CHAPTER II

ORGANISATION AND FINANCIAL FUNCTIONS OF

TUTICORIN PORT TRUST

Sea port management involves the administration of vast capital resources,

the long and wide hierarchy of personnel and relationship with variety of port
users. There is no uniform policy and practice with regard to the ownership and
management of sea ports in the world. Ports are owned and managed by
Governments in the West Asian Countries like Kuwait and Iran. In U.S.A. and
U.K., they are owned and administered by both local authorities and private
organisations while most of the ports are under public control in France. But in
India Ports are owned and controlled either by State or Central Government.
The Major Ports in India are under the complete control of the Central
Government. They are administered under the "Indian Ports Act, 1908" and
"Major Port Trusts Act, 1963". The control and operation of shipping services
and conservancy of the ports are regulated under the provisions of Indian Port Act,
1908 and the administration, control and operation of Cargo handling services are
regulated under Major Port Trusts Act, 1963. The Major Ports are managed by the
Port Trusts created by the Central Government under the Major Port Trusts Act of
1963. The Port Trust is defined "as a body corporate having perpetual succession
and a common seal with power to acquire, hold or dispose of property and it may
by the name by which it is constituted sue or to be sued".'
The administration of the Tuticorin Port is vested by the Board of Trustees
set up under Tuticorin Port Trust Act of 1905. Recently, the Board has been
reconstituted under the Major Port Trust Act of 1963. The Trustees are nominated
so as to ensure representation of all interested parties. Besides the chairman who
is the Chief Executive of the Port, and the Deputy Chairman, there are several Ex-

Major Port Trust Act, 1963, Section 5

Official members representing Government of India, Government of Tamilnadu,
Municipal Council of Tuticorin, Customs as well as representatives of shippers,
shipping lines, steamer agents, clearing and forwarding agents, workers railways,
Food Corporation of India, and other major clients.
The day to day administration of the port is under the functional
departments under the authority of Chairman who is the Chief Executive of the
organisation. The entire administration of the Port Trust has been split up into
different departments as shown in chart 2.1. The following are the important
departments in the Tuticorin Port Trust organisation.

Administrative department
This department discharges the functions relating to administrative policies,
public relations, Industrial problems etc. The Chief of this department is
designated as "Secretary".

Engineering department
It is mainly concerned with Engineering and Construction works, project,
stores management etc. The head is Chief Engineer.

Traffic department
Traffic manager is the head of this department, which is responsible for
shipping, cargo handling, trade promotion, port railway operations etc.

Marine department
This department is in charge of pilotage, dredging fire service and port
conservancy. The Chief of this department is deputy conservator.

53
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Medical department
Providing medical facilities to the employees of the Port Trust, is the
function of this department. The Medical Officer is the head of the department.

Accounts department
The financial adviser and Chief Accounts Officer is the head of this
department whose function includes financial management, preparation of
accounts and budgets and internal audit.

Functions of Tuticorin Port Trust

In most of the ports in U.S.A. and Europe, the functions of port authorities
are mainly limited to coordination planning and financing. Private companies
arrange for cargo handling, operating warehouses and providing labour. But in
India all the functions are performed only by Port Trust. However, in some Major
Ports labour is supplied by private agencies.

The main functions of Tuticorin Port Trust are as follows:

1. To act as conservator of the port.
2. To provide the services to ships such as towage, berthing etc.
3. To provide docks and landing facilities for ships and passengers.
4. To provide cargo handling equipment and facilities for cargo movement from
ship to shore or shore to ship.
5. To provide warehousing facilities for storage of cargo.
6. To take custody of cargo and to act as bailee.
7. To make regulations for the conservancy and the safety of the port.
8. To frame scales of rates and charges for the various services provided by the
Trust.
9. To raise and manage adequate finance.
10. To carry out the purpose of the Port Trust Act generally.

55
Powers of the Board of Trustees
The Board of Trustees has the following powers under the Major Port Trust
Act, 1963.
1. To constitute a committee consisting of Trustees as members to discharge any
specific function.
2. To delegate the powers and duties conferred or imposed upon the Board by the
Act of 1963 to the Chairman with the approval of the Central Government.
3. To prepare schedule of employees of the Board containing details about
designation, grade, salaries, allowances etc.
4. To create posts and make appointment to the Board subject to the limitations
provided in the Act
5. To frame rules and regulations with regard to appointment, promotion,
removal, leave etc.
6. To acquire immovable property through Central Government under Land
Acquisition Act, 1984;
7. To enter into contract with any person for the Performance of the functions of
the Board subject to the restrictions imposed by the Central Government;
8. To execute works such as the construction of wharf, berth, jetty, pier, road
railway, etc. and to acquire equipments like cranes, tugs and other vessels with
the sanction of the Government
9. To provide services to handle cargo such as cranage, warehousing, etc. and to
handle ships such as pilotage, towage, bunkering etc.
10.To permit private parties to erect wharf, jetty, pier etc. in the port area subject
to the conditions specified in the Act;
11. To frame scales of rates for the services like wharfage, cranage, rent for
storage, demurrage etc. except the services in respect of vessels for which fees
are chargeable under 1908 Act;
12.To lease the land or building subject to the limit fixed by the Government;

56
13.To raise loans in the open market and to issue Trust Securities with the
sanction of the Government;
14. To borrow money from the International Bank for Reconstruction with the
approval of the Government;
15.To raise temporary loans or overdraft against the securities held by the Board
in its reserve fund, subject to the limit fixed by the Government;
16.To invest surplus money in the securities prescribed by the Government;
17.To charge the expenditure to capital up to the limit fixed by the Government;
18.To prepare annual revenue and capital budgets and accounts and reports.

Sources of Revenue of the Tuticorin Port Trust

The ports as a terminal transport industry render a number of terminal
services so as to facilitate the free movement of ships and cargo from one place to
another through sea. Hence, they derive incomes from a number of sources. The
following are the main sources of revenue for Tuticorin Port Trust.

1) Charges on Vessels - pilotage, towage, port dues, berth hire charges etc.
2) Charges on cargo - wharfage, demurrage etc.
3) Charges for services rendered - Cranage, Water supply, weighment etc.
4) Rental charges on Estates - Rent from lands, open shed, warehouse and
buildings.
5) Charges on Railway Traffic - Terminal charges.
6) Finance and miscellaneous incomes - interest on investment, sale of
unserviceable materials, profit on disposal of assets etc.

All the above incomes are grouped under the following principal heads;
1) Cargo handling and storage charges 2) Port and Dock charges
3) Railway Earnings 4) Estate rentals 5) Finance and miscellaneous income.

57
Items of Revenue Expenditure
The expenses incurred to maintain the operational efficiency of the
administration and equipments are classified under six main activities. They are
as follows:

Cargo handling and storage

This category includes administration and general expenses, handling
charges, repairs and maintenance of cargo handling equipments etc.

Port and dock expenses

These expenses include those incurred in towing, berthing, mooring,
pilotage, water supply, minor dredging, maintenance of navigational sides etc.

Railway working
The expenses incurred in operating and maintaining locomotives, signals,
interlocking etc. are included under this heading.

Rentable lands and buildings

The expenses incurred to maintain the land and building of the Trust are
include in this activity.

Management and general administration

The port security expenses, telephones, store keeping, welfare expenses,
medical expenses etc. are included in this activity.

Finance and Miscellaneous expenses

This activity includes bank charges, interest, loss sale of assets etc.

58
FINANCIAL OBJECTIVES
While making an enquiry into the Major Ports of Great Britain, Viscount
Rochdale Committee observed that, "there had been a tendency, not only in this
country, to treat various branches of transport as some form of public service to
which, for one reason or another, sound financial principles need not be applied.
The operation of transport services as State or municipal undertakings has
accentuated this tendency."' Indian Major Ports were not an exception to this and
the same trend was observed in respect of them for a long time.
Added to this, "the functions which ports perform have a 'public utility'
aspect in the sense that they offer the community a certain basic economic floor
upon which many other economic activities can be built. Similarly, most ports
resemble public utilities in the sense that profits are extremely slim, if not
marginal (in some cases, ports incur cash deficits)."2 But this concept of 'public
service' gradually lost validity in respect of Major Ports as it was found to be a
hindrance for the application of sound economic and accounting principles in the
conduct of their financial affairs.
In case of Indian Major Ports there had not been any clear enunciation of
the financial objectives for quite a long time and they were concerned with the
sole financial objective of matching their income with cost. In this context, it
would be of interest to note the observation of Commission of Major Ports, "...
the ports should so operate as to meet all the financial obligations such as working
expenses, depreciation, interest, etc. The earlier Port Trust Acts have not,
however, spelt out this obligation clearly. The Bombay Port Trust, Act 1879, for
instance, casts an obligation on the port to make ample annual provision either by
readjustment of expenditure or by increase of rates for the due fulfilment of all the
liabilities. The port has been enjoined that in the event of any deficiency in the

United Kingdom Transport ministry,., Report of the Committee of enquiry in to the Major Ports of Great
Britain', London, 1962, P. 60.
2 U.S. Department of commerce, Maritime Administration, Public Port Financing in the United States',

Washington, 1974, P.V.

59
income of the Board they should forthwith take such measures for preventing such
deficiencies. But no obligation to earn a standard rate of return on the port
investment has been prescribed in the various Port Acts. This is probably the
reason why many of the ports have attempted only a sort of balancing of budgets
equating revenues with other expenditure and taking an ad hoc view in respect of
future liabilities."
But Major Ports could no longer afford to continue as in the past on a 'no-
profit no-loss' basis for several reasons. First, huge amounts have been spent on
the development of Major Ports, particularly from the beginning of planning and
they have been required to raise internal resources to meet their development and
replacement needs. Secondly, there had been a shooting up of construction costs.
In addition to this, non-availability and delays in supplies of some important
inputs led to the lengthening of construction periods, thus increasing the burden of
capitalised interest. Thirdly, massive outlays had to be made on capital dredging,
breakwaters, etc., to adapt to the latest trends in ship technology that demanded
construction of deep draughted harbours. Fourthly, the replacement cost of port
assets particularly in these days of galloping inflation, is greatly in excess of their
original cost and consequently the funds set apart often are not adequate at the
time of replacement. Further, in this age of technological revolution, the risk
associated with premature obsolescence and the resultant needs to replace the
obsolete equipment early are assuming greater importance.
In view of the above reasons, the financial survival of Major Ports would be
threatened if they continue the status quo with regard to their financial objective.
Hence, the view that ports should function as viable commercial organisations and
should also generate surplus to take care at least a part of the development needs
found favourable in respect of Indian Major Ports. This trend had also gained
momentum in other countries as well. An observation of United Nations
Conference on Trade and Development deserves mentioning here, "In 10 per cent

'Report of the commission on Major Ports, Op. cit., P. 63.

of the cases examined, the financial objective was to cover current operating and
maintenance expenses, depreciation and interest charges on loans. In the
reminder, i.e., 90 per cent of the cases, there were additional objectives; either to
make provision for port improvement, or to earn a return on the capital employed,
or both."
The Rochdale Commission recommended that ports should be regarded as
commercial undertakings. It stated that ports should aim at providing, out of
revenue, for (a) working expenses; (b) interest on loans; (c) depreciation of assets
on a replacement cost basis; (d) taxation; and (e) some margin for reserves to meet
unforeseen contingencies (e.g premature obsolescence) and to give financial help
for minor improvements.
The Major Ports Commission (1970) recommended a rate of return of 12
per cent on the capital employed as a financial objective for the Major Ports with
the following break-up: 2
6 per cent towards interest charges
3 per cent towards replacement, rehabilitation and
modernisation of capital assets and
3 percent towards reserve for development,
repayment of loans and contingencies

12 per cent Total
The Government had accepted their recommendations and Major Ports had
adopted this while fixing the charges. Subsequently, the interest rate charged on
government loans has been increasing from time to time and in 2001-02, it was 13
percent. Therefore, the Major Ports are expected to earn 15 per cent on their
capital employed. This return of 15 per cent can be considered as reasonable in
view of the fact that the Government is insisting for a 12 per cent post-tax return

United Nations Conference on Trade and Development 'Port Pricing,' The Author, New York, 1975,P.
17.

2 Report of the commission on Major Ports, op. cit., P. 51.

61
on net worth for the priority industries in public sector and ports do not have any
obligation to pay taxes to the national exchequer. Though this objective of earning
15 per cent return on capital employed on every operation is desirable, but
achieving this rate of return on an overall basis may seem to be practicable.
Some people were of the opinion that the policy of fixing port rates based
on this financial objective would adversely affect export promotion and it would
be hurdle in their role as catalysts for economic and industrial development and
generators of direct and indirect employment.
But this argument doesn't seem to have much validity since port charges
constitute a small portion of the total cost of sea transport and hence do not have
much effect on the traffic. A study carried out in India on the basis of freight
earnings and expenses of shipping lines indicated that marine dues in ports as
distinguished from total port costs of ships (which would include standing
charges) ranged from 3 to 4 per cent of the freight earning. Since this relates to
port charges or marine dues at both ends, the charges at each end would be
roughly 1.5 to 2.0 percent.' This was in consonance with the results of an
UNCTAD study which stated, "port charges represent only a small percentage of
the value of the products carried, particularly of high-value goods."2
In pursuance of their financial objective as recommended by the Major
Ports Commission enable the ports to maintain financial independence to a
considerable extent. They would also be able to make investments in port assets
which confer benefits to ship owners in the form of faster turn-round time to ships.

FINANCE FUNCTION IN TUTICORIN PORT

Finance function is one of the major functional areas, others being
production, personnel and marketing, in any organisation. The head of this
department is usually known as financial officer, though his designation differs

Mehta, V.R., 'Ports as commercial undertakings,', Indian Ports, Vol. X, No., may 1978, P. 15.
2
Op. Cit., P. 29
from firm to firm. In some firms he is called as financial Adviser and Chief
Accounts Officer, while in others as the Vice-President of Finance. The
importance attached to this function can be gauged from the fact that financial
officer is located on the same scalar level as the managers of production and
distribution and he reports directly to the chief executive officer. Its importance
is further emphasised by the fact that in most of the organisations he is a member
of the Board of Directors. Further-more, when he is not a member, he usually
attends the board meetings in order to advice and he is consulted on financial
matters of the organisation. Thus he is an important member of the 'top
management'.
Since financial decisions are of vital importance for the survival and growth
of the firm, it is essential to set up the finance function on sound and efficient
lines. The exact nature of the organisation for financial management will vary
from firm to firm depending upon factors such as the size of the firm, nature of the
business, kinds of financing operations, capabilities of the firm's financial officers
and most importantly, on the financial philosophy of the firm.
In Tuticorin Port, the finance function is given an equal status along with
other departments like Traffic, Administration, Engineering, etc. It is headed by
Financial Adviser and Chief Accounts Officer. The financial management of
Tuticorin port is under his immediate charge and he functions under the immediate
supervision of Chairman and under the overall control of the Board of Trustees.

Pattern of Delegation of Powers

All the powers of the port are vested with the Board of Trustees and,
subject to the provisions of the Major Port Trusts Act, 1963 and the directives
issued by the Central Government the Board enjoys autonomy. The Ministry of
Shipping and Transport through its directives from time to time lay down the

Pears on Hunt, Charles M. Williams and Gordon Donaldson, 'Basic Business Finance, Text and cases,'
Richard D. Irwin Inc, Home wood, lllionois, 1961 P. 6.

62
general pattern of financial control to be exercised by the Board of Trustees and
the limits on their powers on certain matters like capital expenditure and
appointment to top posts. The Board of Trustees is competent to sanction capital
expenditure up to Rs.75 lakhs and the limit up to which the Chairman can sanction
is Rs. 15 lakhs. The Board can also approve plans and estimates before
commencement of new works and it can enter into a contract in respect of any new
work whose value does not exceed Rs.75 lakhs. The Board is also empowered to
sanction any variation up to 10 per cent in the approved estimates.
The Chairman can direct the execution of work and enter into contracts for
the execution of such works the cost of which does not exceed Rs. 15 lakhs but in
every such case the Chairman should report to the Board as soon as possible of
any such directives given or contracts entered into by him.
The Board can spend an amount of Rs.5 Iakhs without adherence to
approved estimates and provision in budget. But there is no limit on such power
in times of pressing emergency [Sec. 101 (2) of Major Port Trusts Act (1963].
However, the Chairman has to report to the Central Government the circumstances
that led to such a decision.
The Board can write off any amount due to any loss, whether of money or
property, incurred by the Board if irrecoverable where such irrecoverable amount
or loss does not exceed Rs. 5,000 in each to an aggregate of Rs. 1 lakh in any year.
In respect of Chairman, these two limits are Rs. 1,000 and Rs. 20,000 respectively.
However, the Chairman shall report about each to the Board..
The Board can also make investments in public securities or in such other
securities approved by the central Government.

(ii) Finance Function

Financial Adviser or Chief Accounts Officer is the principal staff officer
with regard to financial matters in port. He is required to attend all meetings of
Port Trust including meetings of the different sub-committees of the Trustees. His

63
concurrence is necessary for any proposal having financial implications before it is
put before the board meeting. In case the Financial Adviser and Chief Accounts
Officer has not concurred, copies of his views are to be appended to the proposal.
As the name implies, his duties fall under two categories, viz., financial
advice and maintenance of accounts including budgeting. His role can be
appreciated better by going through the following specific functions performed by
him:
1) Compilation of accounts, submission of periodical accounting and other
important statements to management.
2) Preparation of budget estimates of income and expenditure.
3) Assessment of port charges of equipment.
4) Custodian for the port's cash balances and maintenance of bank accounts.
5) Scrutinises the proposals involving financial implications in accordance with
the rules and regulations.
6) Conducts internal audit of various departments and to check the initial records
maintained in the department.
7) Pre-checks of the bills and claims of all payments before effecting payment
with reference to their regularities and propriety and ensures that the payments
are covered by the sanction of competent authority. In fact he should be the
management's finger on the pulse of the port operations, and any variance
from the normal should be reported, diagnosed and dealt with.'

ACCOUNTING AND BUDGETING PROCEDURES

As mentioned earlier in Chapter I, the Tuticorin Port had been controlled
directly by different Government departments, until it came under the ambit of
Major Port Trusts Act in 1963. Consequently, it adopted the Government

United Nations Economic and social commission for Asia and Pacific, Report of the Seminar on port
pricing,' Bangkok, 1979, P. 14.

64
procedures for financial accounting and control, which are rigid, and they didn't
serve managerial purpose of cost control.
Till 1968-69, the accounts were maintained on 'cash' basis instead of on
the 'accrual' basis, the amounts due to and by, the port during the year were not
taken into accounts.' Receipts and expenses were presented department-wise in
revenue account. Since there was no function-wise classification of income and
expenditure, the economics of each principal activity and sub-activity were not
available and cost of providing the different services could not be worked out.
Similarly, the balance sheet was not presented on proper lines to reflect an
accurate picture of the financial position.
However, from 1969-70 there had been a change in the methods of
accounting of all Major Ports and they have been maintaining accounts on a
systematic and scientific basis.
As per the new system of accounting, the income and expenditure are
accounted for on a functional basis, i.e., the income and expenditure relating to a
particular activity are shown by the accounts. There are four principal activities
which are common for both income and expenditure, viz., (i) Cargo handling and
storage, (ii) Port and dock facilities for shipping including pilotage, (iii) Railway
working, and (iv) Rentable land and buildings. There is also a fifth activity, i.e.,
management and general administration, for expenditure only and this is to be
apportioned to the above four activities. Besides, there are separate accounting
heads to show the finance and miscellaneous income and expenditure.

Revenue Budget
Budgeting has assumed a great deal of importance both in public
enterprises and private enterprises. Budgets have become one of the recognised
tools in the hands of management both for formulating policy and for keeping
check on its execution. It is, therefore, very desirable that Major Ports should

Report of the commission on Major Ports, op. cit., P. 51.

65
develop a proper system of budgetary control. "A properly designed and organised
budgetary control system, when understood and supported by the staff, should
contribute positively and constructively to the efficient working of the port." A
budget has been defined as "a comprehensive and coordinated plan, expressed in
financial terms, for the operations and resources of an enterprise for some specific
period a basis for an effective mechanism of financial management and control.
The budget for operating and other expenditure which is chargeable to the
period of accounting, viz., one year is called the revenue budget; whereas the
budget for all expenditure which results in the acquisition of permanent assets,
which are intended to be continuously used for the purpose of earning revenue and
whose return extends beyond one year is called the capital budget. The
demarcation between 'capital' and 'revenue' in Tuticorin Port is that all assets
costing less than Rs.50,000 or assets having a life of less than five years
irrespective of cost are charged to 'revenue'.
The Revenue Budget is prepared on the basis of the traffic forecast, which
are made on a realistic basis by the research and planning Department. On the
other hand, the expenditure budget is prepared on the basis of past actual and
probable changes that may take place in the ensuing year.
In the first week of November, the Finance Department sends a general
letter addressed to all the heads of the departments requesting them to furnish
information relating to the revised estimates of that year and budget estimates for
the next year. They are supplied with actual of revenue expenditure for previous
financial year and to the end of first six months (April to September) of current
year. These form the basis for the preparation of the revised budget for the current
year on the basis of which the budget estimate for the next financial year is
prepared. While contemplating any increase or decrease in the provisions, the
respective individual departments have to invariably furnish the reasons there for

United nations conference on Trade and Development, 'Financial management of ports', Geneva, 1979 P.
57.

66
to arrive at budget provisions on a realistic basis. They should also show the posts
and salaries and wages in the prescribed Proforma. The revised budget for the
current year is fixed after taking into account the actual income or expenditure for
twelve months of preceding year, and comparing the expenditure during the first
six months of the current year with the corresponding period of the previous year,
the special features of both the years being considered fully.
After compilation and consolidation, the Finance Department sends the
budget estimates to the Secretary's Department before 15th January of next year.
This would enable the Secretary's Department to make available the budget
estimates to the Trustees, 10 days in advance of the special board meeting. As per
section 98 of the Major Port Trusts Act, 1963 the Board has to meet on or before
31st January in each year to consider budget estimates and may provisionally
approve it with or without modifications. The provisionally approved estimates
have to be sent to the Central Government on or before 10th February.

Capital Budget
The Capital Budget shows the development works of the port and the works
connected with the renewals and replacements. It is prepared on the same lines as
the Revenue Budget within the frame work of the Five Year Plan programme,
which has been prepared in turn after making the necessary cost benefit analysis.
The capital budget is broken down into the following items:
1) Land 2) Capital Dredging 3) Buildings, sheds and other structures
4) Wharves, roads and bunders 5) Floating crafts 6) Railway and rolling stock
7) Navigational aids 8) Cranes and vehicles 9) Plant and machinery
10) Installations for water, electricity, telecommunication and fire-fighting.
The above items are again divided into sub-items and there is a separate and
detailed accounts classification in the general ledger to collect the actual capital
expenditure under each item or sub-item and also for each individual work.

67
 The works in the capital budget are divided into plan schemes, non-plan
schemes and D.R.F. schemes which are further broken down into new schemes
and continuing schemes.
It is disheartening to note that a big organisation like port doesn't have a
budget manual which gives a comprehensive picture about the preparation of the
budget, time schedule indicating all stages, from the start of preparation to the
stage of approval. The budget manual is a written set of instructions and relevant
information and it tells what to do, how to do item when to do it and which form
do it on.' It doesn't have even a Budget Committee which is necessary for the
effective coordination of budgeting activity. The port should take up the
preparation of Budget Manual in which along with above things, procedures and
forms for periodical review of budgets and the channel of communication between
various levels of management should also be indicated. It should also set up a
Budget Committee. This Committee may be entrusted with the whole task of
budgeting and its functions may include prescribing guidelines for the preparation
of budgets, offering suggestions, reconciling conflicting views, coordinating the
budgetary activities and approving them with or without modifications. It should
also provide necessary training to executives in the principles and wider
responsibilities of management.
It is also distressing to note that the revenue budget is prepared only on the
basis of single traffic estimate. But, because of the uncertainty associated with the
planning for future, it is desirable to make forecasts of income and expenditure at
different levels of trade. In other words, Flexible Budgeting should be introduced
at the earliest opportunity.
It is also found that cash budget- a statement of projected cash inflows and
outflows-is not prepared. The cash budget, when prepared systematically, gives
the cash surplus or deficit arising from the scheduled activities or the port like

l Horngren, Charles, T., 'cost Accounting: A managerial Emphasis', prentice Hall of India Pvt. Ltd., Hew
Delhi, 1972, P. 142.

LeI•
purchase of capital assets, repayment of loans, etc. Therefore, the management
will be able to make necessary arrangements to utilise surplus profitably or in
times of a deficit seek loans on most favourable terms without diversely affecting
its financial position. Revenue budget, capital budget and other financial position.
Revenue budget, capital budget and other financial transactions form the basis for
the preparation of cash budget. Since the port transactions are relatively stable and
can be predicted with a considerable degree of precision and accuracy, quarterly
cash budgets can be prepared.
According to Section 98 of the Major Port Trusts Act, 1963 the Major Ports
have to submit there budget estimates to the Central Government every year for its
sanction. There is little justification is sending the revenue budget to the
Government for approval as that cuts across the principle of autonomy. At this
juncture, it may be mentioned that public sector undertakings are not required to
submit their revenue budgets to the Government for approval as that cuts across
the principle of autonomy. But the policy of submitting the capital budget to the
Government for approval is natural and cannot be found fault with as both for
initial capital outlay and major capital expansion the sums have largely to be
drawn from the central exchequer.

Management Accounting Statements

The very purpose of budgetary control would be negated if the variances
from budgeted figures are not found out and analysed to highlight the reasons for
such variances. This helps to isolate any controllable deviations from the budgeted
costs and to take necessary remedial action to put the things on the right track.
It is heartening to note, in this context, that quarterly management
accounting statements are prepared in Tuticorin Port which shows the variances
for each type of expenditure for all budget centres within a department. These
statements also include activity-wise and sub-activity-wise variances under
different items of income and expenditure.
 In addition to the above management accounting statements, a system of
budgetary control at the individual officer's level has been introduced in Tuticorin
Port. For this purpose, the individual officer at the lowest level has been taken as
the responsibility unit. As per this arrangement, each responsibility unit can be
known in terms of the budget centre and the cost centres. In this connection, the
cost centres in the mechanical, civil, traffic and marine departments, which appear
under one budget centre or more than one budget centre or department, have been
identified with the officers and the list of the officers has been prepared for
indicating the responsibility of each officer. Each officer coming under such
responsibility unit is called the budget controlling officer, who is in turn controlled
by his superior officer, who is also a budgeting controlling officer.
Quarterly lists of monthly expenditure against each type for each cost
centre separately for 3 months are sent by name to each individual officer
responsible for the relevant cost centre to review the budget with reference to the
actual expenditure and also the month to month actual to take remedial action for
improving the respective departments, if there are any wide variances so that the
heads of the departments will consider and review the position for their
department.
It is also observed that the staffs in Finance Department are saddled with
purely routine work and they are not able to devote their time for carrying out
useful financial analysis. They may be asked to take up Funds Flow Analysis and
Ratio Analysis which provide a better insight into the financial working of the
port. In doing so, they can seek the help of Research and Planning Department
which, besides other functions, has the responsibility of conducting research
studies on port operations, economics and management. These may be published
in Administration Report and Annual Accounts.
The Research and Planning Department may be entrusted with the
responsibility of computing operational and financial indicators as suggested by
the UNCTAD. These indicators serve as input for port development, port tariff

70
consideration and investment decisions. They would lead to improved utilization
of resources by highlighting problem areas and thus improve service to port users
and reduce unit costs. These may also be published in the administration Report
and Annual Accounts. If all the Major Ports calculates and publishes these
indicators it would facilitate inter-port comparison.

Rates and charges

The basic sources of revenue to any port in the world are the rates and
charges it levies on the users of facilities and services provided by the port. The
level of income depends upon the level of charges. Fixation of rates for various
services of the port is a difficult task as they differ and vary widely with one
another in cost, investment and time. The rates must be sufficient to yield a fair
return on investment to achieve the financial objectives of the Trust. The rates
must be fixed at such a level which will generate adequate income to meet all
operating expenses including depreciation and to provide sufficient surplus for the
repayment of loans, replacement of worn out assets and for future development
and contingencies. At the same time they should not be detrimental to foreign
trade and coastal traffic. If the rates are fixed at a higher rate, it will affect the
competitiveness of the port as well as the shipping industry. Though the port
Trusts enjoy good deal of monopoly in providing their services, they should not
fix the rates which will hamper the growth of foreign trade and shipping industry.
At the same time, they should not fix the rates which will fail to ensure adequate
revenue to the Port Trust. A lower rate causes losses to the Port Trusts while a
higher rate generates excessive incomes at the cost of the public. "A poorly
constituted port traffic charges may be a burden on the economy of the nation or
region"
The various principles which are generally adopted in fixing scale of rates
and charges in public utilities and transport service industries are value of service

'Report of the commission on Major Ports, P. 56.

71
principle, cost of service principle and what the traffic can bear principle. No
particular principle can be adopted in fixing the rates for port services due to the
special features of the Port Trust and nature of port services industry. So the
scales of rates for the services rendered by the Trust either on the sea or shore are
fixed by taking into careful consideration the following factors such as the , cost
and nature of the service, the investment made in providing the service, the ability
of the traffic to bear, the impact on the economy of the hinterland, the rates
prevailing in the nearby competitive ports, the incidence on foreign and coastal
trades and shipping industry, the rates of other modes of transport, the financial
objectives of the Trust etc. The level of rates fixed by the authority of the port
must be sufficient to provide the port with both economic and financial viability
whatever principle followed by it.
In India currently, the Tariff Authority for Major Ports (TAMP) regulates
port charges at the 11 Major Ports only. Though the tariff fixed by the authority is
the ceiling, developers are free to change less than the notified tariff. Since minor
ports, which now account for 31 percent of the total port traffic in the country, the
minor port is free to fix their own tariffs, it is felt that this could lead to unfair
trade practices. However, now the union government is mulling over the idea of
bringing together all ports - major, minor and intermediary - under the umbrella
of one regulatory authority. The principle legislations governing Indian ports are
The Indian Ports Act, 1908, and The Major Ports Trust Act, 1963. All the Major
Ports are under administrative control of the union ministry of surface transport
(except Ennore Port) and are under the regulatory authority of TAMP. As there is
no well defined national policy on rates and charges of ports services in India
every Major Port Trust has its own method and practice of fixing the scale of rates.
Hence the rates and charges differ from port to port both in level as well as basis

of calculation.

72
 In Tuticorin Port Trust, the rates are fixed by taking into consideration
mainly the cost involved in the provision of the services, the rates prevailing in the
competitive ports, the nature of the commodity, the promotion of traffic etc. The
rates for the services to ships are fixed below the cost as the traffic cannot bear due
to heavy investment. The charges on cargo are fixed at a slightly higher rate so as
to offset the deficiencies of the charges on vessels to certain extent.
The scale of rates prevailing in South Indian Major Ports in are shown in
the Table 2.1-3.

Port Dues
The charge is levied on ship entering the port. It is fixed by the TAMP
under section 33 of Indian Port Act, 1908. Different rates are charged for coastal
ships and foreign ships.

Pilotage
This charge is levied to bring the ship from the anchorage to wharf berth
and vice versa. The charges are regulated by TAMP under section 35 of Indian
ports Act of 1908. Different rates are charged for coastal vessels and foreign
vessels. The same rate is charged for inward as well as outward pilotage. The
pilotage is compulsory and the pilotage service is rendered at present 24 hours.

Berth hire charges

The Tariff Authority (TAMP) fixes the berth hire charges index section 35
of Indian ports Act, 1908. This charge is levied on vessels for using the berth.

Wharfage dues
These charges are levied on cargo passing over a wharf or transferred
between vessels or loaded from or discharged into water over ship ride while
vessel occupies berth at wharf. The board of Trustees has the power to fix that

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charges under section 49 of Major Port Trust Act, 1963. Approval of TAMP is
necessary. The rates are fixed on the basis of tonnage.
Wharfage charge and per M.T. or C.B.M. or 1000 litres each as the case
may be. Different rates are charged according to the classifications of 90 items in
the scale of rates.

76