SCHEDUIE

Case No.TAMP/53/2001-VPf

Visakhapatnam Port Trust (VPT)

Applicant

O R D E R

(Passed on this 5th day of November 2001)

This case relates to a proposal received from the Visakhapatnam Port Trust (VPT) for

fixation of hue charges for 15 tonne capacity electrical level luffing (ELL) wharf crane.

2.1.

The VPT has made the following points in its proposal:

(i).

15 tonne capacity ELL wharf cranes were acquired and installed on the berths for the

purposes of cargo handling operations.

(ii).

The Berth hire charges approved by the Authority vide its Order dated 16 May 2001

relating to general revision of the Scale of Rates (SOR) of the VPT include the related

crane hire charges also; but, not a separate hire charge for the crane.

(iii).

These cranes are hired by users, for the purpose of taking delivery of the cargo, etc.,

against specific indents. In order to recover the hire charges as and when these

cranes are hired for other purpose, separate hire charges are required to be fixed.

(iv).

Presently a provisional rate of Rs. 2285/- per hour or part thereof, subject to a

minimum of 2 hours, is being charged by the port.

2.2.

While working out the hire charges, considering a 20 year life of the wharf crane, the

VPT has reportedly taken into account return on investment @ 18% of the original capital cost,

depreciation as per the approved rates; repairs and renewals @ 3¹A% of the capital cost: staff

charges; cost of power; lubricants and consumable; and, management and general administration

overheads @ 20% of the expenses. The VPT has arrived at a charge of Rs. 2285/- per hour or part

thereof by considering art annual utilisation of 365 days and 3 shifts of 8 hours every day.

2.3.

In this backdrop, the VPT initialy requested to approve a hire charge of Rs. 2285/- per

hour or part thereof subject to a minimum of 2 hours for the wharf crane; and, regularise the

transactions already effected.

A copy of the proposal was forwarded to all concerned port users/ representative

bodies of port users for comments. Comments have not been received from any of these user-

organisations,

A Joint hearing in this case was held on 23 July 2001 in Visakhapatnam. At the joint

hearing, the following submissions were made:

Visakhapatnam Port Trust (VPT)

(i).

We need not have itemised overheads; we will have only an overall allocation.

(ii).

Power cost is considered as pet the APSEB norms. If they have agents/subagents

and insist on going through them, there will be incidentals.

(iii).

We will give the bases of percentages applied for various overheads.

(iv).

The Audit objects and asks for return on heavy investments; power from APSEB

costs a lot; we need to focus on this.

(v).

We will try to rationalise; we will try to relate it to the rate for 10 tonne cranes.

THE GAZETTE OF INDIA: EXTRAORDINARY

[PART III—SEC. 41

Indian National Shipowners Association (INSAI. visaqapatnam cnamoer of commerce

and Industry (VCCIl. Visakhapatnam Port Users Association (VPUA). Visakhapatnam

Stevedores Association (VSA) and Vlsakhapatnam Steamship Agents Association

(VSAA)

(i).

What was the revenue earned through 'crane hire' In the last 3 years? Revenue from

crane hire is fractional; let us not waste too much of time on this.

(ii).

ROCE and tariff are two different things. For tariffs you take various other factors into

account (what traffic can bear, equality of opportunity, etc.)-

(iii).

We enter into long-term contracts; we have to estimate our costs. We do not know

which crane will be given to us. If different rates are prescribed, it becomes difficult.

5.1.

At the joint hearing it was decided that the VPT would furnish a note on the following

points:

(i).

In the backdrop of itemized overhead charges, does the generalised Management

and General Adminstration overhead @ 20% amount to double charging.

(ii).

The bases of the various percentage charges cited.

(iii).

The APSEB system of releasing power through Agents / sub-agents, to explain

'incidentals' on power cost.

(iv).

Date of procurement ot the ELL cranes.

(v).

Feasibility of categorisation of cranes - e.g., heavy lift; lifts with capacity of 10 MT

and above, etc. - for the purpose of prescribing pool rates.

5.2.

The points made by the VPT In response are summarised hereunder:-

(i).

The cost sheet has been recast as per the deliberation at the joint hearing and in

accordance with the guidelines given by the (then) Ministry of Surface Transport vide

its letter dated 28 October 1978. The relevant items of costs considered in the

revised cost sheet are justified as indicated below:

(a).

The percentages adopted for management & general administration

overheads; and, workshop, stores, general services and other overheads in

the operating cost was considered as per actual of 2000-01 as indicated

below:

SI.

No.

Description

Total Operating cost

Expenditure

Management

General administration

LESS:

Engineering

& Workshop

overheads

LESS: Stroke keeping

Total

Percentage of MGA to operating cost

(3/1)

Expenditure on workshop, stores,

general

services

and

other

overheads

Percentage of workshop, stores,

general

services

and

other

overheads to operating cost (5/1)

Actuals - 2000-01

(Rs. In crores)

176.40

57.18

16.32

3.27

37.59

21.31%

19.59

11.11%

(b).

Power is purchased directly from the Andhra Pradesh State Electricity Board

(APSEB) and from M/s. Rain Calcining Ltd. and the cost statement indicating

a power cost of an Rs.49.25 lakhs has been arrived at on the basis of

average working load of 228 KW @ 4.80 per KW per hour for (250x18) 4500

hours. There are no incidentals on power cost in the APSEB tariff.

(c).

Considering 250 works days a year and 3 shifts of 8 hours per day, the rate

works out to Rs. 3116/- per hour. If the norm for equipment availability and

utilisation is taken as a base (i.e. 85% of 365 days i.e. 310 days), then the

rate works out to Rs. 2513 per hour.

(ii).

The feasibility of arriving at a uniform rate for cranes irrespective of the capacity of

the cranes is not found realistic since majority of the 10 tonne electric wharf cranes

were procured in a phased manner; hence and the economic life as well as the

operating cost of cranes having different capacities will also vary. As such, it is

proposed to adopt a separate rate for 15 tonne wharf cranes.

5.3.

On being enquired again, the VPT has responded by furnishing the requisite

information relating to procurement/commissioning of cranes, and also stated that revision of the rate

proposed is sought retrospectively from the date of raising of provisional bills.

With reference to the totality of information collected during the processing of this

case, and based on a collective application of mind, the following position emerges:

(i).

The VPT has added two 15 tonne capacity ELL wharfage cranes to its fleet of cargo

handling equipment on 28 September 1996 and 28 October 1999 respectively.

These cranes aie installed on the berths. The existing berth hire charges include

cranage element also. The proposed hire charges for these cranes are applicable

only when they are hired for those activities that are not included in the normal berth

hire.

It is relevant to" mention here that a port can reasonably seek recovery of

separate hire charges on cranes / cargo handling equipment, provision of which is not

a pre-condition for levy of berth hire, wharfage, handling charge, etc. The existing

scale of rates, however, does not prescribe a separate hire charge for these 15 tonne

ELL cranes.

(ii).

The VPT had fixed provisional hire charges and collecting them from the hirers since

the date of commissioning of these cranes. It has to be recognised that the Port

Trusts do not have any statutory power to prescribe (even) provisional rates for the

services provided by them. The tariff setting arrangement envisaged in the MPT Act

requires approval of this Authority to levy such charges for the services provided or

use of the Port Trust's properties. That being so, the action of the VPT to prescribe

provisional hire charges cannot be said to be legally correct and administratively

appropriate.

(iii).

As has been mentioned above, the VPT is collecting provisional hire charges since

September 1998. Its proposal for genera! revision of Scale of Rates was decided by

this Authority in May 2001. Strangely, the general revision proposal did not include

hire charges in reference; None of the user-organisation consulted as a part of the

proceeding relating to general revision of the VPT Scale of Rates had also pointed

out this omission in the VPT's proposal.

(iv).

This Authority had earlier advised some of the major ports to work out a 'pool rate' for

equipment / floating craft on the basis of ranges of capacity rather than for individual

equipment. In the instant case, the VPT has, however, explained that it is not realistic

in its case to prescribe such 'pool rate¹ since a majority of th© other wharf cranes

were procured in a phased manner and the economic life as well as operating costs

vary.

The existing Scale of Rates prescribes hire charges of electrical cranes (of different

capacities) varying from Rs. 140/- per hour to Rs. 905/- per hour. In the case of the

cranes in reference, the electricity .:•<-\ itself comes to around Rs. 820/- per hour.

36<nRifo\-2.

THE GAZETTE OF INDIA. EXTRAORDINARY

IPAKTIH—SI < 41

That being so, clubbing them with the existing cranes Tortne purpose 01 reducing \wv

charges at the notified rate available in the Scale of Rates is not a reasonable

arrangement. This differential in rates is still, however, remain unexplained. Even if

the cranes are old, the operation cost will be more or less dt a comparable level. This

raises a doubt about the reasonableness of the existing rate for other electrical and

mobile cranes insofar as their adequacy to cover the operational cost incurred by the

Port It will be useful for the VPT to review the existing equipment hire charges and

come up with a suitable proposal for tariff adjustment, if necessary. While doing so,

the VPT may consider proposing 'pool rates' with reference to different ranges of

capacity.

(v).

The VPT had initially worked out hire charges considering utilisation of these cranes

on all 365 days in a year. Subsequently, it has modified its costing by considering

utilisation of 260 days in a year based on the norm for berth occupancy. Considering

the lay-up period required for any of this electro-mechanical equipment, 100%

utilisation considered by the VPT earlier cannot be taken as a reasonable estimation.

The Port ha» Indicated an annual utilisation of 6000 hours based on 250 working

day* with three shifts working in a day. The guidelines issued by the Government in

1982 stipulate an availability norm Of around 88% for electrical wharf cranes having

more than 10 tonne capacity assuming 352 days per annum. Considering a 3 shift

working of the crane as reported by the VPT, the capacity available per annum thus

comes to around 7430 hours. When compared with the utilisation reported by the

VPT, the capacity utilisation of these cranes is around 81%. It is to be recognised

that the maximum level of return on capital employed can be sought only when the

assets are utilised nearly to their capacity levels. A port cannot seek to maximise

return when capacity created is not fully utilised. Recognising this fact this Authority

has already decided in cases relating to some other port trusts and private terminals

to link return with capacity utilisation. In line with the general principle adopted &y this

Authority, the return oh capital employed in the instant case can be allowed only to

the extent of 81% of the maximum admissible level of 19.5%. Incidentally, the VPT

has considered only 18% ROCE in its calculations. Nevertheless, the return on

investment needs to be scaled down with reference to the capacity utilisation and the

maximum return allowable.

(vl).

The VPT has explained the bases tor arriving at different overheads considered by it

in the cost calculations.

Likewise, it has also modified the electricity cost with

reference to the current APSEB tariff. It has also confirmed that no incidentals on

powers cost are incurred.

(vll).

Recently, this Authority allowed a general revision of Scale of Rates of the VPT

adopting 'cost plus' model of tariff setting. All overhead expenses have been duly

accounted for in the pricing model adopted. Overhead expenses remaining constant

for the port as whole for a given period, if they are allocated to these cranes in

reference, then, to that extent there must be a reduction in some other activity. Since

such reduction has not taken place elsewhere, inclusion of overheads is an excess

allocation and double counting. That being SO, overhead elements considered by the

VPT in its calculation of hire charges are excluded.

It is noteworthy that a similar stand has been takan by this Authority while approving

hire charges for a mobile crane at the New Martjjalore Port Trust.

(viii).

The VPT has estimated an expenditure of 3.33% of capital cost of the crane towards

repairs and renewals, which appears to be somewhat on the higher side, Despite our

request to justify the bases of various percentage charges cited, the information in

this regard was not made available. Considering the fact that these cranes have

been in operation since 1908, the information sought cannot be difficult to collect. Be

that as it may, the estimate for repair and renewals furnished by the VPT is accepted

without modification recognising the fact that there may be some incremental

expenditure on supervision, record-keeping etc; and, no separate overhead element

is allowed in the costing.

(Ix).

The VPT has not specifically Included the Insurance cost In its calculation for arriving

at the proposed hire charges, It is advisable for the VPT to consider actual insurance

cost of the equipment and claim damages and compensation only from the insurance

company and not from the users. The VPT is advised to adopt this approach at the

time of formulating its proposal for the next revision of this tariff item.

(x).

Subject to the above, the calculation of the hire charges for the 15 tonne capacity ELL

wharfage crane has been revised. The revised calculation sheet is annexed. The

revised working indicates a hire charge of Rs. 2800/- per hour or part thereof, which

is approved.

(xi).

The VPT has proposed a minimum charge for 2 hours on every occasion of hire. The

VPT has explained that a minimum charge for 2 hours is required for advance

planning and movement of cranes. It is noteworthy that the existing conditionality in

the Scale of Rates of the VPT relating to crane hire charges clearly indicates that the

hire charges cover only the period of working of the cranes. That being so, it is

reasonable for the Port to seek a minimum guarantee of at least 2 hours of usage

considering the planning and mobilisation of the cranes to the work spot.

It is

relevant here to mention that the existing Scale of Rates of the VPT in respect of hire

charges of equipment prescribes a minimum charge equivalent to hire charges for 2

hours. That being so, the minimum hire charge proposed by the VPT is found to be

reasonable and approved.

(xil).

As has been mentioned earlier, the VPT is levying provisional hire charges @

Rs.2285/- per hour since September 1998. The VPT has requested this Authority to

approve the hire charges retrospectively to regularise the transaction already

completed.

It is to be recognised that the hire charges now approved by this Authority are based

on current cost details. If the same rate is to be applied retrospectively, it becomes

necessary to adjust it with reference to the cost position available in 1998. Since this

has not been done, there appears no justification to extend the rate of Rs.2800/- per

hour retrospectively from September 1998. In any case, the provisional rate fixed by

the port is less than the rate approved by this Authority. That being so, this Authority

approves the rate of Rs.2285/- per hour or part thereof retrospectively from

September 1998 only for the purpose of regularising the transactions that had already

taken place and the modified hire charges of Rs.2800/- per hour or part thereof for

prospective application.

7.1.

In the result, and for the reasons given above, and based on a collective application

of mind, this Authority approves the following:

(i).

Hire charge of Rs.2285/- per hour or part thereof subject to a minimum charge of

Rs.4570/- for 15 tonne capacity ELL wharf crane with retrospective effect from

September 1998 till expiry of 15 days from the date of notification of this Order in the

Gazette of India.

(li).

Hire charge of Rs.2800/- per hour or part thereof subject to a minimum charge of

Rs.5600/- for hire of 15 tonne capacity ELL crane with effect from 15 days after the

date of notification of this Order in the Gazette of India.

7.2.

The VPT is directed to amend its Scale of Rates accordingly.

S. SATHYAM, Chairman

|ADVTIM/IV/l4V2<H)l/Kxlv|

THE GAZETTE OF INDIA: EXTRAORDINARY

IP VRTFII—Si.c 4]

Annex

Statement showing fixation of Hire charges for 15 tonne capacity ELL wharf crann

Capital cost of the crane

Life in years

Capacity per annum (24x352x88%)

Utilisation per annum (as assessed by the VPT)

Rs.

44128000

7430 hours

6000 hours

Annual Capital Cost

(i).

(ii).

Return on Capital linked to capacity utilisation

(44128000x19 5%x81%)

Depreciation

Sub total (A)

Rs.

Rs.

6970017 60

2206400.00

9176417.60

Annual Operation and Maintenance Cost

(i)-

(II)

(iii).

(iv).

Repair & Renewals @ 3.33% of the Capital cost

Staff charges

Power cost

Cost of lubricants and consumables

Sub total (B)

Total Annual Cost (A) + (B)

Cost per hour

Hire charges per hour or part thereof

Rs.

Rs.

1469462 40

809525 00

4924800 00

416000 00

7619787.40

16796205.00

2799.37

2800.00

Printed by the Manager, Qovl. of India Press, Ring Road, Mayapurl, New Delhi-110064

and Published by the Controller ol Publications, Delhl-110054 — 2001