The government is planning to change the tariff-setting norms at 12 major ports from cost-plus to an upfront payment system. The change is expected to make the ports more competitive. |
Under the current system, the licence is granted to the bidder sharing the highest revenue with the port authority. The successful bidder is also assured a 15 per cent return on capital employed while deciding the tariff. |
However, in the proposed upfront tariff system, the ceiling of the tariff will be fixed first, after which the bidding will be carried out on a revenue-share basis. |
Tariff structure for the 12 major ports is decided by the Tariff Authority for Major Ports for a three-year period. |
"At present, the bidders jack up the cost of the project in order to share the highest revenue with the port authority, making the tariff internationally incompetitive. The tariff also varies every three years whether the cost goes up or down. In the present system, the tariff is fixed beforehand," an official source said. |
The modalities of the change are scheduled to be finalised at a meeting among the officials of the finance ministry, the shipping ministry and the Planning Commission next week. |
Countries with major ports allow the demand-supply equation to determine the tariffs. "Rationalising the tariff mechanism would mean that western Indian ports would be able to compete with the ports in the Middle-East while the eastern ports would compete with the Singapore port and Southern ports with the Colombo port," a source in the government said. |
The move has been recommended by the Anwarul Hoda task force set up by the Planning Commission on tariff-setting mechanism and bidding parameters for public-private partnership projects at major ports. |
The task force, which submitted its report two months ago, had suggested that the tariff cap be reset every five years for new licences. However, the finance ministry feels that the revised tariff cap should be applied to both new as well as old projects. |
The task force has also suggested ascending scale of revenue sharing - with increased revenue, the terminals will share a larger portion with the port authority. However, the finance ministry feels that this will be a disincentive for operating more efficiently. It wants a uniform revenue-share mechanism. |
The task force has also suggested granting a non-compete clause to the terminal licence holder for seven years so that nobody can set up a similar terminal at the same port. However, the finance ministry said that the non-compete clause should be for a period of two to three years. "Such a long period will create monopolies," said the official source. |
"The cost-plus tariff system harms the port users as inefficiency of the terminal operator will be added to the cost while they will be continuously enjoying the profit margin. Upfront tariff is suitable if there is a healthy competition within the port," a shipping line representative told Business Standard. |
The volume of traffic handled by all Indian ports during 2004-05 was 521.58 million tonnes, of which 383.75 million tonnes, that is, around 74 per cent, was handled by the major ports. According to the National Maritime Development Programme (NMDP) data, the projected traffic estimate for the financial year 2013-14 is 705.84 million tonnes and the required overall port capacity is estimated at 917.59 million tonnes. |