In a move that would impel India?s large public sector ports to improve efficiency and give an impetus to foreign trade, the government is considering doing away with the practice of port tariff determination on a cost-plus basis. Instead, tariff would be linked to the port operator?s efficiency ? the higher the efficiency, the higher the reward.

The shipping ministry has hired The Energy and Resources Institute (Teri) to ?critically analyse? the current system of tariff fixation for major ports ? upfront fixation of tariff on a cost-plus basis and the subsequent selection of the operator that offers to pay the highest amount as revenue share (royalty) to the port authority.

Although this system of upfront (pre-bidding stage) tariff fixation that was introduced in 2008 allows rationalisation of royalty amounts to a certain extent, it lacks any incentive for the operator to enhance its efficiency.

?Tariff fixation rules for major ports need a re-look as the industry is aggrieved by the current dispensation. Some port operators themselves have said that the current tariff norms penalise efficiency,? shipping secretary K Mohandas said in an interview to FE. ?Revision of guidelines has been pending for long,? Mohandas added.

India?s 12 major ports (excluding the Andaman port for which data is not available) have a combined capacity of 670 million tonne, accounting for 63% of the total port strength, according to Indian Ports Association data. Private or minor ports, which are in the jurisdiction of maritime states, are free to determine their fees.

Efficiency of ports is key to the country?s export performance. With exporters trying to shift to new destinations in the wake of the demand slump in the US and European markets, reducing the turnaround time at ports is very important. India, which does 90% of international trade through sea, wants to increase exports of gems and jewellery, textiles, autoparts and other goods to $750 billion by March 2017 from the $225 billion last year.

The existing port capacity is more than the throughput, but many ports report congestion owing to the narrow gap between the capacity and traffic. This constrains India?s foreign trade. Ideally, the ratio between the port?s installed capacity and the traffic should be 1.3:1

India?s major ports have failed to improve their efficiency despite the steady growth in business. FE reported on August 15 that performance of major ports has deteriorated in the last one year. Pre-berthing time and turnaround time of vessels ? two key measures of efficiency ? increased 1.61% and 5.69%, respectively, during 2010-11.

As consultant, Teri has to explore possibilities of introducing efficiency-linked tariff schemes as the government wants to increase traffic at Indian ports by attracting vessels that currently head for transhipment hubs like Colombo, Dubai and Singapore, which have higher efficiency standards. The average dwell time at Indian major ports is 1.88 days for import and 3.78 days for export, against 0.6 days at ports in Singapore for both import and export, the Parliamentary Standing Committee on transport, tourism and culture observed in a report tabled in Parliament on August 8. Due to their below-par performance, number of vessels docked at Indian major ports dropped 0.77% in 2010-11, shipping ministry data show.

Besides tariff fixation, Teri would suggest physical quantities for ascertaining efficiency of terminal operators. It would also determine standard capacity for each facility at the port and suggest methods of ascertaining ideal investment in developing that capacity. It would also examine how much of financial burden on account of royalty payment to major port trusts could be passed on to the clients by terminal operators. Teri has been given four months for holding discussion with stakeholders, including private operators like Dubai World, and submit its report.