PPP Model in Ports: Long Way to Go
S. S. Kulkarni, Secretary General, Indian Private Ports & Terminals Association

World class port terminals, which develop through PPP model are testimony to the liberalisation of economy in 1990s. Due to this, the performance of ports has ramped up in terms of vessel turn around time, market exposure to Indian cargo, variety of cargo handling equipment. There are benefits of PPP as well as some loopholes which need urgent attention of the decision making body. Otherwise the sector will become unviable for private entity investments.

Ports serve as vital links in the logistics chain connecting the production – consumption centres. Ports are also the ‘meeting points’ of the three major modes of transportation, viz. trucks, trains and ships. The economic development of any nation, leaving aside land-locked countries, is directly linked to its efficient network of ports. No wonder, every nation strives to develop ‘world class ports’. Such ports are those, which facilitate import and export of goods in an efficient, time-bound manner and at the same time continue to attract increased throughput. Some of the ingredients for world class ports are- infrastructure development, use of information technology and value added services and promoting competition through privatisation. The new demands of shipping and international trade are necessitating high technological expertise, as a result of which, there is a growing separation of port authority from port operator, with the port authority focusing on policy and regulatory role while a range of private port operators and port service providers taking over operations/services. With logistics gaining importance in the business processes, shippers/importers are becoming careful on the choice of gateway ports and their hinterland connectivity, leading to inter-port competition.

Private Sector Participation
The process of port privatisation normally does not involve pure privatisation, since land and infrastructure are generally not sold by the state. The process, instead, involves private sector participation (PSP) in operations and investment in equipment and facilities. Due to the diversity and complexity of ports and the services offered by them, the PSP process can be divided into stages, like (i) institutional reforms, (ii) divestiture of existing services and assets and (iii) investment in new facilities and services. These stages can be implemented one after the other or in combination. For each port component, there are many possible public-private partnerships. But in order to attract private investment and demonstrate successful PPPs, it is essential that the best practices are adopted in the whole process. Many such best practices are available with world financial institutions, which can be adapted to suit.

The World Bank has articulated some institutional models for ports, like a) service port model, b) landlord port model, c) tool port model, d) private services port. In India the “services port” model has been traditionally followed, wherein the port trusts act as port authority as well as port operator. Since the 1990s, however, there is a gradual movement towards the “landlord port” model.

Port Privatisation in India
After Independence, the process of consolidating the ‘major’ ports of India began with the enactment of the Major Port Trust Act of 1963. Today there are 12 Major Ports (under the control of the Central Government) in the country, six each on the east and west coast. Two more on the east coast have been recently announced. While Ennore Port (now being named as Kamrajar Port) functions under the Companies Act, the corporatisation of the rest is also on the anvil.

Around 95 per cent of the EXIM traffic of the country by volume is carried through sea. Until the 90s, the Major Ports were the only gateway interface for the cargoes. Faced by the burgeoning traffic on the one hand and the chronic congestion at the ports due to inadequate capacity/scarce funding, the Government of India then took an in-principle decision to invite private participation for developing port capacities. The PPP model seemed to be the panacea recommended by international financial agencies like IMF/WB for creating infrastructure in the developing economies like ours. To a certain extent this appears to be correct. A country like India with teeming millions under BPL, we can ill afford to invest huge public funds for commercial infrastructure like ports. Such funds should be better utilised for social infrastructure like health/education.

Though the concept of private ports was conceived in the 1980s, Pipavav port in Gujarat being the first private port to come up in India, privatisation gathered momentum only after the major economic reforms of 1991 and liberalisation policies adopted in various sectors. The first major port privatisation initiative took place in December 1995, with JNPT coming out with a global tender for a container terminal. The bidding process was completed in August 1996. Subsequently, in October 1996, the Government published the port privatisation policy named as ‘Guidelines to be followed by the Major Port Trusts for Private Sector Participation in the Major Ports’, under Section 42 of the Major Port Trusts Act 1963. The policy guidelines required that private participation should be by tender on a build, operate and transfer (BOT) basis. The successful bidder would be decided on the basis of the maximum royalty/revenue share offered on the minimum guaranteed cargo handling/turnover. Subsequently, a bill was introduced in the Parliament to replace the Port Laws Amendments Ordinance 1997 promulgated by the President of India and the Major Port Trust Act 1963 was amended in April 1996 to enable the Central Government to set up the Tariff Authority for Major Ports (TAMP). (There were various reasons for setting up the tariff regulatory authority, the most important being that it would provide a measure of transparency in determining various rates and charges for services rendered both by the Major Ports and the private operators rather than have the rates being decided by the Port Trust themselves who would be in direct competition with the private operators).

In the last 15 years, all the major ports have given out their berths on BOT basis and world class private terminals have come up for handling a variety of cargo. The “non-major” ports operating under the jurisdiction of state governments have shown even better success. The shining examples at Mundra, Krishnapatnam, Dhamra, Karaikal all bear testimony to the successful PPP model. 48 per cent of the EXIM trade now passes through the non-major (private) ports of the country.

The port performance also has improved leaps and bounds. The trade has now ample connectivity worldwide and the waiting period at the anchorages as well as the berths has become a thing of the past. In many regions, port capacities far exceed the demand and exporters/importers can choose a port/terminal of their choice. It is also observed that the trade is willing to pay additionally for better services at ports. This explains why private ports which at times are much pricier than the major ports, are well patronised since what matters to the cargo-owner is the end–to-end supply chain costs for moving their goods and not just the port tariff.

Buoyed, by such a success, the Ministry of Shipping is already looking at doubling the Indian port capacity from the present 1300 MTPA to 3200 MTPA by 2020 all through private participation.

Everything Rosy?
While it is fact that the PPP model of infrastructure development has worked well in the port sector than in any other, the road ahead is not so smooth. There are quite a few hurdles, which need to be ironed out as fast as possible to achieve the desired objective.

“Water-tight” MCA: While following the PPP mode for infrastructure development, most countries keep a scope for a ‘review’ in the concession agreement, since 30/50 years is too long a period to take care all of kinds of eventualities.

However, in India, the MCA is very rigid and water-tight. While contractual obligations are sacrosanct, the agreements become too one-sided and the private entity only gets penalised even of no fault of theirs. Recently, after the debacle in the road sector, the Government has revised the MCA with respect to exit norms. Same should be permitted in the port sector.

Port Tariff Policy: Tariffs being central to investment decision by any private entity, it is essential that a uniform tariff-setting policy is adopted. While the non-major ports are not bound by any regime, there are four sets of guidelines in the major ports arena (including the one to be notified soon exclusively for landlord ports). This is bound to lead to not only unhealthy competition but also undesired discrimination. A non-administered tariff regime (competition-based/market driven) for the entire port sector, is the need of the hour.

DPR and Technical Info: A quality DPR helps in getting realistic bids. Environmental clearances should be in place so that there is no delay in completion of the project and thereby not becoming unviable. Norms for security clearances should be transparent.

Customs Policies: There is no clarity/uniformity by Customs with regard to certain procedures to be followed by private terminal operators at major ports and at times left for interpretation by the field formations. For e.g., bank guarantees and insurance covers to be furnished by the terminal operators, recovery of charges towards deployment of staff/officials, etc. Customs are treating terminal operations at par with CFS activities, which is incorrect. Fresh Commitments Post Award of Tenders: Surprise elements get introduced after award of the concessions. Recent cases of asking existing private terminal operators to deploy CISF for watch and ward, installation of radio-active detection equipment/scanners are few such examples.

Such additional demands, which entail huge expenses, should be known to the concessionaires before-hand so that same can be taken into account at the time of bidding. There should be scope for increasing tariffs suitably to meet these eventualities.

Electricity Tariff Classification for Seaports: There is no uniformity in the country with regard to the consumer category classification for seaports. Some SERC classify ports as ‘commercial’ entities instead of ‘industrial’, as a result some of the seaports have to pay electricity charges at the rate applicable to shopping malls.

State Road Levies: Authorities in some states treat port equipment like RTGC/HMC as any other commercial vehicles and subject them to high taxes. There should be clarity/uniformity in such matters.