Cabinet clears Major Port Authorities Act, 2016, may spur private investments

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New Delhi | Published: December 15, 2016 6:35:36 AM

In a move that could spur private investments in port projects, the Cabinet on Wednesday approved the Major Port Authorities Act, 2016.

Analysts said the proposal to divest the bungling Tariff Authority for Major Ports (TAMP) of the power to regulate tariffs is a big positive. (Reuters)Analysts said the proposal to divest the bungling Tariff Authority for Major Ports (TAMP) of the power to regulate tariffs is a big positive. (Reuters)

In a move that could spur private investments in port projects, the Cabinet on Wednesday approved the Major Port Authorities Act, 2016, which seeks to infuse professionalism in and increase the autonomy of the 12 port boards and, more importantly, allow future public-private partnership operators to fix tariffs based on market conditions and only notify the port authority. Besides, when the proposed law takes effect, the port authorities will get the power to lease land for port-related use for up to 40 years and for non-port related use up to 20 years; the Centre’s approval will be needed only for longer leases. Port boards would not need government approval for raising loans, appointment of consultants, execution of contracts and creation of service posts.

Analysts said the proposal to divest the bungling Tariff Authority for Major Ports (TAMP) of the power to regulate tariffs is a big positive. “Port authority has now been given powers to fix tariff which will act as a reference tariff for purposes of bidding for PPP projects. PPP operators will be free to fix tariff based on market conditions. The board of the port authority has been delegated the power to fix the scale of rates for other port services and assets including land,” the government said in a statement.

Currently, the port trusts award PPP projects on the basis of competitive bidding and the procedures are as follows: TAMP fixes the tariffs (the upper limit) for the relevant port services in consultation with the potential bidders and then the bidding takes place, with the revenue share as the variable. The bidder who pledges to share the highest proportion of revenue with the port authority wins the project.

Investors, anxious to bag the projects, bid aggressively on the revenue share — 40-50% in some cases — which dents their ability to bring down tariffs. This inflates the costs of businesses, while the port trusts get the revenue, virtually sitting idle.

The PPP model in the sector is hamstrung by a variety of problems: Port trusts’ inability to lease out land to private operators in time, delays in approvals from multiple agencies, rows over interpretations of the concession agreement, often leading to litigation, to name a few. Although 100% foreign direct investment is allowed in the sector, global tenders are still not the norm in the sector due to security threat perceptions. Most of these issues will be addressed if the Bill cleared by the Cabinet becomes law.

The Bill proposes to simplify the composition of the port boards: These will comprise 11 members from the present 17 to 19 members representing various interests. “A compact board with professional independent members will strengthen decision-making and strategic planning. Provision has been made for inclusion of representative of the state government in which the major port is situated, ministry of railways, ministry of defence and customs, department of revenue as members in the board apart from a government nominee member and a member representing the employees of the major ports authority.”

An independent review board has been proposed to be created to carry out the residual function of the erstwhile TAMP for major ports, to look into disputes between ports and PPP concessionaires, to review stressed PPP projects and suggest measures to review stressed PPP projects and suggest measures to revive such projects and to look into complaints regarding services rendered by the ports/private operators operating within the ports would be constituted. At present, there is no independent body to look into the above aspects and the review board will reduce the extent of litigation between PPP operators and ports.

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