| While each case is unique, there's a common thread "" that where there are independent regulators, they haven't made much of a difference, and that if the regulator/government is on your side, infrastructure is probably the most profitable sector to be in. In the NSICT case, according to the study on the Planning Commission's website, between 2002 and 2005, the NSICT earned a return in excess of 100 per cent as compared to the permitted 20 per cent on equity! |
| This column has dealt with the NSICT on several occasions ("Regulators and other disasters," January 29, was the last), but the Planning Commission study brings out the true import of the scandal by calculating the life-value of the concessions whereas this column only looked at the concessions in a particular set of years. The story's particularly fascinating since the shipping ministry and the Tariff Authority for Major Ports (TAMP) have alternated in helping NSICT! |
| To avoid confusion, let's stick to one or two issues. The NSICT won the bid to set up a container terminal inside the Jawaharlal Nehru Port Trust (JNPT) after agreeing to share its revenues with the JNPT. Obviously this would have to come out of profits because, if royalties were to be treated as a cost (which would be passed on to users), firms could win bids by offering to share 99 per cent of revenues with the government. |
| In the initial years, the TAMP was reluctant to allow royalty payments as a cost. In March 2002, for instance, while setting the tariffs for Chennai Container Terminal Ltd, the TAMP said allowing royalty to be classified as a cost was absurd and so disallowed it. The NDA government's ministry of shipping promptly directed the TAMP (which had, by now, a new chief) to treat most of this royalty as part of the cost! In 2005, the UPA government formalised this with the incredible proviso that while royalty would not be treated as a cost for deals struck after July 29, 2003, it would be for deals before that if the royalties resulted in a loss to the concessionaire "" the revenue-share bid of the second-highest bidder would then be taken as part of the cost. |
| If the ministry's largesse wasn't bad enough, the TAMP bettered this and, in August 2005, allowed the NSICT to classify all its royalty (from 2000-05 in the past and 2006-08 in the future) as cost even though it was not making a loss "" it was so blatant that in November 2005, the same ministry had to ask the TAMP to reduce the amount of royalty it was treating as cost! Allowing the NSICT to classify its royalty as cost has allowed the firm to benefit by $1.46 bn over the 30-year life of the concession. |
| The other favour the TAMP did was in the way it fixed the tariff. In 1998, when the NSICT began operations, it was allowed to charge the same rates as the JNPT since the TAMP had no cost figures. In 2000, the TAMP relied on the NSICT's traffic and cost projections to fix tariffs. But, two years later, it turned out the actual traffic was 64 per cent higher than projected "" since defraying the same cost over higher traffic would have lowered tariffs, it was obvious NSICT was making a killing. Yet, the TAMP did not change rates till 2005. And when it did, it reduced rates by 12.8 per cent even though it said that "strict application of cost plus principles ... warrant a reduction ... of approx 30%". |
| It also allowed the NSICT to keep half the windfall profits between 2000 and 2005! |
| If such favouritism were confined to one sector or to sectors where there was no regulator, the solution would be "get a regulator". But with regulatory intervention making things worse in too many cases, it's clear the model isn't working. Possible solutions will make for several such columns in the future! |
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