The move to permit old public-private-partnership (PPP) cargo terminals operating at state-owned major ports under a regulated set-up to migrate to a free pricing regime will “protect” the users and the port authorities, while private operators will have to “perform” to get better revenue, said an expert, who helped write the draft guidelines.
“Competition is so fierce. There are private ports operating next to government ports. Within one port (J N Port in Mumbai) itself, there are five terminals run separately by some of the top container terminal operators in the world. It’s not that they can charge whatever they feel like (after migration to market determined rates). Therefore, the terminal users are protected by the competition, the port authorities are protected by the model (for migration) we have formulated, while the private terminal operators have to perform to get better revenue. Simply put, this is migration,” Gopal Krishna, a technical expert in the ports sector and a former secretary, Ministry of Ports, Shipping and Waterways said.
The draft guidelines on migration, currently undergoing stakeholder consultations, have been modelled in a way that the revenue of the state-owned port authorities (from the revenue share or royalty to be paid by the terminal operators per the concession agreements) are 100 per cent protected.
“There is no downside to the port authorities from the migration of old private terminals to a free pricing regime; all the downside will be borne by the private operators,” Krishna said.
To illustrate this point, he said, if a private terminal operator is charging Rs 100 from the users of which, for instance, he is contractually mandated to pay 50 per cent (Rs 50) as revenue share to the port authority. He was bound to levy Rs 100 because the Tariff Authority for Major Ports or TAMP, the erstwhile rate regulator for state-owned ports, had set the tariff at this level and he had no option but to charge only Rs 100.
When this terminal migrates to a free pricing regime and if the market conditions do not allow him to charge, for instance, more than Rs 60, he will still have to pay the port authority Rs 50 as revenue share (which is 50 per cent of the original approved tariff of Rs 100) and not Rs 30, which is 50 per cent of Rs 60 determined by the market.
However, if the terminal charges Rs 200, he will have to pay 50 per cent of Rs 200, which is Rs 100, to the port authority as revenue share.
“So, the port authority where the terminal is located will always be at an advantage under the model formulated for the migration. The full upside is taken by the respective port authorities, and the entire downside is borne by the private operators,” Krishna said, allaying apprehensions in some quarters on the plan.
But then why are the private operators willing to agree to such a model for migration?
“They are agreeing because, wherever there is a possibility of an upside, they will also stand to gain. If the market allows the terminal to charge Rs 200, even though he has to pay 50 per cent of that (Rs 100) as revenue share to the port authority, he also gets to retain the balance 50 per cent,” he explained.
Besides, the revenue share/royalty is payable on the actual volumes handled or on the minimum guaranteed throughput (MGT) written into the contracts, whichever is higher.
Migration of old cargo terminals, according to Krishna, will create the right kind of competition in the market and would be good for the port sector.
“Private ports are not regulated. Then, why should we regulate state-owned ports? All we are saying is, give the government-owned ports a level playing field. India is a big market, and one regime should apply to the whole country. You cannot have pockets of regulation and pockets of nonregulation. It doesn’t happen that way,” he stated.
The Major Port Authorities Act, passed by the Parliament and notified in the gazette on February 18, 2021, gives freedom to the 11 ports it governs, and new cargo handling terminals set up by private firms at these ports, to levy market determined rates, by scrapping the Tariff Authority for Major Ports (TAMP).
However, the fate of old cargo handlers was uncertain, with no clarity on allowing them to levy market rates.
“The day the Parliament passed the law, which abolished TAMP, the rates at state-owned ports (even for old terminals) had to be market driven. There is no other way,” he said.
The old terminals will be allowed to charge market determined rates only prospectively.
“The tariff disputes relating to the past period, will be dealt with as per the past regime. We had multiple discussions with the private operators and the government, and everybody felt that all the legacy disputes should end now, as we move to the free pricing regime for old operators also. We have written in the draft guidelines that the parties will endeavour to see that all legacy disputes are resolved at the earliest. That’s a subtle hint to everyone
that you were fighting earlier, please don’t fight now, concentrate on your business and volumes,” Krishna added.
(source: ET Infra)
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