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PPP operators at major ports hail government’s move to shift them to market pricing

P Manoj Mumbai | Updated on October 27, 2021

They said the move will finally allow them to get RoI

The government’s move to allow existing private terminals at major ports to shift to a market pricing regime from a regulated setup will help stressed facilities to survive, facilitate investments into operating terminals for infrastructure improvements and is unlikely to result in exponential increase in cargo handling rates.

“It’s a very sensible, pragmatic and fair decision by the Ministry of ports, shipping and waterways,” said an industry executive.

Terming it as a “positive move in the right direction”, the chief operating officer of a private container terminal located on India’s Western coast said: “It will allow us to get the return on investment (RoI) that we were not getting since starting operations”.

“This will give us a path to create a meaningful journey by allowing us to invest and support infrastructure development for the benefit of India’s export-import trade while ensuring a decent return on investment to private operators,” he added.

The move also protects the port authorities from allegations of facilitating ‘windfall gains’ to operators as they have to share half of the contractually mandated royalty or revenue share on the incremental rates above the ceiling rates set by the rate regulator, with the port authorities.

Referring to apprehensions in some quarters that the move could drive up tariffs at privately run terminals in major ports, the managing director of a port operating company said: “Allowing freedom to set rates based on market forces, does not necessarily mean a steep increase in tariffs as the operators will have to factor in the competition prevailing in the vicinity before increasing rates”.

With market determined tariffs, the private operators will be able to give discounts to users to ramp up volumes with the hope of getting higher rates when the volumes rise. “So far, the extra effort of offering discounts to users to attract volumes is not getting compensated as we are compelled to charge higher rates on gaining volumes but only up to the maximum level set by the rate regulator,” he stated.

“Under a free market pricing, if we give discounts and attract more volumes, then slowly we can start charging more than the ceiling rate set by the regulator, depending on competition. So, there is some incentive,” he said.

This will also level the playing field between major ports and non-major ports that already have the freedom to set market rates, which was making it tough for private terminals in major ports to compete with them till now. “Allowing market forces to set rates will also help improve the viability of projects and inject life into some of the stressed terminals,” he added.

Published on October 27, 2021

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