Tariff Authority for Major Ports, India -
A Critical Review
Introduction:
Ports
are considered of strategic importance to the economic and spatial development
of a country. Ports have
a prominent place in international trade as they provide linkages between
international and domestic production and distribution networks. About 95% of the India’s foreign
trade by volume and 70% by value is transported through sea.
In India,
in the past, the development and provision of infrastructure in the port sector
was largely in the hands of the government.
The liberalisation programme of the 1990s, opened up the sector to
private players , thus shaping the nature of competition that is prevailing
today .
The Indian port sector is clearly in a
phase of transition. The Central Government recently announced a series of
measures to promote foreign investment in the port sector. Meanwhile, new port
sector law proposals are also under discussion. One of such proposals is the draft
Major Ports Regulatory Authority Act, 2008 (MPRAA, 2009) . This Act
expected to create a new Regulatory Authority for Major Ports which can be
considered a successor of the Tariff Authority for the Major Ports (TAMP).
Another recent proposal is the draft Indian Ports (Consolidated) Act,
2010 which is currently being discussed in the port sector.The third
major document under discussion in respect to PPP projects with respect to
Major Ports is the Model Concession Agreement (MCA).
For
a better understanding of today’s discussion – Looking Beyond TAMP, a short
overview is given of the current structure of the Indian port sector.
A glimpse of Indian port sector
India
has 13 Major Ports and approximately 185 Non- Major Ports located in nine Maritime States and UT. With
regard to the performance aspect, currently, Major Ports handle about 60% of
the total cargo traffic, while Non-Major Ports account for 40% of the traffic.
As per the below table it is evident that the share of the Non-Major Ports is
steadily increasing over the years.
All
ports (Major and Non Major Ports) are regulated under the Indian Ports Act,
1908 and it defines the jurisdiction of Central and State Governments over all
ports in the country.
Under
the Major Port Trusts Act, 1963, aMajor port is governed by a Board of Trustees
nominated and controlled by the Central Government .The Trustees have to follow the policy decisions of
the Central Government while their financial powers are limited. Port dues and
port and terminal services’ rates are externally fixed by TAMP. There is a
ceiling for capital expenditures; amounts above such ceiling have to be
approved by the Central Government.
However,
the jurisdiction of the Non-Major Ports are under the maritime states’
Government (Orissa, Andhra Pradesh,
Tamil Nadu, Pondicherry, Kerala, Karnataka, Goa, Maharashtra, Gujarat as well
as Lakshadweep Islands and Andaman and Nicobar Islands).
TAMP as a port regulator
The
introduction of private sector terminal operators in the ports during the 1990s
brought about the possibility of a direct confrontation between the public Port
Trusts and the private operators. In view of this the private sector
representatives demanded a neutral organisation to regulate and control
tariffs. As the Government was afraid of the emergence of private monopolies, the
Major Ports Trust Act, 1963 was amended by Port Laws (Amendment) Act 1997 to
constitute the TAMP. The basic objective
of TAMP was, and still is, regulation of fair competition.
The
Tariff Authority for Major Ports (TAMP) was constituted in April 1997 to
provide for an independent Authority to regulate all tariffs, both vessel
related and cargo related, and rates for lease of properties in respect of
Major Port Trusts and the private operators located therein. The Authority
comprises a Chairperson and two Members appointed by the Central Government.
Presently, the Head Quarters of the Authority is in Mumbai.
Tariff regulation is effected by TAMP according to the
following principles:
- Safeguarding the various port users’ interests
- Ensuring fair and just returns to port operators
- Considering factors which encourage competition and
operating efficiencies
- Deploy established costing methodologies
- Regard policy objectives of the Government
- Leverage tariffs to improve operational efficiencies
- Ensure a fair and transparent tariff fixation.
TAMP has jurisdiction only over major port
trusts and private terminals therein.
This Authority is empowered not only to notify the rates but also the
conditionalities governing application of the rates. Every notification, declaration, order and
regulation of the Authority made under the MPT Act is published in the Gazette
of India.
The
orders notified by the Authority are final. There is no provision for appeal
against these orders within the system. Aggrieved parties will have to approach
the High Court for Redressal. This Authority, however, undertakes review of
orders, under exceptional circumstances. The Union Government has the power to modify
the Authority's Order or issue 'policy directions' on matters relating to port
pricing.
The
way TAMP operates is changing. With respect to tariff increases of existing
terminals, a cost-plus approach was applied as per 2005 guidelines. New
guidelines (2008) comprise a tariff cap which is set upfront tariff fixation
for all new PPP projects based on capital cost, operating cost & optimum
terminal capacity, prior to inviting bids.
International Regulatory Practices
Maritime countries use a range of regulatory
instruments (including specific stipulations in concession agreements) to
govern the award of concessions and/or leases . The main aim of economic
regulation in the port sector is to control anti-competitive behaviour of port
authorities and terminal operators resulting from imperfect market conditions.
However, the focus of a port regulator may differ from country to country.
Regulation may focus on tariffs, subsidies, access to facilities, investment
levels, bidding requirements, performance targets and so on, depending on the
objectives of the regulator.
In the international port industry,tariff fixing is a typical task of a Port
Authority, respectively a terminal operator.From a business
economics point of view the revenue share is a cost for the terminal operator
and is usually included in its tariffs. If that is not allowed, then the costs
have to be compensated by profit, which is only possible if such profit is not
too restricted.
Most
concession agreements in the international port sector determine royalties on
the basis of a fixed amount per unit (TEU/tonne, etc) for a minimum guaranteed
throughput (fixed royalty) and a gliding downward scale of unit prices for
qualities above this level (variable royalty). The tariffs are revised annually
on the basis of the applicable consumer index or the US$ inflation, if
applicable. Moreover, the operator gets a possessory title on the terminal area
in the form of a lease agreement. The lease rent generally depends on the
investments of concerned parties.
An
overview of Europe port policies
With
respect to the port sector there are similarities in India and Europe - there
are large ports with different institutional and legal structures, located in
different countries/states, competing for the same markets.
The
European Commission never succeeded in regulating the legal form of Port
Authorities of the Member States. Within the Community there exists a wide
diversity of port management structures. The most common model in the EU is the
landlord port model, which is the preferred model by the European
Commission.The most important element of the European ports policy is power
under the European Treaty to ensure fair competition between ports.
A
recent EU publication is the EU Commission Staff working document (Communication
on European Ports Policy – Full impact assessment), of 18 October 2007
which outlines actions to formulate an EU Ports policy with the below
objectives
(a) to ensure that there is sufficient port
capacity available to handle the growth in EU trade
(b) to promote greater
freedom of access for port services providers
(c) to promote more flexible
employment patterns and social dialogue
(d) to promote fair
competition within and between ports
(e) to achieve a better balance between environmental
protection and economic growth objectives.
Major findings of the EU Commission
- There is a vast mosaic of port management models across
Europe. Under EU procurement rules there are several factors that have an
impact on whether a Port Authority or a port service provider is regarded as a
public service provider acting in the general public interest or a
commercial entity governed by the rules of the market place. The Commission
concludes (wisely!) that it has no role in to play ‘by establishing a unique
port management model’.
- The wide variety of approaches to port and terminal financing
resulting from the different port management models demonstrate the need to
create a level playing field for cross-border competition. Guidelines on
State Aid to ports and more transparency of port accounts are needed.
- A level playing field among Port Authorities is needed with
respect to access to port land and port services.
- Port & terminal construction projects must comply with
national and European environmental legislation. There is a need for enhancing
environmental management in ports.
- Port labour requirements have been changed as a result from
automatisation and containerisation. A higher level of skills and more flexible
employment patterns are required, in particular with respect to health and
safety, training, freedom to select port workers and negotiate conditions of
employment.
The Commission has continued during recent
years its drive towards further regulating inter and intra port competition.
( SourceRegulation of the Indian Port
Sector, Mr Christiaan Van
Krimpen , report for World Bank, May 2011).
Looking Beyond TAMP
India as an emerging world power should not wait too long to
modernize its port sector in accordance with international best practices and
the requirements of its increasingly modernizing and expanding economy.
Port reform and related changes in the regulatory framework
is a long and difficult process.
Prices can ‘make’ or ‘break’ a port
The pricing strategy of a
port is dependent on the way the port is financed and, ultimately, on the
ownership status of the port. A port or a terminal operator set tariff / prices
in order to achieve certain objectives (strategic pricing) such as profit maximization,
throughput maximization, generation of employment and economic activity,
regional development, minimization of ship time in port and the promotion of
trade. High prices would normally reduce demand for port services, on the other
hand, low port prices may bring clientele to the port but investment costs may not be recovered in the
long-run. The right tariff can lead a port to prosperity and growth and Tariff
setting should be done by the concerned Port Authorities, terminal operators
and marine services providers, respectively.
TAMP
and It’s Ambiguities
A
terminal can attract traffic of a nearby (competitor) port by offering
customized services or by offering price discounts. In the Indian port sector
prices tend to be fairly rigid. TAMP fixes the ceilings therefore major ports
cannot offer customized and value added services. The minor ports are free to
offer differential services to consumers as their prices are not governed by
TAMP. But they fear that if their prices are higher than the major ports, they
will lose their traffic to the major ports. In all, there is little scope for
competition between ports through provision of customized services. Offering
too much price discounts to port users considering huge labour cost involved is
impractical.
Revision
of port tariff is a lengthy process.On receipt of a tariff proposal, it is
registered as a ‘tariff case’. Once a proposal is registered as a tariff case,
consultation process is initiated to promote participation of all the relevant
stake holders. The proposal received from a Major Port or a Private Terminal
Operator is forwarded to the concerned port user associations/major user
organizations for comments. These comments are then sent to the proposer Port
Trust or a Private Terminal operator as feedback information. The proposal is
also internally scrutinized and necessary clarifications/additional information
are obtained from the proposer. As part of the consultative process, joint
hearings are organized either at the Office of the Authority or at the Port
level. On behalf of the Authority, the Chairman generally presides over the
hearings. Based on the totality of information collected, the Authority in its
meeting decides on the proposal. The Orders passed in the meeting are notified
in the Official Gazette of the Government of India. A copy of the notified
Order is sent to the concerned port for implementation and to all other parties
to the proceedings for information.
TAMP 2005 Guidelines – Clauses which Require a Review
Ø Sec
2.4.1 : Cost plus approach of tariff fixation
Ø Sec
2.8.1 :Post July 2003 bidding, revenue share not
considered as admissible cost for tariff fixation but all bidders prior to July
2003 can take revenue share as an admissible cost for tariff computation
Ø Sec
3.1.8 : Tariff fixation for 3 years
Ø Sec
3.2 : Consultative approach of tariff fixation
TAMP 2008 Guidelines – Clauses which Require a Review
Ø Sec
1.3.2 : Continuance
of 2005 guidelines
Ø Normative
method of tariff fixation: Most appropriate method is
followed but other operators who have
entered into a MCA prior to this guideline are severely cramped
Debatable questions:
-
Should a publicly owned and financed port be
allowed to compete on price, for the same customer, with a privately owned port
that has to charge higher prices in an effort to recover its investments?
-
What if these ports are in the same, economically
interdependent, geographic area?
-
Do ports need to recover infrastructure costs
through pricing? And what happens if some do and others don’t while all have to
compete for the same hinterland?
-
Is there
such a thing as ‘efficient port pricing’ and is there scope for policy
intervention to ensure a level playing field?
-
Should there be a newly formed independent sector
regulator for the ports which replaces TAMP?
-
Should TAMP be transformed from a Tariff Regulator
to a Competition Regulator on the basis of a new Port Competition Act
applicable to all commercial ports in the country?
( Cynosure 2013 , Indian Maritime University, Dept.of Maritime Management, Cochin Campus)
