Major Ports Bill runs a tight ship

Regulatory parity with non-major ports still missing; focus on landlord model of development

The 12 major ports in India will soon be governed by a new law that’s less cumbersome than the current governing legislation. The Major Ports Authority Bill, 2016, has 65 sections, compared to 134 in the existing Major Port Trusts Act, 1963. The Union Cabinet approved the Bill on December 14 and it was tabled in the Lok Sabha two days later as a money Bill. 

Since the NDA government has not been able to corporatise 11 ports that currently run on the trust model because of political and employee resistance, the effort now is to bring in functional changes through creation of a board for major port authority for each of these ports. 

“The key message from the Bill is that the government wants to increase the speed of projects and improve book keeping so that fund raising through bonds becomes easier,” says K Ravichandran, senior vice-president, ICRA Ltd, a credit rating agency. 

Kamarajar Port Ltd, which manages the 12th major port, in Ennore near Chennai, is the youngest of all and was incorporated as a company in October 1999.

Ravichandran said the port trusts were dependent on the Union government for approving projects that cost more than ~500 crore. “With the new legislation, major ports will be able to award projects themselves,” he said. The board will be empowered to draw up a master plan within the port limits.

According to Vishwas Udgirkar, partner, Deloitte, the Bill ensures that the major ports have greater autonomy, a lean governance structure and sound corporate governance and accounting practices. It will help the major ports in facing competition from privately operated terminals and non-major ports.

For long, there has been an argument against the current regulatory mechanism of the Tariff Authority for Major Ports (TAMP) that it regulates only the major ports and privately operated terminals within their premises, putting them at a disadvantage with the non-major ports, which are under state jurisdiction. Udgirkar, however, says the TAMP guidelines over the years have not just addressed the various shortcomings of the respective tariff norms but have also seen a gradual shift towards market-determined tariffs (with the 2013 guidelines). “Even so, tariff regulation by TAMP through multiple guidelines has resulted in increasing the disparities between major and non-major ports as only major ports come under its ambit,” he said.

The Union government set up the tariff authority in April 1997 through an amendment to the Major Port Trust Act for regulating vessel- and cargo-related rates, and property leases in major ports. With the scrapping of the Major Port Trusts Act, the authority will cease to exist.

It is not clear to what extent the major ports will have parity with non-major ports after the new legislation comes into force. Though the Bill gives the powers to set benchmark tariffs to the Board of Port Authority or a committee appointed by it, the current TAMP regulations will continue to be applicable. The new system also provides for constituting independent review boards for functions performed by TAMP, but, as Udgirkar says, it does not clearly spell out the role of major ports with regard to the projects operating under the TAMP guidelines. 

“One of the key mandates of the review board is to address issues arising from the Tariff Guidelines of 2005, 2008 and 2013 and tariffs orders issued by TAMP. In case the projects under the mentioned tariff guidelines continue to operate under these guidelines, it will result in islands of regulation in an otherwise de-regulated market.”

The Bill provides for constituting the Adjudicatory Board with a presiding officer and at most two members for settling disputes relating to major ports arising out of the Tariff Guidelines of 2005, 2008 and 2013 and tariffs orders of TAMP.

Ravichandran, however, says major ports have started improving upon efficiency parameters. “We have seen coal traffic moving to major ports. Besides, connectivity to major ports has always been good.”

The underlying theme behind the legislation, however, seems not so much to give tariff parity to major ports on a par with non-major ports but to promote corporate efficiencies and a landlord model of port development. In a such a model, the port authority undertakes issues related to wharfage and development activities like dredging, construction and maintaining internal roads, rail and road connectivity. Private operators run cargo berths where loading and unloading is carried. 

Ennore port and parts of other major and non-major ports currently work on the landlord model. The government needs separate governance and management in major ports from the terminal and projects currently managed or owned by major ports, address concerns relating to tariff regulations for projects under the existing tariffs orders and guidelines of TAMP and a transparent mechanism for land leasing and other support services of the landlord port, says Udgirkar.

While the Bill makes a beginning by giving autonomy to the ports in managing and discharging their functions, legal and regulatory interventions will still be required to fully establish the landlord model. To its credit, however, the government has tried to make a beginning by bringing in a corporate structure without corporatisation, thereby staying out of political and union troubles.

A Major Overhaul for Ports

• The 11-member board of the Port Authority replaces port trusts 
• Members to represent railways, defence and finance ministries, employees and state govt 
• Port authorities to fix tariff, which will act as a reference tariff for bidding for PPP projects 
• PPP operators will be free to fix tariff based on market conditions
• The board will fix tariff for other port services and assets, including land 
• It makes its own Master Plan for area within port limits 
• It can lease land for port-related use for up to 40 years for specified purposes
• Beyond 40 years and other than specified purposes beyond 20 years will require Union govt’s nod