Companies setting up new cargo handling facilities at India’s 12 main ports will be able to increase their charges by three percent every year to account for rising costs.
However, those companies that currently offer such services at these ports will not be able to increase their rates because this will require their agreements with the government to be amended.
The rates that can be charged by cargo handlers will now be fixed even before bids are invited from companies to build and operate terminals.
The 12 union government-owned ports handled 464 million tonnes of cargo in the year through March, accounting for 70 percent of the 649 million tonnes of cargo handled by all Indian ports. Taking into account India’s average inflation rate of five percent, the prices charged by new private terminal operators at these ports will rise by three percent each year.
The government plans to modernise and upgrade cargo handling terminals at the 12 major ports with an investment of US$12.7 billion through private investments over the next five years.
Under the new plan, tariffs will be fixed initially by the Tariff Authority for Major Ports, or TAMP, on the basis of an estimate of capital and operating costs of building and operating a cargo handling terminal of a particular capacity, rather than fixing them on a cost-plus model, after winning bids are chosen.
The upfront tariff thus fixed will be included in the bid documents.
Winning bids, under the new plan, will be selected according to those willing to share the highest percentage of annual gross revenues with the port where the cargo terminal is being set up.
Current tariffs are fixed by adding 16 percent to the actual costs for a three-year period.
Companies that offer cargo handling services under existing agreements say they would also like a similar arrangement to increase their rates.
For the purpose of fixing tariff upfront under the new method, TAMP will follow a cost-based approach that recognises capital and operating costs estimated on certain norms. It will also include a 16 percent return on capital employed.
Accordingly, an estimate of the capital cost of building a new terminal for a particular commodity or class of commodities of a certain capacity will comprise civil construction cost including dredging and reclamation, equipment and plant and machinery, IT systems, and cost of financing, including interest paid during construction.
The annual operating cost of the terminal will comprise power and fuel, repairs and maintenance, insurance, depreciation and lease rentals.
The new guidelines also provide for reviewing the tariff fixed upfront once in five years to adjust for any extraordinary events that could not have been foreseen by a prudent person.
The ministry official said that the new policy aims to create adequate port capacity and promote competition so that efficient and reliable services are provided at competitive rates. The objective should be to keep tariffs at economic levels with a view to making India globally competitive. Almost 95 percent of India’s trade by volume and 70 percent by value is shipped by sea.
Currently, tariffs vary from port to port and between different terminals of the same port. Tariffs for handling containers at ports range between $24.7 and $90 per container. At different terminals at the JN Port, the tariffs range between $64.8 and $90.0 per container.
Such divergent tariffs for a similar service provided by different terminals of the same port, which exist primarily because they are based on a cost-plus approach, is a cause for concern to the users, investors and lenders.
However, those companies that currently offer such services at these ports will not be able to increase their rates because this will require their agreements with the government to be amended.
The rates that can be charged by cargo handlers will now be fixed even before bids are invited from companies to build and operate terminals.
The 12 union government-owned ports handled 464 million tonnes of cargo in the year through March, accounting for 70 percent of the 649 million tonnes of cargo handled by all Indian ports. Taking into account India’s average inflation rate of five percent, the prices charged by new private terminal operators at these ports will rise by three percent each year.
The government plans to modernise and upgrade cargo handling terminals at the 12 major ports with an investment of US$12.7 billion through private investments over the next five years.
Under the new plan, tariffs will be fixed initially by the Tariff Authority for Major Ports, or TAMP, on the basis of an estimate of capital and operating costs of building and operating a cargo handling terminal of a particular capacity, rather than fixing them on a cost-plus model, after winning bids are chosen.
The upfront tariff thus fixed will be included in the bid documents.
Winning bids, under the new plan, will be selected according to those willing to share the highest percentage of annual gross revenues with the port where the cargo terminal is being set up.
Current tariffs are fixed by adding 16 percent to the actual costs for a three-year period.
Companies that offer cargo handling services under existing agreements say they would also like a similar arrangement to increase their rates.
For the purpose of fixing tariff upfront under the new method, TAMP will follow a cost-based approach that recognises capital and operating costs estimated on certain norms. It will also include a 16 percent return on capital employed.
Accordingly, an estimate of the capital cost of building a new terminal for a particular commodity or class of commodities of a certain capacity will comprise civil construction cost including dredging and reclamation, equipment and plant and machinery, IT systems, and cost of financing, including interest paid during construction.
The annual operating cost of the terminal will comprise power and fuel, repairs and maintenance, insurance, depreciation and lease rentals.
The new guidelines also provide for reviewing the tariff fixed upfront once in five years to adjust for any extraordinary events that could not have been foreseen by a prudent person.
The ministry official said that the new policy aims to create adequate port capacity and promote competition so that efficient and reliable services are provided at competitive rates. The objective should be to keep tariffs at economic levels with a view to making India globally competitive. Almost 95 percent of India’s trade by volume and 70 percent by value is shipped by sea.
Currently, tariffs vary from port to port and between different terminals of the same port. Tariffs for handling containers at ports range between $24.7 and $90 per container. At different terminals at the JN Port, the tariffs range between $64.8 and $90.0 per container.
Such divergent tariffs for a similar service provided by different terminals of the same port, which exist primarily because they are based on a cost-plus approach, is a cause for concern to the users, investors and lenders.