Competition works

BS OPINION

The surest sign of the success of private ports in India is the fact that the shipping ministry has now asked the Tariff Authority for Major Ports (TAMP) to allow these major ports more flexibility in setting tariffs "" today, the government-run major ports cannot fix tariffs below the floor set by TAMP, and these are generally much higher than what some of the private ports offer.

Instead of tariff floors, the ministry has asked TAMP to fix tariff ceilings for the 12 major ports. This speaks poorly of TAMP which, it would seem, has been more concerned about protecting the interests of the ports (by keeping charges high) than of the users.

It is not the regulator but competition that is bringing prices down "" as was seen in telecom too. So the first point is that regulators should be listening more to the consumer viewpoint, and not get swayed too easily by producer lobbying.

Getting government-run ports to become more competitive, of course, will require more than just pricing freedom. There are two reasons why government ports are inefficient.

One, thanks to the stranglehold of labour unions, productivity is poor "" berth and crane productivity in the P&O-run container terminal at Nhava Sheva, for instance, is double that for the government-run terminal at Jawaharlal Nehru Port (JNPT).

As a result of this, the turnaround time at the P&O terminal is 0.68 days (or 16 hours), compared to 1.24 (or 30 hours) for the government one at JNPT, and more than three-and-a-half days for all the major ports taken together. Not surprisingly, output at the private terminal is double that for the government-run one.

Second, tariffs are high at the major ports because capital costs, such as those on dredging, are recovered from users "" around Rs 600 crore was spent on dredging in Tuticorin a few years ago, for instance, and these costs are passed on to users of the port.

So while the handling or cargo-related charges in Indian ports are about the same as those in places like Colombo, the extra costs (related to manpower or dredging) get passed on to users in the form of vessel-related charges (for berthing, pilotage or towing), and these can be as high as two to three times those charged elsewhere.

Few ports in other parts of the world follow this practice, and most capital costs are absorbed by the government. The reasons for doing this are obvious. High port charges just makes imports into, and exports out of, a country more expensive.

To be fair, there has been improvement in port productivity over the years. According to a World Bank-CII study, the turnaround time for vessels in Indian ports has improved from 8.1 days in 1990-91 to 3.7 in 2001-02.

In ports like Ennore in Tamil Nadu, the ministry of shipping has been able to get the port to use only private tugs, and this has reduced vessel-related charges. JNPT, similarly, is increasingly trying to use private tugs for bringing in vessels, to reduce costs.

Yet, at the end of the day, the progress is pitiful. Halving the turnaround time in a decade is great news, but 3.7 days is multiples of the few hours needed in ports like Colombo.

Due to this, the cost disadvantage that Indian textile exporters, for instance, face vis-a-vis the Chinese, is around 35 per cent, according to the World Bank-CII study. India's ports need to be much more efficient if its exporters are not to be put at a disadvantage.