Bill on India’s Ports Approved

By Pritesh Samuel

The government on December 14 cleared the Major Port Authorities Bill, 2016, which replaces the Major Port Trusts Act, 1963. The new bill is expected to give more autonomy and flexibility to ports in the country. The bill will help in faster and transparent decision making as it reorients the government model in central ports to the landlord port model which is in line with global practices.

Landlord Port Model

In the landlord port model, the port authority acts as a regulatory body and the landlord, with private companies carrying out port operations, mainly in cargo handling activities. The port authority maintains ownership of the port, while the infrastructure is leased to private companies that maintain their own buildings and install their own equipment to handle cargo. The port authority in turn gets a portion of the revenue from the private enterprises. As per the new bill, port authorities will be able to lease land for port activities for up to 40 years and for non-port activities up to 20 years. For longer leases, government approval will be needed.

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Service Port Model

In this model, the port authorities own the land as well as the assets – fixed and mobile – and manages and performs all regulatory and port functions. Most port trusts in India are involved in terminal operations as well, which results in a hybrid model of port governance.

As per the 2016 bill, the port board has been simplified and will now consist of 10 members, including 3 to 4 independent ones, instead of the 17-19 members under the existing model. The port authority has also been given powers to fix tariff rates for bidding for public-private partnership (PPP) projects. Thus, PPP operators will be able to fix tariff rates based on market conditions.

The PPP model has itself had significant issues in the sector. Port authorities have been unable to lease out land to private operators, there have been delays in approvals from different agencies, and differences over agreements leading to litigation, among other issues. While 100 percent FDI is allowed in the sector, most foreign firms stay away due to such issues and security threats. The bill hopes to change all that.

In addition, the port board will have the power to fix the scale or rates for other utility services and assets, including land. An independent board has been proposed to look into disputes between ports and PPP concessionaires.

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Takeaways

While the bill is headed in the right direction, implementation will be the real test. The bill is one of the biggest changes for the shipping industry; shares of ports, shipping, and logistics companies were trading higher on the stock exchanges following the announcement. The impending new law will help the 12 major ports of Kolkata, Haldia, Paradip, Visakhapatnam, Ennore, Chennai, Tuticorin, Cochin, New Mangalore, Mumbai, Jawaherlal Nehru Port Trust, and Kandla. The aforementioned public ports account for around 70 percent of India’s container trade but have been losing their market share to smaller ports that have more capacity and modern infrastructure.

The passing of the bill is a much needed one, especially as the government hopes to increase cargo traffic by three-fold in the next five years. The introduction of the bill will also be a boost to the government’s flagship Sagarmala program. The government aims to spend around US$ 180 billion on port modernization, connectivity improvement, and industrial development. Major ports in the country recorded a 4.15 percent year on year increase in container volumes from April to November. Neverthless, India remains behind in port related development, particularly compared to its neighbor, China. A report by the Ministry of Shipping states that while China’s ports and related waterways account for 20 percent of the country’s GDP, in India it stands at only 14 percent. The combination of the recently approved bill and the Sagaramala project aim to address these deficiencies and transform India’s ports into economic powerhouses.

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