Advance ruling under indirect tax
The Financial Express
Tax Partner - Infrastructure practice
Ernst & Young
Professional member with Advisory services
Ernst & Young
Indian ports reached the benchmark one-billion-tonne cargo handling capacity last fiscal. Non-major ports have emerged as the key growth drivers for the sector; in the past five years, cargo traffic at non-major ports has been growing at almost double the rate of major ports. Non-major ports now handle more than 35% of the total cargo at Indian ports.
In the infrastructure space, public-private participation has been relatively more successful in the port sector. Still private investments have been far below expectations. Government policies and plans are predicated on most investments coming in from the private sector. In the ‘Maritime Agenda 2010-2020’, which replaced the national maritime development programme, India’s port capacity is targeted to reach 3.1 billion tonnes, requiring investments of R2.96 lakh crore by 2020.
The maritime agenda assumes that the majority of investments would come from the private sector. The expected capacity additions of over 220 million tonnes for FY12 have not been achieved and the capacity addition of a similar quantum projected for 2012-13 looks a challenge. Market conditions, no doubt, have not been favourable, however, regulatory hurdles are cited as major factors for under-achievement. It is, therefore, critical to understand what the industry is referring to by regulatory hurdles.
A large number of projects had been taken up by the major ports and state maritime departments. The delays in completing these projects are limiting their ability to propose new projects. The greenfield ports proposed by the state governments suffer the maximum delays, understandably, on account of prolonged land acquisition issues, security clearances, and environmental clearances. There are two aspects to this—delay in providing clearance and a lack of permanence to clearance.
In a few instances, previous clearances and contractual documents are revisited, causing further delays that impact the overall viability of a project. In particular, land acquisition is the key procedural issue to be dealt with by state government in case of non-major port and by central government in case of major port.
The decentralised mechanism is clearly visible in port sector development. While some maritime states have set remarkable development benchmarks, some others are still in the process of assessing the scope of port-led development. The regulatory authority overseeing the port development projects in each maritime state and the powers enjoyed by each regulator are not uniform. This resulted in some states fast tracking their port projects, while the others lagged behind.
Cost-plus-based tariff fixation remains a key concern. Since ports are a key facility for international trade, in a few linked regions, the ports may have acquired the characteristics of a natural monopoly. This justifies tariff regulation. However, a cost-plus approach is tending to penalise efficiency increases, especially, if the returns are not reinvested to a great extent.
Many investors expect that the tariff regulation for major ports would be discontinued or replaced with an incentive-based system with a price cap. Further, the complexities of calculations and the interpretations of investments, inclusions, exclusions and the like have made the process relatively cumbersome.
The draft ports regulatory Bill, however, sought to regulate minor ports as well through the minor ports regulatory authority. The regulation included tariff regulation. This regulation had faced significant resistance from the state governments, citing the same concerns most stakeholders have with current tariff regulations.
Cabotage is an aspect that needs multi-stakeholder discussions to resolve. Ports envisaging development of trans-shipment terminals cite cabotage as a regulatory hurdle impacting viability of the trans-shipment activity. Removing regulatory hurdles is not always a case of passing a bill or modifying an Act based on the recommendations of only one set of stakeholders. The multi-stakeholder discussions, which happen now, should continue; the need, however, is to speed up every aspect of the consultation process and resolve, gaps and differences at a faster pace.
Authors’ views are personal.