The shipping ministry will seek the cabinet's approval to amend a key law to wind up the tariff regulator for 11 of the 12 state-owned ports, days after an expert panel questioned the need for such a body.
The panel headed by former finance secretary Vijay Kelkar, formed to review and revive public-private partnerships in infrastructure, in its report made public on 28 December called for scrapping of the Tariff Authority for Major Ports (Tamp).
Such a move, the report said, will allow these ports to usher in a market-driven pricing regime and put them on par with private ports that are free to set rates. The unpredictable rate regime has dampened investor interest in these ports.
"The government has taken a final decision on winding down Tamp," a shipping ministry official said asking not to be named. "We are moving ahead on that. The cabinet note is almost ready on scrapping the rate regulator," he said.
To scrap Tamp, an amendment is a must because the body was set up in 1997 through an amendment to the Major Port Trusts Act, 1963 when India opened its ports sector to private funds.
"An Act cannot be undone unless it is repealed. We will go back to Parliament to amend the Act," the official added.
Kamarajar Port Ltd, the entity that runs the port at Ennore in Tamil Nadu, is outside the scope of Tamp because it was set up as a company unlike the 11 others that are run as trusts.
The nine-member panel led by Kelkar is only the latest to question the relevance of a port rate regulator. Since 2011, at least three expert panels had suggested free pricing of services at these ports. These include the inter-ministerial task force headed by ex-cabinet secretary and ex-member (transport) of the erstwhile Planning Commission, B.K. Chaturvedi, the high-level committee on financing infrastructure headed by banker Deepak Parekh and the National Transport Development Policy Committee headed by Rakesh Mohan, a former deputy governor of the Reserve Bank of India.
"The existing method of fixing tariffs by Tamp is contrary to international best practice and leads to various anomalies. This has also led to excessive tariff differentiation between berths in the same port. The committee recommends that since sufficient competition already exists in this sector, port tariffs may be deregulated," the panel-led by Parekh wrote in its report submitted to the government in 2012.
The Chaturvedi task force was of the view that tariff fixation based on return on capital employed (ROCE) has "proved to be inefficient compared to the determination of tariff by market forces in the non-major ports sector (private ports). Hence, tariff regulation by Tamp needs to be discontinued".
“The shipping ministry may take steps for amending the Major Port Trusts Act, 1963 so that tariffs at major ports are determined by competitive market forces. While amending the Act, Tamp may be empowered to regulate performance standards and quality of service at major ports including prevention of predatory pricing,” the task force had recommended in 2011.
While closing down Tamp would bring much-needed clarity on user charges, there are doubts about how the government will manage the rate setting process for port projects operating since the early days of the PPP regime that have provisions for such a task to be performed by a competent authority written into the contracts.
“How it can be managed in the absence of Tamp is to be seen. These things have to be decided in detail,” the ministry official said.
”Various provisions in the Major Port Trusts Act 1963 (MPT Act) would require suitable amendments in order to have complete tariff de-regulation. Nature of such amendment would largely be discontinuation of Tamp and thus its corresponding powers. It would also include transferring power to fix rates from Tamp to the government, with the right to delegate it to another competent authority from time to time,” a July 2015 report by consultant Deloitte Touche Tohmatsu India Pvt. Ltd said.
A majority of the existing port contracts provide for rates to be fixed by Tamp or a competent authority. In such cases, removal of TAMP or its powers to notify tariff from the MPT Act can be dealt with by the government by appointing another competent authority for fixing tariffs, which can be the cargo handler itself.
In case of deregulation, tariffs would be determined by respective entities—in case of PPP contracts, tariff would be determined by the private entity running the cargo terminal.
In such a scenario, the government would have to, directly or indirectly, appoint the private developer as the competent authority. Even if the government appoints another entity as the competent authority, such an authority would only be notifying the tariff determined by the private developer.
“In our opinion, if section 48 of Major Port Trust Act is modified to remove the function of tariff fixation from Tamp, it does not necessitate the requirement of transferring the power to government with a right to delegate it to a competent authority from time to time. It seems this interpretation arises out of the review of the concession clauses by Deloitte. We disagree with view since it is very clear that the concessionaires (private operators) are bound by ‘statutory amendments to the existing procedure for fixing the tariff’. Therefore, if section 48 is modified to remove tariff fixation from the purview of Tamp and allowed to be market determined then the concessionaires are bound by the same,” a spokesman for the Indian Private Ports and Terminals Association (IPPTA), an industry lobby group, said.
“Further, it is established that the law overrules contract. If the law allows a market determined tariff then the clause of tariff being notified by a competent authority is infructuous,” the spokesman added.
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