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India: Shipping Ministry allows three older container terminals to recalibrate royalty payouts

The Shipping Ministry has allowed three of India’s older container terminals operating at state-owned major ports trusts to recalibrate their royalty payouts to the government by factoring in the rate discounts granted for handling containers shipped between the country’s ports and transshipment containers.

The order was signed by Shipping Minister Mansukh Mandaviya on Thursday. BusinessLine has reviewed a copy of the Ministry’s order.

The policy change will make it attractive for Nhava Sheva International Container Terminal Pvt Ltd (NSICT), run by Dubai-government-owned DP World, at Jawaharlal Nehru Port; PSA-Sical Terminals Ltd, majority owned by Singapore’s PSA International, at VOC Port Trust; and Visakha Container Terminal, run by International Cargo Terminals & Infrastructure Pvt Ltd, at Visakhapatnam Port Trust, to handle coastal and transshipment boxes by reducing the losses they were so far suffering on this business.

The earliest container terminal privatisation contracts at major port trusts followed the royalty model, wherein the terminal operator had to pay the royalty specified in the contract on each container handled at the terminal to the government-owned port.

Granting of discount
But, after the contracts were signed and the terminals started operations, the Ministry announced a policy, in 2005, prescribing concession to ships carrying containers between Indian ports and on coastal container related charges. Accordingly, a 40 per cent discount was granted in handling coastal containers compared to foreign-bound containers.

However, the contractually-mandated royalty per container payable by the operators to the port trusts remained unchanged irrespective of whether the terminals handled foreign-bound containers or coastal containers. Thus, the operators offering coastal concessions would realise lower revenue for handling a coastal container, whereas he is required to pay the prescribed royalty to the port trusts, resulting in revenue losses.

In comparison, other older cargo terminals operating under a revenue share model are required to share revenue with the port trusts only on the actual revenue earned based on the concessional rate prescribed for handling coastal containers.

“Therefore, the royalty regime discouraged the three terminal operators from handling coastal containers,” a Ministry official said.

With the policy change approved by the Ministry, the royalty per container payable by the operators will be different for coastal containers and foreign containers, based on the rates approved by the rate regulator.

Rate anomaly
For instance, if the royalty per container for handling a foreign container is ₹3,000, the same for a coastal container will be ₹1,800 (after factoring in the 40 per cent discount).

In the case of transshipment containers (those arriving on a ship that are lifted and put on another ship immediately), the terminal operator earns 1.5 times the rate prescribed for a foreign going container, though it handled the same container twice. But the port trusts collected royalty twice on a transshipment container per the contract terms. This acted as a disincentive for the operators to handle transshipment containers.

This anomaly has been rectified by the Ministry by allowing the terminal operators to pay royalty to the port trusts at 1.5 times, the same as the revenue earned.

For example, if the handling rate for a foreign going container is ₹4,000, the operator was charging ₹6,000 (1.5 times) from customers instead of ₹8,000 on transshipment containers but had to pay royalty (say ₹3,000 a container) twice on the same container, ie ₹6,000, to the port trusts.

Henceforth, the operators will have to pay royalty of ₹4,500 per container (1.5 times ₹3,000) on a transshipment box to the port trusts.

The three terminal operators will separately sign a supplementary agreement with the port trust concerned to give effect to the policy change for the balance period of their 30-year concession agreements.
Source: The Hindu Business Line

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