PSA-Sical: Tariff cuts at Tuticorin make it unviable

PSA International and its joint venture partner in a container terminal at the south Indian port of Tuticorin are in a tussle with India’s port regulation agency over steep cuts in tariffs that the terminal operator said it’s allowed to charge to its customers.

   This week the Tariff Authority for Major Ports (TAMP), a governmental agency that sets tariff rates for India’s 12 large state-owned ports, lowered the tariff Singapore giant PSA and its partner Sical Logistics can charge by 34 percent, ignoring a request by PSA-Sical to increase tariffs by 30 percent, Mint reported Thursday.

   It’s become another example of the tension building between private terminal operators in India and TAMP, a unilateral body that attempts to adequately measure what terminal operating costs are at the country’s big container ports so that shippers and carriers are not overcharged.

   The Mint report said tariffs have been cut three times since 2002, while at the same time PSA-Sical at Tuticorin has asked for an increase. In 2006, TAMP enforced a 50 percent rate cut, but PSA-Sical got the order reversed in court. A year later, the terminal operator cut capacity at its terminal - to the bare minimum throughput required by its lease – in order to avoid paying what it called excessive royalty payments to the Indian government for boxes handled above the minimum threshold.

   PSA-Sical warned TAMP that the new tariff cuts would simply make the port unviable to operate.

   “Whatever profit we have made in the past 10 years will be wiped out by this decision,” S.R. Ramakrishnan, a board director of the joint venture, told Mint. “The cut in tariffs by 34 percent will push us into deep loss. It is not even bleeding, it is haemorrhaging. That is the kind of loss we will make.”

   The new tariff levels stipulated by TAMP will run through 2011, unless challenged in court.

   Tuticorin is India's fourth largest container port, with an annual capacity of about 450,000 TEUs.

   PSA remains one of the largest investors and operators of Indian cargo terminals. Last week, PSA upped its stake in a new 1.5 million TEU container terminal in Chennai, the country’s second biggest container port. It will now control 73 percent (up from 60 percent) of the joint venture company operating the new terminal in Chennai, which is due to open in May. Sical holds the other 27 percent stake.

Source: American Shipper