Public Disclosure Authorized REGULATION OF THE INDIAN PORT SECTOR Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized CHRISTIAAN VAN KRIMPEN LL.M. MAY 2011 BASELINE DOCUMENT REGULATION OF THE INDIAN PORT SECTOR Table of Contents EXECUTIVE SUMMARY & MAIN CONCLUSIONS ..................................... - 5 - 1. GENERAL ....................................................................................................... - 9 - Character of this Report ........................................................................................ - 9 - 2. PORT SECTOR POLICY AND STRUCTURE ........................................ - 12 - Major & Minor Ports .......................................................................................... - 12 - Management of Major Ports ............................................................................... - 13 - Management of Minor Ports ............................................................................... - 15 - Ministry of Shipping, Road Transport & Highways .......................................... - 17 - Ministry of Finance - DEA ................................................................................. - 18 - Planning Commission ......................................................................................... - 18 - Maritime States Development Council ............................................................... - 19 - Tariff Authority for the Major Ports (TAMP) .................................................... - 19 - Port Sector Organisations ................................................................................... - 20 - 3. THE CHANGING FACE OF THE INDIAN PORTS SECTOR ............. - 22 - Current Ports Policy (National Maritime Development Programme) ................ - 22 - Main Background Documents ............................................................................ - 26 - 4. INTERNATIONAL DEVELOPMENTS .................................................... - 36 - Various Port Management Models ..................................................................... - 36 - Demise of Service Ports in the 1990s ................................................................. - 37 - Origin of Landlord Ports ..................................................................................... - 38 - Principal Characteristics of Landlord Ports ........................................................ - 40 - Ministerial Functions .......................................................................................... - 45 - Corporatisation of Ports and Terminals .............................................................. - 46 - Unbundling a Service Port through Corporatisation .......................................... - 48 - Legal relation between Port Authority and Corporatised Terminal ................... - 50 - Final version - 2 - May 2011 BASELINE DOCUMENT REGULATION OF THE INDIAN PORT SECTOR India and Europe: a Comparison ........................................................................ - 51 - 5. CONSIDERATIONS FOR PORT REFORM ............................................ - 55 - Is a Port a Business? ........................................................................................... - 55 - Major and Minor Ports: worlds apart! ................................................................ - 56 - Control of the Major Ports by the Government .................................................. - 58 - Control of the Major Ports by a new Regulatory Authority ............................... - 59 - Port and Terminal Competition .......................................................................... - 61 - Inter-Port Competition ........................................................................................ - 62 - Intra-Port Competition ........................................................................................ - 63 - Transhipment ...................................................................................................... - 64 - A new Management Structure for the Major Ports ............................................. - 65 - Port & Dock Labour ........................................................................................... - 66 - Privatisation of Port Trusts? ............................................................................... - 68 - Advantages of Corporatisation of Port Trusts .................................................... - 69 - Corporatisation by Incorporation Act ................................................................. - 70 - Administrative Requirements during unbundling .............................................. - 71 - Safety and Environment ..................................................................................... - 72 - 6. REGULATION AND COMPETITION ..................................................... - 74 - Regulation: how far do you go? .......................................................................... - 74 - International practices in the port sector. ............................................................ - 78 - Tariff Regulation by TAMP ............................................................................... - 80 - Debate about TAMP’s future .............................................................................. - 84 - Future role of TAMP .......................................................................................... - 85 - Main Tasks and Functions of a Port Competition Regulator.............................. - 86 - Final version - 3 - May 2011 BASELINE DOCUMENT REGULATION OF THE INDIAN PORT SECTOR 7. CONCLUSIONS AND RECOMMENDATIONS ..................................... - 90 - Proposed Regulatory Framework ....................................................................... - 90 - Major and Minor Ports ........................................................................................ - 90 - Fast corporatisation and decentralisation of Major Ports ................................... - 91 - National and Regional Ports ............................................................................... - 92 - Model Concession Agreement ............................................................................ - 93 - Investment Profile ............................................................................................... - 93 - Nautical Safety and Environment in new National Ports Act ............................ - 94 - From Tariff Regulation to Competition Regulation ........................................... - 95 - Labour reform ..................................................................................................... - 96 - Literature Overview ANNEX 1 Detailed Overview of tasks and responsibilities of the Ministry of Shipping ANNEX 2: Provisions on TAMP in the Major Port Trusts Act, 1963 Final version - 4 - May 2011 BASELINE DOCUMENT REGULATION OF THE INDIAN PORT SECTOR EXECUTIVE SUMMARY & MAIN CONCLUSIONS (i) This report sets out various options for regulatory reform of the Indian port sector. The terms of reference from The World Bank require the Author making recommendations to the Ministry of Finance (Department of Economic Affairs) with respect to alternative institutional and legal options for regulation of the port sector in India as well as analysing key considerations in the regulation of this sector and the way they are being addressed in the Indian Ports (Consolidated) Act, 2010, which has been drafted recently. (ii) This report is solution-oriented and focuses on day-to-day problems of Indian port management. The problems of the Indian ports (including those of tariff regulation by TAMP) are well known, thoroughly analysed, described in detail and widely discussed in the port sector. A final solution for the restructuring of the sector has not yet been found. This report is written with a view to outlining various alternatives which may help the competent authorities to make final decisions on a new/revised port sector regulatory framework. (iii) Analysing the various measures and law proposals taken by the Central Government during the last decennia, in becomes clear that there is no consistent national ports policy which is aimed at transforming the Major Ports into viable and autonomous undertakings which can properly function within a market oriented economy. The principle decisions of the Government aimed at structural changes have not been acted upon. The Major Ports have not been developed as autonomous, commercially oriented entities; they still function as kind of dependencies of the Ministry of Shipping. The reform measures taken to date have the character of curing the symptoms but not the illness itself. (iv) Until far in the 1990s many world ports had the institutional structure of Service Ports, managed by a public authority. This implied also that their Final version - 5 - May 2011 BASELINE DOCUMENT REGULATION OF THE INDIAN PORT SECTOR employees, including stevedores, were civil servants or had a similar status. Since then the vast majority of this type of ports changed its structure into that of a Landlord Port. In the Landlord Port Model the port terminals including infrastructure is leased to private terminal operators and / or port related industries, such as refineries, tank terminals and chemical plants. The private operators provide and maintain their own superstructure, including buildings (offices, sheds, warehouses, Container Freight Stations, workshops, etc.) and often also terminal