TAMP Perspective: Redefining of roles

Redefining of roles

The Tariff Authority for Major Ports (TAMP) was constituted in April 1997. Prior to the setting up of TAMP, major ports set their own tariffs. After private participation was allowed in the port sector, it was felt that there would be a conflict of interest and thus the need for a third-party regulator arose, leading to the setting up of TAMP.

TAMP regulates tariffs levied by major port trusts and private port terminals located therein. It fixes rates for services rendered, as well as charges for the use of properties at major ports. It is mandated not only to fix the tariffs but also set the conditions governing the application of these rates. The tariff set by TAMP is the ceiling tariff and it is up to the port to charge lower rates if it chooses.

Tariff guidelines

TAMP administers various guidelines issued by the Ministry of Shipping (MoS):

  • 2005 guidelines for fixing tariffs for 15 BOT operators
  • 2008 guidelines for fixing upfront tariffs
  • 2013 guidelines for fixing reference tariffs
  • 2015 tariff policy for fixing tariffs for major ports

The 2005 guidelines cover major port trusts and 15 build-operate-transfer (BOT) operators. These guidelines follow a cost-plus regime, and require fixing of tariff based on operating cost plus a 16 per cent return on capital employed (RoCE). The major drawback of the cost-plus model is that in the initial stages of project commissioning the traffic is low, whereas the tariff is comparatively higher. The build-up of traffic and return on depreciated assets subsequently leads to a fall in tariffs.

Under the 2008 guidelines, the tariff is fixed for a concession period of 30 years, and is based on norms rather than on actual cost. Moreover, under these guidelines, the tariff is known to the bidders before the bidding procedure and every year a provision is made to account for 60 per cent inflation by taking the wholesale price index (WPI) into consideration. The main drawback of the 2008 guidelines is that if the operator wants to invest in technological upgrades or mechanisation, there is no additional return.

In September 2013, the government came up with Revised Guidelines for Setting Reference Tariff for Projects at Major Ports, 2013 (for both public-private partnership [PPP] and port-funded projects). Under these guidelines, a port can adopt the tariff fixed for the port, or it can adopt the highest tariff fixed for any other major port for comparable projects, and in case a suitable tariff is not available, the port can propose a tariff, by adopting the principles of the 2008 guidelines. Ports can also hike their tariffs by 15 per cent if they meet the performance standards. The 2013 guidelines enable quick processing of proposals and reduction in time for award of projects by ports. These guidelines have attracted domestic as well as foreign investment and have led to faster execution of projects. By December 2015, TAMP had passed 37 tariff orders setting reference tariffs.

Since the 2013 guidelines cover only PPP operators at the 11 major ports and not the services rendered by the ports, the MoS released the 2015 guidelines to cover these services. The tariff fixed under the 2015 guidelines is based on the concept of annual revenue requirement (ARR), where ARR is equal to the average of actual expenditure in the last three years plus 16 per cent RoCE. The tariff thus fixed is valid for a period of three years. According to the new guidelines, only 20 per cent of the pension liability can be passed on to users. The guidelines also ensure that if there is any fall in traffic at the port, tariffs cannot be increased further.

The way forward

When TAMP was set up, most of the traffic was handled by major ports. Now with a greater number of private ports and deregulation of tariff fixing, the role of TAMP is likely to be modified.

TAMP not only maintains checks and balances, it also ensures that the interests of users are protected. In case of deregulation, TAMP can play the role of an adjudicator and examine disputes between BOT operators and ports, or between users and BOT operators. TAMP can also look into user grievances and complaints, and set performance standards and service levels for ports. The authority can also fix norms for various types of services rendered by ports and assist in finalising concession agreements, as well as monitor the progress of projects till commencement. Finally, in the event of deregulation, TAMP could act as an overall regulator of the port sector. w

Based on a presentation by T.S. Balasubramanian, Member, Finance, TAMP