Who is a monopoly in Indian Ports? Adani or Govt?

Nov 2, 2023 India Shipping News

MUMBAI : With a 24 percent market share in cargo handling, tycoon  Mr. GautamAdani  controlled  Adani Ports and Special Economic Zone Ltd (APSEZ) is said to be baring its fangs as a monopoly, per a recent media report, in a sector characterised by Union government run 12 Major Ports and a host of non-major ports that are owned by the coastal states but given to private firms for development and operations.

According to the report, there is an Adani port/terminal every 500 kms along the country’s 7,516 km-long coastline. This fact holds true for Union government-owned major ports as well because adjacent to or in the vicinity of an Adani port/terminal, there is a competing major port. And the dozen major ports have a combined market share of 55 percent.

The 11 operational ports/terminals run by APSEZ have a combined capacity of 580 mt while the actual cargo handled by these facilities was 336.6 mt in FY23 (including from facilities mostly at non-major ports and a small portion at major ports) accounting for some 24 percent of the cargo handled at Indian ports.

In comparison, the 12 ports owned by the Union government have a combined capacity of 1,597.59 mt. In FY23, these dozen ports handled 783.5 mt of cargo with a market share of 55 percent on a pan India basis.

In containers, which have a much more bearing on end use consumers, APSEZ handled 8.6 million twenty-foot equivalent units (TEU’s) in FY23 or 42.5 percent of India’s container market share.

The 12 major ports, in comparison, handled 11.391 million TEUs in FY23 (all of which, ironically, were handled by private operators such as D P World, PSA International, A P M Terminals and J M Baxi Ports & Logistics through long-term concessions awarded by port authorities), accounting for the balance container market share in India.

So, who is a real monopoly by market share? APSEZ or the Union government which runs 12 major ports? And how is market dominance determined?

To understand these issues in a better perspective, it is necessary to look at what India’s competition law says on monopoly and market dominance.

“There is no arithmetical threshold market share/formula by which dominance is assessed in India under the Competition Act 2002,” says Mr. G R Bhatia, Partner and Head, Competition Law Practice Group, Luthra and Luthra Law Offices India.

“The Competition Commission of India (CCI) can exercise jurisdiction over a dominant player only when there is abuse of market power by such an entity. Time and again, the CCI through its decisional practice has emphasised that dominance per se is not a violation of law, it is the abuse by such an entity which the law prohibits,” Bhatia explained.

“Further, the provisions of the Competition Act 2002 do not get triggered by creeping acquisitions and even the assessment of dominance is through a host of factors, not only market share. Besides, in a landmark order passed by the National Company Law Appellate Tribunal (NCLAT) recently, it has been held that in abuse of dominance cases, there has to be an effect-based analysis,” Bhatia pointed out.

Market share, according to a lawyer specialising in competition matters, is only one of the factors which the CCI is mandated to look at while determining dominance. In addition to market share there are 13 other factors, and these are laid down in Sub Section 4 of Section 19 of the Competition Act.

In European countries, a threshold market share of some 40 percent is prescribed. But if an entity holds 30 or 35 percent market share and it is abusing that market share, no action can be taken under those laws, the lawyer said.

“In India, even if an entity holds 10 percent market share and in case the Competition Commission holds that because of other factors, it is dominant, and dominance is being abused, then action gets triggered,” he stated.

“So, for the existence of dominance, there is no threshold market share limit prescribed. Second, even if there is dominance, it is not per se bad. It is not prohibited. It is only when someone abuses that dominance then action can be taken under Section 4 of the Competition Act,” the lawyer said.

So long as there is no evidence of abuse of dominance, the relevant provision does not get triggered, he emphasised.

Asked why India stopped short of prescribing a threshold market share limit for determining dominance, the lawyer said, “global experience suggest that an arithmetical figure (threshold limit) is illogical, because even with a smaller market share an entity can be dominant and be able to exert abuse while with a higher market share, it is not allowed to abuse dominance”.

Through a spate of inorganic acquisitions over the last decade, APSEZ has grown its market share to some 24 percent, yet the ground reality is, the conduct of the party indicates that the turnaround time of ships at its facilities is quicker (0.7 days), says a shipping industry source.

“A quick turnaround of ships at ports/terminals helps fleet owners avoid huge demurrage costs which translates into higher profitability for ship owners, the main customers of ports. This is a win-win for everyone, whether for a port authority, banks or those who ship their goods, be it inward or outward,” says Bhatia at Luthra and Luthra Law Offices India.

A faster turnaround time is critical in an industry where ships are hired on daily charter rates running into millions of dollars and idle time means loss of revenue.

India’s competition law is applicable to private sector, public sector as well as to government departments engaged in economic activity.

“With small, medium and big players along with the government running port/terminal facilities in India, practically the fabric of competition in the port market is complete and in case APSEZ is found to be abusing that dominance, action can be taken,” the lawyer mentioned earlier added.

Port industry experts say that “given the presence of a competing major port (owned by the government) in the close vicinity of all its ports/ terminals, APSEZ does not have any pricing advantage from its vast footprint across the Indian coastline and has to maintain competitive rates along with higher service levels to attract and retain customers”.

Further, more than half of APSEZ’s cargo volumes is from anchor customers such as TATA Steel, SAIL, APPDCL, CGPL, Sembcorp, APPDCL, among others, with whom it has entered into long term agreements. The price is controlled in these long-term agreements throughout the tenure at a predetermined rate which is strictly adhered to and any adversities due to market fluctuations are absorbed by ASPEZ. Some of the anchor volumes accrue from partnerships where the customer themselves have infused equity along with APSEZ for building container handling terminals (for example MSC and CMA CGM at Mundra Port).

These partnerships and differentiated value proposition, including offering one stop solutions to customers, have led APSEZ to anchor volumes and improve market share, a port industry expert said.

Further, many cargo handling berths in major ports, according to the industry expert, are being operated by private players whose tariffs are being regulated.

“So far, due to their limitations in pricing, APSEZ also has to maintain low rates to remain competitive without the risk of losing market share to the major ports,” he said.

While the new law that governs major ports gives pricing freedom, this flexibility is not applicable to terminals that started operations prior. New cargo terminals at major ports, though, will be free to set market discovered rates making them equally competitive without any disadvantage compared to non-major ports run by private firms.

Further, the Union government plans to build more ports at Vadhavan and Galathea Bay and the resultant increase in the total market size itself will dilute the concentration of any single developer, the industry expert stated.

Although major ports are owned by the Union government, their transition to a land-lord port operating model is tapping private players in the major ports as well, he added.

Source : ET