port sector: issues & challenges
Post on 06-Jan-2016
51 Views
Preview:
DESCRIPTION
TRANSCRIPT
Port Sector: Issues & Challenges
Arvind Kumar*Senior Adviser (TR)
Ministry of Road Transport & HighwaysFebruary 2, 2012, Mount Abu
Forum of Indian Regulators (FOIR)*Views are personal and do not necessarily reflect the views of
the organization to which the author belongs
Overview: India’s Port Sector • India’s seaborne trade 95% by volume & 67% by value • Length of the coastline 7,517 km - 9 maritime States & 5 UTs ( including 2 island groups)
• Parallel competing port management & legal Systems - 12 under Major Ports Act, 1963 - 1 (Ennore) under Company Act - 184 Non-major ports
• Port legislation & Structure - Indian Ports Act, 1908 allows Maritime States to set up their own port systems - Major Port trust Act, 1963, regulates 12 major ports.
• Major Ports fall under operational & financial control of M/O shipping & subject to tariff regulation by Law
• Minor ports: under State Maritime Boards & free from formal tariff regulation
Growth Dynamics: India’s Port SectorGrowth dynamics of cargo traffic (2000-2011)• Overall annual growth (major & non-major) 9.2%• Major ports (7.3%) & Non major ports (13.7%)• As a consequence share of non major ports in cargo handled rose from
24% in 2000-01 to 36% in 2010-11• Capacity utilisation around 90% at Major ports• Highest annual growth in container traffic (15%)• Containerisation at about 2/3rd of general cargo compared to global levels
80% plus.• Container traffic has grown, but is uneven in pace, demand centred in
North West Hinterland (60%)• Indian ports have low draft, makes access of large bulk vessels
problematic. Entails higher unit shipping cost for low value items.• Leads to higher turnaround time & small parcel size.
Major & Minor Ports: Share in Cargo Traffic
(In Million Tonnes)
PORTS 1990-91 2000-01 2005-06 2010-11(P)
Major 151.67
(92.2)
281.13
(76.3)
423.57
(73.2)
569.92
(64.4)
Non- Major 12.78
(7.8)
87.37
(23.7)
155.42
(26.8)
314.55
(35.6)
All Ports
164.45
(100.0)
368.50
(100.0)
578.99
(100.0)
884.47
(100.0)
Figures in Brackets indicate percentage to total
World Top 10 Cargo PortsPort 2008 (Million Tonnes) 2009 (Million Tonnes)
1.Shanghai (PRC) 582.0 590.0
2Zhoushan/Ningbo (PRC) 520.1 570.0
3.Singapore 515.4 472.3
4.Rotterdam 421.1 387.0
5.Tianjin (PRC) 355.9 380.0
6.Guangzhou (PRC) 344.3 375.0
7.Qingdao (PRC) 300.3 315.5
8.Qinhuangdao (PRC) 252.2 243.8
9..Hongkong (PRC) 259.4 243.0
10..Busan (S.Korea)) 241.7 226.2
India (total) 744.0 (2008-09) 884.5 (2010-11)
Major Ports 530.8 (2008-09) 569.9 (2010-11)
Kandla 72.2 (2008-09) 81.9 (2010-11)
Source:For S.No.s 1-10, Port of Rotterdam ,Statistics,2010
World Top 10 Container PortsPort 2008 (Million TEUs) 2009 (Million TEUs)
1. Singapore 29.92 25.87
2.Shanghai (PRC) 27.98 25.00
3.Hong Kong (PRC) 24.49 20.90
4.Shenzen (PRC) 21.40 18.25
5.Busan (S.Korea) 13.45 11.98
6.Guangzhou (PRC) 11.00 11.19
7.Dubai Ports (UAE) 11.83 11.12
8.Zhoushan / Ningbo (PRC) 11.23 10.50
9.Qingdao (PRC) 10.32 10.26
10.Rotterdam (Netherlands) 10.78 9.74
India
Major Ports 6.59 (2008-09) 7.54 (2010-11)
JNPT 3.95(2008-09) 4.27 (2010-11)
Source:For S.No.s 1-10, Port of Rotterdam Authority, May 2010.
India’s Major Ports:APBT (2010-11
Draft and Average Parcel Size
Port PPT KOPT HDL TPT MBPT JNPT COPT PT KPT CHPT NMPT MOPT ENNORE
Draft (Mtr)
12.8 5.3-8.4 6.7 10.4 10.9 11.0 12.8 10.7-20.0
4.6-23.5 12.0-17.4 (OH)
15.4 14.4 16.0
Major Ports: Non Working Time at Berth
Port Call Charges (US$) (24Hrs stay of 50000 GRT vessel 2009-10 )
Source: Task Force on Transaction Cost in Exports, 2011, Ministry of Commerce and Industry
Efficiency of Container Terminals at Major Ports:2009-10
Performance Indicators of select container terminals
Port/Terminal Moves/Hr TEU/Mtr.TEU per
EmployeeDwell Time
(Days) TRT (Day)
Tuticorin 25 1187 3008 2.6 0.8
Chennai 27 1286 2797 2.0 1.1
JNPCT 15 1142 829 2.0 2.0
JNPT - NSICT 24 2553 3563 2.5 1.6
JNPT - GTICT 30 2462 3265 2.9 1.1
Cochin 16 536 579 6.4 1.4
TEU per meter of Berth
Global Median=945
Productivity of Gantries (Moves/Hr), 2009-10
Global median mover per hour 30
Turn Round Times: Global Comparisons
10
10
10
11
12
12
18
19
20
22
48
59
Singapore
Shanghai
Dubai
Hong Kong
Rotterdam
Los Angeles
JNPT
Chennai
Tuticorin
Mundra
Pipapav
Cochin
13
14
16
17
18
18
27
28
29
32
37
46
Los Angeles
Cochin
Hong Kong
Singapore
Rotterdam
Mundra (Adani)
Pipavav
Shanghai
Dubai
JNPT
Tuticorin
Chennai
Indian ports have much longer vessel turnaround times than global best practices
1 Derived from several months of Maersk Line’s recorded statistics of port entry and exit times of their vessels
SOURCE: Maersk Line website
Vessel time spent in port1, hours, 2010
MAERSK LINE EXAMPLE
Actual time spent in port … … normalised for 1,000 TEU call
Indian ports
Quayside Productivity: Global Comparisons
141
166
189
192
207
Terminal quayside productivity at Indian ports is far below global figures
1 Pipapav is in ramp-up phase
SOURCE: Containerisation International
2008
▪ Mumbai is the only port that comes close to quayside performance of best practice ports
▪ Quayside performance partially affected by scale
▪ Mumbai is the only port that comes close to quayside performance of best practice ports
▪ Quayside performance partially affected by scale
Pipapav1 188
Cochin 612
Mundra 666
Tuticorin 1,185
Chennai 1,356
JNPT 1,639
Colombo 1,259
Port Klang 1,307
Singapore 1,730
Hong Kong
2,205
T. Pelepas 2,593
= /32
86
84
146
171
164
173
141
126
123
126
100
84
87
80
112
127
TEU/quay meter/yr ’000 TEU/STS crane/yr STS crane spacing (m)
Dwell Time: India Vs BestIndian ports have much higher dwell times than global best practices
SOURCE: Report of the inter-ministerial group on reduction of dwell time in Indian ports, 2009
Number of days, 2006
Import Export Import Export
+86%
Best practice 14
Indian worst 64
Indian best 13
Indian average 261
+43%
14
34
13
201
+186%
0.6-0.8
8.2
1.2
2.0
+443%
0.6-0.8
6.5
1.0
3.8
Dry bulk Container
1 Recent Indian average figures from Indian Ports AssociationNOTE: Based on best practices at Rotterdam and Singapore ports. Singapore is a transshipment port and thus, may not be exactly comparable
Impact of External Factors-Dwell TimeParameter India Singapore DenmarkAutomation Few processes
automatedAll custom procedures processed on line via trade net; 90% within 10% minutes of submission
All customs declaration filed & processed electronically
Single Window No single window concept in use
Single window facility via trade net with links to 34 agencies; unique registration no. required
Single window service single unique registration number required
Examination Risk management system (RMS) in operation; 50% still physically examined
Mainly post audit controls and use of non intrusive technology for examination
3 tier RMS & only 2 to 5% goods physically examined
Help desk No single help desk exist Outsourced call centre 24*7 Outsourced call centre 24*7
Duty structure Reduced levels but multiple rates with exemptions makes export promotion cumbersome & complicated
Single low duty rate, GST not paid on input for exports
Single low duty rate, duty refund on inputs used in exports
Source: Based on Task Force on Transaction Cost in Exports, 2011, M/o Commerce and Industry
Moving Containers: Distribution of costs
• The cost of moving a container fall into five major categories and the distribution of costs (as percentage of total costs) of moving containers is as follows:
- inland transport (25%) - the ship/ocean freight costs (23%) - ports and terminals (21%), including stevedoring - the containers (18%), including maintenance - other costs, including container repositioning (13%)
Source: Jean-Paul Rodrigue, Hofstra University; Martin Stopford, is the drive for ever bigger container ships irresistible? Lloyd’s list shipping forecasting conference, April, 2002 quoted in Fairplay.com.uk
Costs & Procedures in Foreign Trade
India China Malaysia Korea Singapore
Documents for Export (Numbers) 8 7 7 3 4
Time to export (Days) 17 21 18 8 5
Document to import (Numbers)) 9 5 7 3 4
Time to import (Days) 20 24 14 8 3
Cost to export * 945 500 450 742 456
Cost to import* 960 545 450 742 439
* US $ per container. Source: Doing Business 2010, IFC
Port Management ModelsPort Type Infrastructure Super
structureStevedoring
labourOther
functions
Service port(Major Indian Ports
Public Public Public Mainly public
Tool port(France,some African nations)
Public Public Private Mainly public
Landlord port(Antwerp,Rotterdam,Singapore etc
Public Private Private Mainly private
Private port(UK,New Zealand)
Private Private Private Mainly private
When to Regulate?• Market power• Imperfect & Asymmetric information:
Operator (Agent) has an informational advantage over the Government/Regulator (Principal)
• Externalities: occur when production or consumption of goods/services impose costs/benefits on others which are not reflected in the prices charged for the goods & services being provided
• Joint provision & consumption
Starting Point: Efficient Markets
P
Pc
Qc Q
D
S = Marginal Cost
Pc = Marginal Revenue
Optimum: MR = MC
Social Welfare = Consumer Surplus + Producer Surplus
Philosophy of Regulation
• Case for Economic Regulation exists when:– Activity or industry has elements which bestow
advantages of natural monopoly, it occurs when:• Industry/Activity has large sunk costs and
falling average costs• Significant barriers to entry• Locational advantages which bestow near
monopoly advantages on the operator
The economic Characteristics of Port Infrastructure
• The basic port infrastructure is: - indivisible & requires large sunk costs -long lived -constructed in a specific space for a specific use• => Perfect conditions for the existence of scale economies• The most obvious difference with other public services: - Multiple services associated with the port infrastructure• This multitasking dimension matters a lot when thinking
about economic regulation, including pricing - the infrastructure provide a service: you can charge a price - the infrastructure is an input: you can charge a price
Why Tariff Regulation in Ports
• Port Trusts (PTs) can not regulate their own tariffs or of Terminal Operators due to– Conflict of Interest– Being Competitors– Need to safeguard user’s interests
• Therefore, the need for 3rd Party Neutral Regulator
Charter of TAMPTo fix scale of rates :• For services rendered by the ports• Rentals for use of port trust properties• Fix charges for services rendered by port operators
(BOT, concessionaries etc. under MPT• Prescribe conditions for services rendered by Port
Trusts/operators.Guiding Principles• Safeguard the interest of port users;• Just and fair return to operators• Promote economy in use of resources & efficiency
Tariff Guidelines 2005: Approach• Anchored on cost plus basis• Cost as per estimate for future & ROCE determine tariff• Revenue share/royalty not treated as cost
- Except in cases prior to July 29, 2003 subject to a maximum of second lowest bidder
• ROCE is on sum of net fixed assets plus working capital• Return on capital allowed 16% as of now
- full ROCE allowed for capacity utilization of 60% & above.
Tariff Guidelines 2005 Approach
• Tariff approved by TAMP valid for 3 years• Rates fixed by TAMP are ceiling rates
-Ports/operators enjoy flexibility to offer rebates• Tariffs fixed are
-Vessel related (port dues, berth hire on GRT basis) -Pilotage sliding rates (higher for higher GRT)-Cargo related (wharfage rates) based on cargo handling
• Concessional tariff for coastal cargo/containers/vessels -60% of normal tariff applicable -coal, POL & iron ore are not eligible.
Tariff Guidelines 2005:Issues
• Information intensive exercise• Too much emphasis on individual operator’s
profitability• Weak incentives for efficiency• Disallowance for revenue share in tariff and its
long term effects– Partial pass through of royalty/revenue share for
private terminals which came prior to July 2003.
Tariff Guidelines 2008
• Simple & Norm based• No provision for midterm review
– Unchanged Tariff for 30 years• May not encourage regular investment by operators or• May bestow windfall gains on operators if any change
in planning/parameters
• Norms do not cover all areas of operations
Upfront Tariff Guidelines 2008• Committee on infrastructure found that combining
cost plus model of tariff and revenue share model of bidding was untenable
• Recommendations – Upfront tariff– Uniform tariff cap at the same port– Normative cost based with fair return on capital– Capacity utilisation of 75% – Tariff caps to be reviewed once every five years to
adjust for any unforeseen events– Tariff indexed to 60% of WPI variation
• Guidelines for upfront tariff setting for PPP projects– Notified in the Gazette on 26.2.2008
Salient Features of 2008 Guidelines• TAMP to fix upfront tariff cap before bidding based on
proposals from major ports– Bid document to incorporate the upfront tariff– Tariff cap set for a port would be applicable to all projects
bid out subsequently for identical cargo during the next five years
• Approach – Normative cost based approach– Estimated capital and operating cost based on norms
prescribed– Fair rate of return on capital employed (presently @ 16%)
• Annual indexation of upfront tariff– 60% of the variation in the WPI of the relevant year
• TAMP to review tariff caps– Once in five years for extra-ordinary events– Revised tariff caps applicable to subsequent PPP
projects
Fixation of Upfront Tariff
Capacity • Tariff to be fixed with reference to the optimal
capacity irrespective of traffic forecast• Indicative norms for capacity are prescribed in the
guidelines for handling containers, iron ore, coal, liquid bulk and multipurpose cargo
• Optimal capacity is 70% of the maximum capacity– Lower of the quay capacity and stack yard capacity is to
be adopted
Current Issues: Port Tariffs
• Tariff Models– Tariff Guidelines 2005– Tariff Guidelines 2008
• Non Major Ports outside tariff regulation• Inadequate Statutory Powers
– No power to compel submission of information & documents
– No power to enforce its Orders
Rate of Return Regulation• Tariffs are set to generate Annual Revenue
Requirement enough to recover operating costs and fair/predetermined return on capital;– In essence limits the level of profit to be earned
• Operator’s cost are reviewed & costs deemed unnecessary eliminated.– Problem in determining allowable costs
• No incentive to operate efficiently• Operator may over invest
Guiding PrincipleRegulator sets regulated rates or tariffs for the
regulated entities so that the regulated rates allow the entity to earn a revenue that covers the “justified costs” of their operation, that is the costs that are necessary, unavoidable and reasonable and offer a predetermined return on assets to render regulated service at a predefined level of quality
Revenue Requirement=Total Cost=Variable Cost+(Rate level*Rate Base)
Pitfalls of Cost Plus Regulation
• Motivation for over-investment (increased rate base) – ‘gold plating’
• No motivation to increase productive efficiency• Continuous pressure for price increase • No incentive for selection of right equipment• Information asymmetry at the regulator’s side: - no up-to-date operating cost information - no data on future business plans (investments, cost-
reduction, etc.), - obscure picture on demand side.
Port pricing Models: Theoretical Perspective
• Presence of economies of scale => problem to implement a first best pricing policy (price equal to marginal cost) => not possible to recover investment costs.
• Second-best alternatives, common to other transport sectors, are:
- Average-cost pricing, - Two- part tariffs, - Long-run marginal cost pricing, and the use
of rental fees from concessionaires.
Port pricing Models: Theoretical Perspective
• This possible alternative: long-run marginal cost (LRMC) It is defined as: short-run marginal cost (SRMC)+ the
marginal cost of capacity (MCC) LRMC = SRMC + MCC
which keeps the idea of social optimality, and at the same time, achieves full cost recovery
The idea could be: SRMC: paid by the ships MCC: paid by port services operator
Regulation Versus Market Failure
• Are there regulatory errors in setting prices?• Is regulation intrusive and costly?• Does it discourage long term investment?• Too much focus on short term cost/prices• Is regulatory innovation desirable
Issues in Port Sector• Why are vessel related charges higher at Indian Ports.• What makes high turnaround time and pre berthing detention at Indian
Ports- lower levels of technology & lack of coordination amongst stakeholders
• How to make Indian Port sector vibrant?- Change in institutional structure(Trusts versus Corporatized entity)- Does ownership matter ?
All Ports in Europe (except in the UK),Dubai, Singapore etc owned by the State
- Synergy with trade and industrial policy (SEZs and FTZs).• Are port related charges villain of the piece?
- No, port related charges account for around 10-15% of total logistics cost.- High inland transit costs, connectivity constraints influence cargo
flows/costs.
Issues: Port Sector• Captive versus common carrier terminals
• Inter port and intra port competition• Inter port competition constrained by hinterland economic activity, connectivity & inland
transit costs• Intra port competition can serve to mitigate the pricing power • Intra port competition may be ineffective in situations where ownership is concentrated
• Financing of port infrastructure• Land acquisition and environmental clearance
- long gestation period for green field port projects (15 years)• Scale of operations at Indian Ports
- Fragmented and small compared to China- Combined throughput at Major Indian Ports barely matches that of Shanghai alone.
• Draft limitation restricts access of large vessels to Indian Ports resulting in: - More number of ship calls leading to congestion- Higher demand for berthing
Hinterland•Level of Economic Activity•Road/Rail Network•Material Access•Feeder Services Port Performance -
Sum of parts!Efficiency improvements should target the entire sphere of activities and
result in increased competitiveness
Technology•Port Equipments •Software applications •IT based custom & security•Communication system
•Master Plan & port capacity •Level of congestion•Ability to handle large ships•Geographical location
•Management practices•Customer satisfaction•Personnel quality & motivation
•Crane productivity•Yard equipment planning & productivity•Gate productivity•Equipment Utilization•No. of berths•Port Charges
Port System Efficiency is the Key
Intangible Factors
Terminal Efficiency
Physical Features of Port
top related