Looking back into the past brings certain very pleasant memories to my mind. Those were the days when Tuticorin Container Terminal (TCT), operated by Port of Singapore Authority (PSA) along with South India Corporation (SICAL), had just started operations in December 1999. Looking at those huge quay cranes moving containers from the ship to the shore and vice versa at high speed was indeed a delight to watch.
Prior to TCT commencing operations at Tuticorin, containers were handled by ship gears. A small feeder vessel with total 400 moves – in and out put together – took not less than two days to complete its discharging and loading operations at Tuticorin. However, after TCT started operations, each quay crane achieved around 30-35 moves an hour and loading/unloading of a vessel could be completed within an eight hour shift. The RTGs paved way for quick delivery of import boxes and receipt of export boxes at the stack. The whole shipping fraternity was riding high on the highly efficient operations by TCT.
Tuticorin moved to an enviable position among the South Indian Ports. The containerised volumes raced from 1.99 Lakh TEUs to 3.12 Lakh TEUs per annum in the first five years and from 3.12 Lakhs to 4.59 Lakh TEUs in the next five years. New services like Indamex (US East Coast), RTW (Europe) and various other Far East, Red Sea and Gulf services started calling Tuticorin.
However, the successful run didn’t last for long. Within a few years of operation, the tariff related issues started and it led to litigations. The terminal, once known for its high level of efficiency, faster turnaround of vessels, quicker delivery etc., is no more the same. Today, the trade faces enormous difficulties due to slower turnaround of vessels, move count restrictions and huge delays in receipt and delivery of containers. Years of unresolved tariff issues has hampered the progress of the once bustling TCT.
Rather than analysing what went wrong, who is to be blamed for this scenario, it would be prudent to carefully analyse the facts and find out a resolution within the framework of the existing policy framework of the PPP concession agreement.
STEP 1 –
370 meters of quay at Berth 7 is a strategic national asset through which goods worth billions move in and out of our country. So, the utilisation of this valuable national asset has to be maximised. The international norm is 1 Quay crane for every 80-100 meters of quay length. So, 4 quay cranes can be installed in a quay of 370 meters length.
If 4 twin lift quay cranes are installed, the productivity calculation would be as follows…
PARTICULARS (PER ANNUM)
Total working hours = 7008 hours (365 days x 24 hours x 80%)
Total number of moves = 700800 moves (4 quay cranes x 25 moves per hour x 7008 hours)
Total number of TEUs = 1201868 TEUs
• 40’s – 43% = 301344 moves = 602688 TEUs
• 20’s – 57%
a) Twin lift moves (50% of 20’s) = 199728 moves = 399456 TEUs
b) Single lift moves (50% of 20’s) = 199728 moves = 199728 TEUs
= 700800 moves = 1201872 TEUs
If the quay has 4 twin lift quay cranes installed, adequately supported by RTGs, bays and gates, container handling at the terminal can be scaled up to 1 million TEUs easily. Since 2010, the throughput is ranging between 4.5 lakhs to 5.2 lakhs per annum. So, literally, the terminal can double its annual productivity.
STEP 2 –
The second step is to make it financially viable for the terminal operator for investing and replacing old equipment with new ones. This has to be done:
1) Within the framework of the PPP concession agreement signed
2) Without financial loss to the land lord i.e. VOC Port
3) Without increasing the cost pressure on the trade
It may look impossible but a careful review of each aspect would indicate that it’s actually possible.
1) Solution within the framework of the contract – The PPP concession has a provision for arbitration. Already, the arbitration process – with respect to the PSA-Sical Terminals Ltd. – has been completed and the verdict was to move from royalty to revenue share model, by benchmarking with the highest revenue share PPP prevailing in our country at that point in time i.e. 55.18% revenue share to port. This verdict was challenged by the port authorities in the Honourable Courts of Law and twice the verdict was to uphold the arbitral award i.e. moving from royalty model to revenue share model.
2) Solution without financial loss to the VOC Port – The biggest hindrances to the solution in question i.e. movement from royalty to revenue share are perceptions such as
a) The terminal operator made exorbitant profits in the initial years
b) The port would make huge profits based on royalty which keeps increasing every year
c) The port would lose if moved from royalty to revenue share
There way forward could be careful evaluation of these aspects:
a) Evaluation of the profits earned by terminal operator on royalty mode till date to see if the terminal had made exorbitant profits: A calculation based on number of containers handled, the THC charged, the royalty paid in a particular year, per TEU cost of operation etc. reveals that the profit made from Dec 1999 till March 2016 would have been around Rs. 100 crore. Operating profits to the tune of Rs. 100 Crore over 16 years of operation can be considered reasonable and not exorbitant. Thereby, the first hindrance can be removed.
b) Evaluation of the potential losses for the terminal operator if the royalty model is continued till the end of the final year of the contract: The financial losses for the terminal operator would be immense as the THC fixed in 1999 is still being charged while the royalty keeps increasing every year. If the same situation continues, the royalty payable to the port would be even more than the THC charged by terminal operator. A calculation based on the number of containers which would be handled, the THC as per current tariff, the royalty which will have to be paid to the port and per TEU operating cost reveals that the terminal operator would lose thousands of crores. Thereby, the port authority’s view that it would be making good profits is only notional as it’s not practically feasible.
c) Evaluation of the profit the port would make if it moves from royalty to revenue share model with the operator enhancing terminal infrastructure (up gradation specified in the concession agreement) and considering the increased volumes the terminal will handle: A calculation based on the number of containers that the terminal can handle, the THC that it can charge benchmarking the THC structure of DBGT terminal (as per the arbitral award), the revenue share to the port basis 55.18% on not only the THC but also on ancillary changes like ground rent, direct loading, direct discharge etc. reveals that the port would gain a profit of about Rs. 1300 Crore in the remaining years of the contract period. Further, as per the DBGT THC structure, there is provision to increase the THC based on the Wholesale Price Index (WPI) after review on a yearly basis. So, in such a scenario, the port would gain even more.
3) Solution without increasing the cost on the trade – The arbitral award and the court verdict directs the terminal to charge THC as per the structure followed by DBGT. The THC of DBGT is lesser than the THC of TCT. So, there is no increase in the cost on the trade too. The THC may increase over a period of time based on the WPI only which wouldn’t be substantial.
So, careful review of all these aspects points to the fact that a win-win situation is definitely possible within the framework of the existing concession agreement signed between the terminal operator and the port authorities.
The trade through various trade associations have already made various representations to the VOC Port Trust, the Shipping Ministry and the consultants appointed by the VOC Port on this issue.
In terms of port infrastructure in our country, there is no doubt that PPP projects have played a major role in where we are today and would definitely continue to play a major role in where we dream to be in the future too. So, it’s of paramount importance that the Government gives top priority and resolves issues in PPP projects, particularly port related PPP projects.
The takeaways of resolving the issues:
a) For the government and port: Instead of investing thousands of crores in creating new quays, drastically increasing the efficiency of the existing quay just by a prudent policy decision can substantially increase profits. Above all, a positive signal to the world that the Indian Government is committed to resolving issues in PPP projects would result in attracting not only foreign investments but also state-of-the-art technology and know-hows.
b) For the trade: As efficiency increases, the trade would actually enjoy the benefit the government wishes to provide i.e. reduction in transaction time, reduction in transaction cost and ease of doing business.
c) For the country: As trade increases, more port based industries would come up in alignment with the Government’s Sagarmala project, paving way for realisation of the Make in India program, more job creation, more foreign exchange reserves, thereby bringing in prosperity to our nation.
With so much in stake, we sincerely hope the government would move forward in the right direction.
In one of the discussions, a view which was expressed was “If an Indian terminal operator win a terminal contract in Singapore, run into a tariff related issue, will the Singapore Government allow the terminal to run in nominal efficiency for 13 years without resolving it?”. Its time our authorities gave a fitting reply to such arguments, not by words but by action.
(The views and opinions of the author are his own and not necessarily that of the company for which he works and the associations he represents)