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‘Regulatory uncertainty a major concern for APM Terminals’ - 2012-07-30

The global port operator, APM Terminals, runs two port terminals in India: one at Jawaharlal Nehru Port in Mumbai and the other at Pipavav in Gujarat. Together, APM handled more than 2.4 million TEUs of cargo last year. At JN Port, APM is facing a difficult situation as the Tariff Authority for Major Ports (TAMP) has directed it to cut tariff by 44 per cent. APM is fighting a legal battle against the TAMP order.

Mr Henrik Lundgaard Pedersen, APM’s CEO for Asia-Pacific, who was in India on a business review tour last week, said he is concerned about the regulatory uncertainty at Major Ports in India and APM will not make any fresh investments at the Government-owned ports until there is clarity on tariff regulation. He asked: “Where is the incentive to invest when our rates were cut by 44 per cent?”

In a conversation with Business Line, Mr Pedersen also spoke about the potential of the Indian market where there is large scope for containerisation of more cargoes.

Edited excerpts:

How do you see India as a market for APM’s operations in this part of the world?

We, of course, believe in the potential of India as a country and as a market and its fundamentals in terms of size and growth. We are here for the long term. As a group, we have been in India since 1921, when our first vessel came here. India needs more investment in ports. We are mainly in container-handling business. India has a huge potential to move more commodities in containers. Currently, India moves only bout 10 million TEUs of cargo in containers. There is room for further containerisation.

We have been growing in India. We continue to look for new investment opportunities.

But right now we have a major concern about TAMP regulations.

Thankfully, the Ministry of Shipping is looking at having a new regulation. This is very important for our facility at JN port. Outside the Major Port, the rule is different. It is normal rules for private investors.

You also know the court ruling on TAMP order. The court has put a temporary stay on the TAMP order [on cut in tariff]. The court has asked for more information from the Ministry. It just shows the strength and professionalism of the Indian judicial system.

Don’t you have similar regulations in other countries?

The biggest difference is that in India you have a dual tariff system. You have the Major Ports which are very heavily regulated and have a special regulation. Then, there are the fast-growing non-major ports which are not regulated. It is not good for any country to have two different sets of rules (for similar set of entities).

Other countries too have regulations, but they are to ensure that tariff is not abused and encourage more investments. Here, the situation is different; the tariff is cut when you become more efficient. This is a disincentive to grow and improve productivity. I think this is the flaw in the regulations that the Ministry wants to avoid in the new regulation.

So you mean to say there should not be any regulation?

India has already chosen its direction. As a country you want to grow port capacity outside the Major Ports. Non-major ports have grown with private investments and they are regulated by the normal laws of the country. It would not be fair to go back and put them under a special regulation. As I see it, the best way to go about is to do away with the TAMP regulation on the Major Ports. Now, there is plenty of competition in the port sector and Indian ports are mature enough to decide their own tariff. Either the same set of regulations should be applicable to all or there should not be a special regulation.

The point is there should be a level playing field for all.

Were you not aware of the regulations when you first made investments?

Yes we were. But the same regulations were in for review in 2010. But they are extended again and again. We cannot continue in the current situation. We need to have new guidelines in line with the changing market environment.

What is your plan now? Are you going to cut volumes?

Everybody is asking this question. We have not cut our volume. We are doing as efficiently as possible. We try to keep up the productivity levels .As you know, our clients here are our global clients. We cannot treat them differently and put them into difficulty here.

Are you charging the revised rates?

There is a stay on the TAMP ruling. We have entered into an arrangement with our customers. The difference in the rate is kept in a separate account. We will settle the account after the court’s verdict.

Do you have any expansion plan at JN port?

Our concession agreement has a boundary. So, we can expand only in terms of additional equipment, training, software, and improve productivity. Right now, there is an uncertainty over the TAMP regulation. We have to wait and see whether there is a new regulation or no regulation at all. The sooner we have clarity on this, the better for us.

What about new projects in India?

As I said, there is a regulatory uncertainty. We will not do any fresh investments in Major Ports until there is clarity on tariff. The current regulation discourages an efficient operator. He has no incentive to invest in raising the productivity. Outside Major Ports, if there is an opportunity in the right location, we might look at it.

Will you bid for the fourth terminal at JN Port if it comes up for re-tender?

It will depend on the bidding norms.

Earlier, you had backed out of the project after winning your right to bid.

Yes. We had the details of the project only after we got the bidding documents. On the basis of our analysis, we had decided not to bid.

You have recently raised some funds for Pipavav expansion. Do you have any plan to dilute your equity in GTI?

No. we have no plan to dilute the equity or going for an IPO. Even at Pipavav we have not diluted our equity.

 Source : Hindu Business Line