(Published in Part – III Section 4 of the Gazette of India, Extraordinary)
| No. 173 | New Delhi, the 29 August, 2002 |
Tariff
Authority for Major Ports
Notification
In exercise of the powers conferred by Section 48 of the Major Port
Trusts Act, 1963 (38 of 1963), the Tariff Authority for Major
Ports hereby disposes of the proposal received from the Mumbai Port Trust
(MBPT) regarding revision of ship-breaking charges as in the Order appended
hereto.
( S. Sathyam )
Chairman
The
Mumbai Port Trust (MBPT)
- - -
Applicant
O
R D E R
(Passed
on this 12th day of August 2002)
This case relates to a proposal received from the Mumbai Port Trust
(MBPT) for licensing of plots for ship-breaking and revision of ship-breaking
charges.
1.2.
The proposal submitted by the MBPT vide its letter dated 23 January 2002
did not contain the Agenda Note and the Resolution passed by the Board of
Trustees of the MBPT (stated to have been explaining the details of the
proposal). The relevant
details were furnished by the MBPT subsequently on 18 February 2002 after being
pointed out about the omission.
2.1.
The proposal of the
MBPT consists of the two components – (a) proposal to change the unit
of levy of ship-breaking charges under a ‘Common User’ facility from
‘GRT’ to ‘LDT’ basis; and, (b) proposal to fix charges for licencing of
the ship-breaking plots.
2.2.
The MBPT has made the following main points about its proposal for
changing the unit of levy:
(i).
In the existing SOR, ship-breaking charges are prescribed in Section III
of Bunder Scale of Rates based on the ‘GRT’ of the ship.
(ii).
Prior to 1991, the ship-breaking charges were levied based on LDT
(Light Displacement Tonnage) of the ship.
(iii).
The ship-breaking charges at the other yards are also prescribed based on
the LDT.
(iv).
Various port users have also sent their representations to the port
insisting that this charge should be levied on LDT basis.
(v).
It has proposed to have the rates under the existing arrangement on ‘Common
User Basis’ in order to ensure that there is an enabling provision in
its Scale of Rates in case offers are not received for licensing all the plots
or in case a few licenses have to be terminated mid-term.
(vi).
A ratio of 60:100 based on past average of vessels broken in
Mumbai Port during the last three years from 1998 to 2001 have been considered
for conversion of the existing ship-breaking charges from GRT to LDT basis.
(vii).
The existing conditions are proposed to continue without any change.
2.3.
The MBPT has given the following main reasons for licencing ship-breaking
plots on long term basis:
(i).
Ship-breaking activity is carried out on 12 plots at Lakri Bunder (South)
and 7 plots at Powder Works Bunder.
(ii).
The operations are labour intensive and are carried out by the
ship-breakers through contractors’ labourers and equipment.
(iii).
The pilotage and towage necessary for beaching of vessel is provided by
the MBPT. For breaking operations, necessary equipment are
provided by the ship-breakers and their contractors.
(iv).
The ship-breaking activity causes lot of environmental pollution due to
generation of waste material. This
has, therefore, attracted attention of various international
organisations who are insisting the need to properly monitor, regulate
and control this activity.
(v).
Presently, the plots are allotted to ship-breakers for the duration of
breaking of the ship. Upon
completion of breaking, the plot is handed over to the port.
Due to this temporary allotment, a ship-breaker is unable invest
in infrastructure development which is essential for better productivity.
(vi). The average revenue earned from this activity during the last three years was to the tune of Rs. 10.52 crores per annum approximately which has now fallen to Rs. 8.11 crores in the year 2000-2001.
(vii).
In view of the these circumstances, it has proposed to licence 12
ship-breaking at Lakri Bunder and 7 plots at Powder Works Bunder (PWB) plots for
a period of 10 years.
2.4.
It is pertinent to note that the MBPT has not sought approval of this
Authority as regards the proposed terms and conditions governing the License
scheme. This scheme is proposed for approval of the Central Government only.
The salient features of the proposed scheme for licensing plots for
ship-breaking are summarised as follows:
(i).
The allotment of 19 plots for ship-breaking activities plots will be done
in two categories:
(a).
Category ‘A’ for the regular / existing ship-breakers
of Mumbai Port; and,
(b).
Category ‘B’
which shall be open for all ship breakers subject to fulfillment of the criteria
prescribed.
(ii).
(a). The
12 plots at Lakri Bunder (South) will be reserved for Category ‘A’.
The competitive bidding in this category shall be invited only from
regular / existing ship-breakers who have broken minimum 10,000 GRT during last
three financial years (1998-2000) at the Mumbai Port.
(b).
The criteria proposed for the Category ‘B’ is that the applicant must
have 3 years of experience in ship-breaking industry; and, should have broken
minimum of 10,000 GRT or should enter into a management contract with
another ship-breaker who meets the minimum prescribed experience criteria
subject to their forming registered firm or company on allotment of the plot
within a period of six weeks.
(iii).
The basis for allotment of plot has been proposed as follows:
(a).
In case, some plots from Category ‘A’ remains
unallotted, the same will be included in the Category ‘B’
for allotment.
(b).
The basis of allotment of plot in both categories will be in terms of the
highest upfront fee offered.
(c).
The parties can bid for more than one plot.
A maximum of two plots shall be allotted to one ship-breaker under
Category ‘A’.
(d).
All the other conditions shall remain the same for both categories.
(iv). Non-refundable upfront
fee of minimum Rs. 50 lakhs is proposed to be collected from a licensee
for allotment of the plot. The basis of acceptance of offer will be the upfront
fee quoted over and above the minimum prescribed amount.
(v).
It is proposed to grant the license for a period of 10 years subject to a
condition that it shall automatically come to an end without any further action
by the MBPT, unless the licence is renewed within three months prior to
the date of expiry of the licence period.
(vi).
A minimum committed throughput of 10,000 LDT per year is to be
achieved. In case of failure
to achieve the minimum committed throughput, the port shall initiate
action to terminate the license.
2.5.
The MBPT has sought approval of this Authority to the following rates
leviable under the licensing scheme:
(i).
A license fee of Rs.20 per sq. mtr. per month for
the entire area of the licensed plot which is payable quarterly in advance.
(ii).
Ship-breaking charge at the rate of Rs. 325/- per LDT of the ship
which is payable before beaching of the ship.
(iii).
For others vessels broken by the Licensee, at the licensed plots,
an additional fee of Rs. 80/- per LDT will be levied before beaching of
the ship.
(iv).
A discount of 20% is proposed to be offered to the Licensee in the
ship-breaking charges payable as at (ii) above, for the excess tonnage
broken above 10,000 LDT per year.
2.6.
The proposal of MBPT was approved by its Board of Trustees vide
Resolution No. 192 dated 11 December 2001.
3.
In accordance with the consultative procedure prescribed, a copy
of the MBPT proposal was circulated to the concerned port users/representative
bodies of port users for their comments.
The comments received from them are summarised below:
Iron
Steel Scrap & Shipbreakers Association of India (ISSAI)
As regards component (a)
(i).
Larger size ships will beach in Mumbai port by fixing charges on LDT
basis, thereby, resulting in higher revenue for the port.
(ii).
The existing ship-breaking charges on ‘Common User Basis’
are proposed to be converted from GRT to LDT basis at Rs. 3.30 per
day per LDT from the date of beaching to the date of commencement; and, Rs.
5 per LDT per day for the regulated period which may be revised to Rs. 2
and Rs. 3.50 per LDT respectively.
As regards component (b)
(iii).
It is necessary to take a long term perspective and viability of the
industry and not short term present scenario.
If the proposal is not realistic and reasonable, it will not
encourage the entrepreneurs to procure plots.
(iv).
The ship breakers prefer to continue with existing policy of causal
allotment of plots with the only change in the mode of charging from the
existing GRT basis to LDT.
(v).
The entire proposal is based on the model followed at the Alang
ship-breaking yard. Based on
a comparison of the ship-breaking operations at Mumbai with that at Alang the
following facts have been presented:
(a).
The ship-breaking capacity in India at Alang, Mumbai,
Kolkata, Sachana etc. is far in excess.
Out of the 165 ship-breaking plots at Alang only 65 plots are operative.
(b).
The Mumbai ship-breakers have to compete with Alang ship breakers to get
ships apart from competition at international levels with ship-breakers from
Bangladesh, Pakistan and China.
(c).
Back-up area (40 to 200 mtr.) and infrastructure at Alang are much better
than at Mumbai.
(d).
Minimum committed throughput of 10,000 ldt
per year is allowed to be clubbed with 60,000 tonnes for a block period
of 6 years at Alang which is not the case in the instant proposal.
(e).
The ship-breaking charges proposed by the MBPT are higher as compared to
Alang. The ship-breaking
charges at Alang are Rs.96 per ldt
(for wharfage and beaching)
and Rs. 60 per 10 sq.mtr. as rent plus Rs. 12 per ldt.
(f).
Transfer of plot is permitted at Alang by payment of transfer fee which
is not allowed at the Mumbai Port.
(g).
There is no need to pay Octroi duty at Alang ship-breaking yard whereas
at the MBPT, ship-breakers have to pay 2.25% Octroi.
(h).
The actual duty increase following the Budget 2002 is about 9% for Mumbai
ship-breakers as compared to 5% at Alang.
(vi).
(a). The proposal of the MBPT
that the 21 existing ship-breakers will bid for the reserved 12 plots gives a
wrong impression. In fact, about 5 out of the 21 are associates of the
remaining 16; and, a few ship-breakers are not operative at
present. That being so, the
contention of the MBPT that there will be competition in bidding for these plots
is false.
(b).
The representations of a number of ship-breakers to the MBPT to auction
all plots without any reservation have not been considered.
(vii). The
proposal for minimum committed throughput of 10,000 ldt
per year appears to be very high. Inspite
of putting best efforts it is possible that a licensee may fail to meet the
target due to unforeseen circumstances. Further,
there is no specific provision in the existing Scale of Rates for penalty
by way of confiscation of plots. The proposed provision may lead to substantial
loss of revenue to the MBPT by non-utilisation of plots.
(viii). In this backdrop, it has also proposed an
alternate scheme which will be fair to the existing ship-breakers and other;
and, also fetch better revenue in competitive bids to the port.
4.
A copy of the comments received from the ISSAI was sent to the MBPT as
feedback information. The MBPT has made the following main points with
reference to the comments of the ISSAI:
(i).
While formulating the instant proposal the revenue of Rs.8.11 crores
earned on all the 19 ship-breaking plots in the year 2000 – 2001 was
considered. The scheme envisaged
that this level of revenue should be maintained and accordingly the proposed
charges were framed under two heads, i.e., nominal licensing fees in terms of
area occupied and the ship-breaking charges per LDT of ship broken.
The annual earnings on account of upfront fee were also considered; and,
accordingly, proposed ship-breaking charges were worked out to fetch a total
revenue of Rs.8.16 crore.
(ii).
The rate of ship-breaking is not proposed to be increased; but, the
earning from the ship-breaking activity has been distributed under two different
heads that is ‘Common User’ basis and allotment under ‘long term
licence’. Thus, the request of
ISSAI to limit the ship-breaking charges to Rs.250 per LDT and also the license
fee to Rs.10 per square meter per month cannot be acceded to.
(iii).
The Ministry of Shipping (MOS) has directed that the proposal for
allotment of plots should not be limited to regular ship-breakers operating at
Mumbai; but, it should be an open offer to all without any pre-qualification
conditions like experience in the ship-breaking activity.
Thus, the suggestion of ISSAI cannot be considered.
The MOS has, however, been requested to reconsider its proposal regarding
reservation of plots to the existing ship breakers.
(iv).
The ship-breaking charges on common user basis have been converted from
GRT to LDT basis in light of the representation received from the various ship
breakers. It has reiterated the
other points given in the proposal.
(v).
The minimum committed throughput of 10,000 LDT has been prescribed
considering the fact that many ship-breakers have achieved this target during
last few years. The MOS has also
directed to incorporate an automatic termination clause if the minimum
throughput of 10,000 LDT per year is not achieved.
(vi).
It has no comments to offer on the Associations’ submission that the
duty advantage enjoyed by Mumbai ship-breakers has disappeared following the
Budget 2002. Further, the Port has no control over the Octroi duty levied by the
Municipal Authorities.
(vii).
It has followed the direction given by the MOS as regards reservation
plots. The MOS has further directed
that the allotment of plots at Lakri Bunder should not be limited to twenty one
regular ship-breaker operator at Mumbai; but, should be offered to all without
prescribing any pre-qualification.
5.
Based on a preliminary scrutiny of the proposal the MBPT was requested to
furnish additional information / clarification on various points.
Some of the main points are summarised as follows:
(i).
The cost statements to be updated with reference to revised estimates for
the year 2001-02 and projections for the year 2002-03 and 2003-04.
(ii).
The discrepancy observed in computation of the Return on Capital Employed
(ROCE) and the Capital Employed figures is to be corrected.
(iii).
In the light of the surplus financial position reflected in this activity,
the basis of proposing the ship-breaking charges on the plots proposed to be
leased out may be justified taking into consideration the tariff applicable as
per the existing Scale of Rates.
(iv).
The basis of proposing an upfront fee of Rs. 50 lakhs per plot.
(v).
Confirmation whether the scheme for licensing of plots have been approved
by the Government.
(vi).
The detailed conditionalties governing the Licenses need to be
incorporated in the Scale of Rates.
6.1. A
joint hearing in this case was held on 15 May 2002 at the MBPT. At the joint
hearing, the following submissions were made:
Mumbai
Port Trust (MBPT)
(i).
This proposal has been mooted by the ship-breakers themselves.
(ii).
Frequent shifting from plot to plot leads to operational hassles and has
implications on the environment ;and, hence, the new approach is proposed.
(iii).
When a vessel is due for scrapping the GRT has no meaning.
LDT (which represents the weight of the empty vessel) is what is
relevant. Hence, the shift in unit of levy is proposed.
(iv).
The scheme approved by the Board is sent to the Government for approval.
We did receive a reply. There was some ambiguity. We have sought some
clarification.
(v).
We are following the Government guidelines. We do opt for upfront
payment; but, we also want payments on LDT basis. That will help us to monitor
better. That will also give us the revenue that we are earning at present.
Nevertheless, we will check again and write to you about our stand vis-à-vis
the Government guidelines.
(vi).
Once the scheme is approved by the Government, we feel, it is not
necessary for the TAMP to go into it again.
Iron
Steel Scrap and Shipbreakers Association of India (ISSSAI)
(i).
The MBPT did not give us complete information. There was a deliberate
attempt by the MBPT to give us “half information”. How can we respond now?
(ii).
‘Reserve Price’ need not be confidential. It may not attract
meaningful bids.
(iii).
The modality of auction will have to be clearly set up. Today, it is not
practical.
(iv).
For ‘shipping’ cargo carrying capacity is important; For ‘ship
breaking’ the weight of the ship is more important. The MBPT choice of LDT is
logical. We agree.
(v).
The minimum guaranteed performance norms have to be realistic.
The proposal for minimum guaranteed throughput of 10,000 LDT per annum is
not achievable even in Alang. If at all, it should be for a block of years and
not for each year.
(vi).
If rates are high in the MBPT, business may not shift from Alang, etc.,
to the MBPT.
(vii).
Infrastructure in Alang is far superior. Productivity there is also far
superior. If the business is still to be attracted to the MBPT, at least the
rates must be reasonable.
(viii).
Long-term approach to lease is required. Everything can not be on the
basis of temporary occupation. In Alang, we pay lease rent even if no
ship-breaking takes place in a particular year.
(ix).
In a recent International developments, norms of operation are being
developed. One is about the size of plots which should be big enough for safe
operations.
(x).
Every plot can not be provided with all facilities. Some ‘Common User
facilities’ will have to be established in one plot. The port should spend 20%
of the revenue earning on this.
(xi).
As regards the allotment of two plots to one ship breaker, the stated
purpose is to promote breaking of bigger ships.
The two plots must, therefore, be adjacent plots.
(xii).
In the lease agreement there has to be a clause providing for renewal
after 10 years. The wording at present of the relevant clause is vague.
(xiii).
Out of the plots proposed for lease many are too small. Ships cannot beach. The
plots have to be of realistic sizes.
(xiv).
Permission to transfer plots must be available
(xv).
Government guidelines recommends one upfront payment; but, the MBPT has
proposed all the three simultaneously- upfront; LDT rates, and plot lease
rental. This is unrealistic and unfair.
(xvi).
The proposed ship-breaking charges is Rs. 325/- per LDT, at Alang charges
are Rs.96/- to 120/-. The MBPT rate
is excessive. This rate must be reduced.
(xvii).
The ‘Scheme’ at present is unattractive. There may be very few (or,
no) bids.
(xviii).
Breaking norms, incentives must be available for motivating higher
achievements.
(xix).
In view of the heavy upfront payment together with the LDT payment, Rs.
20/- per sq. mtr. is very high as lease rent. Why should there be lease rent at
all separately?
(xx).
Do not borrow out of context the concept of ‘preferential’ and
‘non-preferential’ from Alang. If the MBPT wants to do that, adopt the whole
Alang model.
6.2. At
the joint hearing, the MBPT have furnished further written submission
reiterating the points given by it earlier. In addition to that it has clarified
that the scheme for licensing of plots for ship-breaking has not been approved
by the MOS. The MOS has further given the following directions: