Eleven Ports To Be Corporatised Under Revised Port Trusts Act

The 11 major ports under the ministry of surface transport (MoST) are to be corporatised soon in an exercise with significant effects on their finances and expansion plans.

A complete overhaul of the Port Trusts Act, 1963, is being worked out to achieve this objective.

The ports, which together handle traffic worth about Rs 3,000 crore a year, are currently registered as trusts -- and have limited powers to take decisions without MoST's approval.

The 11 ports are: Mumbai, Calcutta, Chennai, Jawaharlal Nehru Port Trust (JNPT), Visakhapatnam, Kandla, Paradip, Cochin, New Mangalore, Mormugao and Tuticorin.

Government sources said a complete corporatisation of the ports would be initiated soon, to vest them with more powers and improve their financial leverage.

For instance, under section 92 of the Port Trusts Act, 1963, ports are not allowed to incur capital expenditure without the Union government's sanction.

The corporatisation of the port trusts would require them to be registered under the Companies Act.

Two ports have already been earmarked for conversion into corporations -- JNPT in Mumbai, Maharashtra, and Ennore Port in Chennai, Tamil Nadu.

Ennore is still under construction and about Rs 500 crore has been contributed by Chennai Port Trust for its development. The financial valuation of JNPT is currently underway.

The Port Trusts Act, 1963, is based on an original act drafted almost 150 years ago under British rule.

Several provisions of the Act are no longer valid, sources said.

For instance, the Act does not cover many types of vessels, like nuclear-powered ships, which are governed under the Merchant Shipping Act.

Most ports hardly rely on budgetary support since almost all have been generating surpluses. They earn a return on capital of approximately 12 per cent per annum.

But these profits are insufficient for them to meet their expansion and modernisation plans, especially for setting up large container handling facilities.

The ports' cargo handling capacity is 215 million ton (mt) while the actual cargo handled last year was close to 252 mt.

MoST estimates the financial requirements of ports to be Rs 63,000 crore ($15 billion at current exchange rates).

This sum will enhance capacity by 635 mt by 2012 to meet an expected cargo traffic of 850 mt.

The amendments to the Ports Trusts Act, 1963, are intended to allow port managements to take decisions on expansion and modernisation, as well as means to finance such activities.

Experts said accounting changes would also be required after the corporatisation of the ports, which would necessitate that the Union government's capital contribution to the ports trusts be converted into equity.

There are several anachronistic restrictions under the Ports Trusts Act, 1963.

Under section 90 of the Act, ports are allowed to set aside reserve funds for meeting capital expenditure or contingencies.

However, if they want to make provisions for this above the amount cleared by the government, they have to obtain MoST's permission.

Similarly, under sections 66 and 86 of the Port Trusts Act, 1963, ports are allowed to raise debt funds from domestic financial markets and multilateral institutions.

However, such an exercise requires a mandatory clearance from MoST.

Also, despite receiving cargo charges in rupees and vessel-related earnings in foreign exchange (thereby reducing hedging costs), ports are not allowed to float bond issues like public sector undertakings or access external commercial borrowings (ECB) markets.