Govt to revise rate regime for old terminals at major ports

P Manoj Mumbai | Updated on November 29, 2018 Published on November 29, 2018

The Shipping Ministry has decided to drop an earlier plan to allow older terminals to migrate to a more favourable and market-friendly pricing structure   -  The Hindu

The Shipping Ministry has flagged off the process of revising a contentious rate regime that governs India’s first batch of 16 public-private-partnership (PPP) cargo terminals at Centre-owned major ports.

The revision has become necessary after the Ministry decided to drop an earlier plan to allow these terminals to migrate to a more favourable and market-friendly pricing structure announced for new terminals in 2013.

Lack of agreement

The migration plan failed because the Ministry and the private firms running these terminals failed to agree on the terms of the shift.

The Ministry wanted the terminal operators to put up their facilities for re-bidding to discover the price afresh, with a right of first refusal given to the existing cargo handlers to match the highest bid and take the contract. The re-bidding condition was proposed as the shift to a de-regulated rate regime of 2013 would have fetched higher revenues to port operators, which had to be shared with the government-owned port trusts.

This was not acceptable to the operators, including global giants such as DP World, PSA International and APM Terminals, which preferred a migration without any conditions, which was not agreeable to the Ministry, either.

The validity of the 2005 rate-setting guideline ended in 2010 but has been extended repeatedly with the latest extension ending in March next year.

“If migration had worked out, these terminals would have moved to the 2013 rate regime and the 2005 guideline would have become defunct. Since that has not worked out, it is a mandatory requirement for us to revise the 2005 rate norms which was due in 2010.We have to give a reason for not revising it; as long as the migration issue was there, that was all right. But once that is dropped, we have to revise it,” a Ministry official said.

‘Flawed’ clauses

These terminal operators are fighting the government over many “flawed” clauses in the 2005 rate regime either individually or under the banner of their lobby group, the Indian Private Ports and Terminals Association (IPPTA), after the rate regulator ordered rate cuts when the terminals asked for a raise.

The terminal operators say that the rate cuts, if implemented, would render their facilities commercially unviable and have secured the backing of courts to stay the rate reductions ordered by the Tariff Authority for Major Ports (TAMP), some as far back as 2012.

Even after its validity ended and was extended on an ad-hoc basis, the Ministry has tweaked some of the vexed clauses in the 2005 guidelines that have roiled the operators including the calculation of surplus earned by the terminals by handling much more than the volumes projected in the previous rate cycle. Such refinements were carried out with the approval of the Law Ministry and the Attorney-General.

Diminishing returns

Still, there are clauses detrimental to the interests of the older terminals.

For instance, the return on capital employed (ROCE) is currently computed on the net block of assets, resulting in diminishing returns with each passing year. “The gross asset method of determining return on capital employed is more appropriate for ensuring desired stability on return on investment which is essential for any financial investment in a project,” an executive with one of the older cargo terminals said.

The 2013 rate regime guarantees a raise of as much as 15 per cent on the base reference or ceiling rate (set upfront at the beginning of the contract by TAMP) during each year of the 30-year contract if the terminal operator complies with certain performance standards.

The PPP operators would also be entitled to a further hike every year to account for rising prices because the base rates are indexed to the WPI to the extent of 60 per cent.

In comparison, the 2005 rate guideline penalise operators for efficiency. If a terminal loads more than the projected volumes in a tariff cycle, its rate will be cut in the next tariff cycle.

Published on November 29, 2018
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