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Dubai-based logistics company DP World has got approval from the rate regulator for India’s state-owned ports to raise tariffs by 64-93 per cent at its Nhava Sheva International Container Terminal (NSICT) at Jawaharlal Nehru Port Trust (JNPT) near Mumbai, infusing life into the commercially struggling terminal.
The rates for laden containers unloaded from ship to yard and delivered by rail/road will rise 64 per cent, while storage charges for containers have been hiked by 93 per cent.
On the other hand, the Tariff Authority for Major Ports (TAMP) has ordered a 6 per cent cut in the overall rates levied by Gateway Terminals India (GTI), which also operates at JNPT, and is 74 per cent owned by APM Terminals Management, the container terminal operating unit of Danish shipping group AP Moller-Maersk.
This is the first tariff revision carried out by TAMP for NSICT and GTI after the Centre framed new rate-setting norms last year for PPP (public-private partnership) operators which were earlier governed by the 2005 norms.
Continued with old rates
Rates at NSICT and GTI were last revised in 2012 when TAMP ordered a 44.28 per cent cut over the then prevailing rates at GTI, and a 27.85 per cent reduction for NSICT, when the operators asked for a raise. Aggrieved by the rate cuts, NSICT and GTI secured separate orders from the Mumbai High Court to stay the rate cuts and continued to levy rates that were approved by the regulator in 2010. The court is yet to decide on the petitions filed by the operators.
The rate hike will incentivise NSICT, run by the Dubai government-owned DP World, to start handling more containers than the minimum volumes mandated under the 30-year contract. Volumes at NSICT — India’s oldest private container terminal at a major port — had dropped progressively to the minimum level of 600,000 twenty-foot equivalent units (TEUs) after being hit by the rate cut of 2012.
Among the new rules framed by the Shipping Ministry for NSICT and GTI, the most significant one is to allow these older cargo terminals to set rates for services, to the extent needed for meeting their annual revenue requirement (ARR). The ARR (a cap) will be the average of actual expenditure for the past three years plus 16 per cent of the return on capital employed (ROCE).
The 16 per cent ROCE will be calculated on gross fixed assets — a departure from the earlier practice of computing the return on the net block of assets. It also includes capital work-in-progress and working capital.
The rate set by using the new guideline will be valid for three years and indexed annually to the wholesale price index (WPI), a measure of costs, to the extent of 60 per cent. Under the 2005 rate guideline, the returns diminished with each passing year due to depreciation, since it was worked out on the net block of assets. Servicing the royalty/revenue share payouts to the state-run port trusts in the face of declining returns had rendered their facilities unviable, the older terminals had argued.
Royalty payable
That aside, terminals such as NSICT were also hit by certain contract terms wherein the royalty/container that the operator pays to the port authority were low in the first 10 years and raised substantially over the balance period. The royalty payable by NSICT to JNPT has increased from ₹47 per TEU in FY2000 to ₹3,638 per TEU in FY2020 as against a rate of ₹3,341 per TEU.
With low rates and rising royalty, NSICT has come under stress. And, the best course open is to handle only the minimum volume of 600,000 TEUs mandated by the contract, from the point of view of minimiszing losses, without running into default.
The lower volumes handled by NSICT also explains why it secured a steep lhike, while GTI – which handles some 2 million TEUs —- was handed a reduction in rates by TAMP.
“NSICT ended-up getting a big hike because the cost plus 16 per cent return on capital employed (ROCE) was divided by lower volumes. Whereas, in the case of GTI, which handles much larger volumes, the cost plus return on investment is divided by 2 million TEUs, resulting in a reduction while computing the average revenue requirement,” a Mumbai-based port consultant said
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