A lowdown on the major ports Bill

The regulation is a good start, but there's a long way to go

Non-major ports have been able to steadily increase their market share from 20 per cent in the eighties to 45 per cent now. They are incorporated as corporate entities under the Companies Act and are agile as a firm to respond to the market forces within their self-defined corporate charter. Their managers enjoy autonomy in decisions on investment, raising equity and debt resources from the market and in entering into contracts. They also enjoy freedom to set tariff.

In contrast, the ability of major ports to respond to the changing dynamics is constrained by the institutional structure (namely the port trust) run by the Board of trustees comprising diverse interests who have become anachronistic with time and impede real time decision making. Their tariffs are also regulated. Major Port Authorities Bill 2016 has been conceived by the Centre to replace the Major Port Trusts Act 1963 to enable port authorities to become flexible and autonomous and respond fast.

The Bill aims to make the authority Board driven and to align management practices with corporate sector. An independent review board has been proposed to resolve disputes with the public private partnership (PPP) investors and users.

The Bill seeks to simplify board composition and induct Independent Members (IM) into the Board. The Board is empowered to set tariff and can decide on investment and appointment of contractors. The Bill also determines the terms of borrowing and allows the board to borrow up to 50 per cent of its capital reserves from the market. Also, the accounting has been aligned with corporates, enabling better understanding of their financial statements. .

While the board can enter into PPP contracts with investors and also enter into joint venture with others, the Centre can issue directions on many of these and other commercial decisions and also in cases of emergency, security, public interest. To that extent the Bill has balanced commerce and public policy admirably.

Some concerns

But, there may be a few elements of concerns. For instance, PPP project is defined to cover only royalty or revenue sharing ones; it needs to be amended to provide for other PPP models, including annuity. Also, capital reserves have been defined to include capital reserves, revenue reserves and current assets. To avoid wrong counting, current assets should be dropped from the definition. The clause that the Board cannot borrow without prior approval of the Centre beyond 50 per cent of capital reserves also may need to be reviewed. Alternatively, the Centre should set borrowing limits like corporates, based on the debt servicing ability of individual ports which is based on the ports expected cash flow and business plan. Another issue is that tariff procedures do not enable real time pricing flexibility.

Remuneration payable to Independent Members of the Board in the nature of honorarium set by the Centre may not be able to attract talent. In case of board meetings convened at short notice to transact “urgent business” presence of independent member is not essential but if the government nominee is absent the decision shall not be final unless he ratifies the decision. This provision needs review to restore the primacy of independent members. All decisions at the board shall be adopted by a simple majority with no distinction in quorum between major decisions and others unlike corporates.

Besides, the provision for master plan development of port limits should stipulate consultation with the state governments and local authorities. Centre is empowered to constitute a review board to look into disputes with PPP investors and complaints from users besides review and revival of stalled PPP projects.

The Centre should induct lenders, investors and trade bodies in the board and make the board truly independent. The new Bill is a bold initiative by the Centre and should hopefully enable major ports to adjust their sails and row their own boat.

The writer is a lawyer with J Sagar Associates

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