Shipping Ministry to revert to royalty model for PPP contracts under new ports law

The Shipping Ministry proposes to revert to the royalty model for deciding the award of public private partnership (PPP) contracts at Central government-owned ports to check scope for “manipulations” by private terminal operators when they get freedom to set rates after the port trusts are converted to Authorities.

The revenue share model will go after the Major Port Authorities Bill is approved by Parliament to convert the port trusts into authorities, said a Shipping Ministry official.

Under the new arrangement, the terminal operators will pay royalty per tonne or per twenty-foot equivalent unit (TEU), as the case may be, he said. The earliest cargo terminal privatisation contracts followed the royalty model. The terminal operator had to pay a certain royalty specified in the contract on each tonne of cargo or TEU handled at the terminal to the government-owned port.

Since then, the Central government-owned ports are following the revenue share model for port privatisation contracts.

The bidder willing to share the most from its annual revenue with the government-owned port wins the contract, typically lasting 30 years.

The royalty model was discarded in favour of the revenue share after private cargo handlers complained that the very low royalty rates in the first few years of operations and substantially rising rates over the balance period were detrimental to their operations on a commercially viable basis, particularly when there was no concomitant increase in rates.

The only difference between the earlier royalty model and the proposed one is that under the former the tariff used to be fixed by the Tariff Authority for Major Ports or TAMP, the rate regulator for the major ports. Now, the rates will not be fixed by TAMP which will be wound up under the new Act.

Only a reference tariff will be indicated at the time of bidding just to give the bidders an idea of the rates.

Since the rates will be market determined under the Authorities’ set up — the cargo handlers can charge higher or lower depending upon the market — based on that they will have to pay a per tonne or TEU as royalty to the port.

This will remove the uncertainties on getting rate hikes under the earlier royalty model from a cargo handlers’ perspective.

The Shipping Ministry reckons that the shift to the royalty model is imperative when the major port trusts are converted to Authorities, giving them freedom to set rates. It will also prevent revenue leakages.

“In the deregulated scenario, the port will not be able to find out what an operator is charging. If it is based on cargo quantity, records will be available to cross check,” the Shipping Ministry official mentioned earlier said, justifying the move to revert to the royalty model.

For instance, the concessionaire could have another company that will collect the charges and give it to them. They can resort to such manipulations if revenue share model is followed. But, under the royalty model, the ports can also verify,” the official said.

Under the Sagarmala programme, 142 port capacity expansion projects with a total investment of ₹91,434 crore have been identified for implementation over the next 20 years, according to the Ministry.

Much of these investments are expected to come from private entities.

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