The Hindu Business Line : No respite on tariffs for private terminal operators

Even as the Government readies new upfront tariff setting and bidding norms for public-private-partnership (PPP) projects at major ports, there will be no respite for some private container terminal operators who have questioned the existing tariff setting guidelines. This is because the new norms (as specified by a Task Force) would not apply to the current lot of port operators who would continue to be guided by the agreements that they had entered into.

For those projects where concessions have already been awarded, the guidelines for the tariff regulator (set in 2004) would continue to exist, the Task Force has clarified. However, it has provided for the Government to issue new orders (in consultation with the Tariff Authority for Major Ports — TAMP) to remove difficulties (if any), provided the orders are not inconsistent with the basic feature of the guidelines.

Stating that the present regime does not incentivise performance improvement, early private entrants in the port sector have been seeking migration to a different policy. For example, PSA-Sical, the private container terminal operator at Tuticorin, recently urged the Shipping Ministry to treat the company on a par with the Chennai Container Terminal Ltd (CCTL), which operates the Chennai container terminal, when it comes to tariff fixation.

PSA-Sical said the yardsticks applied by the ministry to both operators are different on incorporating royalty/revenue share as part of the cost in tariff fixation. As with the CCTL, PSA-Sical too will make ‘likely losses’ if it is not allowed to treat royalty as an element of its cost and give the same to customers through the vehicle of tariff. “The Ministry must rectify the inconsistency in its approach, and must issue a policy direction to TAMP to treat PSA-Sical on a par with the CCTL,” the company said.

NEW TERMINAL CATEGORIES

In the draft guidelines, the Task Force — under the chairmanship of Mr Anwarul Hoda, Member, Planning Commission — has recommended that a cap should be specified by TAMP to protect users in a situation of inadequate capacity. The tariff caps should be set upfront and prior to inviting bids from prospective port operators.

These upfront tariff caps should be set for container terminals, iron ore terminals, coal terminals, liquid bulk terminals and multi-purpose berths (that could handle foodgrains, fertiliser, coal, lime stone, minerals and other break bulk). Once tariff caps have been set for a port, they apply to all terminals that are bid out subsequently for handling identical cargo in that port.

These caps should be determined by TAMP taking into account a normative estimate of the capital cost of building a new terminal (of a certain capacity) for a particular class of commodities in the context of a specific port. The capital cost should comprise the costs of construction, equipment and financing. A fair return on the capital employed (which is 16 per cent as of now) should also be assumed by TAMP, taking into account a 75 per cent capacity utilisation of the terminal.

TARIFF REVISION

While providing for automatic revision of tariff ceilings annually by indexing tariffs (to an extent of 60 per cent) to the variation in wholesale price index every calendar year, the Task Force has also said that tariff caps will be reviewed once every five years to adjust for any extraordinary events that could not have been foreseen.

These tariff caps, as and when revised, will be applicable to projects in the same commodity categories in the same port that are bid out subsequently. However, the taskforce has also stated that while reviewing the tariff caps, the norms relating to performance shall be set at progressively higher levels than those adopted in the past and would also include the technological developments.

“This provision was included to allow the Government enough flexibility to renegotiate tariffs and seek better performance standards, taking into account the improved equipment available in the market over time with the concessionaire during the long agreement periods,” said official sources, pointing out that the agreements could be in the range of 20-30 years.

After determining the tariff caps based on the aforesaid guidelines, bids for award of concessions may be invited on the basis of revenue share to be offered by bidders. The performance standards, such as turnaround time for receipt/ delivery operations that must be met by the concessionaire, should also be defined in the bid document.

NON-COMPETE CLAUSE

The Task Force favoured a ‘non-compete’ clause to provide comfort to the concessionaire for seven years from the commencement of the concession or five years after the completion of the project, whichever is shorter.

During this period, Port Trusts should only award those projects that have been included in their plan and made known to the bidder. This would provide some certainty to the bidders and enable them to project their revenue streams with a view to making higher bids to the Port Trusts.

Keeping the award of new terminals open-ended would introduce uncertainty, and bidders may not be willing to manage such a risk, except by seeking an appropriate risk premium from the Port Trust, the task force has stated.