02-01-2019

New tariff rules are a lifeline to older BOT terminals

Fifteen cargo terminals, run by private firms at Centre-owned major port trusts under a rate regime finalised in 2005, are set to get a fresh lease of life with the Shipping Ministry drafting new tariff setting guidelines that addresses most of their concerns barring its ‘prospective’ application.

The changes proposed include allowing these older cargo terminals to set rates for services to meet their annual revenue requirement (ARR).

The ARR (a cap) will be the average of actual expenditure for the past three years, plus a 16-per cent return on capital employed (ROCE), which includes capital work in progress, according to the draft tariff policy circulated by the Ministry for stakeholders’ comments.

The 16 per cent ROCE will be calculated on the gross fixed assets, which is followed for new public-private-partnership (PPP) projects, which operate under the rate frameworks finalised in 2008 and 2013. This is a significant departure from the current practice of computing the return on the net block of assets. The rate set by using the new guideline will be valid for three years, indexed annually to the wholesale price index (WPI), a measure of costs, to the extent of 60 per cent.

‘Flawed’ clauses

Terminal operators have hauled the government to courts over many “flawed” clauses in the 2005 rate regime— either individually or under the banner of their lobby group, the Indian Private Ports and Terminals Association (IPPTA)— after the rate regulator ordered rate cuts when the terminals asked for a raise.

The terminal operators say that the rate cuts, if implemented, would render their facilities commercially unviable, and have secured the courts’backing to stay the rate reductions ordered by the Tariff Authority for Major Ports (TAMP), some as far back as 2012.

The Ministry draft says that the new rate setting norms will take effect prospectively, potentially creating a problem on treatment of past surplus if the courts rule in favour of the TAMP-ordered rate cuts. Yet, the draft provides a ray of hope to the beleaguered operators. “The scale of rates of some of the Build, Operate and Transfer (BOT) operators have not been reviewed due to the litigations pending in the High Courts on the tariff orders passed by TAMP. The surplus/deficit over and above the admissible costs and permissible return, if any, arising during the period of litigation will be subject to the orders of the respective High Courts. Alternatively, the Shipping Ministry, the Major Port Trust concerned, the BOT operator and TAMP may decide on the treatment of past period surplus arising during the period of litigation,” the Ministry wrote in the draft policy. The rate setting norms are being re-written to give a “reasonable return” to the BOT operators on capital employed, a ministry official told BusinessLine . “Under the 2005 rate guideline, the return diminished with each passing year due to depreciation since it was worked out on the net block of assets,” he said. “The BOT operators previously governed by the 2005 rate structure will be in a better position when the return is calculated on the gross assets,” he added.

Computing the return on gross assets was a major demand of the older terminal operators, including global giants such as DP World Ltd, PSA International Pte Ltd and APM Terminals Management BV. They argued that servicing the royalty/revenue share payout in the face of declining returns had rendered their facilities unviable.

The only sticking point between the government and the older terminals would be the royalty/revenue share payable to the landlord port by the BOT operator.

The draft reiterates the current position that royalty/revenue share will not be allowed as an admissible cost for tariff computation, citing a 29 July 2003 order issued by the Ministry.

In those BOT cases where bidding process was finalised before 29 July 2003, the tariff computation will take into account the royalty/revenue share as cost subject to the amount quoted by the second highest bidder. IPPTA wants full royalty/revenue share to be treated as cost for tariff fixation.

Source: The Hindu Business Line

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