Port reforms: The next big step

Given its critical importance to the overall economy, it has al­ways been surprising how little attention has been paid by successive governments to policy re­fo­rms for Indian state-owned ports. Even as sector after sector, from roads to telecom to power and civil aviation, have seen reforms (or at least serious attem­pts at reform), the ports sector has seen relatively little action.

 

Even today the so-called “major po­rts” (12 of them), which account for around 55 per cent of maritime cargo traffic in the country, have to adhere to a tariff and policy regime that has its roots in the 1960s. They still have their tariffs set by a central authority — the Tariff Authority for Major Ports (TAMP); and the TAMP holds the master key for many other operational and commercial matters too. It is as if the Ministry of Telecom were to set phone tariffs for the entire country from Delhi by fiat, or the Ministry of Power were setting electricity tariffs for all discoms in the country.

 

As a consequence, a substantial chu­nk of trade has shifted to the “non-ma­jor” or “private” ports that operate under a much more liberal regime and are under the control of state governments. According to a report by CARE, the sha­re of non-major ports in total traffic rose to 43 per cent in 2016 from just 10 per cent in 1981. These ports — such as Mu­ndra, Kakinada and Pipavav — are not just operationally more efficient, but crucially, have developed much better linkages to the hinterland to enable smooth traffic flows.

Pipavav, a non-major port in Gujarat, has developed good linkage to the hinterland to enable smooth traffic flow.
And while the private sector is in­volved in major ports in areas like cargo handling, much more is needed by way of investment, in areas such as dredging (to increase the depth of the port to ac­commodate larger ships), and adding new terminals.

 

Enter the Sagarmala project in 2015, aimed at enhancing capacity at ports, improving operational efficiencies and also the connectivity of ports to the hinterland to enable a smoother flow of traffic. One hundred and twenty-five projects at a total cost of over Rs 31,000 crore have been completed so far. The bulk of these projects (Rs 22,000 crore worth) we­re aimed at modernising major port infrastructure.

 

Having invested in port infrastructu­re, the Union Cabinet has taken the next logical and critical step to enable ports to leverage that new infrastructure — operating policy reform. On February 12, it approved a Bill — the Major Ports Au­thority Bill, 2020, — to comprehensively overhaul the governance structu­re of major ports. As the Bill seeks to re­place a 1963 Act, it will be sunset time for the TAMP, that hitherto had a vice-like regulatory grip on the sarkari port system.

 

The first such initiative was actually introduced back in 2016 but the law failed to get passed as Parliament was adjourned before the Lok Sabha election last year; the Bill therefore lapsed. While the full contents of the latest Bill ap­p­ro­ved by the Cabinet are not yet known, it is expected to be along lines similar to the 2016 one.

 

The 2016 Bill granted major ports greater autonomy, including crucially, the ability to set tariffs on their own. Apart from tariff autonomy, the 2016 Bill also enabled the board of an individual port to raise funds (up to 50 per cent of capital reserves) from banks and financial institutions without taking the permission of the central government. It also provided for the setting up of a centralised adjudication board to resolve disputes in PPP projects between the port and private sector concessionaires. Together, these measures, assumed in­corporated in the latest Bill, could lead to major ports becoming much more attractive to the private sector, both in terms of investment and as service providers. Private operators who provide cargo handling services in major ports as of today, for instance, have to clear their tariffs with TAMP — clearly a sub-optimal outcome.

 

These reforms are critical if the in­vestments made in the last few years are to pay off. The positive effects of a more liberalised regime for ports are no cle­arer than in Gujarat which was a pioneer in a port-led model of trade and development, as the CARE report notes. The Gujarat Maritime Board administers 41 non-major ports in the state, which to­gether account for 70 per cent of the traffic handled by non-major ports in the country (as of 2017). The improvement of port infrastructure and logistics was an important factor in the increase in Gujarat’s growth rate from a little over 5 per cent in the 1980s to over 8 per cent in the 1990s.

 

From the Sagarmala project to tweaking taxes to incentivise waterborne ca­r­go transport, to setting up and developing port-based SEZs and mega ports, a nu­mber of measures have been taken in re­cent years to give a boost to the shi­pping sector. With the approval of the Port Authority Bill by the Parliament, a critical missing link will finally be in place.

 

 



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