Life after TAMP

New tariff guidelines do not apply to existing concessions. Credit: Lady K
New tariff guidelines do not apply to existing concessions. Credit: Lady K
India lacks a single-location container port. Credit: Asands
India lacks a single-location container port. Credit: Asands
Industry Database

Tariff-setting and red tape – are the twin evils of doing business in India showing signs of being eradicated? Dave MacIntyre reports

While South Asian growth means there is great need for port infrastructure development, it seems a long shot that the South Asian ports landscape can move quickly into a more cohesive landscape following the changes to the Tariff Authority for Major Ports, or TAMP.

Andrew Griffiths, Managing Consultant at BMT Hi-Q Sigma, says that based on draft guidelines issues by the Ministry of Shipping, the revised tariff guidelines will be applicable to Major Port Trust-operated ports and concession projects at Major Ports where RFPs have been issued. In this case the port operator can be free to fix a market-related tariff which could be higher or lower than the TAMP-regulated tariff.

“The new guidelines will not include existing concessions as this will breach existing contracts, but one has to pose the question will this put existing terminal operators at a disadvantage?

“The new rules are being administered by the Ministry of Shipping and having read the rules they are just as bureaucratic as TAMP. For example, in the event the tariff is fixed below the existing tariff then the royalty payments due will be based on the TAMP tariff and not the new level.

“Therefore the royalty payments will make up a larger percentage of the total tariff charge and will act as a disincentive to lower charges. If the tariff charge is above the existing tariff then the port authority will receive 50% of any additional charge.

“The only positive feature is that the new draft guidelines will not be Pan-Indian and will allow individual ports to negotiate their own tariff charges albeit with the above restrictions. These new guidelines must be seen as a missed opportunity to align the tariff rates for the Major Ports in line with a market-driven approach.”

 

Old guard

TAMP was formed with the objective of safeguarding against unreasonable tariff hikes, in an era when a dominant percentage of all trade went through only those ports.

As a result, a rigid regulatory framework controlled port relationships with customers. PSA’s departure from Jawaharlal Nehru after a testing time bureaucratically, is evident that the rigid relationships can be off-putting to new initiatives.

JNP (handling more than 50% of the country’s container traffic) saw the cancellation of the letter of intent for the fourth terminal (JNPT4) issued to the PSA-led consortium. One source told Port Strategy that this was indicative of the problems encountered in the Indian market.

“The pace of on-the-ground port developments in India has been slower than anticipated,” he said.

JNP has now started a new bidding process, putting out a global tender inviting Requests for Qualification from prospective bidders. The process should move to technical and financial bids by the end of the year, bringing the focus back to adequate handling capacity for container cargo.

 

Missing out

Mr Griffiths says the implications of the delay in the construction of JNPT4 is that the routing of cargo to the hinterland (Delhi, Rajasthan and Punjab) for which currently approximately 70% is routed through JNPT, will switch to the Gujarat ports of Mundra and Pipavav.

“Even with the construction of JNPT4 it is estimated that the share of Northern Indian cargo transiting through JNP will fall to around 30% by 2020,” he says.

In fact, India’s export/import container trade largely moves through foreign hub ports leading to billions of dollars of extra cost for the country. The money spent on feeder vessels and transhipment could be used to develop a major hub port for India.

This is a view promoted by Indian ports and shipping sector consultant Surendra Sharma.

He says that a solution to the JNP fourth terminal problem could be solved by going down the Swiss challenge route - a form of public procurement which requires a public authority which has received an unsolicited bid for a project to publish the bid and invite third parties to match or exceed it.

“JNP could also consider reducing the scope and covering the land reclamation on its own, for which it could consult the dredging experts on using the soil dredged from the channel. This would reduce the cost and help the project in achieving better viability. More options in speedy development can also be formulated, if required by the port.

“The fourth JNP terminal capacity of 4.8m teu is equal to the present combined capacity of Pipavav and Mundra port container terminals, hence is significant and could affect the cargo-handling capability on the west coast in the future.”

 

One face

Mr Sharma says what India lacks is a single-location container port (especially on the west coast which accounts for more than 60% of total container traffic) which can offer a freeway for future expansion.

“A location like for example Tanjung Pelepas in Malaysia which can continue to grow in a single location for the next 100 years and increase capacity by more than 200%-300% in a single location.”

As to the wider issues of how India should evolve post-TAMP, Mr Sharma says TAMP needs to evolve as a think-tank targeting major logistics cost reductions to make the country’s exports more competitive. Covering only port tariffs which accounts for less than 5% of the total logistics cost and only in major ports is very limiting.

Moreover, in relation to new development projects, he says the lack of a single-window system and the need to approach several ministries for port project clearance “does not reflect a serious approach by the government to encourage private participation in the port sector”.

 

Soldiering on

Some new investment is coming in regardless of the hurdles inherent in the Indian ports system. Gujarat, the country’s largest maritime state, is seeing particularly active investment interest.

Cargo Motors is developing an island port at Nargol in South Gujarat with Israel Ports on 150 hectares of reclamation. The port has the advantage of being located between two major cities - Surat and Mumbai - along the Delhi-Mumbai Industrial Corridor.

It will involve six berths to handle container, bulk cargo and roll-on/roll-off trade, easing the pressure on JNP. Other upcoming private port investments include Chhara, Kachhigadh and Mahuva.

They are taking a lead from the activity of the Adani Group with its advanced port in Mundra in the Kutch district and the Pipavav port development which is managed and operated by APM Terminals.

Essar Group is investing in Hazira port, near Surat, and Salaya port, near Jamnagar, for handling dry bulk, liquid and container cargoes.

 

Oiling the wheels

To smooth the pathway for investment, the Indian government is now reviewing and focusing on simplifying procedures, setting timelines for approvals to encourage more companies to participate and speed up port projects.

Steps taken by Union Minister for Shipping Shri G K Vasan include making up to 100% Foreign Direct Investment allowable for port development projects, with income tax incentives. Bidding documents like Requests for Qualification, Requests for Proposal and Concession Agreements have been standardised, with enhanced delegation of financial powers given to the Shipping Ministry to approve PPP projects.

A total of 58 port development projects in PPP mode had been awarded by the government up to March 31, 2013. Of these, 29 projects have been completed, 16 were at various stages of construction and the remaining 13 have just been awarded during 2012-13.

Looking forward, the government has produced the Maritime Agenda 2020, which provides the road map for the development of the ports, shipping and inland water transport sectors over a period of ten years.

Speaking to the Consultative Committee attached to the Ministry of Shipping in April, Shri Vasan described the Maritime Agenda as a “vision document” which gives the emerging scenario and overview of the port sector, existing policy framework and analysis of traffic projection and capacity, details of investment required, funding patterns and future policy milestones.

“The capacity at Indian ports stood at 1000m metric tonnes per annum (mmtpa) in January 2011. The Agenda aims to create port capacity of 3,200 mmtpa by 2020, which is more than a three-fold increase over ten years,” he said.

“The Ministry has also decided to establish two new Major Ports, one at Sagar Island in West Bengal and another in Andhra Pradesh. These two new ports will also add a capacity of 100 mmtpa.

“We have already finalised the Action Plan for this year and a target of 30 Port Development Projects has been fixed … I am confident that the targets for the current year will be achieved by all the Major Ports.”

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