Terminal operators facing losses - TAMP playing spoilsport?

Jul 30, 2012, 9:04AM EST
Norms fixed by the regulatory authority for major ports is hurting the private terminal operators

In the past decade private participation in port development has been encouraging with investment having touched $ 2 billion. Through the National Maritime Development program, the government of India envisages taking the capacity of 12 major ports from the existing 574.77 tonnes to 1 billion tonnes by March 2020 and hopes to attract 64% of the proposed investment of $ 13.5 billion from the private sector. The Indian Private Ports & Terminals Association - (IPPTA), an association of private ports and terminal operators in major ports of India, has been playing a pivotal role in providing privatization initiatives in the country. Nearly 20 major terminal operators including DP World, APM Terminals, PSA, etc. are already operating at various ports in India.

Unfortunately, in the last two month, the world’s three largest container terminal operators, operating in India have been hit by unjustifiable tariff reductions by the tariff regulator for major ports - Tariff Authority for Major Ports (TAMP) - thereby reducing their revenue earning capability and positioning them to be loss-making units. These tariff reductions leave the operators with no choice but to cut their losses by reducing the amount of business handled at the terminals.

“Since inception in April 1997, TAMP has come out with three sets of guidelines. The 1998 guidelines were very vague and did not even spell out the formula for tariff fixation,” informed S. S. Kulkarni, Secretary General of Indian Private Ports and Terminal Association (IPPTA). “The 2004/05 guidelines were more detailed, with tariff being fixed on a ‘cost plus’ basis, to be reviewed every three years based on the actual operations of the terminal or port. The 2008 guidelines turned out to be a further departure from the 2004/05 guidelines. In that the tariff was fixed upfront for the entire period of the concession and the concessionaire was expected to bid taking this into consideration. However, despite of all revisions, while the functional aspect of tariff regulation has been met, it is unanimously felt that the guidelines have not been able to meet the objectives because of flawed approach, fallacious arguments and patchwork solutions.”

 

TAMP has fixed tariff at maximum capacity thus capping profits. With the result there is no reward for efficiency. TAMP has unilaterally changed the norms and has been adopting highest levels of efficiency as standard norms. The capital costs are grossly understated. In fact terminal operators find that they are being punished for efficiency and the guidelines are not implemented on the ‘normative’ principle. Worse still the system of setting a tariff for 30 years is flawed since conditions can never ever be forecast accurately and there are no corrective mechanism existing in the policy guidelines.

 

It is being pointed out by various operators that in the span of last 15 years, when the private terminals in major ports were grappling with the TAMP’s tariff models, there has been a healthy development among private port operators (running the ‘non-major’ ports). Many private ports have emerged very successful at many locations in all the coastal states. In fact some are now as big as ‘major ports’.

   

“What is TAMP trying to regulate?” questions Mr Kulkarni. “Take the logistic cost for the total movement of a box from origin to destination. The port tariff amounts to only 2%. So under these guidelines each box is facing losses. So if a terminal operator tries to achieve greater throughput he ends up losing more.”

The Ministry of Shipping of the government of India accepts the lacunas in the 2005 guidelines stating that “the existing policy has several pitfalls and aberrations/inconsistencies which require elimination”. However, although guidelines expired in 2009, the same have been extended year-on-year for the last two years without any change let alone improvements.

Private terminal operators have tried their best to make the authorities see reason and put corrective measures in place. There being no positive response to this issue it is felt that this will have vital ramification for the EX-IM trade in particular and the economy in general. IPPTA has moved the Court and the hearing is set to come up on the 6th August. It is hoped that the decision will be beneficial.

 

 
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