Ministry of Shipping releases revised draft tariff guidelines for Private Terminal Operators

  • 21-Jan-2019
  • Ministry of Shipping releases revised draft tariff guidelines for Private Terminal Operators

Ministry of Shipping have released revised draft tariff guidelines for private terminal operators unfairly disadvantaged by a flawed/ complicated revenue-sharing model that the Government applied to concession contracts awarded in the initial stages of port privatization, i.e., from 1997 & 2009.

The policy change stems from long-running stakeholder concerns that the 2005 cost-plus price method prevents terminals from maximizing productivity after their investments, as revenue earned from volume handled over and above stipulated minimum guarantees is factored in when the regulator Tariff Authority for Major Ports (TAMP) sets tariffs every three years. This price-fixing method results in downward rate revisions — sometimes very substantial revisions — and to avoid that problem, terminals tend to underperform by adjusting capacity in tandem with committed levels.

Authorities believe the revised “tariff guidelines 2019” will create a more conducive operating environment for initial concession holders. However, as benchmarking older operators with newer entrants was problematic, given the equipment quality differences, authorities have proposed allowing a 16 percent return on “gross fixed assets” employed — akin to how price is determined for terminals governed by the 2013 rules — under the new 2019 framework. This contrasts with the 2015 tariff program that provides a 16 percent return on net investment — meaning the current cost of capital employed.

“The net block of assets reduces on a year-on-year basis, on account of charge of depreciation, thereby reducing the return earned by the BOT operators. By providing return on gross block of assets, this [anomalous] position would be neutralized,” the draft paper stated.

Further, authorities said terminal operators migrating to the 2019 tariff policy will need to adhere to all their other service commitments outlined in existing concession contracts, along with supplementary contracts regarding the above tariff change.

‘Broad tariff policy framework’

“This is a broad tariff policy framework. The TAMP will, in consultation with all the concerned BOT operators and Major Port Trusts, issue working guidelines along with the formats for filing the proposal to operationalize this tariff guidelines framework,” the document stated.

APM Terminals-operated Gateway Terminals India (GTI) at JNPT and PSA International’s Tuticorin Terminal (South India) are among the well-known companies governed by the 2005 tariff regime, but the impact of those glaring complications has been more severe on DP World, given its multiple terminal locations. 

While some concerns and questions might still persist, that policy reform is expected to reinvigorate private investor sentiment, as the emerging market economy pursues an ambitious port makeover program for improved supply chain efficiency to support its robust GDP growth forecasts & goal, feel experts.

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