PSA’s Chennai terminal, first among old BOT operators to migrate to new rate regime

Singapore’s PSA International Pte Ltd run Chennai International Terminal Pvt Ltd (CITPL) has become the first among a batch of 16 older private container terminals to opt for a new rate regime announced last year basis which it has won a small rate hike from the tariff regulator while retaining most of the other major charges.

In March last, the government issued new rate setting norms for older build, operate and transfer (BOT) terminals such as CITPL operating at major ports, removing most of the flaws in the earlier rate regime that was at the centre of many legal disputes between the major ports and the terminal operators.

“CITPL welcomes the initiatives of the government in issuing the 2019 guidelines which will help in addressing most of the long pending issues faced by the older BOT operators. The 2019 guidelines will encourage the BOT operators to invest more in the port sector and serve the trade,” CITPL said.

CITPL has also signed a separate agreement with Chennai Port Trust, agreeing to migrate and abide by the 2019 tariff guidelines.

The Tariff Authority for Major Ports (TAMP) has approved an application filed by CITPL to raise the reefer charges by 10 per cent due to electricity tariff increase from ₹5.80 to ₹8 per unit and to hike the charges for hazardous and out of gauge (OOG) containers by 12.5 per cent.

TAMP has also endorsed CITPL’s plan to extend the free storage period for direct port delivery (DPD) containers to 15 days to encourage DPD cargo moving directly to factories. The new rates will be valid till August 2022.

Last revision

The rates at CITPL was were last revised by TAMP in January 2012 based on the tariff setting norms of 2005, whereby it had ordered an across the board reduction of 12.23 per cent over the then prevailing rates when the terminal asked for a 15 per cent raise. The Madras High Court stayed tThe rate cut was stayed by the Madras High Court on a petition filed by CITPL and allowed it to levy the old rates. The case it yet to be decided.

While approving the rate revision application filed by CITPL, TAMP has left undecided the treatment of surplus/deficit arising during the period of litigation.

Such surplus/deficit, if any, will be subject to either the orders of the respective courts or as per the treatment to be collectively decided by the Ministry of Shipping (MOS), the Major Port Trust concerned, the BOT operator and TAMP, according to the 2019 rate setting norms.

The Shipping Mministry is yet to take a call on a draft policy framework for deciding the treatment of past period surplus/ deficit, over and above the admissible costs and permissible return arising during the period of litigation in respect of BOT operators who have approached various High Courts and have obtained stay on the operation of the last tariff order passed by TAMP.

“While approving the rates as proposed by the CITPL, it is intimated to CITPL that whenever the Hon’ble High Court of Madras passes order disposing of the writ petition nos. 11010 and 11011 of 2012 paving way for treatment of surplus/ deficit or a decision from the MOS is received on the treatment of surplus/ deficit, whichever is earlier, the tariff of CITPL approved now would be subject to review then, so as to capture the impact of the surplus that has accrued during the period of litigation,” TAMP wrote in the order.

Meeting AAR

Among the new rules framed by the Ministry on setting rates for older terminals, the most significant is to allow these older cargo terminals to set rates for services to the extent needed for meeting their annual revenue requirement (ARR).

The ARR (a cap) will be the average of actual expenditure for the past three years plus 16 per cent return on capital employed (ROCE). The 16 per cent ROCE will be calculated on gross fixed assets - a departure from the earlier practice of computing the return on the net block of assets. It also includes capital work in progress and working capital.

The rate set by using the new guideline will be valid for three years and will be indexed annually to the wholesale price index (WPI), a measure of costs, to the extent of 60 per cent.

Previous guidelines

Under the 2005 rate guideline, the returns diminished with each passing year due to depreciation since it was worked out on the net block of assets. Servicing the royalty/revenue share pay outs to the port trusts in the face of declining returns had rendered their facilities unviable, the older terminals had argued.