Major Port Authorities Bill to give a fillip to PSU ports, say experts

The passing of Major Port Authorities Bill, 2020, in the Rajya Sabha this week, paves the way for public sector (PSU) ports to vie with their private counterparts, mainly on the tariff front. Major PSU ports were hamstrung due to regulations laid down by the Tariff Authority for Major Ports (TAMP) that were not applicable to private ports.

“The government made it clear that TAMP’s role has significantly lessened. The reference tariff for PPP (public-private partnership) bidding would be set by the new board. Once a private player is in operation, it will have complete authority in setting tariffs based on market conditions. Thus, over time, once this mechanism becomes operational, TAMP’s future is uncertain,” said Ankit Patel, vice-president and co-head, corporate ratings, at ICRA.

TAMP has been a multi-member statutory body with a mandate to fix tariffs levied by major port trusts under the control of the Centre and private terminals, therein.

This body fixes rates as well as the conditionality governing the application of rates.

“This Bill is going to create a level-playing field not just between major and private ports but also between major port terminals and PPP terminals. This will lead to strong price discovery,” A. Janardhana Rao, managing director (MD) of Indian Ports Association, told Business Standard. Within major (PSU) ports, PPP terminal players, too, have had to take tariff approvals from the TAMP. The Bill, however, eliminates taking approval from the body.

“Due to this, we are also expecting investment in PPP to go up at major ports in the coming years. Removal of TAMP will augur well for PSU ports, both in terms of earnings as well as investments,” added Rao.

DP World, Singapore’s PSA International Pte and Essar Ports, among others, are some of the PPP players having terminals at major ports such as Jawaharlal Nehru Port (JNPT) and Paradip.

“TAMP’s role dilution will give a big boost to the investment climate in the PPP segment. It had been a major hindrance for players. There will be renewed enthusiasm for new licenses,” said Rajiv Agarwal, chief executive officer (CEO) and MD of Essar Ports.

Meanwhile, analysts said the Bill does put some major ports in an advantageous position, going ahead.

“Larger ports with higher economies of scale – JNPT, Kandla, Vizag and Paradip would stand to benefit as they handle larger volumes. They have the possibility of attracting more cargo as well as investment,” said Patel. “Pricing war will now be market driven, entirely fair and in accordance with customer requirement, taking into consideration the cost parameters of ports,” added Agarwal.

Over the last decade, private ports have been increasingly eating into the cargo share of major ports, driving the latter to reinvent themselves to stay afloat.  “Private ports have benefitted for a long time by the service quality and lack of flexibility at PSU ports. If the board (of a major port) operates with complete freedom, it would mean more competition for cargo. The new Bill could be of some worry to private ports,” said Patel.

The Bill also proposed a simplified composition of the board of Port Authority, which will comprise 11 to 13 members from the present 17 to 19.

A compact board with professional independent members will strengthen decision making and strategic planning. “A compact board with an appropriate mix should help efficiency at major ports, and in turn, push up competence,” said an analyst with another rating agency.

Provision has been made for inclusion of representatives of state governments, the ministry of railways, the customs department and the department of revenue as members in the board. 

There will also be a government nominee and a member representing employees of the major port authority.

Though the new Bill addresses big hurdles that major ports have been facing, service quality and marketing are lacking at these ports as compared to private ones, said industry experts.

“Creation of a mechanism is not enough. Under the proposed landlord port model, the board that is created must use the autonomy granted to it. The board has to operate with freedom and take decisions to improve service quality, efficiency, land usage, asset-monetisation, tariff setting and dispute resolution, among other issues,” said Patel.