Why NSIGT is becoming DP World’s ‘favourite’

In less than two years since starting operations, Nhava Sheva (India) Gateway Terminal (NSIGT), the second facility run by global port operator DP World at JNPT, is doing brisk business.

Nhava Sheva International Container Terminal (NSICT), the Dubai government-owned firm’s first facility at JNPT operating since 2000, handled 728,560 twenty-foot equivalent units (TEUs) in the year ended March 2017. Whereas, NSIGT, which was opened in September 2015, handled 445,111 TEUs during FY2017. At this rate, NSIGT will overtake NSICT this year or the next and reach full capacity.

The statistics clearly demonstrates the repercussions of the frequently changing rate regime at India’s major ports, wherein the benefits arising from new tariff structures does not flow to existing operators, but only benefits those who come later.

DP World, according to EXIM trade and shipping line sources, is diverting business to NSIGT, which sits adjacent to NSICT, because the rate structure under which it operates is “more commercially beneficial” than NSICT.

NSIGT is designed to handle 800,000 TEUs a year. It operates under the 2008 tariff guidelines on a revenue-share format. It won the deal by offering to share 28.09 per cent of its annual revenues with JNPT.

NSICT is designed to load 1.2 million TEUs, and operates under the 2005 rate guidelines which has been a contentious issue between the government and some 16 terminals covered by the regime. It follows the royalty model.

In fact, the volumes handled by NSICT has been steadily declining since 2012 when TAMP, the rate regulator for major ports, notified a rate cut of 27.85 per cent at the facility. The rate cut was stayed by the Mumbai High Court.

Besides, from 2012, NSICT has been contractually mandated to handle only 600,000 TEUs till the concession ends in 2027.

NSICT handled 1.4 million TEUs in 2011-12, 1.04 million TEUs in 2012-13, 969,458 TEUs in 2013-14 and 1.16 million TEUs in 2014-15 (an exception to the declining trend).

The volume reduction became more pronounced with the opening of NSIGT in 2015.

In 2015-16, NSICT handled 999,693 TEUs and in 2016-17, it dipped to 728,560 TEUs.

The most contentious aspect of the 2005 norms is the treatment of surplus earned by the operator by handling more than the projected volume of containers estimated while working out the rates for a three-year period.

Accordingly, 50 per cent of the surplus earned is allowed to be retained by the operator while the balance is passed on to the users in the form of reduced rates.

The surplus calculation method was partly modified by the ministry in 2015.

As a result, the terminal operator will be allowed to retain up to 20 per cent of the surplus as well as half of the surplus in excess of 20 per cent. The balance half of the surplus will be passed on to the users by a reduction in tariffs. That aside, terminals such as NSICT were also hit by the contract terms, wherein the royalty per container that the operator has to pay to the port authority, are low in the first 10 years and rise substantially over the balance period.

The royalty payable by NSICT to JNPT has increased from ₹47 per TEU in FY2000 to ₹3,214 per TEU in FY2018 as against a rate of ₹3,341 per TEU. From the next year onwards, the royalty payable will be more than what it is allowed to charge customers.

With low rates and rising royalty, NSICT has become unviable. And the best course open is to handle only the minimum volume of 600,000 TEUs mandated by the contract, from the point of view of minimising losses, without running into default. This explains why DP World is propping up NSIGT at the expense of NSICT, says industry officials.

“Both our terminals at JNPT are governed under different concession agreements and we are in compliance with their respective provisions defined in the agreements,” the firm said.

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