created a highly competitive port services market, where the market forces themselves will be able to play the role of an effective regulator.

(The author, former Acting Chairman of JNPT and former Chairman of Mormugao Port Trust in Goa, is a visiting professor at the Manipal University.)

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