03-10-2017

India: Pvt cargo handlers can shift to new rate structure

Private firms running cargo terminals at central government-owned major port trusts will have the option of migrating to a new liberal, market-driven rate structure finalised by the government in 2013.

The older cargo handlers were excluded earlier. They currently operate under a restrictive rate regime finalised in 2005.

The migration option, though, will be contingent upon the existing PPP operators offering their terminals for re-bidding in which they will have a so-called right of first refusal (RoFR) to match the highest revenue share quoted and continue running the terminals for the balance period of their 30-year concession.

“It’s official now. We have issued instructions to major port trusts to give an option to the BOT operators falling under the 2005 rate guidelines to move to the 2013 rate guidelines through re-bidding,” a spokesman for the Shipping Ministry told BusinessLine .

The framework including the terms and conditions for the shift to a de-regulated regime is being finalised, the spokesman added.

The decision to allow a shift comes as the Ministry and older PPP cargo handlers — some operating for more than 15 years — have been locked in a legal battle on migration.

The 2013 rate regime guarantees a raise of as much as 15 per cent on the base reference or ceiling rate (set upfront at the beginning of the contract) during each year of the 30-year contract if the terminal operator complies with certain performance standards. The PPP operators would also be entitled to a further hike every year to account for rising prices because the base rates are indexed to the WPI to the extent of 60 per cent.

In comparison, the 2005 guideline penalises operators for efficiency. If a terminal loads more than the projected volumes in a tariff cycle, its rate will be cut in the next tariff cycle. Adopting this rule, TAMP has ordered rate cuts at many facilities, resulting in legal challenges that are languishing in courts for a decision.

Logic for re-bids

“Migration to the new tariff regime will result in doubling of revenue to PPP port operators. There can’t be a free ride. The benefit accruing from migration to the 2013 norms should be shared with the government-owned ports. And, the best way to discover the quantum of benefit to be shared is the market (through re-bidding). Let the market decide what should be shared,” the Ministry spokesman said explaining the rationale to re-bid the terminals as a key condition for migration.

The terminal operators, though, are against putting up their terminals for re-bidding, arguing that the government also stood to gain from the higher rates and the consequent jump in revenue as the government’s share of the revenue from these terminals will increase even on the existing contractually-mandated percentage that the terminals have to share from gross revenues every year.

Former Finance Minister P Chidambaram underscored this point while arguing the case for the Indian Private Ports and Terminals Association (IPPTA) in the Delhi High court. The next hearing on the case is slated for October 25.

Besides, they are wary of rivals quoting astronomical revenue share which they will find difficult to match in order to continue running their facilities. “Rivals could use this tactic to create unfair competition and de-rail the process,” said a port industry executive.

Allowing migration, according to the Ministry, will instill confidence among private investors and improve investor sentiment at a time when the government is planning to bid out several thousand crores worth of port modernisation and expansion projects.

Regulatory concerns have halted private investments at major ports.

Source: The Hindu Business Line

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