(Published in Part – III Section 4 of the Gazette of India, Extraordinary)
| No. 119 | New Delhi, the 28th august, 2000 |
Tariff
Authority for Major Ports
Notification
No.MF/NMPT/56/97-TAMP - 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 of the New Manglore Port Trust for fixation of final wharfage charges for its new oil jetty, as in the Order appended hereto.
Case
No. MF/NMPT/56/97-TAMP
The New
Mangalore Port Trust
... Applicant
Vs.
M/s. Mangalore
Refinery & Petrochemicals Ltd.
... Non-applicant
O
R D E R
( Passed on this 19th day of
July 2000 )
This case
relates to a proposal from the NMPT for fixation of final wharfage charges for the new oil
jetty for the year 1996-97. The new oil jetty has been constructed as a
dedicated facility for the Mangalore Refinery and Petrochemicals Ltd. (MRPL);
and, the MRPL will have exclusive access to it. The
project cost was Rs. 231.39 crores,
which was funded by the MRPL by investing Rs.
30 crores out of its funds and arranging the balance of amount from a consortium of
financial institutions. The title to the assets will vest in the NMPT. To
ensure proper repayment of loans, all
payments from the MRPL for the use of the project facilities will be deposited in an
escrow account; and, the lender has been given the first right to
utilise the deposit amount towards repayment of loan and interest due. The
MOU signed between the MRPL and the NMPT makes a special reference to the method of
computation of wharfage charge payable by the MRPL. The wharfage charge so determined is subject to
yearly review and consequent adjustment depending on the tonnage involved.
2.
There
were points of disagreement between the NMPT and the MRPL in regard to calculation of
wharfage charge for the year 1996-97. The following three contentious issues needed to
be resolved before the wharfage could be determined:
(i).
Whether vessel related charges should be
taken into accounting while computing the special wharfage charge for the new oil jetty.
(ii).
Whether revenue earned through the use
of the new oil jetty by others should be adjusted against operating cost.
(iii).
Whether the traffic figure, to be reckoned with for computation of the
special wharfage charge, should include also
the traffic generated by parties other than the MRPL.
3.1.
In
this backdrop, the Authority considered the
proposal received from the NMPT for fixation of wharfage charges for the new oil jetty for
the year 1996-97 and passed an order on 27 Oct.
1998.
3.2.
In
the Order, the Authority settled the
contentious issues raised by both the parties as follows:
(i).
Vessel related charges should be taken
into account while computing the special wharfage charge for the new oil jetty.
(ii).
The revenue earned through use of the
new oil jetty by others should be adjusted against operating costs.
(iii).
The traffic figure to be reckoned with for
computation of the special wharfage charge should include also the traffic generated by
parties other than the MRPL.
3.3
The
following decisions were given in the Order dated 27 Oct. 1998:
(i).
There should be one common ‘cost centre’ for the project of the New Oil Jetty; and,
the NMPT should maintain its accounts accordingly.
(ii).
All the revenue earned through the
project of the New Oil Jetty should be credited to the escrow account; and,
all such income should be taken into account for computation of the special wharfage.
(iii).
All parties using the New Oil Jetty should be
subjected to the same terms and conditions.
(iv).
The revenue earned through the use of the New
Oil Jetty by ‘others’ should (also) be adjusted against operating
costs.
(v).
The traffic figure, to be reckoned with for computation of special
wharfage charge, should include also the
traffic generated by parties other than the MRPL.
3.4.
Accordingly, the Authority did not find it possible to
approve the wharfage charge proposed by the NMPT. The Authority remitted the case to the NMPT with
an advice that both the NMPT and the MRPL would jointly re-work the calculations along the
lines indicated by the Authority.
4.1.
The
NMPT submitted a revised proposal in which it has mentioned that both the NMPT and the
MRPL have been unable to arrive at a mutually acceptable basis for fixation of wharfage. It
has, therefore, submitted the details of the NMPT’s and MRPL’s calculations and the points of difference
for the consideration of the Authority.
4.2.
The
NMPT has worked out a revised wharfage rate of Rs.
106.89 PMT for the year 1996-97. It
has reportedly proceeded on the following basis while re-calculating the wharfage:
(i).
The agreed formula for sharing of
expenses like revenue dredging, insurance and
interest cost on loan has been retained.
(ii).
Return on investment at 6% of assets
created for jetty No. 10 has been retained.
(iii).
Return on investment at 18% for the port’s own assets, which are directly or indirectly contributing to
handling of cargo / service of vessels at jetty No.
10, has been considered.
5.
The
MRPL has submitted a separate proposal showing the re-calculated wharfage as Rs. 65.93
PMT. The
MRPL has advanced the following points in support of its proposal:
(i).
The original proposal of NMPT for a
wharfage rate of Rs. 111.78 PMT itself was wrong which was revised by the
MRPL to Rs. 100.39 PMT based on the NMPT’s assumption that return on investment is to
be taken into account. Based on the TAMP decision, the MRPL has incorporated the vessel related
credits and removed return on investment. The rate thus calculated comes to Rs. 65.93
PMT.
(ii).
The NMPT has considered 18% return on
assets, which has no relevance to the MRPL
jetty.
(iii).
Even the return on investment on MRPL jetty
cannot be considered in the wharfage calculation since the NMPT has not invested any
amount.
(iv).
If the entire expenses of the other facilities
are taken, the NMPT should also consider the
entire income of the port as a whole in the calculation.
(v).
The NMPT’s argument that the wharfage rate calculated
by the MRPL is less than the present notified rate for handling POL at other jetties has
no basis as the wharfage for MRPL jetty is governed by a special agreement and the same
cannot be disputed by the NMPT by linking it to a notified rate.
6.
A
joint hearing in this case was held on 13 July 99 in Mangalore. The
following arguments were made by the parties:
Mangalore Refinery and Petrochemicals
Ltd. (MRPL)
(i).
Issues like cross subsidisation, ability of the NMPT to sustain, etc.
are irrelevant. What is relevant is only the legal interpretation
of the MOU.
It is to be recognised that we are not in a green field situation.
(ii).
Clause 4 of the MOU specifically
mentions about the period during which funds are outstanding. ROI
is forever; not just during the period when
funds are outstanding.
(iii).
(a). Clause 4(e) is important. It
talks about some percentage on capital employed to be fixed by the Govt. Total
investment minus loan is the capital. Mere capitalisation of assets does not make it
capital
(b). If it is
treated as a capital, it will be a case of
unjust enrichment.
(c). Investment
/ capital represents the margin money contributed by an invester. In
this case, the MRPL has given Rs. 30 crores to NMPT and thus even the margin money
has been paid by the MRPL.
(d). In this
case, wharfage is not an income to the port. It
is governed by the MOU for ensuring repayment of loan.
(e). The
interpretation of Clause 4(a) of the MOU made by the port to cover all expenditure of the
port is wrong.
The whole MOU is about the jetty only. The clause C of preamble to the MOU refers only
the infrastructure facility.
(f). The wharf will become a property of the NMPT only after the loan is repaid; till such time they cannot show it as a capital employed.
(g). Investments
not related to MRPL jetty are not relevant. Other assets already in existence cannot be
considered.
(h). In our
written submissions, we have given sufficient
reasons exposing the fallacy in the NMPT logic.
(i). The NMPT is
following ‘cargo handled’ basis for apportionment of expenditure. Let
them apply the same basis that they applied to everybody for the launches in reference. In
the absence of anything else, let them go by
the number of ships.
(j). Escrow
means it belongs to neither party. Substantial interest earned on the balance of the
Escrow account is not given credit on the Escrow side, which is an unjust enrichment for NMPT. The
NMPT argument that there is nothing in the MOU about the accrual of interest is not
correct.
(k). In terms of
clause 6 & 7 of the MOU, interest accrual
cannot be diverted by the NMPT.
(l). We agree to
allocation of administrative and management cost. Only under the financial and miscellaneous
expenditure, they have taken all port items. If
they conform to those items that are covered under administrative and management overheads, we have no objection.
New Mangalore Port Trust (NMPT)
(i).
Wharfage is a cargo related charge; VRC have been brought in, in the light of TAMP Order.
(ii).
General cargo handling expenditure like
cargo handling workers salary have been excluded.
(iii).
The expenditure on Dy. Conservator’s office is apportioned at the same rate as
administrative facility.
(iv).
1995 letter clearly stipulates that ROI will
apply.
(v).
Clause 5 of the MOU covers VRCs. They
have agreed to pay the VRCs also. Now the vessels may be paying such charges. But, we are deducting the income from VRC from the
expenditure.
So the MRPL must pay VRC also. Their refusal to pay is objectionable.
(vi).
Clause 4 of the MOU covers all operation and
maintenance cost. Dredging cost is substantial and the extra
dredging was done only for the benefit of the MRPL jetty. They
must agree to bear the cost of dredging.
(vii).
For determining the capital employed, sources of fund are not relevant.
(viii).
Now as directed by the TAMP, we are reckoning both with CRC and VRC. Even
though we do not agree with the TAMP logic, we
abide by it.
(ix).
It is not correct to say that the port has
made no investment. Breakwater,
dredging, etc. are our investment.
(x). (a). NMPT pays
interest on the margin money.
(b). Exclusive
use of jetty is given to the MRPL.
(c). We have
spent from the project since they did not.
(xi).
Going by apportionment of expenditure based on
GRT is acceptable to us if they so wish; but, it will work out to their disadvantage.
(xii). (a). Interest
accrual in the Escrow account is shown as from that account. But, it is taken into our balance sheet.
(b). We want to
prepay the loans. However,
HUDCO and banks are not keen on prepayment. We can prepay MRPL only after prepaying the others.
(c). Interest
accrual cannot be reckoned with for computation of wharfage.
(xiii).
Fund is defined in the preamble of the MOU read with
clause 6 as the total of loans. Interest is not included. We
have taken only the relevant items of financial and miscellaneous expenditure and charged
14% thereof.
7.
During
the joint hearing, the MRPL submitted another
written submission listing out the following issues on which difference of opinion
persists.
(i).
Return on investment when NMPT funds are
not invested.
(ii).
Claim of NMPT for return on investment
on assets not related to the new oil jetty.
(iii).
Allocation of expenses unrelated to MRPL oil
jetty.
(iv).
Adoption of tonnage handled as basis for
allocation of certain expenditure.
(v).
Non consideration of interest earned on
the funds available in the escrow account.
(vi).
Allocation of Finance & Miscellaneous
expense without allocating Finance & Miscellaneous income.
The MRPL has
also worked out a wharfage rate of Rs. 64.22 per ton.
8.
During
the joint hearing, the Chairman, NMPT and the Senior Counsel for the MRPL
proposed another round of discussion between the officers to resolve the differences. The
discussions were agreed to be concluded by the end of July 99. Thereafter, the Chairman, NMPT and the Senior Counsel for MRPL agreed to
discuss and try to present an agreed proposal by 7 August 1999.
9.
Despite
several rounds of discussions, both the parties
could not arrive at an agreed proposal. The NMPT vide its letter dated 22 April 2000
requested the Authority to fix the rate after considering the viewpoints of both the
parties. It
has also requested to reconsider the guideline issued by the Authority vide its Order
dated 27 Oct. 98 in view of taking considerable
profit element under the vessel related charges contemplated by the MRPL. The
NMPT has worked out a revised wharfage rate of Rs.
102.76 per ton. Likewise, the MRPL vide its letter dated 18 April 2000 has
also informed that both the parties are interested to leave the matter for a final
decision of the TAMP, as they could not arrive
at a conclusion mutually. Subsequently, the MRPL vide its letter dated 26 May 2000 has
furnished its comments on the NMPT letter dated 22 April 2000 detailing its claim for
fixing the wharfage charge.
10.
Based
on the records available and with reference to the totality of information collected
during the processing of the case, the
following position emerges for consideration:
(i).
This Authority has already given the
guidelines based on which the wharfage charge is to be jointly re-worked by both the
parties.
Even though more than 11/2 years have elapsed since
notification of the Order of this Authority in this regard and despite several rounds of
discussions between both the parties, an agreed
proposal has not emerged. Both the parties have now left the matter for a
final decision by this Authority.
(ii).
This Authority has already given clear
guidelines and both the parties have the benefit of having a definite MOU which governs
the method of calculations of wharfage charge. The issues on which difference of opinion persists
are more relating to apportionment of various costs and different cost elements to be
considered for wharfage calculations.
(iii).
The areas of difference of opinion can be
broadly classified as follows:
(a). Return on
investment.
(b). Allocation
of interest earned on the funds of the escrow account.
(c). Allocation
of overhead expenses.
(iv).
Position with respect to iii (a) above.
The NMPT has
claimed return on investment as follows:
(a). Return on
investment at 6% of assets created for jetty No.
10.
(b). Return on
investment at 18% for the port’s own
assets, which are directly or indirectly
contributing to handling of cargo / service of vessels at jetty No. 10.
(c). 18% return
on investment on a sum of Rs. 642.10 lakhs stated to have been invested by the NMPT
in the project.
The MRPL has contended that since the
assets are not created with the own funds of the NMPT, there is no room for separately considering
return on investment. Similarly,
return on investment on other assets unrelated to MRPL shall not be included. Return
on investment on the amount of Rs. 642.10 lakhs,
as claimed by the NMPT is not admissible, as
such investment has been made out of the escrow account.
The argument of the MRPL that the wharf
will become a property of the NMPT only after the loan is repaid and till such time, the NMPT cannot show that as capital employed is
not correct. If
this argument is accepted, the NMPT cannot even
charge wharfage because the wharf is not its property. As
pointed out by the NMPT, for determining the
capital employed, sources of funds are not
relevant.
In any case, the title of the
assets rests with the NMPT.
Even though the terminology return on
investment is used, the 6% claimed by the NMPT
is for a 3% contribution each towards reserve for renewal, replacement and modernisation of capital assets
and reserve for development, repayment of loan
and contingency.
Since the repayment of loan will be made at actuals from the escrow account, only 3% of capital employed needs to be
transferred to the reserve for renewal,
replacement, etc. of capital assets. It
is logical for the port to provide for renewal,
replacement and modernisation. So,
instead of calculating ROI at 6% of the assets created for jetty No. 10,
the NMPT should consider the actual amount of repayment of principal during the year and
3% of the related capital employed as a contribution towards renewal, replacement and modernisation of assets.
The MOU specifically provides for
calculation of wharfage considering some percentage on capital employed to be fixed by the
Government.
This means it has already been recognised that return on capital employed on
the new oil jetty will be reckoned with in the calculation of wharfage. For
reasons given above, a 3% return on capital
employed is admissible. However,
the return on capital employed should not be diverted to the funds of the NMPT and should
be retained in the escrow account.
The argument of MRPL negating the claim
of NMPT for a return on investment on assets not related to MRPL jetty is also not tenable. It
is a well accepted practice that all revenue earning activities contribute towards common
assets created which are not directly earning revenue. Thus, apportionment of return on investment on assets
not directly related to the oil jetty, is
logical. However, while doing so, the NMPT should not include any other asset
which are directly relevant to some other revenue earning activities.
The NMPT is also claiming 18% return on
Rs. 642.10
lakhs on the ground that this amount has been funded by it, as certain project cost was incurred after
commissioning of the main facility. The port has claimed this as its investment. However, this investment has been made out of unutilised
balance of funds available in the escrow account. Funds utilised from the escrow account
cannot be treated as an investment made by the NMPT out of its own internal resources.
As mentioned earlier, a 3% contribution towards renewal, replacement, etc.
of capital assets is admissible which will be calculated on the value of assets created
for jetty No. 10 irrespective of the source of
funds. Since
the investment of Rs. 642.10 lakhs has also been applied (as a part of the
total investment) to create the assets of jetty No.
10, allowing a separate return of 3% on this
investment towards renewal, replacement of loan
etc. will result in double counting of return. Likewise, a 3% contribution towards development, repayment of loan, etc.
is not admissible since actual repayment of principal will be reckoned for the purpose of
calculation of wharfage. Since Rs.
642.10 lakhs is invested from the escrow
account, the question of repayment of it does
not arise.
The next component of return on capital
employed is 12% interest. If the interest on Rs. 642.10
lakhs is allowed, it will be an income for the
escrow account; and, the interest to be payable is a cost for the
purpose of computation of wharfage. For reasons given in sub para (v) below, the interest earned by the escrow account is to
be considered for determination of wharfage. That being so, this element will add to cost as interest
payable to the escrow account and also gets deducted from the cost as a part of interest
earned by the escrow account. In other words, interest payable and interest earned will
neutralise each other with no net effect on the wharfage. Therefore, it will not be necessary to consider interest on
Rs. 642.10
lakhs invested out of escrow account.
In working out the capital employed, the NMPT has considered working capital equal to
one month expenditure allocable to MRPL jetty excluding depreciation. This
method may be suitable for arriving at an estimate of working capital for a project, when actual figures are not available. In
this case, the wharfage is to be calculated
retrospectively with reference to actual figures of income and expenditure. That
being so, the working capital is to be
considered in the conventional manner i.e. Current Assets minus Current Liabilities. While
computing current assets, cash balances of
specific funds are to be excluded. Likewise,
interest accrued on specific funds (like the one on MRPL loan) shall also be excluded from
current liabilities. The Working Capital thus arrived at shall be
apportioned to the new oil jetty. Since length of wharf is considered for allocation
of indirect assets, the same apportionment
basis is considered appropriate for allocation of working capital also.
(v).
Position with respect to iii (b)
above.
Interest earned
on the balance of escrow account has not been considered by the NMPT while working out the
wharfage and the MRPL is demanding inclusion of this item. The
NMPT has mentioned that interest accrual in the escrow account is credited to the same
account and not diverted elsewhere. The argument of NMPT is that why such credit
should be given to the advantage of the MRPL while working out the wharfage charged. The
port has also pointed out the absence of any provision in the MOU to credit back the
interest on escrow account to wharfage calculation. Since the interest is earned due to port’s prudent financial management, the NMPT has contended that the benefit should
be available in the escrow account only. The Port Trust has also pointed out that it incurs
expenditure on dredging, interest payment, etc.,
at the first instance from its general fund and subsequently at a later date it transfers
such expenditure to the escrow account; and
because of such delayed transfer the escrow account balance earns interest. It
is to be recognised that like the expenditure items transferred at a later stage to the
escrow account, the income earned may also be
transferred subsequently to the escrow account. Hence,
the delay in transfer to the escrow account is irrelevant as the notional interest earned
due to delayed transfer of expenditure and the notional interest foregone on account of
delayed transfer of income may neutralise each other. Since
the escrow account is for a specific purpose,
the interest earned under this account has also to be considered while determining the
wharfage rate.
The argument of using the interest accrual for prepayment of loan, to meet contingencies, etc.,
is irrelevant.
Since the MRPL has provided guarantee for the loans, it is equally responsible for timely repayment
of the principal.
(vi).
Position with respect to iii (c) above.
(a). The NMPT
has apportioned the vessel related expenditure on the basis of GRT. The
MRPL wants ‘number of ships handled’ as the basis, as the expenditure on operation and maintenance
will be more related to usage which is closer to number of movement of vessels rather than
traffic handled at the Port. Since the income for all the vessel related
activities is calculated on GRT basis, it is
justified in allocating the corresponding expenditure on GRT basis.
(b). NMPT has
apportioned the indirect expenses to the New Oil Jetty number 10 on the ground that these
items provide indirect services to the New Oil Jetty. According to MRPL these expenses are not directly
related to the New Oil Jetty and hence shall not be considered for calculation of wharfage.
The New Oil Jetty is an integral part
of the Port.
Every user of the port has to share the common expenses and hence
apportionment of these expenses is found to be correctly done by the NMPT.
(c). As
clarified by the NMPT, the Traffic Manager’s office expenses do not include expenditure
pertaining to cargo handling workers. The new oil jetty is getting services indirectly
from the department and hence apportionment of indirect expenditure of the Traffic
Department and motor vehicle running expenditure are found to be in order.
(d). Port is
providing general facilities like break water,
capital dredging, buoys, moorings,
navigational structures, common services like
road, lighting, electricity, etc.,
for MRPL.
Further, it is logical to
apportion the depreciation on assets not related to any of the revenue earning activities
to all the activities of the port. The apportionment of depreciation of these assets
is found to be correctly done by the NMPT.
(e). The Port
provides fire fighting facility as a common user facility. Even
if a dedicated fire fighting facility is provided at the Oil Jetty, the MRPL is using the other facilities of the
port and not confining only to the jetty. It is,
therefore, logical to apportion the expenditure
on general fire fighting facilities on the basis of traffic handled. Similarly, apportionment of net expenditure on pump house
is found to be in order, as it is a common user
facility.
(f). The MRPL
objects to apportionment of electricity expenses. The NMPT has clarified that the MRPL makes direct
payment only in respect of electricity supplied to the loading / unloading arms. The
electricity is also required for general lighting,
fire fighting and other equipment installed at the new oil jetty, and also for offices, colony,
etc. The
Port has explained that total income realised is deducted from total expenditure and the
net expenditure is apportioned to various revenue earning activities. The
approach adopted by the NMPT can be said to be reasonable.
(g). The MRPL
has objected to allocation of cost of operation of some floating craft and insisted that
operating cost of the floating craft acquired under this project only can be considered. Since
these floating craft are also used elsewhere,
the MRPL has demanded that income earned out of such utilisation should also be adjusted
against the expenditure. The argument of MRPL is not correct.
The port’s arguments about cross usage of floating
craft and the off setting effect of usage of other port craft at this jetty for which no
separate cost is included in the calculation carry force. The
method followed by the NMPT in this regard is in order.
(h). MRPL’s objection is that expenses on pension
& gratuity allocated are post retirement benefit and hence shall not be considered. This
view of MRPL does not appear to be reasonable. These are administrative over heads and have to be
shared by all facilities.
(i). The Port
has allocated Finance and Miscellaneous (F&M) Expenditure but has not considered F
& M Income.
The MRPL’s view is to
include F & M Income on the ground that all administrative expenses though not related
directly to MRPL activity have been allocated. In absence of non-allocation of income it will be
a lopsided allocation of cost resulting in enrichment to the port.
Interest on loan has been considered
separately as it is the actual amount of interest paid for the New Oil Jetty 10. Other
expenditure like gratuity, pension, ex gratia,
etc., are general administrative overhead
expenditure hence apportioned on New Oil Jetty. All such overhead expenses of the port have been
apportioned to the New Oil Jetty. This is on the ground that the New Oil Jetty being
an integral part of the Port must share such common expenditure.
The NMPT has not apportioned the whole
of Finance & Miscellaneous expenditure. Interest payable on loans other than the loans
specific to MRPL jetty project, Bank Charges, items relating to previous years, etc.,
are not considered for apportionment. Pension,
gratuity and ex gratia payment, which are
grouped under the head Finance and Miscellaneous expenditure, are in fact administrative overheads, and hence apportioned to all revenue earning
activities.
The MRPL demand for giving credit to
Finance and Miscellaneous Income (FMI) does not appear to be reasonable. The
FMI consists of interest earned on general and specific funds, charges recovered for some miscellaneous
services, sale proceeds of unclaimed goods, etc. The main contributor to FMI is interest earned. This
interest is earned on the Reserves of the Ports,
which are primarily past accumulation. The MRPL,
therefore, can not justifiably demand credit
for the interest earned on the accumulated reserve funds of the Port. However, as already mentioned, the MRPL is justified in its claim on the
interest accrual on the escrow account, the
balance of which is not a part of Port’s
general or specific funds.
11.
In
the result, and for the reasons given above, the Authority approves the method followed by
the NMPT for calculation of wharfage for the New Oil Jetty subject to the following
modifications:
(i).
Instead of charging 6% ROI on assets
created under this project, the NMPT should
charge actual amount of repayment of loan during the year and 3% of the capital employed
towards renewal, replacement and
modernisation reserve.
(iii).
Working capital shall be calculated as the
difference between Current Assets (excluding cash balances of specific funds) and Current
Liabilities; and, the basis of its apportionment will be ‘wharf length’.
(iv).
Interest earned on the balance of escrow
account shall be considered for determination of wharfage charged.
12.
The
New Oil Jetty has been commissioned in the year 1996 and no final wharfage has been fixed
for handling of cargo through this jetty. In view of the clear guidelines available now for
calculation of wharfage, the NMPT is directed
to work out wharfage charges, in line with
the guidelines given, for the years 1996-97, 97-98,
98-99 and 1999-2000. Before forwarding the calculations and the
proposed wharfage charges (to this Authority),
the NMPT is advised to have the figures verified by the MRPL.