India’s Ministry of Shipping has made new container terminal management concessions more interesting to investors to encourage the construction of much needed additional capacity. The number of internationally renowned operators recently walking away from container terminal management concessions tendered by state-controlled authorities in India has forced the Indian Government to make its tendering process more appealing. In part, this stems from all of the pre-qualified bidders for the development of Chennai’s long awaited container terminal failing to respond to the  request for proposals by the submission deadline in June  due to loss of interest once more details became available.
This was preceded in January by the ABG-PSA consortium’s decision not to finalise its agreement with JNP for the development of a fourth container terminal offering a capacity of 4.8 million teu on a BOT basis. And just previously to that, Ennore was forced to cancel its contract with a consortium to build a container terminal after it also failed to achieve financial closure of the project.
As a result of these setbacks, the Government’s expansion targets set in its ambitious vision document “Maritime Agenda: 2010-2020” seems to be derailed. Back in 2010, Drewry estimated that the capacity of India’s container ports would reach 25.5 million teu by 2015, but 18.6 million teu now looks much more likely.
The problem stems from the way that federal Government owned ports are required to tender container terminal concessions. Up to now interested parties have had to declare what percentage of their revenue will be conceded to the Port Authority when their tariffs are fixed and regulated by the state. Provincially controlled ports are far less regulated, which partly explains their growth shown in the following Figure.
The system has resulted in promises of high revenue sharing agreements that have very quickly turned sour once more operational details became clearer. Moreover, the regulation of India’s Tariff Authority for Major Ports (TAMP) on fixed prices, and the way these can be increased, has further hampered the very foundation of market competition. Terminal operators in the ‘Major Ports’ (owned by the Federal Government) are bound by TAMP’s regulations, whereas provincial ports are beyond its ambit.
Being assessed according to who offers the highest revenue share, coupled with TAMP’s tariff setting mechanism, has upset the Indian port industry for years, but the port congestion it is now causing due to investors being freighted away has become intolerable.
The solution recently announced by the Ministry of Shipping is to partly deregulate the tariff setting mechanism for new and future PPP projects. As per its proposed guidelines issued on 8th August, tariffs of the ‘Major Ports’ should now be market driven. However, the TAMP will still issue a ‘Reference Tariff’ specific for each commodity/category of commodities, as well as for each service/category of service or combination of service or services in each port.
This means that port operators in state-controlled major ports will be free to adjust rates once a year based on market conditions, providing certain conditions are met, some of which are still considered to be too restrictive and unconnected to ‘market forces and dynamics’. Moreover, the new regulation does not yet cover existing container terminal management concessions as that would amount to the breach of the original concession agreement.
Our View    
The proposal to deregulate tariffs of the ‘Major Ports’ in India is a positive development, but many bottlenecks still exist at various levels. Rethinking the bidding process, along with the tariff setting mechanism, is the ‘need of the hour’ for the healthy development of the port sector in India.
Source: Drewry Maritime Research