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The passing of the Major Port Authorities Bill will set into motion a new investment cycle in Indian logistics.
The bill which got passed by parliament replaces the 1963 Major Port Trusts Act. The devolution of power to the boards of individual state-run ports is set to streamline decision-making on critical issues around tariffs, terms of public-private partnerships, the process of land acquisition, and site development strategies. The boards will replace trusts which are currently in charge, under the umbrella of the central government.
With project execution getting enhanced, the speed of port infrastructure buildout is expected to accelerate in tandem with the rollout of major rail and road connectivity projects and dedicated economic corridors. As efficiency rises and logistics are optimized, importers and exporters can benefit from lower throughput costs and the quick delivery of goods. Importantly, this fits into the broader “Atma Nirbhar,” or self-reliance goals outlined by New Delhi.
India’s twelve major government-run ports which facilitate the transfer of 705 million tons of cargo (FY 19-20) have for long been managed by a single central board. As international trade burgeoned and goods traffic grew in double digit percentages annually, so did the demand for quick decision making and tailor-made solutions in line the needs of each port. Under the new bill, reference tariffs can be set by the concerned board in line with its unique requirements. These requirements are becoming increasingly specific as trade hubs gain supply chain specialization. Engaging private players to see this development through, such that state-run ports compete more effectively with private ones, is also a key goal of the reforms.
This is a quantum leap from the changes made in 2018 when royalties could be shared under public-private partnership (PPP) model, under the tariffs agreed by a central authority. The stated goals of this decentralization exercise include giving agency to the concerned board to take autonomous decisions on land and asset use, contract and regulation setting, master plan development, and tariffs. Financial independence under the new structure means that the decision-makers can take loans (both local and foreign) up to half of the port’s capital reserves without the approval of the central government. The revised Tariff Authorities of Major Ports (TAMP) lends power to each organization to set their own reference tariff for PPP bidding, while the PPP joint venture is offered the flexibility to adjust tariffs thereafter in line with the free market.
The bill also mandates the separation of duties through the formation of an Adjudicatory Board whose purpose is to provide a roadmap to solve existing tussles between the port and PPP operators and define the path to revive projects that have been stymied by over-regulation and untenable financing. Just short of disinvestment, the effort is meant to give a fillip to the public sector institutions in terms of “less government and more governance” - a slogan often used by the current political leadership.
Financial independence under the new structure means that the decision-makers can take loans (both local and foreign) up to half of the port’s capital reserves without the approval of the central government.
Moreover, if this proves to be successful, it will provide a template for further infrastructure and logistics reforms in areas where the government remains involved through Public Sector Units (PSUs). Importers and exporters will have a variety of ports to choose from to suit their needs, with each terminal ramping up their modernization efforts to raise the quality of service and drive transaction costs down. The knock-on effect on inflation will be important in reducing the cost of delivered or free on board (FOB) products.
Attracting investment for modernizing and increasing the economies of scale of ports will be cornerstone to India’s manufacturing and trade ambitions. The corporatization of the system will ensure private developers and financiers can target specific parts of a port’s infrastructure. This means that the speed of modernization is set to rise, meeting the demands of the public. In a world awash with cash searching for growth sectors, the bill acts as a catalyst for foreign and local investors alike to deploy capital behind projects that would now face shorter lead times, fewer regulatory hoops, and valuable market driven tariff flexibility.
Surya Kanegaonkar is a commodities professional with ten years of experience in research and trading for a hedge fund, utility and miner.