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Port trusts set for a hybrid makeover

Wednesday, 15 July 2015 | 06:24
The shipping ministry has opted for a hybrid model (incorporating Companies Act features into the Major Port Trusts Act) for altering the institutional structure of 11 of the 12 ports it runs.

The decision is a clear indication that the much-talked-about plan to convert these harbours into full-fledged corporate entities from a trustee setup may not work because of political considerations and a workforce that is hostile towards the move.
On 5 June, shipping minister Nitin Gadkari said in Mumbai that the government was looking at alternatives to corporatization.

“Finance minister Arun Jaitley had told us (in the budget) about the Companies Act, but we are looking at other alternatives beyond the Companies Act to modernize and upgrade the ports,” Gadkari told reporters without giving details of the alternatives being considered.
Currently, 11 of the 12 ports controlled by the Union government function as trusts under a law framed more than five decades ago called the Major Port Trusts Act, 1963 (MPT Act). Kamarajar port located at Ennore in Tamil Nadu is the only exception; it was formed as a company under the Companies Act, 1956, when it was opened in 2001 and hence is free from rate regulations unlike the other 11 ports.

The alternative plan hinted at by Gadkari has been revealed in a 7 July tender issued by the shipping ministry seeking to hire a legal firm to rewrite the MPT Act.

A number of measures have been taken by the government to augment capacity and improve the operational efficiency of major ports (a term used to describe ports owned by the Union government). However, under the restrictive ambit of the MPT Act, the major ports are finding it difficult to operate in a highly competitive environment and respond to market challenges, the shipping ministry wrote in the tender.

“The board of trustees is very large and comprises representatives of disparate interests including port users, labour and trade associations, which makes decision-making cumbersome. Even after delegating more powers and making some amendments to MPT Act from time to time, the basic objective of offering efficient services to port users has not been achieved fully”.

The ministry now proposes to rewrite the MPT Act to change the management structure of the major ports on the lines of the Companies Act to help them function more efficiently and take decisions more independently and quickly.

The legal firm will be tasked with writing key provisions of the Companies Act into the MPT Act, including structuring the board of trustees on the lines of the board of directors of companies by appointing functional trustees, independent trustees and nominee trustees.
The amendment seeks to help ports raise funds from the market through loans, bonds and debentures. It would also help them follow accounting and disclosure norms as per the Companies Act, the ministry wrote in the tender.

“It’s a sensible and progressive move rather than a radical transformation because the objective is to get the port trusts to start acting like a corporate entity,” said Manish Sharma, partner, infrastructure practice, at audit and consulting firm PricewaterhouseCoopers Pvt. Ltd.
“This can easily be achieved through amendments to the MPT Act, which gives the signal that even the Act empowers the port trusts to take decisions on business matters without looking up to the ministry.

“A radical transformation into a corporate entity under the Companies Act is fraught with many uncertainties and may also lead to resistance from multiple stake holders thereby delaying the realization of the desired objectives. It’s a mindset change rather than a structural change. This is a much softer route rather than a radical change through a complete overhaul into a corporate entity,” Sharma added.

“The shipping ministry appears to have settled for a middle path to implement the strategic institutional shift at the 11 major ports,” said M.L. Bellani, secretary of the All India Port and Dock Workers Federation, the largest of the five workers’ unions at the 11 ports, whose opposition to corporatization is well-known.

“It is a suicidal option because it is neither here nor there,” Bellani, who sits on the board of trustees of Kandla port as a labour representative, said, adding that the change would have come from concerns that the plan may not get the backing of Parliament.
The ministry move is seen as a realization of the fact that the Narendra Modi government lacked numbers in the Rajya Sabha to win Parliamentary approval for full-fledged corporatization of major ports despite having a majority in the Lok Sabha to push ahead with the plan.

The 12 ports loaded a combined 581.34 million tonnes (mt) of cargo in the year to March, clocking a year-on-year growth of 4.65%.
Five of these 12 ports located at Kolkata, Chennai, Cochin, Mumbai and Mormugao are losing money, with their combined losses touching Rs.818.26 crore in the year ended 31 March 2014.

The continuing fall in the share of cargo handled by the dozen ports from about 90% in the early 1900s to 57% now has been a matter of concern for the government. In comparison, ports owned by the state governments but given to private firms for development and operations such as Mundra, Pipavav, Krishnapatnam and Gangavaram have been steadily increasing their market share because they are run as companies and have freedom to set rates unlike the 11 major ports.
Source: LiveMint
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