The users of the Nhava Sheva International Container Terminal (NSICT), the country's first port terminal set up under public-private partnership, were overcharged by as much as 80 per cent between 2002 and 2005, according to a study by the Committee on Infrastructure, which is under the Planning Commission.
A copy of the study has been posted on the Web site of the Secretariat for the Committee of Infrastructure with the rider that the report should not be taken as representing the views of the Planning Commission.
NSICT is part of Jawaharlal Nehru port. In 1995, JNPT invited bids for construction, operation and maintenance of a new container terminal for 30 years on BOT basis.
The contract was awarded to a consortium of P&O Ports Australia, Konsortium Perkapalan Berhard and DBC Group of companies. The concession agreement between the consortium and JNPT was signed in July 1997.
The consortium was later incorporated into a separate company called the Nhava Sheva International Container Terminal Ltd.
The terminal was built within a reasonable period of two years (1997 to 1999) at a cost of Rs 733 crore. The present owner of the terminal is DP World.
Role of TAMP
The study also questions the role played by the Tariff Authority for Major Ports (TAMP), the independent regulator responsible for fixing tariff in the port sector, alleging that the regulator allowed the burden of royalty payments to be passed on to port users even though royalty was the basis on which NSICT was selected.
As a result, the port users paid over 80 per cent more than what was due during this period. In addition, the users may have also paid more as the capital costs and operating costs, which formed the basis of tariff determination, were not scrutinised.
The study further alleges that TAMP allowed the terminal operator to extract inadmissible returns of Rs 524 crore during the period, which came to about 100 per cent annual return on equity as opposed to the permissible limit of 20 per cent.
According to the study, the role of JNPT as grantor of the concession was equally suspect as it took no steps to discharge its statutory duties under the law or the concession agreement, and allowed NSICT virtually a free hand.
The Ministry of Shipping compounded matters by issuing directions that changed the tenor and structure of the entire deal.
Against an estimated royalty of Rs 8,390 crore to be paid by NSICT to JNPT over the concession period, the actual payment amounted to Rs 2,560 crore, resulting in an "undue gain of Rs 5,830 crore which would be borne by port users", the study says.
NSICT has often been held up as the finest model of public-private partnership (PPP) in the port sector. In recognition of its performance, the Confederation of Indian Industry gave the CII Award for Excellence in Infrastructure to NSICT in February 2003. NSICT also achieved operational results comparable to global standards - recording gross ship rates of over 100 moves per hour and average vessel turnaround time of 0.75 days.
In April 2005, NSICT handled traffic that exceeded twice the capacity estimated by JNPT at the time of bidding.
Monopoly rents
The study, however, draws attention to the other side of the proclaimed success. NSICT, it is pointed out, made profits far in excess of the permitted returns and that a significant part of these profits could be attributed to monopoly rents arising out of a flawed regulation of tariffs in an environment of huge gap between the available capacity and the rising demand.
From its inception up to March 2005, NSICT,s revenue earning totalled Rs 1,624 crore, out of which royalty amount payable to JNPT was Rs 117 crore that constituted 7.2 per cent of total revenue. "Between 2000 and 2005, it achieved an average return (post royalty) of nearly 80 per cent on its equity, which was four times the stipulated return of 20 per cent, making it one of the most profitable ports in the world, albeit at the expense of captive users," the study observes.
No performance norms,
The study also refers to a few other issues. For example, the concession agreement did not specify any performance norms or delivery standards to protect the interests of the users. The only delivery-related norm that finds a mention is crane moves per hour, which has limited bearing on user interests.
Moreover, no penalties have been specified for shortfalls in performance. Clause 6.1.6 of the agreement made it obligatory upon NSICT to operate the terminal on common user basis. Yet JNPT did not initiate any action against violation of this provision. JNPT only represented before TAMP, which did not seem to have taken any cognisance.
"When viewed in the light of its extraordinary returns, notwithstanding the rate of return regulation, the project signals an unequal partnership between a private operator, fiercely driven by the objective of maximising returns, and an absentee landlord unable to enforce the basic terms of a badly structured concession agreement coupled with a weak regulator who chose to be dependent on the "regulated, for determination of tariffs", the study observes, adding, "this environment provided leverage for NSICT to manipulate the deal, ex-post, to its own advantage and to the disadvantage of the port users."
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