Most of the older cargo terminals, run by private firms at Centre-owned major port trusts under a restrictive rate regime finalized in 2005, are set to win “substantial tariff hikes” after the Government framed new rules that alters the way rates are computed.
The rate hikes will incentivise some of these terminals including the Nhava Sheva International Container Terminal (NSICT) run by Dubai’s D P World at Jawaharlal Nehru Port Trust (JNPT) to start handling more containers than the minimum volumes mandated under the contract, shipping ministry officials said.
NSICT – India’s oldest private container terminal at a major port - had dropped its volumes to the minimum level of 600,000 containers after being hit by a rate cut in 2012. The rate cut, though, was stayed by the Mumbai high court on a petition filed by NSICT.
“With the exception of PSA Sical Terminals at Tuticorin port, all the other 14 BOT terminals will be able to charge customers more than what they are getting now. The problems accumulated in the past have been sorted out and in future there won’t be any problem. They should now approach the Tariff Authority for Major Ports (TAMP) with rate revision proposals which will be appraised by the rate regulator under the new norms and get higher rates,” the ministry official said.
Among the new rules framed by the ministry and published in the Gazette on March 7, the most significant is to allow these older cargo terminals to set rates for services to the extent needed for meeting their annual revenue requirement (ARR).
The ARR (a cap) will be the average of actual expenditure for the past three years plus 16 per cent return on capital employed (ROCE).
The 16 per cent ROCE will be calculated on gross fixed assets - a departure from the current practice of computing the return on the net block of assets. It will also include capital work in progress and working capital.
The rate set by using the new guideline will be valid for three years and will be indexed annually to the wholesale price index (WPI), a measure of costs, to the extent of 60 per cent.
Under the 2005 rate guideline, the returns diminished with each passing year due to depreciation since it was worked out on the net block of assets. Servicing the royalty/revenue share pay outs to the port trusts in the face of declining returns had rendered their facilities unviable, the older terminals had argued.
“The older BOT terminals will get a good raise from the rule change enabling them to recover the royalty/revenue share payable to the port trusts from the next rate cycle onwards. They will not have to pay from their own pockets. In the earlier rate regime, if you take NSICT for instance, the royalty to be paid to JNPT was more than the rate levied from customers. That will change now; the rate will be more than the royalty. Hence, they can pay royalty comfortably. Earlier, it was incurring loss, now it will become profitable,” the official said, adding this will nudge NSICT to handle higher volumes.
PSA Sical will not benefit from the rule change because it has quoted very high royalty rates. Besides, it did not build the berth but only erected cranes on it for which it has a small gross block of assets to show.