note on summary of preliminary report

Transcription

note on summary of preliminary report
NOTE ON SUMMARY OF PRELIMINARY REPORT
A. Objective of the engagement
In recent years, there have been representations from various stakeholders for review of regulatory
regime for the Port sector and more specifically, the relevance of tariff regulation for major ports in the
present context.
In this context, the Indian Ports Association (IPA), assigned by Ministry of Shipping (MoS),
Government of India, has appointed Deloitte Touche Tohmatsu India Private Limited for conducting a
review study of TAMP and its role and relevance in the present context and way ahead.
The engagement aims to assess the objectives of TAMP, status of their achievement, relevance in
context of changing dynamics of the sector in India, nature of regulation required for Port sector
especially focusing on tariff regulation, market competitiveness, monopolies etc. prevailing in the
sector, need for non-major ports be part of the overarching regulation and options for regulation in the
sector. Based on such assessment, this note has been prepared highlighting various possible options
for regulation in the sector, for seeking views from relevant stakeholders.
B. Regulatory framework for the Port Sector
Currently, the Ports sector at the Central level is regulated broadly on two aspects (i) Tariff regulation
for Major Ports by Tariff Authority for Major Ports and (ii) Competition regulation by Ministry of
Shipping and Competition Commission of India.
(i) Tariff regulation for Major Ports by Tariff Authority for Major Ports
1. The reforms in Indian port sector were initiated in the 1990s and in 1994, Ministry of Surface
Transport (MoST) published a policy document directed at improving the investment
atmosphere in ports sector so as to enable private participation in key port facilities. The 1996
policy guidelines for Private Sector Participation (PSP) by MoST focused on collaborations
between major ports and foreign ports, private operators and non-major ports.
2. The guidelines implied that the future investments in the port sector will no longer be
restricted to public sector and adopted the landlord port model in which the basic
infrastructure is provided by the port authority and efficiency of the private players are
leveraged in providing operational port services and management of the ports. However, a
major barrier in implementation of this model was the prevalent regulatory structure wherein
the port trusts were empowered to regulate their own tariffs and of their terminal operators. It
was thus felt that an independent third party regulator is required not just to resolve the
conflict of interest situation but also to safeguard the interest of the users as major ports were
then contributing more than 90% to the overall traffic.
3. Accordingly, the Major Port Trusts Act, 1963 was amended and Tariff Authority for Major
Ports (TAMP) was created in April 1997. As per the charter of TAMP, it has jurisdiction over
major ports & the private terminals developed at major ports and it has been mandated for the
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following activities:

Fix scale of rates for services rendered by the ports

Fix rentals for use of Port Trust properties

Fix charges for services rendered by port operators (concessionaries etc.) under Major
Port Trusts

Prescribe conditions for services rendered by Port Trusts/operators
4. Key guiding principles considered by TAMP while devising and enforcing any regulatory
decisions include – safeguarding the interest of port users, ensuring fair returns to operators
and promoting economy in the usage of resources and efficiency.
(ii) Competition regulation by Ministry of Shipping and Competition Commission of India
1. In 2010, Ministry of Shipping introduced the policy for preventing private sector monopoly for
Major ports. The policy restricts participation of private entity or its associates for bidding for a
private terminal/berth at a port in case there is private terminal/berth for specific cargo and the
entity is operates such private terminal/berth.
2. In addition to the mentioned policy, TAMP guidelines also play a role in managing the
competition landscape for the sector. TAMP, by fixation of tariff, ensures
a. Protection of interest of private terminal/berth operators at major ports from conflicting
role of the respective ports trusts, both as a land lord as well as terminal/berth operator
b. Protection of interest of captive berths at the Major ports
3. Competition Act 2002 and Competition Commission if India: The Competition Act 2002 was
introduced as a successor to Monopolistic and Restrictive Trade Practice (MRTP) Act, 1969.
It was introduced with an objective of promoting & sustaining competition in markets,
safeguard interests of the consumers and ensuring freedom of trade. As per the Act, the
focus was not curbing dominant position and instead it was aimed at restricting the abuse of
dominant position.
The Act envisaged the establishment of a Competition Commission to address aspects such
as anti-competitive agreements, abuse of dominant position, combinations and competition
advocacy. It also envisaged establishment of the Competition Appellate Tribunal, a quasijudicial body, to address appeals against any direction or orders issued by the Commission.
Pursuant to the Competition Act, the CCI was established by with effect from 14th October
2003 to further the objectives of the Act inter alia including

eliminating practices having adverse effect on competition;

promoting and sustain competition;

protecting the interests of consumers; and
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
ensure freedom of trade
Since, as per sections 3 to 6 of the Competition Act 2002 apply to both unregulated markets
as well as regulated and to goods as well as services, the role of CCI extends to even
Infrastructure sectors already regulated by sectoral regulators including Port Sector.
C. Evolution of Port sector and need for review of Regulatory Framework
1. Globally, there has been significant shift in dynamics in the port & shipping sector owing to
globalization of manufacturing, increased containerization, consolidation among ocean
carriers, terminal acquisitions globally by select companies and growing prominence of global
logistics service provider, changing distribution patterns and focus of ocean carriers on use of
regional hubs for transshipment etc. These drivers as well as natural evolution of port sector
in India in terms of its lifecycle and economic growth have led to significant changes in the
Indian port sector as well in last few decades. Key changes include:
a. Significant increase in number of non-major ports under the jurisdiction of state
government which do not fall under the regulatory regime of TAMP.
b. Trend of movement towards landlord port model and focus of the government as well
as major ports has been to have more projects on PPP basis.
c.
Increasing realization that an improvement in service levels from the port operators is
required not only from the operations side but from the port management perspective
as well.
d. With increase in number of players, growth in business, number of PPP projects and
integration of logistics chain, probability of conflicts and disputes between various
stakeholders have increased.
e. Over a period of time, government has started considering the option of
corporatization of major ports for bringing market oriented business practices and
attracting private investments.
f.
Consolidation of companies, horizontal as well as vertical, across the value chain of
port sector leading to greater market dominance.
2. In view of these changes, the degree of achievement by TAMP of its objectives and more
importantly its relevance in present context is long debated. It is argued that
a. Current tariff regulation approach covers only a small part of the cost of logistics
chain (5%-10%);
b. There is sufficient competition in port sector and now, unlike the situation two
decades ago;
c.
There has been significant increase in share of non-major ports, which do not fall
under the ambit of TAMP;
d. Evolution of TAMP guidelines over the years has resulted in a scenario which impacts
the inter-terminal competition at the major ports; and
e. The earlier and prevalent guidelines offer only limited incentive for efficiency
improvement.
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3. In context of the Competition regulation aspects, while the provisions of Competition Act are
holistic, Port sector has certain peculiarities which may need to be considered while
assessing the relevant market & abuse of dominant position.
a. Existence of natural monopolies:
There are various factors which determine the
choice of gateway port by the customer such as connectivity, geographic aspects,
logistics chain interdependencies etc. These aspects vary customer wise, commodity
wise & supplier wise while defining the contours of relevant geographic market. Thus,
there are scenarios where a port/terminal operator might not have dominant position
in geographic market, but for a specific customer it may be a case of monopolistic
scenario as can be seen in case of captive berths and captive cargo. Further, some
ports while competing in a geographic region, may act as a market in themselves.
b. Relationship Interdependencies: Port operations comprise of various stakeholders &
intermediaries
sharing
strong
interdependencies.
By
virtue
of
such
interdependencies, each can enjoy dominance at a certain time for a specific
customer.
In such scenarios, an ex post assessment may not be in customer interest. Also, there may
be a need for deeper appreciation of sector dynamics, drivers of competition in the sector to
ascertain the market boundaries and whether there has been case of abuse of dominant
position.
4. Also, with the growing prevalence of the landlord model and the emphasis in the Private
sector participation in the sector, there is increased focus on dispute resolution, grievance
redressal as well as performance monitoring and/or regulation and at present there is no
specific independent institutional mechanism to address the disputes & grievance.
5. Thus, a need has been felt to review the the current regulatory framework of the port sector in
India in terms of :

Tariff regulation

Competition regulation

Service Standard & Performance Assurance

Dispute Resolution & Grievance Redressal

Policy Advocacy
D. Options for regulations in the port sector
1. Tariff Regulation:
Various representations have been received from stakeholders in the industry advocating for
complete deregulation of tariff. While, number of reasons have been quoted for tariff
deregulation, there have also been representations from the industry against complete
deregulation citing instances of captive berths and industries which are overly dependent on a
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particular port/terminal.
Also, tariff regulation in present context ensures protection of interest of private terminal/berth
operators at major ports from conflicting role of the respective ports trusts, both as a land lord
as well as terminal/berth operator as well as ensures protection of interest of captive berths at
the Major ports.
Further, the basic premise of a market driven tariff regime is that there is sufficient
competition and options are available to customer to switch ports/terminals/ berths. However,
aspects such as type of cargo, connectivity & infrastructure requirement, logistics chain, level
of containerisation etc. may limit switch-ability of ports/terminals.
With this background, the various options pertaining to tariff regulation can be
Option 1: Tariff regulation in the current form may continue. However, the issues can be
discussed with stakeholders and guidelines may be evolved based on the same.
Option 2: Light touch tariff regulation may be considered with a focus on addressing primarily
the monopolistic / anti-competitive aspects.
Option 3: Tariffs may be market driven. However, some aspects like tariff for captive berths
and determination of charges levied by Port Trusts can be separately addressed
Option 4: Total deregulation of tariff and Tariffs can be market driven.
2. Competition regulation requirements in Port sector:
There are various other pockets of monopolies and monopolistic tendencies that exist in the
Indian port sector, by virtue of one or more of the competition drivers such as hinterland
dynamics, type of cargo, connectivity, maritime geography, supply-demand gap, relationship
aspects such as vertical integration, mergers & consolidations etc. case are not unheard in
the Indian port sector. Other possibilities include, formation of association resulting in possible
entry barriers, horizontal integrations etc. Such dominant positions always pose a threat of
anti-competitive behaviour such as market foreclosure, predatory pricing etc. It may however
be noted that the impact of tariff de-regulation may not always be significant in such cases.
Even in today’s context, these situation of monopolies in the sector as well as dominant
positions may result in potential abuse and such instances are not unheard of in the Indian
port sector.
Competition Act already provides for framework for regulation of competition and Competition
Commission of India & Competition Appellate Tribunal provide for institutional mechanism for
regulating competition. However, there may be an argument for sector specific body for
required depth of sector specific understanding and pro-active regulation in the sector,
independently or along with CCI.
With this background, the various options pertaining to competition regulation can be:
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Option 1: Sector specific competition regulating body working independently (of CCI)
Option 2: Sector specific competition regulating body working in cooperation with CCI and
within the existing framework of Competition Act
Option 3: Self-regulatory organization, as proposed in amendments to MMTG Act
Option 4: No separate competition management framework at the sector level and CCI to be
the sole competition regulator
3. Other regulation related requirements in Port sector:
Under the existing framework for major ports, aspects of performance management are
addressed through TAMP’s focus on performance during tariff fixation and by the provision of
the relevant concession agreements. There have been various representations highlighting
the performance related issues and need to regulate/monitor the performance of various
stakeholders. While regulation of performance may be considered, it also needs to be
ensured that the developed mechanism is not intrusive to operational autonomy and incentive
/ dis-incentives are suitably apportioned.
Also, considering the need to address dispute & grievance arising out of aspects such as
tariff, performance, PPP agreements, competition etc., in a timely manner, there may be a
case for Institutional body for dispute resolution in port sector in India. Such a body may be
independent in nature and supported by individuals having sector knowledge & experience
and role of such body may be to adjudicate contractual disputes arising out of Non-PPP &
PPP contracts, contract renegotiation etc.
With this background, the various options pertaining to other regulations in the Port sector can
be:
Option 1: Institutional mechanism for dispute resolution & grievance redressal for the sector
Option 2: Institutional mechanism for performance monitoring / regulation
Option 3: Advocacy for policy framework and promoting investments
It may also be noted that while the options relating to tariff, competition & other regulations have been
discussed separately, all these aspects have strong interdependencies. Thus, these options may not
be considered independently but may also complement each other.
E. Way forward
In terms of the way forward, views/representations are sought from various stakeholders on these
options. The stakeholders may provide view on the need & suitability of these options in Indian Port
sector, applicability to major and Non-major ports, suggestions on the finer aspects of such
regulations etc. While providing inputs on these options, following key questions may also be kept in
mind

a. Is there a case for complete de-regulation of tariff?
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b. Is there a need for sector level competition management framework? Is the current
institutional framework for competition management adequately equipped to address all
competition related issues in the Indian Port Sector?
c.
Should non-major ports be part of overarching regulation? If so, which aspects needs to be
considered (viz. Tariff, Competition, Performance, Dispute resolution, Advocacy) for
regulation?
d. What are the options for future and role of TAMP?
e. The views/representations may be submitted in writing through post or email by 1500 Hrs on
30/03/2015 to Managing Director, IPA at [email protected]. The postal address as following :
Indian Ports Association (IPA)
1st Floor, NBCC Place, South Tower,
B. P Marg, Lodi Road, New Delhi – 110 003
Tel. No. 0091-011-24369061/63, 24368334, FAX: 011-24365866
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