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India to reform port pricing to spur investment
September, 19th 2017

Global marine terminal operators that have led port privatization in India could unshackle themselves from a long-running and complicated pricing regime as the government draws up new legislation allowing rebidding on older contracts under revised tariff rules set in 2013.

The current 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 maximize 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.

“We are hopeful of getting out of the pricing mess and being a part of India’s growth story,” an industry leader told JOC.com.

Sources in the Ministry of Shipping told JOC.com 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.


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“If the existing concessionaire does not opt to match the highest bidder, the project is to be awarded to the highest bidder. In such a case, the existing assets would be valued by adopting the replacement value of assets by an independent valuer .… The replacement value of the assets so determined would be the reserve price for the assets, which has to be paid by the successful bidder to the concerned port trust,” new provisional guidelines stated.

Sources also said tariffs for such rebid concessions will be set up by an authority in line with 2013 guidelines prior to inviting fresh proposals.

The ministry is in the process of seeking comment 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 percent, and 28 percent at DP World-operated Nhava Sheva International Container Terminal (NSICT).

For NSICT, which opened in 1997, container royalties paid to the landlord port have also been a major concern, as those fees are reported to have increased from around Rs. 50 per TEU in fiscal year 1999 to 2000 to more than Rs. 3,000 ($47) per TEU in the current year. This has seemingly prompted the company to scale down operations to its contractual commitment of 600,000 TEU annually, as statistics show NSICT volumes have steadily declined from 1.51 million TEU in fiscal 2010 to 2011 to 728,560 TEU in the last year.

Indian Private Ports and Terminals Association (IPPTA), the umbrella body of private terminals, has also been waging a legal battle to remedy those issues, with a local court in Delhi scheduled to hear the case again Sept. 18.

Concessionaires in India are hoping New Delhi’s port reform efforts, the largest of which is the 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 labor opposition.

Those changes are critical to increasing private participation in the country’s port sector, which has drawn lukewarm investor interest in recent years, forcing port authorities to scrap or tweak tenders. The much-hyped 4 million-TEU mega terminal plan at the Chennai port was abandoned in 2014 and so was a similar attempt by the Kandla port a few years ago.

As these public port projects have languished, private operators forged ahead with infrastructure work and won market share. A JOC.com port statistics analysis shows major ports’ market share has decreased from 76.38 percent in fiscal 2000 to 2001 to 55.37 percent in 2014 to 2015.

 
 
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