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India’s port corporatization plan runs aground

Monday, 20 July 2015 | 11:00
The plan to convert 11 of the 12 ports owned by the Indian government into corporate entities from a trustee set-up is being reworked by the shipping ministry, indicating that a long overdue key structural reform of the governance of these harbours, having a combined market share of 57% of the Indian export-import cargo shipped by the sea route, will have to wait much longer.

The first indication of a change in plan came when India’s shipping minister Nitin Gadkari said on 5 June in Mumbai that the government is 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.
These 11 ports function as trusts under a law framed more than five decades ago called the Major Port Trusts (MPT) Act, 1963.

Kamarajar port located at Ennore in Tamil Nadu is the only corporate port owned by the Indian government. Kamarajar Port Ltd was formed as a company under the Companies Act when it was opened in 2001.

Barely a fortnight after Jaitley made the announcement in his 28 February budget speech, the port workers softened their hitherto belligerent stand on corporatization after a meeting with shipping secretary Rajive Kumar wherein the government assured that corporatization would not lead to privatization of these ports and retrenchment of workers. The government also said there would be no change in the terms and conditions of the present employees and their service conditions and benefits would be fully protected.

To win over the workers, the shipping ministry even assured them that the unions would continue to hold board seats on the restructured ports after they are converted into companies, a benefit they had enjoyed in the trustee set-up.

Following this, the unions dropped their plan to go on an indefinite strike protesting corporatization.
After reaching this stage in the public discourse on the plan, the shipping ministry suddenly appears to have developed cold feet. Hoisting the workers’ opposition to corporatization, the ministry has started working on an alternative which is a middle path between corporatization and the existing institutional structure, that is, the MPT Act.

The alternative option was revealed in a 7 July tender issued by the shipping ministry seeking to hire a legal firm to amend 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 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 said in the tender.

“The board of trustees is very large and comprises representatives of disparate interests, including port users, labour and trade associations, which make decision-making cumbersome. Even after delegating more powers and making some amendments to the 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 amend the MPT Act to change the management structure of major ports to help them function more efficiently and take decisions more independently.
The legal firm will be tasked with writing key provisions of the Companies Act into the MPT Act, 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 should help ports raise funds from the market through loans, bonds and debentures. It would help them follow accounting and disclosure norms as per the Companies Act, the ministry said in the tender.

This can by no means be called corporatization.
So, what was once seen as a relatively easy task—denotifying these 11 ports from the ambit of the Major Port Trusts Act and bringing them under the Companies Act—has now become a complicated exercise.

There is one big reason for this—the lack of numbers in the Rajya Sabha for the Narendra Modi government to win parliamentary approval for the plan. Since these ports come under an Act of Parliament, denotifying them would also require parliamentary backing. Most of the political parties that make up the numbers in the Rajya Sabha are of the view that corporatization is not necessary; the efficiency of the ports can be improved by granting them more autonomy.

This lack of numbers in the Rajya Sabha may elude the Modi government for at least a couple of years, till it adds more states to its kitty, thereby swelling its ranks in the upper house of Parliament.

Given this backdrop, the shipping ministry is veering around to the view that amending the MPT Act by borrowing features from the Companies Act would serve the purpose and be more acceptable to lawmakers in Parliament.

But, will this work? Highly unlikely. Because, this will not prevent shipping ministers from interfering in the management of ports, including naming workers belonging to their political parties as nominee trustees on the port trust boards.

Such an exercise has been followed since the MPT Act was framed; the only difference being that it is done under the category of “other interests” (read political interests).
Several years after the plan was first mooted, the Modi government is much better placed to undertake strategic institutional reform of the 11 major ports, five of which are loss-making because they just can’t compete with new, highly mechanized ports that are run as companies in the vicinity.

Losing this momentum would only mean that the major ports sink deeper into the abyss.
Source: LiveMint
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