APM Terminals, which currently operates the biggest and most important container terminal in India, Gateway Terminals India (GTI) by Mumbai, would like to invest more in one of the world’s fastest growing economies. But, according to Henrik Lundgaard Pedersen, CEO of the Asia-Pacific division of APM Terminals, the country’s all-encompassing practice of rules is a hindrance not only to the company’s revenue, due to the Indian government’s issuing of tariffs in the major ports, and the ensuing infrastructure, but it is also a hindrance to the development of the Indian economy as a whole.
“It’s bad for us, because of course the tariffs affect our revenue, but it’s even worse for the country, as it keeps us from investing further in India’s key port, GTI, which services Mumbai and the upper part of the country,” says Henrik Lundgaard Pedersen to ShippingWatch.
The Indian Ministry of Transportation recently announced preparations for a gradual repeal of the much-discusses state port tariffs, which have for years been a point of contention between the authorities and the major, privately owned port operators in the country, such as DP World, PSA International, and APM Terminals. But the proposal is far from satisfactory to the terminal operators, as the authorities only intend to liberalize the regulation of tariffs for new terminal investments, while existing terminals could have to endure the state tariffs for many years to come.
Back in February, APM Terminals were told to lower the tariff rates in the Mumbai terminal by 44 percent, after the company applied for an eight percent rate increase. The decision from the authorities is currently under review at an Indian court. Competitors DP World and PSA International, which operate terminals in Mumbai and Chennai, respectively, were also told to lower their tariff rates earlier this year, and they are also awaiting court decisions on the matter.
“This will have a significant effect on our revenue, but the Indian legal system has agreed with us that the tariff command needs to be examined more thoroughly. This means that we can use the former tariffs in the meantime. But at some point, the court will decide if we have to repay the money or not,” says Henrik Lundgaard Pedersen.
State regulation is determined primarily by the original, theoretical capacity of the terminal, compared to the actual volumes handled. If the actual volume of containers handled turns out to be higher than expected, the Indian government can demand that the tariffs be lowered. Thus, the system risks the opposite of what the country is trying to achieve through increased infrastructure efficiency and growth in trade.
“The calculations punish us for becoming more and more efficient and for increasing our volumes. So the system is working against the country’s own interests. But my impression is that politicians and authorities are beginning to realize that something needs to be done,” says Henrik Lundgaard Pedersen, pointing to some of India’s current problems:
“India is fundamentally interesting as it has a population of more than one billion people. The country has an underdeveloped infrastructure, and the entire logistics supply chain is similarly underdeveloped, but if we look 10 or 20 years ahead, I still believe there’s a lot of upside in India. But it’s clear that the country’s practice of rules has meant that foreign investors, in all sectors, have been more hesitant than they would otherwise have been. From APM Terminals’ perspective, we are being very selective when looking at every new individual investment opportunity, but we are still interested in the right projects, and that goes for both ports and inland services.”
Simply put, India has two different types of ports: The so-called Major Ports, which are regulated by the Tariff Authority for Major Ports (TAMP), and Non Major Ports, which are not regulated. This means that APM Terminals’ Gateway Terminals India, by Mumbai, which handles approximately 20 percent of all container cargo in India, is regulated, while the company’s other port, farther north in Pipavav, is not regulated.
Demands for equal terms
“We have told politicians and trade organizations that India is one of the few, if not the only, places in the world where fairly large ports are treated differently. That’s why we’re being very insistent. We don’t want any special advantages, but we do want uniform conditions for all parties. Right now, all parties involved are losing,” says Henrik Lundgaard Pedersen.
In spite of difficult market conditions, volumes are growing in the terminals as well as the inland businesses of APM Terminals in India.