Centre releases draft guidelines on deregulating PPP port tariffs

09 Oct 2024 CW Team

The shipping ministry noted that while tariffs were previously regulated due to a limited competitive landscape, the evolving market conditions now necessitate deregulation. The initial aim of introducing tariff regulations in 2005 was to protect user interests while ensuring fair returns for ports and promoting competition and efficiency. However, significant shifts in the market and competitive landscape in the Indian port sector have occurred since then.

Under the new draft guidelines, PPP operators will have the authority to set their own scale of rates (SOR), subject to signing a supplementary agreement. Historically, major port authorities served both as service providers to end users and as the concessioning authority, making tariff regulations crucial for protecting the interests of both port users and PPP operators.

With the transition to a landlord port model and increased private sector participation, the relevance of fixed tariff regulations has diminished. Several PPP operators have expressed concerns to the ministry, indicating that they face disadvantages compared to fully private ports due to the lack of parity in tariff fixation, making PPP projects less attractive.

While the new regulations will allow greater pricing flexibility, they will not affect government revenues generated from these PPP projects, as there will be no changes to the royalty structure. The draft guidelines state that the royalty as a revenue share for major ports will not fall below the amount it would have received under the previous tariff fixation regime. This will be accomplished by converting the revenue share to royalty based on the project's previously determined Annual Revenue Requirement. (Business Standard)

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In response to longstanding demands from private port operators for parity between recent winners of public-private partnership (PPP) projects at major ports and those with older contracts, the Centre has issued draft guidelines for tariff migration. These guidelines will enable concessionaires to transition to a market-based tariff regime. The shipping ministry noted that while tariffs were previously regulated due to a limited competitive landscape, the evolving market conditions now necessitate deregulation. The initial aim of introducing tariff regulations in 2005 was to protect user interests while ensuring fair returns for ports and promoting competition and efficiency. However, significant shifts in the market and competitive landscape in the Indian port sector have occurred since then. Under the new draft guidelines, PPP operators will have the authority to set their own scale of rates (SOR), subject to signing a supplementary agreement. Historically, major port authorities served both as service providers to end users and as the concessioning authority, making tariff regulations crucial for protecting the interests of both port users and PPP operators. With the transition to a landlord port model and increased private sector participation, the relevance of fixed tariff regulations has diminished. Several PPP operators have expressed concerns to the ministry, indicating that they face disadvantages compared to fully private ports due to the lack of parity in tariff fixation, making PPP projects less attractive. While the new regulations will allow greater pricing flexibility, they will not affect government revenues generated from these PPP projects, as there will be no changes to the royalty structure. The draft guidelines state that the royalty as a revenue share for major ports will not fall below the amount it would have received under the previous tariff fixation regime. This will be accomplished by converting the revenue share to royalty based on the project's previously determined Annual Revenue Requirement. (Business Standard)

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