Non-major ports have been able to steadily increase their market share from 20 per cent in the 1980s to 45 per cent at present. They are incorporated as corporate entities under the Companies Act and are agile in responding to market forces, within their self-defined corporate charter. Their managers enjoy autonomy in investment decisions, in raising equity and debt resources from the market and in entering into contracts. As non-major ports they also enjoy the freedom to set tariffs.
In contrast, the ability of major ports to respond to changing market dynamics is constrained by their institutional structure (namely, the port trust) run by the board of trustees comprising diverse interests, which have become anachronistic over time and impede real-time decision making. Further, their tariffs are regulated.
The Central Port Authorities Bill, 2016 has been conceived by the Government of India (GoI) to replace the Major Port Trusts Act, 1963 to enable port authorities to become flexible and autonomous as well as to respond fast to situations.
The bill aims to make the port authority board-driven and align its management practices with the corporate sector. An independent review board has been proposed to resolve disputes with public-private partnership (PPP) investors and users.
The bill seeks to simplify the composition of the board and induct independent members. The board is empowered to set tariffs and can take decisions on investments and the appointment of contractors, determine the terms of borrowing as well as borrow up to 50 per cent of its capital reserves from the market. While the board can enter into PPP contracts with investors and joint ventures with other players, the GoI can issue directives on these commercial decisions and also do so in the case of an emergency, security threat or in public interest. Overall, the bill has struck an admirable balance between commerce and public policy.
Areas that call for review
Definitions: A “PPP project” has been defined to cover only royalty or a revenue sharing project and should be amended to provide for other PPP models including annuity. Capital reserves have been defined to include capital and revenue reserves and current assets. Current assets could be dropped from the bill as they may lead to wrong counting if these assets are financed by reserves, or alternatively, by working capital loans from banks.
Commercial autonomy: The board cannot borrow beyond 50 per cent of its capital reserves without prior GoI approval. Alternatively, the GoI could set borrowing limits based on the debt servicing ability of individual ports depending on their cash flow and business plan.
While the tariff can be set by the board, the procedures do not enable real-time pricing flexibility. In setting tariffs, the board is empowered to seek advice from a committee. Procedures for the selection of “other persons” in the committee should be added in the bill or be provided for in the board’s regulations so as to check for potential conflict of interest.
Governance: Remuneration payable to independent members of the board by way of an honorarium set by the GoI may not be able to attract talent. In case board meetings are convened at short notice to transact “urgent business”, the presence of the independent members is not essential, but if the government nominee is absent, the decision cannot be final unless he ratifies it.
This provision needs review so as to restore the primacy of independent members. All decisions by the board should be adopted by a simple majority with no distinction in quorum between major decisions and others, unlike in corporates. The master plan for the development of port limits should be created by the port authority and be stipulated to be independent of any regulations of the state government or local authority. As state governments can also set up ports near major port locations and as port development can impact the local community, this provision warrants review.
If the internal auditor is an employee of the port authority, this may impede independence. The GoI is empowered to constitute a review board to look into disputes with PPP investors and complaints from users besides the review and revival of stalled PPP projects. The GoI could induct lenders, investors and trade bodies on the board and make it truly independent.
To sum up, the new bill is a bold initiative by the GoI. While the pessimist complains about the wind, the optimist expects it to change but the realist adjusts the sails. Kudos to major ports that are learning to adjust their sails and row their own boats and are not waiting for the storm to pass.