INDIA BUSINESS WORLD - AUGUST (16^th - 31^st) 2007
The Month that was ...

PSA-SICAL TERMINALS WINS LEGAL BATTLE AGAINST THE TARIFF AUTHORITY FOR MAJOR PORTS (TAMP)

PSA-Sical Terminals, which operates India's third largest container terminal at Tuticorin Port, has won a legal battle against the Tariff Authority for Major Ports (TAMP). The Madras high court last week set aside a 2006 ruling by TAMP, and directed the terminal operator to work out a fresh payment formula with Tuticorin Port Trust (TPT) within 8 weeks that will help enhance the productivity and capacity at the terminal.

Shipping analysts said the ruling has brought in cheers to many terminal operators, which have been bleeding, thanks to downwards revision of tariffs by TAMP at various ports. DP World is fighting a similar court case in Mumbai High Court against the TAMP order that revised tariffs downwards twice at its Nhava Sheva International Container Terminal (NSICT).

PSA-Sical Terminals, a joint venture between PSA of Singapore and Chennai-based Sical Logistics, pays annual royalty to TPT, moved the court last year when TAMP reduced tariff. The regulator fixes tariff as per the return on capital employed (ROCE) formula. As the assets were depreciated, TAMP had cut tariffs at the terminal by about 54%, despite the fact that the operator had approached TAMP requesting a 30% increase. The high court had however stayed the TAMP order, and allowed the port operator to charge same tariff - Rs 2,100 per TEU, till a final order is issued.

Kartik Menon, director, Sical Logistics, said they would soon work out a new payment formula with the port trust. The terminal operator was in distress after TAMP reduced tariffs, and had moved court against the order. PSA-Sical had earlier decided to cut down on peak capacity from 350,000 TEU (20-ft equivalent unit) to 300,000 TEU, the minimum mandated by the government, since the tariffs did not justify the terminal operation. The plan was to reduce number of quayside cranes from three to two, since July 15, 2007. However, it withdrew the plan after reaching a truce with the port trust.

PSA-Sical has been operating with the same tariff for many years, but the annually royalty being to the port trust goes on increasing every year as per the 30-year BOT contract. The company has been operating the terminal since 1999. Senior company officials said they had had invested in enhancing capacity and productivity, and that the tariff regulator had not appreciated it.

When TAMP reduced the tariffs, PSA-Sical had come out strongly against the order. In a statement, it said the decision by the tariff regulator in September 2006 to halve the revenues of the terminal has made it commercially unviable.

"The much reduced revenue per TEU is not able to cover the cash operating expense and the royalty payment per TEU to the government," it had stated.