Proposed market-driven pricing at Indias major ports is a chimera

If you thought that a new law planned to govern 11 of the 12 ports owned by the Indian
government would solve the complex rate-setting problems at these ports, think again. It is
nothing but old wine in a new bottle.
It is widely acknowledged that rate regulation has stifled the growth of the 11 ports and led to
a diversion of cargo to private ports that are outside the control of the Indian government and
where rates are decided by market forces.
Indias shipping ministry has been looking at ways to create a level-playing field between the
major ports (Union government-owned) and private ports either by winding down the Tariff
Authority for Major Ports (TAMP) or by enacting a new law to govern the 11 ports which
would render the rate regulator redundant.
And, this is one issue where even the stubborn workers unions are on the side of the
government.
While a new law to govern the 11 ports (the 12th, Kamarajar port near Chennai is run as a
company) from the current trustee set-up is long over-due, given the changes that have taken
place in Indian ports over the last decade, the government, it appears, is clueless on the path
forward on rate setting.
A close scrutiny of the draft of the Central Port Authorities Act 2016 clearly indicates this
lack of clarity on the issue.
The board of a port authority will be delegated power to fix rates for services and assets. A
rate regulator does not figure in the proposed new law.
So, what or where is the difference?
None.
Currently, rates for services rendered by the 11 port trusts are set by TAMP based on a tariff
policy issued by the shipping ministry in January 2015. Rates for cargo terminals to be
developed by private firms are set by the regulator based on the guidelines issued in 2013.
The rates for privately-run cargo terminals that were awarded between 2008 and 2013 are
fixed on the basis of guidelines issued in 2008.

The rate guidelines of 2008 and 2013 follow an upfront model where the rates are fixed at the
beginning of the contract for the entire 30-year period. The rates, though, will rise every year
because they are indexed to the Wholesale Price Index (WPI) to the extent of 60%.
The 2013 tariff-setting norms also allow a private cargo-handler operating at any of the 11
ports to seek an additional performancelinked rate hike of as much as 15% every year if it
fulfils certain performance standards.
The rates for private cargo terminals operating prior to 2008 follow the rate-setting guidelines
issued in 2005. The validity of these guidelines ended in 2010 after a five-year run, but has
been continuously extended by the government and is in vogue even today.
In all these cases, TAMP set rates based on the guidelines framed by the ministry. The villain,
according to cargo-handlers, is the ministry guidelines and not TAMP, which acts as a mere
rubber stamp.
TAMP is also a toothless regulator in the sense that it has no powers to enforce its decisions.
Cargo terminals affected by the regulators orders often had to take legal recourse to get the
rate cuts stayed. There are plenty of such cases that are yet to be decided by the courts even
after many years.
In the proposed new law, rates at each of these ports will be decided by the board of the
respective port authorities or a committee formed by the board based on some tariff
policy/guidelines. The question is who will frame these guidelines? Is it the government or is
it the respective port authority? Will the new norms follow the current one that is considered
flawed?
The rates set by a board-appointed panel will have to be ratified by the board prior to
implementation.
Also, this perceived pricing freedom would have been fine if it was given separately to port
authorities and private operators for services rendered by them. But, in the absence of any
specific mention to the contrary in the draft law, it is understood that the port authorities will
also be tasked with setting rates for private facilities.
This will lead to unfair competition and a lack of a level-playing field because these ports
also run cargo terminals that compete with private facilities therein. This was precisely the
scenario that led the government to create an independent regulator to set rates for port trusts

and the private facilities operating at these ports when the port sector was opened to private
funds in 1997.
The proposed mechanism to set rates can in no way be called market-driven pricing. The port
authorities will never give a free hand to private cargo terminals to set their rates based on
market forces for obvious reasons though they may have the flexibility to play around with
the rates within a ceiling. In such a situation, private cargo-handlers would be better off
dealing with an independent rate regulator rather than with the port authorities.
The central government, according to the final draft of the Central Port Authorities Act, will
have the right to frame rules for, or to issue directions to, every port authority either
individually or collectively in matters related to (among others) fixation and implementation
of rates. This practice exists even today.
The devil will be in these rules that the government says it has the right to frame to fix rates.
The fact that the government has decided to set up an independent review board for, among
others, hearing disputes between port authorities and private cargo-handlers is in itself an
admission that it does not believe that the new mechanism would function smoothly, free
from litigations.
In short, in the proposed new regime, the board of a port authority or one of its committees
will set the rates that are currently set by TAMP. This is the only difference; everything else
will remain the same.