Singapore-based PSA International, which operates a container terminal at Tuticorin Port in South India, has reduced its annual handling capacity by 20 per cent on the grounds that its current tariffs are not commercially viable.
This is the first time after ports were opened to global players that an international port operator has cut capacity.
PSA, the world's second-largest port operator, operates the container terminal at Tuticorin along with Sical of Chennai. It has decided to reduce its annual handling capacity from today to 300,000 twenty-foot containers against 377,000 in the last financial year.
The decision follows the rejection by the Tariff Authority for Major Ports of PSA's plea to increase vessel-handling rates at the terminal. The authority, instead, asked the company to cut rates by 50 per cent.
The reduction in capacity will mean severe delays for India's fourth largest container terminal. Ships will have to divert cargo to other ports, leading to huge cost implications.
PSA's Tuticorin Container Terminal, which is designed to handle up to 450,000 twenty-foot containers, had signed an agreement in 1998 with the government-run Tuticorin Port Trust to pay royalty on the basis of container traffic handled by the container terminal.
"The decision by the Tariff Authority for Major Ports in September 2006 to halve Tuticorin Container Terminal's revenues has made the terminal commercially unviable because the much reduced revenue per twenty-foot box will not cover the cash operating expenses and royalty payments for every container handled," PSA executives said.
PSA sources said the tariff suggested by the authority was less than half of what was levied at Tuticorin Port Trust and less than other major ports. "For instance, we are handling cargo-laden containers at the same tariff as empty containers. This sends the wrong signal to international investors keen to invest in India," they said.
Industry analysts said the container terminal operator's move was a tactic to pressure the tariff authority to increase tariff and review its model concession agreement with the government.
"Normally, tariff for container terminals is reviewed every two years. PSA-Sical was asked to submit its proposal to hike the tariff. However, PSA-Sical could not substantiate the reasons for the tariff increase and has challenged the tariff set by the authority in the Madras high court. When the issue is before the court, this capacity reduction move is unfortunate and unwarranted," said a shipping line representative.
Besides PSA, Dubai Ports World and AP Moller are the leading port terminal operators in the country. Dubai Ports-run container terminal at Jawaharlal Nehru Port Trust is also based on royalty payments.