PSA-Sical free to quit Tuticorin port, says ministry

The Shipping Ministry has told PSA-Sical — the container terminal operator in Tuticorin port — that it is free to exit the terminal operations if it is unable to make profits by following the terms of the 1998 contract, reported The Hindu.


PSA-Sical has been arguing that its operations will not be feasible if the tariffs at the terminal were to be lowered, given the royalty level and cost of operations it incurs.


PSA Sical has resisted attempts of the ports regulator, Tariff Authority of Major Ports (TAMP), to lower tariff at its terminal. The TAMP called for lowering of tariffs by 15 per cent in 2002; 50 per cent in 2006 and 34 per cent in 2008. All these decisions have been legally challenged by PSA-Sical and till date, it continues to charge tariffs as agreed upon at 1999 levels.


The operator, which had entered into the contract with Tuticorin Port in 1998, had requested the ministry to allow it to migrate to the revenue share format. PSA-Sical had agreed to build, operate and maintain the seventh berth of Tuticorin port for 30 years. For this right, it agreed to pay a certain royalty amount according to the contract. The royalty amount per TEU increases every year.


PSA-Sical has sent many proposals to TAMP seeking increase in tariffs during the period. This was opposed to by the users in TAMP.


The Tuticorin Port Trust and users of PSA-Sical container terminal have stated to TAMP, “Recognising the huge profits reported as per the financial records of PSA SICAL, the proposal may be rejected. The terminal operator has quoted very high royalty in the tender and is now trying to include such royalty as a part of the cost of operation. The terminal operator should not look upon the trade and enhance the rates for the purpose of payment of royalty.”


The initial tariff fixing formula, when the contract was signed, the guidelines allowed royalty payout to be treated as a pass-through cost.


However, the revised guidelines of 2003 disallowed treatment of royalty as a pass-through cost while determining tariff ceiling for terminal users. This step was taken to prevent terminal operators from increasing user charges for ports.


A top Shipping Ministry official said: “Terminal operators who entered into contracts with Port Trusts on the fixed-royalty payout formula, want to shift to the newer contracts based on revenue share. We have told them it is not possible for us to rework the contract terms.”


In case PSA-Sical exits, the ministry will invite bids again to operate the terminal. “The new bids will be as per the new contract norms. The present operator is free to bid again to operate the terminal,” said the ministry source.
(Source:http://www.cargonewsasia.com)