22 June 2016 15:10:04 IST

Charting a course for smoother coastal trade

The new shipping draft Bill looks promising. But its success depends on a plethora of factors

Recently, the Ministry of Shipping released a draft Bill. The Bill ‘The Central Port Authorities Act — 2016’ intends to replace the ‘Major Port Trust Act — 1963’.

The new Bill proposes to give greater autonomy to major ports and, if passed in its original form, is expected to remove the tariff regulation levied by the Tariff Authority for Major Ports (TAMP) on major ports and private terminal operators. The independent review board proposed under this act is expected to resolve the disputes between ports and private operators to revive stressed public private partnership (PPP) projects.

Major ports or government ports continue to lose market share to the non-major or private ports. In a span of a decade and a half, major ports’ market share dropped sharply from 75 per cent in FY02 to 55 per cent in FY15.

For FY16, major ports utilised 606 million tonnes out of the 965 million tonnes — a 62 per cent utilisation rate. A 70 per cent capacity utilisation rate is considered essential for efficient operation of ports.

Major ports agony

Although decrease in market share for major ports has been on account of several reasons, inefficient tariff setting mechanism by TAMP remains one of the top ones. TAMP, the regulatory agency for major ports, regulates the tariff charged on cargo for all the major ports and private terminals that operate in these major ports.

For major ports, under the earlier 2005 guidelines, TAMP used a ‘cost plus’ model to determine the cargo tariff. It is calculated based on cost plus a pre-determined rate of return on the asset.

This impeded growth at major ports, even as global trade increased at a healthy pace. Even the present 2015 guidelines, while an improvement over the earlier framework, do not offer scope to fix cargo rates based on dynamically changing market conditions.

Private operator’s woes

The fate of private terminal operators such as Nhava Sheva International Container Terminal (NSCIT), Gateway Terminals India (GTI-APM Terminals), Sical Logistics and others has been no different. Private terminal operators enter into a public private partnership (PPP) through a concession agreement with major port trusts and TAMP.

The challenges these private players face are multi-fold.

~ The private terminal operators have to cater to a minimum guaranteed cargo traffic.

~ The tariff they can charge is indexed against inflation and has to remain within a band.

~ The royalty they have to pay to port trusts is calculated as a percentage of the tariff ceiling rate.

This puts them at a disadvantage if they are unable to meet the minimum guaranteed traffic, as their outgo in the form of royalty remains high. This, in turn, discourages private operators in times of highly depressed global trade and a volatile macro-economic environment.

Besides, major ports that provide all the other maritime and allied infrastructure facilities, also, at times, operate their own terminals. This creates a conflict of interest between the port operator and the private terminal operator when they compete for the same cargo.

The Centre’s promise of providing a seamless road, rail and inland waterway network remains a challenge. Private investors and terminal operators remain fidgety, thanks to the Centre’s inability to complete dredging work in time, which hampers bigger ships from docking at the harbour.

Challenges ahead

The success of the Sagarmala project (a venture to enhance coastal shipping and trade, which plans to construct six to eight new ports) depends on the level of efficiency of major ports and private terminal operators.

This, in turn, hinges on the ability of these players to charge a market-based tariff. It also remains to be seen if the independent review board — proposed under the Central Port Authority’s Act to handle concerns and complaints of private operators — is able to resolve issues efficiently.