Private firms running cargo facilities at Union government–controlled ports may have to wait until the end of this decade to migrate to an updated tariff regime, if the government accepts suggestions made last week by an expert body.
This means these firms will have to contend with the apparent flaws in the existing tariff-setting guidelines that were finalized in 2005 for a few more years.
The Energy and Resources Institute (Teri), mandated by the shipping ministry to frame new tariff-setting guidelines for port services, has recommended migration of firms running cargo-handling facilities for specific commodities under the existing cost-plus-tariff regime to a normative cost-based model of tariff fixation.
The new model is being followed since February 2008 for all new cargo-loading facilities. But for existing ones, Teri has recommended that the migration happen only by 2020, subject to the terminals upgrading their facilities to be on par with those built under the 2008 guidelines.
Teri has suggested that the older terminals be given seven years from 2013 (when the 2008 norms are slated for a revision) to upgrade their facilities based on the normative approach.
Teri’s report has been hosted on the shipping ministry website for comments from stakeholders.
In fairness to the existing facilities, the determination of capacity and capital costs are based on actuals and not on norms as in the case of the 2008 guidelines, Teri said in its report.
“It is nevertheless important that these terminals are also over a period of time made to achieve the levels of efficiency and productivity that are possible based on the land and waterfront allotted to them. Eventually, they should be brought under the 2008 guidelines so that maximum efficiencies can be achieved,” Teri said in its report. “It is therefore recommended that the 2008 guidelines as revised in 2013, when the revision is due, should be made applicable to these terminals by 2020. That will give them a period of seven years to make the necessary investments in civil works and equipment to comply with the norms of 2013 by 2020.”
But Teri also suggested that if the government accepts its recommendations, “it should consider providing a security net to the terminals and fix a floor tariff, for a period of three years, at 60% of the prevailing tariff” should the prescribed rates fall below that level.
Currently, tariffs for the older facilities are set on a cost-plus basis depending on projected cargo volumes, and are valid for three years.
In the normative approach, tariffs are worked out on the basis of certain defined criteria and assumptions on capital costs and operating expenses that are unrelated to the actual cost of the projects.
The government uses this approach to set tariffs for all new cargo-handling facilities bid out or finalized from February 2008.
In December, the Indian Private Ports and Terminals Association, a private port lobby, filed a petition in the Delhi high court seeking a status quo on existing rates till the new guidelines for computing tariffs are finalized. It approached the court on apprehensions that the Tariff Authority for Major Ports (TAMP) may lower the existing rates at terminals that are due for revision.
On 9 January, the court declined to grant a stay on the rate revisions. Subsequently, TAMP cut rates by 44.28% at the container loading facility run by APM Terminals Management BV and by 27.85% at the terminal run by DP World Pvt. Ltd, both at Jawaharlal Nehru port near Mumbai. The regulator also cut rates by 12.23% at the container terminal run by PSA International Pte Ltd at Chennai port.
“The Teri report creates more confusion than clarity on tariff issues faced by existing terminal operators,” said the chief executive of a Mumbai-based port-operating firm with an interest in several ports. He declined to be named.
“Tariff-setting guidelines should encourage and incentivize efficiency,” said Samir Kanabar, partner, tax and regulatory servicesm, Ernst and Young Pvt. Ltd. “Penalizing efficiency would defeat the important objective of privatization.”