Top global container terminal operators have rejected a shipping ministry move to rebid facilities they are running, some for more than 15 years, at Union government-owned ports.
These firms had sought government approval to move to a more favourable rate regime to fix commercial issues facing them.
Disallowing their request for migration, the ministry had proposed that firms such as DP World Ltd, APM Terminals Management BV and PSA International Pte Ltd offer their terminals located at Jawaharlal Nehru port near Mumbai and Chennai port for rebidding after paying a surplus earned in excess of the permissible limit— estimated at about Rs.1,200 crore—to the government-owned ports and withdrawing the petitions they have filed in courts against rate cuts ordered by the tariff regulator.
The proposed rebid of some ten terminals—among the biggest in India—would be done in accordance with the terms and conditions including the tariff setting guidelines used for bidding out new port contracts to ensure a fair deal to all and not just the operators. The existing operators of each of these terminals would be given the right of first refusal to match the highest price quotation (if they are not the highest bidder in the auction) and take the contract, according to the proposal drafted by the ministry.
“The shipping ministry’s move was rejected by the terminal operators during a meeting last week,” a spokesman for the industry lobby, the Indian Private Ports and Terminals Association (IPPTA) said.
“We will write to the ministry explaining our stand on the issue”.
Seven of these 10 terminal operators have challenged the tariff regulator’s order to cut rates at their facilities when they had asked for a raise, arguing that the surplus earnings and the consequent rate cuts were the result of faulty tariff setting guideline framed by the government in 2005 which governs these terminals.
While courts in their respective jurisdictions have stayed the rate cuts, the cases are yet to be decided.
Cargo handlers say there were several flaws in the 2005 guideline that penalizes them for efficiency (handling more than the projected volumes) and had asked the government to shift them to the new rate regime announced in July 2013 for new projects, considered more favourable to them.
The most contentious aspect of the 2005 norms is the treatment of surplus earned by the operator by handling more than the projected volume of containers estimated while working out the rates for a tariff cycle of three years.
Currently, 50% of the surplus earned from handling more than the projected volume of containers is allowed to be retained by the operator while the balance 50% is passed on to the users in the form of reduced cargo handling rates.
The surplus earnings have further swelled because of non-implementation of the rate cuts ordered by the regulator due to the stay granted by the courts.
The terminal operators have been pushing for an alternative methodology for calculating the surplus to strengthen their case.
As per a formula mooted by the terminal operators, the calculation of surplus will apply only when the actual earnings are in excess of 20% of the estimates based on which the rates were drawn up by the rate regulator.
If this formula is adopted, the terminal operator would be allowed to retain up to 20% of the surplus.
The terminal operator can also retain half of the surplus in excess of 20% and the balance 50% would be passed on to the terminal users by way of a reduction in tariffs.
This methodology was endorsed recently by attorney general Mukul Rohatgi on a reference made by the shipping ministry seeking his opinion on migration of old cargo handlers to the new rate regime.
Terminal operators want the past surplus earnings to be recalculated based on the new formula and be allowed to earn 16% return on capital employed on the gross capital and not on net capital or on depreciated capital as is followed now.
