Why this inertia at the major ports tariff authority?

The Tariff Authority for Major Ports passed orders recently on general tariff revision proposals submitted by three terminal operators — Nhava Sheva International Container Terminal, Chennai International Terminal Private Ltd and Gateway Terminals India.

For Nhava Sheva, the Authority in its order on March 1 notified a rate reduction of 27.85 per cent. In its order of February 14 for Chennai it notified a rate cut of 12.23 per cent. It reduced Gateway Terminal’s tariff by 44.28 per cent in its February 8 order. It resorted to tariff reduction after going through a detailed consultative process involving all the stakeholders.

During the relevant tariff cycle, these operators earned profits in excess of the permitted return on capital employed and prescribed in the tariff guidelines. The Authority in its orders adjusted the accumulated surpluses while fixing tariffs for the next cycle valid for the next three years. The orders were passed under Section 48 and 49 of the Major Ports Act 1963. The orders, therefore, are statutory and are to be followed mandatorily.

Which is why it is surprising that the terminal operators have not implemented these orders. They continue to bill the customers at pre-revised tariffs. This is an issue of serious concern.

The Indian Private Ports and Terminals Association, a body representing the interests of these terminal operators, had moved the matter before the Delhi High Court, which rejected the petition on the ground that it was outside its jurisdiction as the operators are based in Mumbai. Against this order, the Association had moved a special leave petition before the Supreme Court.

The Supreme Court rejected the petition without granting any stay. The operators instead of implementing the Authority’s orders have entered into some kind of an arrangement with container shipping lines to collect the pre-revised tariffs subject to the outcome of the Court decision. This audacious action of the operators demonstrates defiance of law and unauthorised collection of pre-revised tariffs.

Peculiar argument

The Authority pleads helplessness saying that it does not have power to enforce its own orders. Its statutory and regulatory function is constrained by the absence of an express authority empowering it to enforce its decision.

This is a peculiar argument. It implies that a statutory order passed by the Authority under the Major Ports Act is vulnerable and left to the whims of the operator. It is for the operator to implement an order passed in its own case by a statutory authority. An operator appears to have the luxury of defying and delaying the implementation of a statutory order.

This is not to say that an operator does not have the right to challenge or dispute an order passed by the Authority. The Authority’s orders are appealable. The affected party can approach a high court and obtain a stay on operation of such orders. In the absence of such a stay, it is mandatory to implement the order. In this case, the defiance is bold and blatant. It shows the operation of the rule of law poorly.

Role of port trusts

Is tariff an issue only between the terminal operators and the shipping lines? Can an agreement between the operators and the shipping lines be used as a ground to bypass an order of the Authority? It brings in focus the role of the port trusts which enter into a licence agreement with terminal operators to build, operate and transfer a terminal for 30 years. According to the licence agreement, the licensee, that is, the terminal operator, during the operation phase is entitled to levy and recover tariffs according to the scale of rates approved and notified by the Authority from time to time.

Therefore, implementation of the Authority’s order is a mandatory under the contract. The licence agreement also provides that failure to comply with the provisions of the agreement will be treated as a default, entailing consequences under the agreement. However, the port trusts appear to be not in a hurry or mood to enforce implementation of the orders in these cases. As a matter of fact, the port trust is advocating for a regulation-free, market-based model, where tariffs are determined by market forces. This approach on the face of it appears appealing, but needs critical thinking. The approach is fraught with serious implications and based on questionable assumptions.

However, in the present circumstances, the attitude of the port authority is understandable. Any move for reduction of traffic hurts both the terminal operators as well as the landlord port, Jawaharlal Nehru Port Trust. The Port gets lesser royalty revenue, particularly, in respect of those operators who have been awarded projects under the revenue sharing model. The convergence of interest and the tacit understanding between the terminal operators and the port trust (licensee and licensor) is well-evident. In between these two parties, the interest of the trade gets suppressed as they are heavily dependent on both of them. The higher tariff is a pass-through to the ultimate customer. The beneficiary, the ultimate payer of the port services, has little say in the issue.

Tariff setting principles

While the present situation should not continue, the Ministry of Shipping and the port authority should act fast to see that the new tariff regime is put in place with immediate effect. The major ports in India have witnessed three different bidding models, covering various periods. First one covers projects awarded under the licence agreement before July 2003; the second type covers projects awarded after July 2003 but before February 2008; and the third covers the projects awarded after February 2008. Without commenting on the crucial aspects of these three models, it is important to mention that the licence agreements have various distinguishing aspects. The tariff guidelines for fixation of tariff by the Authority were also changed in February 1998, March 2005 and February 2008.

The inherent weaknesses in the tariff setting principles should be addressed. The conflict and contradiction between the bidding model and the tariff model should be addressed to bring in the desired convergence and compatibility between the two. While the regulator covers limited aspects of tariff fixation, there are other important issues in the licence agreement which are to be monitored and addressed by the licensor, that is, the port authority. Much needs to be done both about the port authority’s role and responsibilities under the licence agreement vis-a-vis the operator and about compatibility between the changing tariff guidelines and the bidding models for the licence agreement. Pending this, the Authority’s orders need to be implemented unconditionally, without creating an unpleasant precedent characterised by defiance, silence and helplessness of various stakeholders.

(The author is former Deputy Chairman, Mumbai Port Trust.)

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