News Content

India to amend port pricing legislation to create level playing field

INDIA's government is drawing up new legislation permitting rebidding on older port contracts under revised tariff rules set in 2013, which could enable global marine terminal operators that have spearheaded the nation's port privatisation to unchain themselves from a long-standing and complicated pricing system.

The existing rules make it difficult for these operators in major, or public ports, to adjust pricing in line with changing market conditions, making them reluctant to maximise volumes and reinvest in assets.

At the same time privately operated, or minor, terminals, which are outside the purview of the rules, have the freedom to adjust pricing as necessary and have been investing heavily in capacity and gaining market share from their public rivals, reported IHS Media.

Sources in the Ministry of Shipping said that draft guidelines for rebidding are in the final stages of government approval and would be released soon, upon which an existing build-operate-transfer (BOT) operator can exercise the right to migrate from the 2005 tariff system to the one modified in 2013.

The proposed process will be through a competitive bidding procedure, meaning that reopened contracts will be awarded to the highest bidder. However, the current concessionaire will have a right-of-first-refusal on that rebid contract, according to draft guidelines.

The ministry is in the process of seeking comments from various port trusts and other stakeholders on the new law before it is enacted.

The crux of investor concerns over the 2005 model is tied to revenue sharing from volumes handled over and above stipulated minimum guarantees. That surplus is factored in when the Tariff Authority for Major Ports (TAMP) set tariffs every three years, leading to drastic rate reductions. As a result, terminals tend to underperform to ward off these downward revisions.

All of the dominant players in India's port sector have been on the receiving end of those glaring pricing anomalies, though they have secured a temporary reprieve through court intervention.

TAMP in 2012 for example slashed rates at two of the largest terminals in the top port of Jawaharlal Nehru Port Trust (JNPT), cutting tariffs at APM Terminals' Gateway Terminals India by 44 per cent, and 28 per cent at DP World-operated Nhava Sheva International Container Terminal (NSICT).

Concessionaires in India are hoping New Delhi's port reform efforts, the largest of which is the Major Port Authorities Bill of 2016, will establish a level playing field and help put an end to these pricing concerns. The bill would transform all major ports into independent companies with greater operational and financial autonomy, especially pricing power, despite intense labour opposition.