mainportlawyers.com · 2017-01-06 · Ports & Terminals 2017 Contributing editor Alex Kyriakoulis...

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Ports & Term

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Ports & TerminalsContributing editorAlex Kyriakoulis

2017© Law Business Research 2016

Ports & Terminals 2017Contributing editorAlex Kyriakoulis

Holman Fenwick Willan LLP

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CONTENTS

2 Getting the Deal Through – Ports & Terminals 2017

Global overview 5Alex KyriakoulisHolman Fenwick Willan LLP

Australia 8Amanda Davidson and Christopher EvesHolman Fenwick Willan LLP

Brazil 13Godofredo Mendes Vianna and Juliana Pizzolato Furtado SennaLaw Offices Carl Kincaid – Mendes Vianna Advogados

Canada 18Shelley Chapelski and Greg LewisBull, Housser & Tupper LLP

China 22Connie Chen and Joyce FongHolman Fenwick Willan LLP

Croatia 27Maja Dotlić and Gordan StankovićLaw Firm Vukić & Partners Ltd

Cyprus 33Costas Stamatiou, Kyriacos Kourtellos and Nikoletta LambrouAndreas Neocleous & Co LLC

Denmark 37Ulla Fabricius and Christian Benedictsen-NislevNJORD Law Firm

Germany 42Benjamin Hub, Gernot-Rüdiger Engel and Christoph von BurgsdorffLuther Rechtsanwaltsgesellschaft mbH

India 47Krishan Singhania, SN Verma and Purvai SharmaSinghania & Co

Indonesia 53Arfidea D Saraswati, Gabriella MC Ticoalu and Tara Priscilla OgilvieArfidea Kadri Sahetapy-Engel Tisnadisastra (AKSET)

Japan 59Mitsunari Taketani Tagawa Law Office

Mexico 64Juan Carlos Serra and Rodolfo BarredaBasham, Ringe y Correa

Netherlands 72Arnold J van Steenderen and Charlotte J van Steenderen Van Steenderen MainportLawyers BV

Nigeria 77Ben UnaegbunamAdepetun Caxton-Martins Agbor & Segun (ACAS-Law)

Panama 82Joel R Medina and Rudy Cedeño GIcaza, González-Ruiz & Alemán

Paraguay 86Raúl Prono Toñanez and Juan Pablo Palacios VelázquezPalacios, Prono & Talavera

Peru 92Francisco Arca Patiño and Carla Paoli ConsigliereEstudio Arca & Paoli Abogados SAC

Portugal 97Jose Luis Moreira da SilvaSRS Advogados, RL

Russia 102Alexander MednikovJurinflot

South Africa 106Andrew Pike, Mark van Velden, Norma Wheeler and Karl LaureauBowmans

Sri Lanka 112Savantha De Saram and Jivan GoonetillekeDL & F De Saram

Turkey 116Esin Çamlıbel and Grace Maral BurnettTURUNÇ

United Kingdom 121Alex Kyriakoulis and Joseph BothamHolman Fenwick Willan LLP

United States 125Matthew J ThomasBlank Rome LLP

Venezuela 130José Alfredo Sabatino PizzolanteSabatino Pizzolante Abogados Marítimos & Comerciales


www.gettingthedealthrough.com 3

PREFACE

Getting the Deal Through is delighted to publish the second edition of Ports & Terminals, which is available in print, as an e-book, and online at www.gettingthedealthrough.com.

Getting the Deal Through provides international expert analysis in key areas of law, practice and regulation for corporate counsel, cross-border legal practitioners, and company directors and officers.

Throughout this edition, and following the unique Getting the Deal Through format, the same key questions are answered by leading practitioners in each of the jurisdictions featured. Our coverage this year includes new chapters on Cyprus, Denmark and Portugal.

Getting the Deal Through titles are published annually in print. Please ensure you are referring to the latest edition or to the online version at www.gettingthedealthrough.com.

Every effort has been made to cover all matters of concern to readers. However, specific legal advice should always be sought from experienced local advisers.

Getting the Deal Through gratefully acknowledges the efforts of all the contributors to this volume, who were chosen for their recognised expertise. We also extend special thanks to the contributing editor, Alex Kyriakoulis of Holman Fenwick Willan LLP, for his continued assistance with this volume.

LondonOctober 2016

PrefacePorts & Terminals 2017Second edition


Holman Fenwick Willan LLP GLOBAL OVERVIEW


Global overviewAlex KyriakoulisHolman Fenwick Willan LLP

Ports and terminals todayPorts and terminals are vital to the global economy. In the US and China, the world’s two largest economies, more than 90 per cent of imported and exported cargo moves through commercial ports. For coastal states and islands such as those in the Caribbean or the Mediterranean that rely heavily on tourism, and in particular the cruise industry, ports are the lifeblood of their economies. The rising demand of emerging markets such as the ‘BRIC’ countries (Brazil, Russia, India and China) has led to a significant increase in the use of containers, and to the emergence of large multi-terminal operators adept at designing, financing, constructing, operating and maintaining terminals capable of efficiently moving, storing and repairing huge numbers of contain-ers. In addition, the commodities boom fuelled by this rising demand has contributed to increased investment in bulk cargo terminals (coal, iron ore, grain etc), owned and operated by multinational agricultural and mining companies and commodities traders seeking to export their raw materials to the growing economies of the world.

A vast (and increasing) number of ports and terminals are globally in operation, and their operating structures, capabilities and objectives are diverse. Some ports have only a passenger or cruise terminal; others might also handle (or only handle) cargo; while others consist of one or more specialist terminals such as bulk, container or LPG/LNG termi-nals. Terminals may then be further segmented into gateway terminals, that is, terminals used primarily for the importing of cargo, or tranship-ment terminals which move cargo from one vessel to another smaller or larger vessel.

Constructing or developing a port or terminal generally requires significant financial investment, and governments and port authori-ties are not always willing or able to make such an investment. At the same time, corporatisation and privatisation of ports have been shown to lead to increased profitability and enhanced employment opportu-nities. There have, consequently, been major changes in the owner-ship and operating structure of many ports, driven by the increasingly prominent role of the private sector, both as a source of finance and as the provider of some (or in some cases all) of the services required for the successful operation of a modern port. This in turn has led to a diminished or altered role for the traditional owner and operator of a port, the port authority. Whatever the separation of roles between a port authority and a port operator or services provider, and whatever the type or location of the port, the most important party is ultimately the port customer. Without sufficient customers and volume, any ambi-tious new port is destined to be a white elephant (as indeed has hap-pened in some countries). The shipping lines, which have grown in size and influence through the increase in cargo traffic, through consolida-tion and the resultant increased market share (sometimes as a result of strategic mergers and acquisitions (M&A) and sometimes as a result of the demise of competitors such as Hanjin), and through the establish-ment of alliances such as the 2M, Ocean 3, G6 and CKYHE alliances, are putting pressure on port operators to be more competitive and pro-vide more efficient services. At the same time the lines are key drivers in the further development of ports – for example, the ever-increasing size of container ships being built on behalf of shipping lines (20,000 TEU capacity ships are currently under construction) means that many container terminals will need to continue to invest in their infrastruc-ture and superstructures or equipment in order to be able to attract the volume from such vessels. The prohibitive cost of such investments is

an important factor in the rise of the private sector in ports. This in turn has led to consolidation among port operators through M&A activity and an increased number of joint ventures in relation to specific green-field or brownfield port projects between port operators that otherwise compete with one another in other ports.

Getting a deal through, be it the development, the operation, or the sale or purchase, of a port or terminal, requires an understanding of the roles of all the key parties involved in a port or terminal project (port authority, port operator, shipping lines, any employee unions etc) and the dynamics between them; the legislative and regulatory back-grounds; and the different services that need to be provided at a port (marine, cargo handling, safety etc) and who needs to provide them.

Port authorities and operatorsThe port authority has in most ports traditionally been its governing body and is usually part of, or supervised by, a ministry (merchant min-istry, ministry of transport, ministry of public works, etc) of the coun-try’s government. The powers and duties of port authorities include establishing the standards and codes to be observed by the providers and users of marine and port services and facilities; controlling the navigation within the perimeter of the port and the approaches to the port (including providing adequate navigational aids and disseminat-ing navigational information); regulating the charges and fees payable by users of the port facilities; providing marine and port services and facilities such as towage, pilotage and berth scheduling (and where applicable exercising licensing and regulatory functions in respect thereof ); and generally improving, developing and promoting the use of the port. Where the port authority is established at a national level, it may additionally be tasked with exercising regulatory functions in respect of merchant shipping, particularly in respect of safety at sea, the manning of vessels and the prevention of pollution at sea. Its functions may also include the promotion and safeguarding of a competitive, fair and efficient market (to the extent that this is not the prerogative of an overarching national competition policy administered by a competition commission or similar); developing, promoting and regulating employ-ment and training within the shipping and port industries; promoting the development of merchant shipping; advising the government on matters relating to marine and port services and facilities (and on sea transportation generally); and representing the country at an interna-tional level (for example, at the International Maritime Organization) in relation to marine and port matters generally. In some countries the port authority exercising the regulatory functions mentioned above may actually be a body called the ‘ports regulator’, with one or more separate port authorities supervising the operational aspects of the country’s ports.

Many countries have, in the last few decades, succumbed to pres-sure to devolve the responsibility for the improvement of ports and their performance to self-sustaining (incorporated) entities, and to eliminate the provision to them of governmental subsidies and other state aid. Stakeholders such as the shipping lines calling at ports, as well as terminal and logistics operators, have been clear about the need for a modernisation of port governance practices, with a view to improv-ing performance and efficiency. This has in large part been achieved through corporatisation. This is the process by which a public port enter-prise is transformed into a private corporation (although, unless the corporatisation is followed by some form of privatisation, all or some


GLOBAL OVERVIEW Holman Fenwick Willan LLP


of the equity in such corporation remains in public hands following the corporatisation). Corporatisation leads to changes in the institutional structure of the port business, which in turn often leads to the increased involvement of the private sector in the exploitation and financing of port facilities, terminals and services. Port authorities have become more autonomous through the devolution of the decision-making from the government to the port company’s directors, who are accountable to the corporation’s shareholders (be they the state or private institu-tions or individuals). This has produced greater transparency in rela-tion to port authority development and prioritisation of business and customer satisfaction. True privatisation of port authorities, in other words the sale of shares in the entity that owns the port land or exercises regulatory functions, is relatively rare. For example, the privatisation of the Piraeus and Thessaloniki authorities through IPOs in the early 2000s was actually an offering of shares in companies that had conces-sions (see below) to run the respective ports for a finite period of time. Similarly, the subsequent privatisation of those port authorities that was launched in 2013–2014 in the wake of the Greek debt crisis (and which in the case of the Piraeus port authority concluded with the sale of a 51 per cent/67 per cent stake to COSCO) is actually nothing more than the sale of shares in those two listed companies that were retained by the state at the time of the earlier IPOs. Of the larger developed countries, only the UK has implemented outright privatisation of some of its ports.

The rise of concessionsThe term ‘privatisation’ is often used to describe something that is actu-ally quite different from the UK model. It usually refers to the process of the port authority (or other relevant governmental body or entity with the relevant rights and powers) granting to a private party certain rights and obligations in relation to a port for a number of years under a ‘con-cession agreement’. This is in essence a public-private partnership. In these partnerships governments (acting through the port authority) will retain, or rather create, the role of port regulator and also often act as the provider or licensor of marine services and sometimes land devel-opers. The private party will assume responsibility for the financing of port development and for the running of port operations, theoretically for a sufficiently long period of time to make a return on its investment. The appeal of concessions is that states can transfer a major part of the financial and operational risks in developing and operating terminals to the private sector while permitting them to retain ultimate ownership of the port land and responsibility for licensing port operations and con-struction activities, and thereby safeguard public interests. Concession agreements and leasehold agreements are quite similar, and in some jurisdictions they are considered to be more or less the same thing. In practice, a concession agreement typically goes further than a lease in that it governs the entire relationship between the government and the private sector regarding the right to exploit port land and facilities as well as the obligation to construct port infrastructure and provide superstructure. A lease is sometimes entered into in addition to a con-cession agreement so that the leaseholder’s (concessionaire’s) interest in the land can be registered with the relevant land registry or cadastre.

How far a government will go in terms of transferring responsibili-ties for port development or operations to the private sector through concessions depends on a number of factors, including political consid-erations and the underlying constitution or legal regime; the financial investment capabilities and anticipated returns profile of the project; the extent of the port authority’s ability and desire to provide services in relation to the port; and the power of stevedores’ and other port employees’ unions. Sometimes a port authority will also, in addition to entering into a concession agreement, have an interest in the com-pany that is granted the concession. By investing equity the port author-ity participates in the economic success (or failure) of the concession and becomes more directly involved in port operations, but this is not always permitted. Such participation may be acceptable if there is a monopoly in the port (and there is therefore no existing or potential intra-port competition), but in other cases a conflict of interest may arise between the roles of the port authority as an investor and as the regulator of the monopoly (unless the two roles have been adequately separated from one another).

Port concession tendersNot all countries have the necessary legal frameworks to grant conces-sions. In some cases there is a general law dealing with concessions,

which may cover ports, but if the country is implementing a wholesale privatisation of its ports there may be a specific law in force. Sometimes a law needs to be passed specifically in order to enable the port author-ity to grant a concession or for the government to ratify the grant. Generally these laws set out the extent of any concession in terms of its duration and the ports services for which the port operator may or may not take responsibility under the concession. They will sometimes also deal with the right of, or as the case may be, prohibition on, the state or port authority taking an interest in the company (usually a special purpose vehicle) that will be awarded the concession.

Where the granting of a concession is permitted under such laws, the awarding authority usually runs an open tender and awards the con-cession to the tenderer offering the terms which are most beneficial to the state. These tenders are usually split into phases. In the first phase tenderers typically evidence their technical qualifications and financial wherewithal to design, construct, finance, operate and maintain the port or terminal (or relevant services there). Subject to satisfying the technical and financial qualification criteria, tenderers then proceed to the next round, where they are given the opportunity to investigate the project further, comment on the concession terms and provide their binding offers. This round is sometimes followed by a further nego-tiation round with one or two of the tenderers. The need for an open tender as opposed to a bilateral negotiation with a port operator is usu-ally driven by the existence of national procurement rules designed to ensure that the state is achieving the best possible deal available to it at the time. A tender may also assist in countering claims that the terms of the concession constitute unlawful state aid, on the basis that the ten-der process will have served to ‘test’ the market and that the terms are therefore the best achievable on an arm’s-length basis. The need for a tender may also be driven by the involvement of international financ-ing institutions such as the World Bank/IFC or the EBRD, who may require a transparent process in order to provide finance for the project. International financing institutions have shown increasing interest in the port sector, seeking ways to facilitate port reform either by provid-ing expertise or direct financing through commercial loans or subscrip-tion for project bonds.

Some port category terminologyAs a result of the changes in the way ports are organised, structured and managed following varying degrees of port reform, ports now tend to be categorised as either service ports, tool ports, landlord ports or fully pri-vatised ports. Service and tool ports mainly focus on the realisation of public interests. Landlord ports have a mixed character and aim to strike a balance between public (port authority) and private (port industry) interests. Fully privatised ports focus on private (shareholder) interests. In a service port the port owns, maintains and operates every available asset, whether fixed or mobile. Such ports are usually ultimately con-trolled by the relevant ministry (public works, transport, maritime etc) with the director of the port being a civil servant appointed by the min-ister concerned. The number of service ports is declining, as many for-mer service ports are gradually becoming landlord ports. Tool ports are similar to service ports, but stevedoring is usually carried out by private firms. The landlord port is characterised by its mixed public-private nature. Under this model, the port authority acts as the landlord and often as the regulatory body, while private companies carry out the port operations (especially stevedoring) pursuant to a concession, as men-tioned earlier. The private port operators provide and maintain their own superstructure, including buildings (offices, sheds, warehouses, container freight stations, workshops), and purchase and install their own equipment on the terminal as required by their business. Fully pri-vatised ports are, as also mentioned earlier, few in number and lead to the state no longer having any meaningful involvement or public policy interest in the port sector, although these ports are still subject to over-riding laws affecting all infrastructure assets such as land planning, environmental and health and safety legislation.

Environmental issuesThe heightened global environmental awareness due to climate change and health issues has not left the port sector unaffected. On the legisla-tive side there are obligations, for example those in the EU requiring ships to burn fuel of 0.1 per cent sulphur content when within EU ports or within EU inland waterways. At the same time, when awarding con-cessions port authorities are increasingly examining port operators’


Holman Fenwick Willan LLP GLOBAL OVERVIEW


‘green port’ credentials, and proposals such as the use of cold ironing or shore power; zero emissions technology for port equipment and vehi-cles; sustainable power generation (wind and solar); reducing or manag-ing water run-off; effective dust suppression systems for dry bulk cargo (dry fog etc); recycled concrete and other green construction materials; and so on are often required. In addition, some ports, such as the Port of Rotterdam, provide discounts on port dues to sustainable seagoing ves-sels – that is, vessels that score highly on the Environmental Simulations

International (an international benchmark for emissions from seagoing vessels). These developments are sure to continue and impact on the way in which ports are constructed and operated, especially following the agreement signed at the COP21 meeting in Paris on 12 December 2015 and despite the agreement not including a specific reference to ports. If the ports industry does not proactively address environmental issues lawmakers will no doubt eventually step in to do so.


AUSTRALIA Holman Fenwick Willan LLP


AustraliaAmanda Davidson and Christopher EvesHolman Fenwick Willan LLP

General

1 Which are the key ports in your jurisdiction and what sort of facilities do they comprise? What is the primary purpose of the ports?

Key ports in Australia, located in close proximity to state or territory capital cities, are largely container ports importing consumer goods. Ports connected to supply chains for bulk cargoes serve the resources sector for the export of iron ore, liquefied petroleum gas (LPG) and coal. The majority of these are located in regional Western Australia and Queensland. General cargo ports, along with live cattle exports, are located in smaller regional ports from Adelaide to Darwin.

2 Describe any port reform that has been undertaken over the last few decades and the principal port model or models in your jurisdiction.

Recent port reform in Australia has restructured the regulatory frame-work governing port operations to facilitate the privatisation of state-owned ports, ensure open access to the port infrastructure to users and to increase supply chain efficiency. Privatisation of ports has occurred recently on the Australian east coast, where the ports of Brisbane, Newcastle, Darwin and Botany, among others, have been privatised and the ports of Melbourne and Fremantle have been earmarked for sale by competitive tender over the next 12 to 24 months.

The principal model for port ownership in Australia is the landlord model. Terminal leases previously held by state-owned port authorities are sold to private investors by the granting of a long-term head lease, usually in excess of 40 years, over all port land. This head lease conveys an economic interest in land used by terminal operators. The regulatory functions of the harbourmaster, channel management and navigation are retained by state government port authorities.

3 Is there an overall state policy for the development of ports in your jurisdiction?

Each state and territory government has a policy for the long-term man-agement and development of the ports in their state. This is mirrored at a port level by each regional port authority. The policy is published and open to public comment during the policy development stage. These policies for port development comprise areas of specific focus includ-ing port operations, industry development, environmental protection, community consultation and investment triggers for future port invest-ment and expansion.

4 What ‘green port’ principles are proposed or required for ports and terminals in your jurisdiction?

Key green port principles emerging in port development in Australia include the impact of port development (both construction and opera-tion) on the environment, including the impact of sea dumping of dredge spoil and the impact of increased vessel traffic on marine life of all kinds including on marine habitat such as sea grasses. Green port principles extend to the use of diesel in fuelling landside plants and equipment, and the move to alternative fuels for that equipment such as LPG.

For example, the Sydney Green Port Guidelines cover all stages and aspects of the operation of the port, from resource consumption

to environmental quality. These guidelines aim to encourage the key players to protect the community and adopt a sustainable busi-ness approach.

Legislative framework and regulation

5 Is there a legislative framework for port development or operations in your jurisdiction?

Port privatisation does not rely on the prerogative powers of state or territory governments as almost every privatisation is conducted under parliamentary approved, project-specific state legislation. The privati-sations are not conducted under general PPP legislation. Under the pre-sent Australian government policy of recycling investment in economic infrastructure, Commonwealth fiscal policy provides significant finan-cial incentives to state or territory governments to privatise port assets.

6 Is there a regulatory authority for each port or for all ports in your jurisdiction?

There is a regulatory authority for each port in each state or territory jurisdiction in Australia. Some states have announced the intention to form regional groupings of smaller or more remote ports such as in North Queensland or Western Australia. This approach does not apply to capital cities’ major ports which have one or a small number of ports as their regulatory focus. These port authorities regulate port opera-tions. In addition, state economic regulatory authorities regulate port access and pricing where those functions have not been referred to the Commonwealth competition authorities. This has recently become a major focus in the privatisation of the Port of Melbourne leading to price controls prior to sale and with the Port of Fremantle leading to the post-ponement of that port sale due to a failure by the Western Australian State Government to pass the sale legislation due to concerns over price impacts on users following the sale.

The regulatory authority referred to in the question is usually a stat-utory body related to the state, territory minister for either roads and ports or transports or treasury. Recently, the Australian Competition and Consumer Commission (ACCC) has taken a significant interest in the terms upon which the port sales are made, reflecting a broad concern that in maximising sale proceeds, state governments may ulti-mately be harming port competitiveness.

7 What are the key competences and powers of the port regulatory authority in your jurisdiction?

Port regulatory authorities have the power to make subordinate regula-tions for port operations, vessel handling and channel and navigation aids. A network of general legislation covers matters such as occupa-tional health and safety, terms of employment of organised labour, environmental protection (discharges to air, land and water), inter-modal operations and the interconnection of the port supply chain to road and rail and the transport of cargo and operations. Most port authorities, depending on the nature and complexities of the assets and operations to be regulated, have these competencies in-house but sev-eral contract out specialist expertise to domestic and foreign advisors. Powers of port authorities are conferred by their legislation and as such are readily capable of ascertainment upon review.


Holman Fenwick Willan LLP AUSTRALIA


8 How is a harbourmaster for a port in your jurisdiction appointed?

The harbourmaster is usually employed by the responsible port author-ity, but is appointed by the Minister for Transport or Minister for Roads and Ports. The port authority reports to the state or territory government through the relevant department, such as the Department of Transport.

9 Are ports in your jurisdiction subject to specific national competition rules?

Ports in Australia are subject to both state and national competition law. In the first instance they are subject to state or territory regulation. If a reference is made for a port’s services to be subject to national compe-tition regulation, issues such as definition of the ‘market’ for the ‘ser-vices’ are considered. The choice of the relevant regime by the access seeker is influenced by the strength of the state or territory competi-tion regime.

The original owner and vendor of a port during a privatisation is ultimately the same as the government to whom the regulator reports. Privatisation thus facilitates a separation of the port service delivery and regulatory functions.

Major city ports (eg, Adelaide, Brisbane, Fremantle, Melbourne and Sydney) are monitored at the Commonwealth level by the ACCC. The ACCC provides information to the government and the commu-nity on the performance of Australia’s container stevedoring industry. Part VIIA of the Competition and Consumer Act 2010 sets out the ACCC’s functions in relation to monitoring the prices, costs and profits of container terminal operator companies.

Specific commodities have special treatment under the national legislation. For example, the Port Terminal Access (Bulk Wheat) Code of Conduct regulates the conduct of bulk wheat port terminal opera-tors to ensure that exporters of bulk wheat have fair and transparent access to port terminal services. The ACCC enforces the Code and also has certain specific roles in relation to exemptions and capacity alloca-tion systems.

For other regional ports, states and territories (except New South Wales) have an independent economic regulator that monitors the price charges for container and motor vehicle cargo services and chan-nel services.

10 Are there regulations in relation to the tariffs that are imposed on ports and terminals users in your jurisdictions and how are tariffs collected?

Terminal operators typically pay rent to the port authority or priva-tised port owner and set out market-independent determinations of rent (usually at short term (three to five years) intervals, although these intervals have recently been extended in the face of port privatisations with rent increases capped). Rent is levied under real property leases which are long term (10–20 years).

11 Does the state have any public service obligations in relation to port access or services? Can it satisfy these obligations through a contract with a private party?

There are no public service obligations created in leases or subleases in relation to port access or services. However, ports operated by govern-ment-owned companies can have public service obligations created by regulation on a case-by-case basis.

12 Can a state entity enter into a joint venture with a port operator for the development or operation of a port in your jurisdiction? Is the state’s stake in the venture subject to any percentage threshold?

State entities enter into joint ventures for the development of ports in Australia with port or terminal operators. This may occur in the devel-opment of specific terminals (such as where a contribution to capital cost may reduce the payment of rent) or in the case of the development of a port as a whole where the port is dedicated to the export of products from a tied supply chain. In the case of the latter, this has only recently become subject to open access obligations.

Ports and terminals may be co-owned between the public and pri-vate sector. Co-ownership of assets occurs on a case-by-case basis and is unusual. The more common approach is that specific assets within a port are usually owned wholly by the state or the private sector operator.

For example, common user facilities such as roads, breakwaters and channels are owned by the state, and the wharf ship loading and unload-ing facilities, stockpile, hard stand areas and berths are owned by port or terminal operators.

13 Are there restrictions on foreign participation in port projects? Some state or territory governments seek a level of Australian domestic participation. Foreign direct investment in Australia is managed by the Foreign Investment Review Board (FIRB) under the Foreign Takeovers Act 1975 and administered as an arm of the Commonwealth Department of Treasury. Foreign investment in Australian ports is permitted subject to review on a case-by-case basis as it is considered a sensitive sector. As of 1 January 2015, the FIRB’s threshold is AU$252 million. This issue has come under significant scrutiny recently in the case of the sale of the Port of Darwin, which was sold to a Chinese investor with reported ties to the Chinese Minister of Defence. It may be expected that the FIRB will require a significant percentage of Australian participation in consortia seeking to purchase the Ports of Melbourne and Fremantle.

Public procurement and PPP

14 Is the legislation governing procurement and PPP general or specific?

Each state or territory government has PPP guidelines which regulate the procurement of private sector investment in economic infrastruc-ture; however, Australian ports tend to be privatised by project-specific legislation implemented in a manner which is consistent with these PPP guidelines. That is, the particular policy objectives to be obtained by each port sale usually require parliamentary authorisation at a state or territory level, but the conduct of the sale process follows the PPP guidelines for matters such as risk allocation.

15 May the government or relevant port authority consider proposals for port privatisation/PPP other than as part of a formal tender?

While it is possible for a state or territory government to consider an unsolicited proposal to acquire or develop a port, the likelihood of such proceeding to completion is remote. The scrutiny of the sale process required by all stakeholders means that it is unlikely that a state or ter-ritory government would deal with such important assets on any basis other than a formal tender.

16 What criteria are considered when awarding award port concessions and port joint venture agreements?

Bid or proposal evaluation criteria relevant to the award of port conces-sions vary in the circumstances of each case, but typically follow a rec-ognised format, namely commercial, legal, technical, environmental and community evaluation criteria. In the case of a port privatisation such criteria can be summarised as follows:• the price and the certainty of the bidder to be able to complete the

transaction in the stated time;• risk allocation or the terms and conditions on which the sale

is completed; • the proven track record of the purchaser to complete the purchase

and successfully operate ports in other jurisdictions; • the environmental track record and policies of the acquirer and the

basis on which the acquirer has effectively engaged all port stake-holders such as employees, supply chain customers and opera-tors; and

• the issues arising for the local community impacted by port operations.

17 Is there a model PPP agreement that is used for port projects? To what extent can the public body deviate from its terms?

There is no model form PPP agreement used among the state or terri-tory governments as a standard form concession or lease agreement. Despite this, there is substantial uniformity in the agreements used between the states. The public bodies take advice from sale advisors, consultants and lawyers concerning the form of documents to be adopted, so there is flexibility to accommodate the specific require-ments of a particular port and the circumstances of a particular sale




process. There is significant commonality among the advisors engaged on the respective port privatisations.

18 What government approvals are required for the implementation of a port PPP agreement in your jurisdiction? Must any specific law be passed in your jurisdiction for this?

Specific parliamentary authorisations, contained in sale-specific legis-lation, are required for each sale.

19 On what basis are port projects in your jurisdiction typically implemented?

In recent years, port projects have been implemented as part of a mine, port and rail development and production concession. As such, this relates to the development and export of mineral resources. Where production at individual mines was not sufficient to warrant dedicated facilities, the holder of a mining licence would negotiate with the rail and port providers to access common user facilities. Increasingly, the scale of production of bulk commodities suggests that dedicated port and rail facilities are built by either the mine, the mineral off-take cus-tomers or a combination of both. In the development of these facilities for the private sector, all forms of financing are employed from full recourse on balance sheet debt to limited recourse BOT or BOOT facili-ties. It should be noted that in most cases the concession arrangements provide for leasehold tenure only, so a transfer to the state or territory government at the end of the concession period is usually required.

20 Is there a minimum or maximum term for port PPPs in your jurisdiction? What is the average term?

The term of the port leases usually varies between 40 and 60 years, but terms of 99 years have been negotiated.

21 On what basis can the term be extended? Extensions to the term of port leases are unusual. Extension entitle-ments relate only to the post-construction phase because, for greenfield developments, the concession period does not commence until the port is declared (to be) sufficiently complete to enter commercial operation by an independent and professionally qualified engineer. Therefore, delays during construction or variations to design extend the develop-ment period but not the concession period. Extensions to the conces-sion period may arise from government action directed at suspending port operations where such arises from uninsured perils.

22 What fee structures are used in your jurisdiction? Are they subject to indexation?

The majority of fees are rent fees, and between rent reviews they are subject to escalation at a rate related to the Consumer Price Index.

23 Does the government provide guarantees in relation to port PPPs or grant the port operator exclusivity?

Government guarantees are rarely provided. Exclusivity arises from the nature of the rights to occupy under the head lease or terminal sub-leases. As a result, economic regulation of monopoly pricing of rent is considered to be very important.

Port development and construction

24 What government approvals are required for a port operator to commence construction at the relevant port? How long does it typically take to obtain approvals?

There are many approvals required for the commencement of con-struction, ranging from land use and planning approvals, building or

works approvals and environmental and occupational health and safety approvals concerning the method of the execution of works or the employment of dangerous goods in the works.

For greenfield development of a port or major terminal at an exist-ing port, the national environmental protection legislation usually requires, in conjunction with the state or territory legislation, the prepa-ration of an environmental impact statement. This, in turn, requires study of the subject site over at least four to eight seasons, which may take several years.

25 Does the government or relevant port authority typically undertake any part of the port construction?

Yes, the state or territory government or its agencies or authorities would typically undertake early works, assemble the land and com-mence planning and possibly environmental studies.

For example, the government of Western Australia considered undertaking breakwater construction on the Oakajee Port where this was seen as high risk by the private sector. In Queensland, the North Queensland Ports Authority considered the construction of a multi-user, common facility to assist smaller exporters to gain economies of scale at the Abbott Point development. The dredging of Port Phillip Bay has been undertaken in preparation of the privatisation of the Port of Melbourne.

26 Does the port operator have to adhere to any specific construction standards, and may it engage any contractor it wishes?

Construction standards are required in Australia by reference to inter-national standards for the types of work entailed in the construction. Independent certification of adherence to the required standards is essential to satisfy the requirements of the regulatory authority’s per-mits and approvals. The private port operator may engage any suit-ably qualified contractor. Contractors to state or territory government agencies must usually pre-qualify to be included on a tender panel from which prices will be sought. Prequalification may require agree-ment by the contractor to anti-corrupt practices, labour hire terms and conditions and the willingness to adopt a standard form of construc-tion contract.

27 What remedies are available for delays and defects in the construction of the port?

All the usual remedies are available to principals, both public agencies and authorities and private investors for recourse against contractors for delays and defective work. These remedies include bonds or reten-tion moneys to secure liquidated damages for lateness and defect liabil-ity periods during which defective work must be rectified upon written notice. Contractors may seek to limit their liability for delays and may seek to distinguish between delays to which they may obtain an exten-sion to the date for completion from those which grant extensions and provide in addition for delay costs, usually liquidated at a pre-agreed rate per day.

Port operations

28 What government approvals are required in your jurisdiction for a port operator to commence operations following construction? How long does it typically take to obtain approvals?

Usually, the port operator may commence operation immediately upon the certification of practical completion, following construction.

Compliance checks are performed by both independent certi-fiers and by the port operators themselves. The certification includes a requirement that the contractor has conformed with all authorities’ requirements in relation to the construction of the works (for example, construction works and environmental performance (noise, traffic, waste, pollution, hazards and risk management)). Once completion is certified, contractors are released and the operations on the port can commence.

Update and trends

The most significant development in Australia at present is the port privatisation programme, which is under way in the states and ter-ritories of Australia and which has so far resulted in very significant proceeds on sale being raised from private investors. In addition, several ports are under consideration for development to support iron ore and coal exports, but given the present commodity prices these greenfield projects are likely to be delayed.


Holman Fenwick Willan LLP AUSTRALIA


29 What services does a port operator and what services does the port authority typically provide in your jurisdiction? Do the port authorities typically charge the port operator for any services?

The port authority typically provides the services of port and channel navigation and those of the harbourmaster concerning vessel presenta-tion and handling. Pilotage, tugs and bunkering may be contracted out to independent contractors which may not be related to the port opera-tor or the port authority. However, in smaller regional ports, where the port is not privatised, these services are either provided by, or closely managed by, the port authority. Where these services are contracted out to others, the port authority does not charge for them, but the costs are recovered directly by the service providers.

30 Does the government or relevant port authority typically give any commitments in relation to access to the hinterland? To what extent does it require the operator to finance development of access routes or interconnections?

In the development of greenfield ports, the state or territory govern-ment will agree to facilitate a road or rail corridor to support the port development, and may assist with compulsory acquisition of land to facilitate such as a last alternative to requiring a commercial negotia-tion by the port developer and the land owner. Here the state or territory governments will seek submissions on the preferred route and open the process for public consultation so all stakeholders may make submis-sions concerning the suitability of the proposed route.

For brownfield developments seeking to expand existing rail, road or intermodal facilities, the state or territory government will ‘facilitate’ the resolution of the provision of these assets and supporting services, but this may occur on a somewhat ad hoc and ‘issues driven’ basis. The port operator will be called upon to assist in the finance of these supporting infrastructures if the supply chain is private and tied to, for example, a specific mine development; or not called upon if the port or extension of the port is being developed in a public open access basis.

31 How do port authorities in your jurisdiction oversee terminal operations and in what circumstances may a port authority require the operator to suspend them?

Port operations are regulated under the terms of their terminal lease and the rules for operations of the port. Authorities may direct terminal operators to suspend operations if events or circumstances arise which may endanger life or property.

32 In what circumstances may the port authorities in your jurisdiction access the port area or take over port operations?

Leases contain step in rights which enable terminal subleases to be taken over by the grantor of the lease if an event of default has occurred which persists after notice and no diligent cure is pursued by the termi-nal operator.

33 What remedies are available to the port authority or government against a port operator that fails to operate and maintain the port as agreed?

The remedies cascade through damages and interest, step in and ulti-mately termination.

34 What assets must port operators transfer to the relevant port authority on termination of a concession? Must port authorities pay any compensation for transferred assets?

The assets transferred to the relevant port authority on termination of a concession include the right to occupy the land and all assets connected to the land, as an operation of law, consequent to the determination of the lease. Usually this occurs without the payment of compensation by the authority. State and territory laws contain provisions for compensa-tion to tenants for leasehold improvements, and principles of equity will relieve against forfeiture.

Miscellaneous

35 Is a port operator that is to construct or operate a port in your jurisdiction permitted (or required) to do so via a special purpose vehicle (SPV)? Must it be incorporated in your jurisdiction?

Special purpose vehicles are used in Australia on most occasions. It is not unusual for port operators to incorporate a subsidiary to operate and construct port assets in Australia. Generally, port operators will not do so ‘on balance sheet’ from corporate funds.

36 Are ownership interests in the port operator freely transferable?

Usually the port concession or development agreement with the state or territory authority will require that the transfer of ownership interests in the operator are subject to government approval, such approval not being unreasonably withheld. No consent is required if the operator is publicly listed on the Australian Stock Exchange.

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37 Can the port operator grant security over its rights under the PPP agreement to its project financing banks? Does a port authority in your jurisdiction typically agree to enter into direct agreements with the project financing banks and, if so, what are the key terms?

The port operator can create security interests in the assets and under-taking under the port lease or concession agreement. A priority agree-ment between the state or territory government and the trustee for security holders is usually required, preserving the lenders’ rights to step in and cure a default by the borrower or port operator prior to ter-mination by the state or territory government. Typically, the state or territory government’s right to terminate will be suspended under the priority agreement while the banks are diligently pursuing a cure.

38 In what circumstances may agreements to construct or operate a port facility be varied or terminated?

Port leases or concession agreements may be terminated in the event of default which continues unremedied for a stated period. It is most unlikely that such a default would comprise a payment default, as most of the lease premium, rental or concession payments would be made upfront on grant with respect to agreements for the development or construction of a port. All agreements may be varied by further agree-ment between the parties. Termination may be available for a perfor-mance default, but cure periods would tend to be longer than for a payment default.

39 What remedies are available to a government or port authority for contractual breach by a port operator?

All the usual rights of damages are available to state or territory gov-ernment for contractual breach by a port operator. Equitable remedies of specific performance are much more difficult to obtain for breach of performance obligations where extended supervision by a court may be required.

40 Must all port PPP agreements be governed by the laws of your jurisdiction?

It is usual for PPP concessions and lease agreements to apply in and be governed by the laws of the state or territory where the assets are located and the obligations under the agreements are performed. It would be most unlikely for an Australian state government to govern the concession arrangements using the laws of a foreign jurisdiction.

41 How are disputes between the government or port authority and the port operator customarily settled?

It is unlikely that disputes would arise between a state or territory gov-ernment and a port authority, given that the latter effectively is part of and reports to the former. Disputes arising between port authori-ties and port operators are usually settled by discussion among senior executives or, failing which, by expert determination where the sub-ject matter permits or litigation in a court of competent jurisdiction. Increasingly, terminal operators have been willing to take disputes to court or lay information before independent statutory authorities such as the ACCC.


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BrazilGodofredo Mendes Vianna and Juliana Pizzolato Furtado SennaKincaid | Mendes Vianna Advogados

General


There are 253 port installations in Brazil according to data from the Secretary of Ports: 34 public ports and 219 private ports, including maritime and river ports. The key port in Brazil, based on the volume of cargo transported, is the Porto de Santos (Santos Port) located in São Paulo state.

Santos Port is by far the largest port in Brazil, responsible for around 30 per cent of all the public port activity in the country, and is also the busiest port in all Latin America. It is estimated that annually over US$5 billion of goods and over 114 million tons of cargo pass through Santos Port in export, import and cabotage trade. Santos Port is the main port of receipt for imports and exports, acting as a hub for the other Brazilian ports. For this reason, Santos Port moves goods related to all sectors of the Brazilian economy, including facilities for general cargo, containers, liquids and oil. Due to the structure of Brazilian economy most of the goods exported are related to agribusiness and oil.


Law No. 12.815, known as the Ports Law, was enacted in 2013, aiming to increase private investment in Brazilian ports, which is essential to tackle one of the country’s most prominent logistical bottlenecks. It was considered to be a turning point in terms of growth of the industry in Brazil. The law was further regulated by Decree No. 8,033, dated 28 June 2013, and ANTAQ (National Agency for Waterway Transportation) Resolution 3,290.

Additionally, the new Port Regulatory Framework has changed the institutional arrangement of the port sector. The Secretariat for Ports (SEP/PR) has been made responsible for policy decisions (it is worth mentioning that the policies now encompass lake and waterway ports). It is also responsible for licensing rights and coordinating the planning activities of the port sector. ANTAQ is now linked to SEP/PR and it is in charge of regulation and fiscalisation. It directly regulates and oversees authorisation, leasing and concession contracts, besides working as an intermediary in delegation agreements. It is also responsible for carry-ing out the bidding procedures for concessions.


Yes. The Brazilian government has identified the development of the ports as a priority. Therefore, since the enactment of the Ports Law, the government has developed a National Plan for Port Logistics (PNPL) which aims to identify the actions required to improve the infrastruc-ture and efficiency of Brazilian ports.

From the PNPL, the government has developed a Master Plan for each public port to guide the investments and improvements necessary for each area and a Development and Zoning Plan (PDZ) to coordinate the rational expansion of each port’s area. Further, the government has issued the General Concessions Plan (PGO), which identifies the strate-gic new ports and terminals to be licensed.

In relation to investments in particular, on 9 June 2015 the Brazilian federal government announced a new stage in the Programme of Investment in Logistics (PIL). The PIL estimates that there will be around 37.4 billion reais of investments in ports. From this total, around 11.9 billion reais should be allocated to new leasing of port areas, 14.7 billion reais to 63 new private terminals and 10.8 billion to the renewal of current leases of port areas.


Brazil adopts most ‘green port’ principles, including: sustainability, responsibility of the polluter, prevention, mitigation of impacts in the surrounding community and publicity.

Those principles result in requirements and obligations to adopt and implement policies which are included in the environmental licens-ing, mostly related to atmosphere emissions, residue production and disposal, impacts on wildlife, development of social actions, and eco-nomic development of the surroundings.

In addition, for ports already licensed, the government has enacted the Federal Programme to Support Environmental Management and Settlement in Ports, aiming to bring those ports built prior to environ-mental licensing up to date in relation to the adoption of such principles.

Moreover, ANTAQ has developed the Aqua-Portos Certification, which is a port certification project, that aims to certify ports that are in accordance with the most up-to-date environmental requirements, precautions and measures. It aims to assess the level of environmental performance of Brazilian ports.



The legislative framework regarding the development and operation of the port industry is mainly provided by Law No. 12,815/2013, which deals with the direct and indirect exploration by the Federal Union of ports and port installations, as well as with the activities of port opera-tors, and by Decree No. 8,033, which regulates Law No. 12,815/2013. Also, it should be noted that the Federal Constitution determines that ports are under federal government jurisdiction.

Additionally, any concession, lien or public-private partnership (PPP) of ports and port installations is regulated by the state. Finally, Law No. 11,079/2004 expressly provides that it is possible to give a port concession to a PPP. However, despite current meetings between the private and public sector, PPPs are not common in the port sector.


All ports in Brazil are under the surveillance of the same regulatory body, ANTAQ. ANTAQ is supervised by the Special Secretariat of Ports.


ANTAQ, as the port regulatory authority in Brazil, has the following competences and powers:• regulation of the port industry through the production of rules;


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• assessment and concession of authorisations to have a port or to be a port operator;

• surveillance of port operations and activities of the agents;• elaboration of studies and plans; and• supervision of agreements.

ANTAQ has also implemented the Annual Surveillance Plan, which aims to enhance surveillance of the operation and administration of public ports and of port installations for private use.


In Brazil, the harbourmaster is a navy official responsible for and with maritime authority over a specific port or respective coastal zone, being responsible for safety in navigation and in the use of ports and port installations. The harbourmaster in Brazil, known as the Capitão dos Portos, also has police powers, being able to arrest criminals within its area of jurisdiction.

The harbourmaster is appointed by the commander of each naval district in Brazil.


Law No. 12,815/2013 adopted as one of its principles and guidelines the need to provide incentives for competition, in view of the participation of the private sector in the industry. Furthermore, ports are subject to general competition rules established under Law No. 12,529/2011. As a matter of fact, the Administrative Council for Economic Defense (CADE), a Brazilian federal agency that aims to guide, prevent and investigate abuses of economic power, acting within the sphere of com-petition rules, has some administrative investigative cases concern-ing competition rules in the port industry, such as those related to the taxes of release of containers from customs areas charged by operators of terminals.

Lastly, Law No. 10,233/2001 also provides for competition guide-lines in the industry.


Law No. 12,815/2013 provides that the criteria and value of tariffs must be contemplated in concession and lease agreements in relation to public ports. There are also some standards to be followed when fixing tariffs for public and private terminals, related to safety, affordability, regularity and punctuality, among other things.


Yes. The federal government is obliged by the Federal Constitution to explore port facilities and to provide port services, as well as railways and interstate roads. The state governments are responsible for inter-municipal and local roads. This can be done directly by the federal government or indirectly, through concessions or liens to private enti-ties. However, it is usual that the more immediate port access-related obligations are transferred to the private sector through environmen-tal licensing.


We understand that a PPP for the development of port operators would be possible under Brazilian law. Although there are no spe-cific provisions related to the port sector, we understand that Law No. 11,079/2004, which regulates the possibility of the government incorporating a special purpose vehicle for the development of activi-ties, would apply also to port activities without any specific percentage threshold for the state’s stake in the joint venture.

13 Are there restrictions on foreign participation in port projects? Any company incorporated and with headquarters abroad needs a Presidential Authorisation to operate in Brazil. However, there are spe-cific provisions in the regulations that restrict the operation of ports and application to build private ports to companies incorporated under Brazilian law. It is important to clarify that there are no restrictions on foreign capital for companies incorporated in Brazil to act in the port sector.



We have general legislation regulating both government procurement and PPP. The specific law which deals with public bids and purchases is Law No. 8,666/1993, and Federal Law No. 11,079/2004 regulates PPP. Furthermore, there are laws governing particular cases, such as Federal Law No. 8,987/1995 on concessions for public services.


No. All proposals for public ports are to be officially sent (formal tender) within a bid process. Hence, any PPP offer must also be contemplated through a formal tender.

However, procedures to issue authorisations to run a private port (TUP) are not subject to a bidding process, although a public announce-ment is part of the process.


In general, bids for the lease of areas in public ports take into account two of the following criteria, to be informed in the bid documents:• capacity of the installations;• lowest price to the end customer;• efficiency in the time for each operation;• investment to be carried out by the interested party;• lowest possible undertaking by the government;• best technical proposal; and• highest licence value.

Usually, the overall capacity to be installed in the port and the lowest price to be offered to the end customer are the main elements for any bid. However, all of those participating in a bid will be assessed in terms of competence and qualification for the project.


Public ports and public port installations are to be developed through lease agreements and enrolment of port operators, as defined by Law No. 12,815/2013, while private terminals are built and developed by private or public entities through an authorisation issued by ANTAQ and SEP.

The public entities issuing the concessions, lease agreements and authorisations shall not deviate from such models.

Furthermore, the PPP agreement will have a specific form and terms to be followed by the parties, as per Law No. 11,079/2004, which sets general rules for bidding and contracting of PPPs within the pub-lic administration.


A bidding process is required prior to the implementation of a PPP, in line with Law No. 11,079/2004. This bidding process includes some requirements in order for the PPP to be implemented, such as authori-sation by the authority based on a technical study, the elaboration of estimates of budget and financial impact, submission of a draft of the announcement for public consultation, issuance of guidelines for the environmental licensing of the project, publication of the bid announce-ment, qualification of interested parties, presentation, qualification and evaluation of proposals and granting of the bidding procedure’s object




to the respective winner. However, no specific law is required in order to execute a PPP agreement.


Organised ports in Brazil are based on the BOT model, as per Law No. 12,815/2013, since after winning the bid process the operator is granted authorisation to operate the port for a specific term, after which the related assets are to be reverted to the government. On the other hand, the BOOT model is adopted for private terminals.


According to article 5, I, of Law No. 11,079/2004, the PPP term shall be in accordance with the amortisation and investments made and shall not be less than five years or more than 35 years.

21 On what basis can the term be extended? Port concessions and lease agreements can be extended once by a period no longer than the original term agreed, as per Decree No. 8,033/2013. Also, the maximum term of 35 years, mentioned above, must be taken into consideration.

With respect to the average term, it is hard to state a figure, since to date there are no PPPs related to ports listed at the Brazilian Ministry of Planning’s official website.

For reference, with respect to private use terminals, cargo tranship-ment stations, port facilities of small size and port facilities for tourism, according to ANTAQ the average term of the respective authorisations granted under the subscription agreements corresponds to the maxi-mum legal term of 25 years.


Port fees on public ports have a contractual nature, but are regulated and limited by the concession agreement, since the fees are a criterion for selecting the winning bidder.

On private terminals, the fees also have a private and contractual nature, subject only to reasonableness and fee publicity principles, as per article 3 II of Federal Law No. 12,815/2013 and article 28 I of Federal Law No. 10,233/2001.

The fees are subject to indexation to reflect inflation, in accordance with article 17 IV and article 62 of Federal Law No. 12,815/2013, and arti-cle 27 IV and article 35 VII and VIII of Federal Law No. 10,233/2001.


According to article 8 of Federal Law No. 11,079/2004, the government may issue guarantees in relation to PPPs.

Exclusivity in ports has been the subject of a big discussion in Brazil, since the operators that obtained concessions in the public ports with a strict fee policy did not agree that authorisations to operate private ter-minals should be issued freely in their areas, unless restricted to cargo owned by the private port operator. However, since the government wanted to develop the ports and attract investments, since enactment of the Ports Law there have been no restrictions on the type of cargo moved in private terminals. Notwithstanding this, during the course of authorisation procedures ANTAQ makes a public announcement to identify other companies interested in the area.



In order to be able to start construction of the relevant port, the agent must have:• the corresponding environmental licence;• authorisation from the Brazilian navy in relation to navigation

safety and dredging;• authorisation from the Secretary of Union Assets (SPU) (in relation

to the water mirror and beach front areas); and• authorisation from ANTAQ.

Additionally, local authorities might impose some requirements, depending on the location of the port. Usually the environmental licences are the bottleneck, and can take from one to three years for greenfield developments. Hence, it is difficult to estimate a term for obtaining approvals.


Yes, but mostly in relation to public ports. For public ports, the govern-ment must provide hinterland access, quay construction or maintenance and dredging. As mentioned above, where the federal government is responsible for providing the port access infrastructure it can delegate through concessions to the private sector. Usually the public ports have already built their infrastructure.

Dredging work and maintenance have been a specific point of con-tention, since most Brazilian ports do not meet international draught standards. Therefore, in 2012 the federal government launched the National Programme for Port and Waterway Dredging II (PND II), which is part of the PIL. PND II provides for a 3.8 billion reais invest-ment in maintenance dredging of the public ports of the country over the next 10 years.

For new private ports, the government is responsible only for pub-lic transportation in the area. Any specific road or quay construction or dredging must be carried out by the port operator.


There is no specific construction standard, but the port operator must follow the requirements made by all of the several authorities involved in licensing the port construction, among which are: • Federal Revenue (in relation to the terminal customs area); • federal or state environmental entity (as per environmental

licensing); • Engineering and Architects Council (CREA); • Brazilian Committee of Construction and the Brazilian Association

of Technical Standards;• Labor Ministry (in relation to the Regulatory Standards for Safety);• the municipal authority (in relation to any local restrictions); • the SPU (in relation to any reclamation, dredging or works on water);• the port captaincy (in relation to the access channels, berths and

manoeuvring areas); and• the port authority (in relation to the public ports).

The operators of private terminals are allowed to engage any contrac-tor they wish; however, the operators of public ports must observe bid-ding requirements.


In this regard it is important to highlight once again Law No. 8,666/1993, concerning bidding processes. This law sets some remedies that are available in the event of construction delays, such as the application of penalties, financial compensation or even the entitlement to termi-nate the contract. It also provides that, in the event of defects, the agent might be obliged to repair and take the necessary steps to correct them.

Port operations


The environmental licensing process has a three-step licence structure: previous licence, installation licence (to start building) and operational licence (to start operation). The authorisations issued by ANTAQ and SEP to operate private ports are also divided into a two-step licensing procedure: installation licence and operational licence.

Further, ports shall further be authorised by the National Agency of Petroleum, Natural Gas and Biofuels if handling any substances under their competence. Other licences from the fire department, the port captaincy (in relation to signalling and lights), the Committee


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of Public Safety in Ports (when applicable) and other authorities may be necessary.

It is very hard to estimate the timing for obtaining such approvals, as each project has its specific requirements.


The main responsibilities of the port operator are provided for under Law No. 12,815/201 in article 2, XII, which defines the port operator as the pre-qualified legal person to exercise the passenger handling activi-ties or movement and storage of goods to or by water transport within the organised port area.

Furthermore, the port authority is precisely the administrator of the port, as defined by article 17, paragraph 1 of Law No. 12.815/2013. This same article, as well as article 18, lists the main responsibilities of the port authority, such as to comply with the applicable legislation, to pre-qualify operators, to supervise construction works and port operations, to promote the removal of vessels and hulls, to authorise the entry and exit, docking and undocking of vessels, to report infractions and to act before ANTAQ, among others.

In each public port, there are fees payable to the Port Authority, usually related to the use of the public infrastructure (access channels etc). Usually those are charged by the port operator to the customer and then transferred to the port authority.

In the private ports the port operator and the port authority are the same company or entity.


In relation to terminals in public port areas, access to the hinterland is the government’s responsibility. With regard to private ports, the opera-tor must perform construction, renovation, expansion and improve-ment activities for its regular operation, including necessary access and connection to public roads and railways, as per article 4, section V(b) of ANTAQ Resolution No. 3,290.


The port authority must oversee the agreements and compliance with them, any authorisations and the implementation of concessions. Also, as provided by article 17, X, of Law No. 12,815/2013, the port authority may suspend port operations that may harm the port infrastructure or its operation.


This scenario is provided for by article 32 of Law No. 8,987/1995, which sets the circumstances in which the authority may intervene in the con-cession in order to assure the appropriate performance of the service and the due observance of the applicable rules. Such intervention shall be made through decree. In addition, the public authority may intervene on behalf of the public interest upon prior payment of compensation.

Further, article 7 of the Ports Law allows ANTAQ to regulate the exceptional use by any interested party of port facilities leased or oper-ated by a private concessionaire, under the condition of ensuring ade-quate compensation.


If the port operator fails to operate and maintain the port as agreed, the port authority may take over the port operations and terminate the agreement early, and may also apply the corresponding penalties. The penalties are set forth in Law No. 12,815/2013, article 47: warning, fine, prohibition of access to the port area and suspension or cancellation of the concession, lease or agreement with the port operator and prohi-bition to contract with any public entity. As per Resolution 3,274 from ANTAQ, the fines can reach up to 1 million reais.

ANTAQ may also apply, separately or jointly, the sanctions estab-lished in Federal Law No. 10,233/2001, which include penalties to the individual officers of the port operator.


As determined by article 5, paragraph 2 of Law No. 12,815/2013, at the end of the term of the contract, the assets linked to the concessions or leased must be transferred to the Federal Union, without any compen-sation. However, compensation will be due in relation to investments related to the reversible assets not yet amortised or depreciated which were made aiming at the continuity of the services provided, in accord-ance with article 36 of Law No. 8.987/1995.

Miscellaneous


There is no requirement for a private port operator to be incorporated under an SPV, although such structure is permitted. As mentioned above, the SPV is a requirement only if the port operator is a PPP.

For the lease of areas in public ports, there is a requirement to incor-porate an SPV, as per ANTAQ Normative Resolution No. 07.

However, in any case, the port operator of either a public port or a private port must be incorporated under Brazilian law and headquar-tered in Brazil.


Article 30 of ANTAQ Resolution 3,290 states that authorisation to oper-ate a private port may only be transferred with prior authorisation from ANTAQ. However, the change in control of the port operator is free, pro-vided the same is notified to the authority within 30 days after the act.

In the case of areas within a public port, either through concession or lease, any transference or change in control may only be carried out in accordance with the provisions set out by the authority under the con-cession contract or lease agreement, as the case may be.


The port operator may grant as security its receivables under the conces-sion contract, as provided in article 28 of Federal Law No. 8,987/1995. However, the security may not impair the operations and continuity of port services and the following obligations provided under the men-tioned article must be observed:• registration of the assignment agreement with the Registry of

Deeds and Documents;• notification to the government;• the receivables must be transferred to the lender, irrespective of

any additional formality; and

Update and trends

The federal government started a review procedure of the rules related to the port industry aiming at facilitating and reducing obstacles to investments in the sector, as well as enhancing the effectiveness of Law No. 12,815/2013 (the new Ports Law). In this sense, a new ordinance is expected to be published creating a group that will be in charge of defining the changes to be adopted, com-posed of members of ANTAQ and the Ministry of Transport. One of the biggest complaints in the sector is the limit of 25 per cent for expansion of areas of private use terminals and this might be one of the objects of this review and update.

Hence, it can be seen that there is a movement towards the ideal of facilitating investment and the growth of the sector.




• the contract must provide for the transference of the balance of rev-enues to the port operator when its credits are paid.

Brazilian port authorities usually agree to enter into agreements with banks. The Brazilian National Bank for Economic and Social Development has financed most of the port investments in the country and estimates that it will invest around 2.8 billion reais in the port sector between now and 2020.


Decree No. 8,033/2013, which regulates Law No. 12,815/2013, provides for the circumstances which may give cause to the termination of the contract, such as expiry of the term of the contract, bankruptcy and breach of contractual terms. Additionally, any cause that might lead to the termination of the agreement must already be indicated in the wording of the agreement itself.

In relation to modifications, article 50 IX of Federal Law No. 12,815/2013 expressly provides that any provision related to possible modification of concessions or lease agreements shall be foreseen in the corresponding agreements, in order to avoid a new bidding procedure. In relation to contracts for the operation of private terminals, in practi-cal terms any modification results in the same proceedings adopted for issuing of a new contract.


In the event of a breach of the agreement entered into between the gov-ernment or port authority and the operator, the party becomes entitled to terminate the contract or to apply the corresponding penalties, in accordance with the terms of the agreement and Ports Law, regulated by ANTAQ and SEP resolutions.


Yes. It is not possible to have a PPP agreement subject to the laws of a foreign jurisdiction, in accordance with Law No. 11,709/2004.


Disputes at an administrative level, concerning organised ports, and disputes between the government or port authority and the operator, are settled before ANTAQ, as determined by Decree 8,003/2013.

Article 11 III of Federal Law No. 11,079/2004 expressly allows for the choice of arbitration to settle disputes under the PPP agreements.

Decree 8,465/2015 sets forth rules for the application of arbitration in port conflicts involving on one side the public administration and on the other the concessionaire or port operator, provided the disputes are related to the payment of fees or other patrimonial disputes.

Godofredo Mendes Vianna [email protected] Juliana Pizzolato Furtado Senna [email protected]

Av. Rio Branco25, 1º, 2º e 15º andares CentroRio de Janeiro, RJBrazil

Tel: +55 21 22766200Fax: +55 21 22534259www.kincaid.com.br


CANADA Bull, Housser & Tupper LLP


CanadaShelley Chapelski and Greg LewisBull, Housser & Tupper LLP

General


Canada has 18 major ports and the most significant are:• Port Metro Vancouver, which is Canada’s largest port and the third

largest in North America in terms of tonnage (140 million tonnes of cargo in 2014). Its tenants include 27 major marine cargo terminals. It manages over 16,000 hectares of water, over 1,000 hectares of land and about 350 km of shoreline in 16 municipalities. The port handles cargos that include automobiles, break-bulk, bulk and con-tainers, as well as ferries and cruise ships;

• Montreal, which is the leading container port in Eastern Canada and also accommodates liquid bulk and dry bulk cargos. It handles almost 30 million tonnes of cargo annually;

• Prince Rupert, which services containers, coal, grain, wood pellets, forest products, break-bulk and project cargo and cruise ships. It handled over 20 million tonnes of cargo in 2014 and is the future site of several potential liquefied natural gas facilities, potash and other bulk cargo terminal projects; and

• Halifax, which is Canada’s fourth largest port as measured by con-tainer volume. It also manages breakbulk, ro-ro and bulk cargos. 2014 statistics show port-wide cargo was 7.8 million tonnage.


Canada’s major ports are known as port authorities (CPAs) and were converted from Federal Crown Corporations to CPAs in 1999 pursuant to the federal statute, the Canada Marine Act (CMA) (http://laws-lois.justice.gc.ca/PDF/C-6.7.pdf ). There are 18 CPAs in Canada. The gov-ernment of Canada is the sole shareholder of each CPA and they are intended to manage Canada’s major ports for the benefit of its citizens. The CPAs operate as autonomous businesses with boards of directors appointed from the private sector and federal, provincial and munici-pal governments.

There are also many regional ports and dozens of small craft har-bours that are owned by the federal government and either operated by Transport Canada or have been leased to municipalities or not for profit corporations. They primarily service Canada’s fishing fleet and domestic marine traffic. The answers in this chapter do not include regional ports or small craft harbours unless otherwise noted.


Although owned by the federal government, each CPA is autonomous and governed by a board of directors nominated by port user groups and various levels of government with the object of implementing ‘user-pay-user-say’ principles within the port system. With respect to carrying out their harbour management roles, CPAs are run on a cost recovery basis implementing sound business principles and have the authority and flexibility to determine strategic direction and make com-mercial decisions. CPAs set their own fees (eg, berthage and wharfage), but such fees must be fair and reasonable. CPAs are also responsible for

the maintenance of commercial shipping channels, and in this regard finance their own dredging requirements. CPAs are mandated to set commercial, ‘market’ rates for land tenures, including those provided for terminal development.


CPAs are required by the CMA and its regulations to consider social and environmental impacts in the context of port developments or opera-tions. All CPAs include consideration of environmental sustainability as a core element of their mission. The major CPAs participate in Green Marine, which is a ‘voluntary environmental certification program for the North American marine industry’ (see www.green-marine.org).



The operation of the CPAs and framework for port development is gov-erned by the CMA and its regulations, the Port Authorities Operations Regulations (http://laws-lois.justice.gc.ca/PDF/SOR-2000-55.pdf ) and the Port Authorities Management Regulations (http://laws-lois.justice.gc.ca/PDF/SOR-99-101.pdf ). Each CPA also has a letters pat-ent and by-laws, and has the ability to establish rules and practices and procedures applicable within lands and water under CPA jurisdiction. CPAs are also subject to the Canadian Environmental Assessment Act 2012 (CEAA 2012) (http://laws-lois.justice.gc.ca/PDF/C-15.21.pdf ) and are required by section 67 of the Act to carry out an environmental assessment where the project does not trigger the requirement for a federally run environmental assessment.


A CPA operates on an autonomous basis limited by the CMA and its respective letters patent and by-laws. In addition to CPAs, other authorities with jurisdiction relating to port activities include Transport Canada (for example, for port state control, marine safety and approval of works with the potential to impact navigation), the Department of Fisheries and Oceans, Canadian Coast Guard – Vessel Traffic Services and the relevant regional pilotage authority.


The CPAs plan and help to develop port projects to best serve the Canadian public now and in the future. They manage marine and land traffic on their premises and operate any port facilities that they directly own. They are responsible for the safety and security of the lands and water within their port, and permitting and approval of all proposed projects on port lands. They lead environmental reviews for projects on port lands that are not designated projects under the CEAA 2012. CPAs also operate as landlords to privately owned terminals and marine operations operating in the port, or may develop and operate terminals and marine infrastructure on their own.


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The harbourmaster is typically a senior level manager within a CPA and is either a member of, or reports to, the executive team of the CPA and ultimately its CEO.


No.


Each CPA has its own tariffs and fees for port users, which are generally collected through the CPA’s tenants on behalf of the CPA or directly from vessels. Port fees and tariffs are subject to review for appropri-ateness pursuant to the Canada Transportation Act (http://laws-lois.justice.gc.ca/PDF/C-10.4.pdf ), or in some cases the validity of fees or tariffs may be reviewed by the Federal Court.


CPAs are subject to a ‘public good’ mandate under the CMA and must endeavour to achieve certain national and regional objectives support-ing economic and social benefits for the Canadian public. A CPA can seek to satisfy its obligations by contracting with private parties.


There are no limitations on the participation of foreign state entities in port developments. Typical involvement by a foreign government includes development and operation of ferry services from Canada to the United States.

Although CPAs must be owned solely by the federal government of Canada, Canada has been transferring the ownership or operation of regional port facilities and small craft harbours to interested Canadian parties since 1995.

The Ports Asset Transfer Program (www.tc.gc.ca/eng/programs/ports-asset-transfer-program-2979.html) aims to sell or divest certain small Transport Canada-owned port facilities (this does not include assets under the jurisdiction of CPAs) to ‘interested parties’, which are identified as other federal departments, provincial and municipal gov-ernments, and aboriginal communities and other interested parties. If none of the foregoing show interest then the eligible candidates are pri-vate citizens, industry, non-government organisations and CPAs.

13 Are there restrictions on foreign participation in port projects? Subject to Canadian laws in general with respect to foreign investment, there is no restriction on foreign ownership of tenants operating in CPA ports and participating in port projects.



Canada has adopted policies and provided funding which encourage PPP projects in appropriate circumstances. The legislation and policies governing procurement are general in nature and are not specific to PPPs or ports. Ports are required under the CMA to establish procure-ment policies to ensure transparency and fairness.


CPAs are prohibited from selling lands under their administration unless the CPA has acquired the relevant lands with their own funds and the lands are designated in their letters patent as ‘other than federal

real property’. However, certain regional ports are being divested by Canada through a formal programme under the Port Asset Transfer Program, which is being run through a tender process as described in question 12.

Government policy would generally not support completion of a sale or a PPP arrangement without a competitive procurement process.


CPAs are required by the CMA to charge market rates for rents or concession fees. Subject to this requirement, when conducting a com-petitive procurement process a CPA will also typically consider social, economic and environmental impacts, including the volume and value of goods to be shipped.


Each CPA has its own preferred PPP structure and its own preferred form of contract. The CPA is free to modify its preferred form of con-tractual arrangement as it determines, subject to compliance with the CMA and the letters patent for the CPA.


For a PPP project on the premises of a CPA, generally speaking, only approvals from the CPA are required. If the CPA’s letters patent does not permit participating in a PPP, then a supplemental letters patent would need to be issued to the CPA.


CPAs in Canada have implemented port projects in a number of ways. In some cases, CPAs have developed their own facilities and then entered into operating concessions or leases of the facilities to opera-tors. In most cases, a form of build–operate–transfer or build–own–operate–transfer arrangement (whether via concession agreement or lease) is used.


There is no minimum term for a PPP. If, as is common, the terminal operator is providing material infrastructure investment, the term of the PPP will typically be at least 25 or 30 years, often with rights of renewal. However, the term (including all rights of renewal) cannot be longer than 60 years without approval of the Minister of Transport.

21 On what basis can the term be extended? Subject to the requirement for ministerial approval to exceed total terms of 60 years, CPAs may extend the term of a PPP for a variety of reasons. A fairly common reason to extend the term would be expan-sion plans, with the terminal operator agreeing to invest in exchange for an extension of the term.


CPAs have the autonomy to implement a variety of fee structures. Arrangements between CPAs and their tenants include fixed rents, participation rents, throughput-based rents and port services fees. Indexation is subject to negotiation on a case-by-case basis, but for longer term contracts some form of indexation is typical.


The government does not provide guarantees. Exclusivity is a matter to be negotiated with the CPA but is unlikely to be granted unless it can be shown to be commercially necessary and the CPA determines that on balance granting exclusivity is for the public good.


CANADA Bull, Housser & Tupper LLP




The length of time to obtain approvals for construction will range from weeks to many years depending on the size and scope of the project. Normally the proponent of a construction project must obtain per-mits from the CPA and whichever federal government departments may also regulate the project. In addition, approvals may be required by the Minister of Environment if the project triggers CEAA 2012; Transport Canada under the Navigation Protection Act (http://laws-lois.justice.gc.ca/PDF/N-22.pdf ) for infrastructure built in navigable waters; Environment Canada for disposal at sea; and the Department of Fisheries and Oceans for projects which may impact fish. If there are overlaps with lands or matters under provincial jurisdiction, provincial permits or authorisations may also be required.


The CPA is responsible for port construction that is not related to a specific tenant. To the extent that any tenant-driven construction is performed by the CPA, the CPA may require some form of additional payment (eg, participation rent) to recover its contribution.


The CPA has complete control over its procurement processes (subject to any limits in the CMA or its letters patent) although any federal laws that apply to undertakings on federal lands will also apply.

Depending on the permit terms for construction projects by ten-ants or operators, the CPA may have veto power over the choice of con-tractors to be hired by the tenant or operator.


The usual array of remedies and penalties found in construction con-tracts will be available. There are no additional legislative or other types of remedies applicable to a port project in particular.

Port operations


Approvals for a port project are typically acquired prior to the start of construction. These will be obtained from the CPA, other applicable federal regulatory bodies and in some cases applicable provincial regu-lators. The issuance of these approvals can take from weeks to years depending on the size and complexity of the project and how many regulators are involved.

Once project approvals have been issued, construction has been completed, and any inspections or confirmations required by the project approvals have occurred, the port operator can then com-mence operations.


CPAs provide the services listed in question 6 and also promote the competitiveness of the CPA as compared to other ports and advocate on behalf of the marine industry. The CPA charges fees that are col-lected through its tenants or from vessel owners in the case of har-bour dues.


Access to interconnections by road or rail is handled on a case-by-case basis involving negotiations with the railway line which services the CPA’s premises or the neighbouring municipalities as the case may be. CPAs will typically work to facilitate access, and in some cases may contractually commit the CPA to additional infrastructure investment, subject to whatever arrangements the CPA and the terminal operator make for cost recovery by the CPA.


The CPAs manage terminal operations through their contractual arrangements (which focus on land operations) and the CPA’s general by-laws (which focus on marine operations).


If there is a breach of the agreement between the CPA and its tenant, the remedies available to the CPA may permit the CPA to take over operations at that facility. Most CPAs also maintain the ability to re-take terminals and other leased property in the case of a national emer-gency or other public purposes justification.


The remedies are based on the terms of the lease or conces-sion agreement.


Most CPA agreements provide that any improvements to the property revert to the CPA at the end of the lease without any compensation to the operator. The parties may negotiate exceptions to this for improve-ments that either the CPA knows it will want removed, or ones that the operator knows it will want to take.

Miscellaneous


SPVs are neither prohibited nor required. If an SPV is used, the CPA may require guarantees or other security for some or all of the obligations of the operator. Any corporation or partnership operating in Canada must be registered with the corporate registry of the relevant jurisdiction.


Typically the agreement between the CPA and the operator will include restrictions on changes in ownership In addition, changes in ownership may (depending on the size of the transaction and other market factors) require approvals under applicable legislation such as the Competition Act (http://laws-lois.justice.gc.ca/PDF/C-34.pdf ) or the Investment Canada Act (http://laws-lois.justice.gc.ca/PDF/I-21.8.pdf ).

Update and trends

As described in question 12, the Port Asset Transfer Program being implemented by Transport Canada is resulting in the sale and potential privatisation of some of Canada’s small regional ports.

Recent amendments to the CMA ensure that CPAs may buy, mortgage and sell land which is designated ‘other than federal real property’ and the federal government may delegate by regulation the administration and regulation of specific CPA undertakings to other bodies such as the provinces or even the CPA itself. See http://laws-lois.justice.gc.ca/eng/AnnualStatutes/2014_39/ sec-tions 228–230.


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This will be governed by the agreement between the CPA and the operator. Typically, the operator will be permitted to grant security over its contractual rights. Direct agreements are very common, and will include provisions such as notice between the CPA and the lend-ers of any defaults under either the operator’s agreement with the CPA or the lending agreements, stand-still and step-in rights and other enforcement-related provisions. The CPA will typically preserve the same approval rights on any enforcement action by the lenders as have been negotiated under the agreement with the operator.


This is governed by ordinary contract law and can only be overrid-den under extreme circumstances for national security or public pur-poses reasons.


The same contractual remedies that any private party would have, which could include termination, eviction or damages.


There is no statutory requirement for this, but it is typically the case.


The PPP contract, lease or concession contract would typically con-tain dispute resolution provisions, which could include negotiations between senior officers, referee processes, mediation or arbitration. If not, or if the contractually agreed dispute resolution processes do not resolve the dispute, the parties will need to resolve their dispute through litigation.

Shelley Chapelski [email protected] Greg Lewis [email protected]

1800–510 West Georgia StreetVancouverBC V6B 0M3Canada

Tel: +1 604 687 6575Fax: +1 604 641 4949www.bht.com


CHINA Holman Fenwick Willan LLP


ChinaConnie Chen and Joyce FongHolman Fenwick Willan LLP

General


Port facilities in China are grouped into five regions based on their geographical locations: Bohai Rim Region (main ports: Dalian Tianjin and Qingdao); Yangtze River Delta Group (main ports: Shanghai and Ningbo); South East Region, Pearl River Delta Group (main ports: Shenzhen, Guangzhou and Xiamen); and South West Region.

These ports are classified into eight logistics networks based on the types of cargo. These are: coal, crude oil, iron ore, container, grain, automotive, ro-ro and passenger terminals.

The top seven ports in China as at the end of 2015 are Ningbo-Zhoushan, Shanghai, Tianjin, Suzhou, Guangzhou, Tangshan and Qingdao, accounting for 70 per cent of the top 10 ports in the world.

The primary purposes of the ports are to provide import and export, domestic trade and transhipment services.

In recent years, cruise terminals have become an important aspect of port development in China. The top cruise ports in China are Wusong Port in Shanghai, Tianjin, Xiamen and Sanya.


Since the 1980s, the port industry in China has undergone signifi-cant reforms.

Before the 1980s, ports in China were centrally owned and admin-istered by the Ministry of Transport.

After 1984, all major ports were transferred to a ‘dual administra-tion’ system. In this system, the Ministry of Transport and the local governments were jointly responsible for the administration of ports. The Ministry of Transport retained the macro-controlling power of for-mulating port laws, regulations, policies and development plans at the national level, while local governments (through their designated port authorities) assumed the functions of port regulations, policies, plan-ning, construction and operations in their respective municipalities.

In the early 2000s, another reform was implemented resulting in the decentralisation of the port industry in China. Following a notice from the State Council in 2001, 38 major ports under dual administra-tion were transferred to the corresponding local governments. The previous port authorities were split into two arms: administration and commercial. The administrative functions were transferred to the local port administration bureaus established by the relevant local govern-ments, and the local port corporations retained business and assets of their predecessors and assumed responsibilities for port operations. Since decentralisation, the Ministry of Transport still deals with regula-tion and planning matters that are of national and regional significance. The implementation of port planning and regulation enforcement is carried out by individual local port administration bureaus.

The public-private joint venture model has become the dominant model for involving the private sector in the construction and opera-tion of ports in China. Under this model, the local state-owned port corporation enters into a joint venture with the private investors (either local Chinese or foreign companies) to jointly develop, construct and manage a specific port project. Such a PPP model is unique to China,

as governments in other jurisdictions usually sell, license or lease the development or operating rights to the private sector for a fixed dura-tion rather than entering into a joint venture with the private sector.

A number of local port corporations went public by reorganising their terminal assets and listing them on the stock exchanges. This includes the listing of Shanghai International Port (Group) Co Ltd in 2006 and Ningbo Port Co Ltd on the Shanghai Stock Exchange in 2010, and the Qingdao Port International Co Ltd on the Hong Kong Stock Exchange in 2014.


Port development is highly regulated in China. The Ministry of Transport in Beijing is responsible for the overall port planning at the national level, and the local governments are responsible for the planning and implementation of ports in their respective municipali-ties. The most recent overall plan for port development in China is set out in the National Plan for Coastal Port Layout issued by the Ministry of Transport on 16 August 2006. Under this plan, port facilities in China are grouped into five regions and eight logistics networks (see question 1).

In addition, the Ministry of Transport issues a development plan for the transportation industry every five years (the Five-Year Plan). In the 13th Five-Year Plan (2016–2020), the focus areas are coordination of traffic and transportation, safety and emergency response, transpor-tation services, construction and maintenance, exchange of informa-tion and data, environmental protection and energy saving.


China has seven of the world’s busiest container ports. These ports serve as the engines of China’s economic growth, but they also bring heavy pollution to the cities.

In recent years, the Chinese government has taken a number of major steps to control shipping pollution.

Under China’s 12th Five-Year Plan (2011–2015), the Chinese gov-ernment set a number of national targets for reducing energy consump-tion and carbon dioxide emission. These targets, however, were not achieved. The 13th Five-Year Plan (2016–2020) continues to commit to green transportation development with further recommendations.

In August 2015, the National People’s Congress passed a number of amendments to China’s Air Pollution Prevention and Control Law (Air Pollution Law). The amended law laid a clear foundation for the government, in particular, the Ministry of Transport, to tackle ship-ping emissions.

Shortly after the amended Air Pollution Law, the Ministry of Transport published the Specialised Action Plan for Ship and Port Pollution Prevention and Control (2015–2020), a five-year plan that aims to reduce sulphur and nitrogen oxide emission by up to 65 per cent in some of China’s major ports. The action plan includes specific goals and timetables for setting up of emission control zones (ECZ) around key port regions, promotion of shore power use for ships at berth, replacement of container trucks with LNG powered trucks, development of LNG bunkering stations, and research and develop-ment of LNG powered vessels. Following the Specialised Action Plan, a new regulation was implemented which designated the Pearl River


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Delta, Yangtze River Delta and Bohai-rim Water as domestic ECZs. From 1 January 2017, ships berthing at the key ports in ECZs must use fuel with a sulphur content not exceeding 0.5 per cent. This is gradually increased to all ports within ECZs from 2018 and then all areas within the ECZs from 2019.



There is a comprehensive legislative framework in China governing the planning, development, management and operation of ports in China. Key legislation includes the PRC Law on Ports, the Administration Provisions on Ports Planning, the Provisions on Completion and Acceptance of Port Construction and the Administration Provisions on Port Operation and Management. Other PRC laws and regulations on project approval, foreign investment, land use rights, sea area use rights, coast line use rights, environmental protection and sea environ-ment protection also contain important legislative provisions.


Yes, the Ministry of Transport in Beijing is responsible for port plan-ning and regulations that are of national and regional significance.

The local port administration bureaus are in charge of port plan-ning and regulations that are of local nature.

The local port corporations exercise commercial functions and are responsible for the construction and operation of local port facilities.


The key competencies and powers of the Ministry of Transport include planning, formulating policies, guidelines and legislations, managing marine safety and security, providing emergency response and giving industry opinions on infrastructure investment project approvals at the national and regional levels.

The local port administration bureaus are primarily responsible for the overall planning; formulation of policies, guidelines and legisla-tion; administration of coastline, land and water areas; and provision of emergency response at the local level.

The local port corporations are responsible for the commercial construction and operation of local port facilities.


There is no harbourmaster for ports in China. The duties of a harbour-master are carried out by the local port administration bureaus.


The PRC Anti-monopoly Law and its implementation regulations are the main national competition rules in China. Other relevant laws and regulations include the PRC Pricing Law, the PRC Anti-Unfair Competition Law and the Guidelines on Merger Filing of Acquisition of Domestic Companies by Foreign Investors.


As the country’s container volume has slowed due to reduced global demand, the Chinese government has introduced a number of meas-ures to simplify the tariff system. Forty-five types of port charges have been streamlined into 18 types, and 35 items of stevedoring service charges have been consolidated into one. The new 2016 Measures for Collection and Calculation of Tariffs further deregulate the tar-iff system by classifying the tariffs into three categories: Government Fixed Tariffs, Government Guided Tariffs and Market Driven Tariffs. Government Fixed Tariffs include port dues, port security fees and domestic passenger and cruise tariffs. Government Guided Tariffs include pilotage, towage and barge tariffs. Tariffs collected by relevant service providers cannot exceed the cap set for Government Guided Tariffs. Market Driven Tariffs include stevedoring fees, storage and

depot stations charges. They are set by the operators based on mar-ket demand.


The local governments in China are responsible for ensuring that the construction of roads and rails and the provision of utilities are compat-ible with the master port planning in their respective localities. They usually carry out these obligations through their relevant subsidiaries or subcontract some of the obligations to private subcontractors.


Joint ventures between local state-owned port corporations and one or more private companies are the predominant model for Chinese or foreign private port operators to participate in the development and operation of port facilities in China. There is no legal require-ment that state-owned port corporations must hold a majority share-holding in such joint ventures. However, private port investors often decide to allow majority shareholding to the local port corporations to take advantage of the port corporations’ political influence and local connections.

13 Are there restrictions on foreign participation in port projects? Foreign investors are permitted to participate in the development, construction and operation of port facilities in China subject to a number of criteria and approvals. These include the willingness of a local port corporation to enter into a joint venture with the particular foreign investor, approval from the Ministry of Commerce or its local branch on foreign participation, and project approval from the National Development and Reform Commission or its local branch. The estab-lishment and operation of the joint venture company must also comply with the requirements under the relevant PRC laws and regulations, the main ones being the PRC Company Law, the Sino-foreign Equity Joint Venture Law and their implementation regulations.



There are general procurement laws that must be followed by Chinese government authorities. In particular, prescribed tender procedures must be followed for construction projects involving funding from the Chinese government, financing or assistance granted by interna-tional organisations or foreign governments, or large public infrastruc-ture facilities.

The Chinese government also recently issued the Administrative Measures for Concessions for Infrastructure Facilities and Public Utilities Projects (June 2015) which set out certain concession models (such as build–operate–transfer (BOT), build–own–operate–transfer (BOOT) and build–transfer) that may be adopted by a government for the construction and operation of infrastructure facilities and pub-lic utilities.


In China, port construction and operation projects are led by local port corporations. Reputable, qualified and suitable private investors are invited to participate in a port project in the form of a joint venture. Such a project is not subject to any formal tender process. However, a private port investor must demonstrate to the relevant local port corpo-ration that it is the most suitable joint venture partner for the particular project (also see question 16).


The criteria often used by a local port corporation in awarding a port joint venture agreement to a private investor include:




• previous international port construction, management and opera-tion experience;

• financial capability, reputation and creditworthiness; and• the ability to increase throughput and access to the customer base.

Political connections and local relationships are also important.


There is no model joint venture agreement that is used for port pro-jects in China. However, most port joint venture transactions follow a similar format. Common transaction documents for a PPP joint ven-ture include:• a joint venture agreement which sets out the terms and conditions

governing the rights and obligations of each participant to the joint venture;

• the articles of association setting out the management and the cor-porate governance of the joint venture;

• a lease agreement for the lease of any port facilities to the joint ven-ture; and

• an asset transfer agreement for the transfer of any port assets to the joint venture.

The terms of these transaction documents are negotiated between the relevant local port corporation and the private investors.


For a joint venture involving foreign participants, the main govern-ment approvals and registrations include approval from the National Development and Reform Commission, the Ministry of Commerce, the State-owned Asset Supervision and Administration Commission, the State Administration of Foreign Exchange and the State Administration for Industry and Commerce, or their respective local branches.

No specific law is required to be passed for the implementation of a port PPP agreement in China.


Port privatisation in China is typically implemented on a partial BOT basis. Local port corporations usually take responsibility for the con-struction of both the infrastructure facilities (such as the breakwaters, navigational aids, approach channels, quay walls, wharves and con-tainer yards) and the superstructure, and then transfer them to the joint venture company for management and operation for the dura-tion of the joint venture term. Sometimes the joint venture companies are also given the right to construct the superstructure. At the end of the joint venture term, the land, the infrastructure facilities and all fixtures attached to the land are transferred back to the government. The moveable assets are distributed to the joint venture partners in proportion to their equity ratios after settling all outstanding liabilities of the company.


The maximum term for port PPPs in China is 50 years. The average term is between 30 and 50 years.

21 On what basis can the term be extended? The term can be extended subject to agreement from the local port corporations and approval from the relevant government authorities.


A private port investor will be required to make a capital contribution (usually in cash) in proportion to the ratio of its equity interest in the joint venture company. The cash capital contributions will then be used to pay the local port corporation for the value of the port facilities built, leased or transferred by the local port corporation and to the govern-ment for the right to use the land, sea area and coastline. The value

of these facilities and rights must be determined by a qualified valua-tion institute and approved by the State-owned Asset Supervision and Administration Commission (or its local delegate).


The local port corporations usually do not grant any exclusivity to pri-vate port investors. Sometimes they may agree to give the private port investors the first right of refusal to participate in future port projects within the specified geographic region and duration.



There are a number of government approvals that must be obtained before construction works are permitted to commence at a relevant port. The main approvals are:• pre-project approvals, including approvals for the commencement

of the preliminary works, the project location, environment protec-tion, sea environmental protection, the use of land, sea area and coastline, safety and energy saving;

• project approval, including feasibility study report; and• approval for the design and construction works.

The time that it takes to obtain these approvals varies, depending on government policies, overall port planning, the relationship between the relevant local port corporation and the government (at both central and local levels), and the demand and supply for port capacity at the relevant time.


The local government and its relevant departments are responsible for the construction of public facilities such as road and rail consistent with the overall port planning. The relevant local port corporation usually undertakes the construction of the port infrastructure (eg, dredging, land reclamation, quay walls and wharves). The superstructure is usu-ally undertaken by the local port corporation, but sometimes also by the joint venture operating company.


The construction of port facilities must adhere to the requirements set out in the PRC Construction Law, the Administrative Regulations on Construction of Ports and other relevant laws, regulations and industry standards. Contractors may be engaged to carry out certain aspects of the construction works, but these contractors must satisfy the required qualifications, skill and capital requirements.


The responsible construction companies or contractors are required to give warranty on the quality of the construction works during the specified or agreed warranty period. They will be required to rectify any defect and pay for any damages caused. In some cases, fines will be imposed and the responsible company or contractor may be ordered to suspend its business, or have its qualification downgraded or revoked.

Port operations


Once the construction works have been completed, inspected and accepted, the main government approvals and registrations required for a port operator to commence operation at a relevant port are:• approval from the Ministry of Commerce or its local branch (for

any foreign investment in the project);


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• approval from the State-owned Asset Supervision and Administration Bureau or its local branch (for transactions involv-ing state-owned assets);

• foreign exchange approval; and• issuance of the business licence and the port operating permit.

The time that it takes to obtain these approvals varies, typically ranging from a few months to two to three years, depending on the speed of negotiations between the local port corporation and the joint venture partners, government policies, and the demand and supply for port capacity at the time.


A joint venture port operating company typically provides loading and unloading, storage, transhipment and warehousing services. The local port administration bureau generally provides pilotage, towage, berth-ing, vessel shifting and other relevant administrative services through the relevant subsidiaries and charge for such services in accordance with the statutory rates set out in the relevant port charge regulations.


The local port corporations are generally reluctant to give any com-mitments in relation to access to hinterland. In situations where a local port corporation leases or transfers the completed port facilities to a joint venture company for operation, the local port corporation may sometimes agree to guarantee that the port is connected to paved and well-maintained roads and railways at the time of the lease or transfer.


The requirements on port operations are set out in the PRC Administration Regulations for Port Operation and other relevant PRC laws and regulations. A port operator is required to apply for a port operating permit by submitting an application together with relevant supporting documents to the local port administration bureau. The port administration bureau will only issue the port operating permit if it is satisfied that the port operator satisfies all of the requirements. The local port administration bureau also conducts inspection from time to time, including interviewing employees, and inspecting and photocopying relevant information. A port operating permit may be suspended or revoked if a port operator ceases to satisfy any of the conditions set out in the regulations or the permit conditions, including

refusal to give priority to emergency response or failure to comply with the safety requirements.


The local port administration bureaus may access the port area to conduct inspection of port operations from time to time, and may sus-pend or revoke a port operating permit if the operations fail to satisfy the conditions set out in the relevant regulations or permit conditions. The local port administration bureau does not usually take over port operations. If there is any concern, it is likely to raise the issues and discuss them with the relevant local port corporation, which is also a shareholder of the joint venture operating company.


See question 31.


All land in China is owned by the state. A port operator only has the right to use the land for the duration of the land use right certificate. At the end of the joint venture term (which often coincides with the expi-ration of the land use right certificate), the land and all improvements and fixtures on the land will be returned back to the government free of charge. All remaining moveable assets will be distributed between the shareholders of the joint venture company in proportion with their shareholding ratios after paying off the outstanding liabilities.

Miscellaneous


A separate port operating company is usually set up for each phase of the port construction and operation project. This port operating com-pany must be incorporated in China.


Transfer of direct ownership interest in a port operating company is subject to the right of first refusal of the other joint venture parties, and approval of the relevant Chinese government authorities. Whether a party has any right to transfer an indirect ownership interest in the port operating company will depend on whether there is any change of con-trol restriction in the joint venture contract.

Update and trends

On 3 September 2016, the Chinese government adopted significant amendments to China’s wholly foreign-owned enterprise law and the Sino-foreign joint venture law. The existing examination and approval regime applicable to most foreign investment enterprises (FIE) has been replaced with the filing regime, as long as the industry in which an FIE engages is not subject to the national market access restrictions. This change has fundamentally changed the way in which a foreign investment regime has operated in China for the past three decades and brings China one step closer to having a foreign investment regime similar to other counterpart Western jurisdictions. (It is noted that the implementation rules associated with the new foreign investment regime will have a significant impact on the government approval pro-cedures for port operators outlined in the preceding paragraphs of this chapter.)

Since the financial crisis in 2008, the international shipping industry has had a tough time. In an effort to consolidate state-owned enterprises and to control losses resulting from overcapacity in the market, the port industry in China is undergoing unprecedented restructuring.

Leading the way is the merger of two Chinese shipping giants. The COSCO-China Shipping merger will create the fourth largest

line globally (COSCO Container Lines), the second largest oil and gas transportation company (China Shipping Development), the world’s highest throughput port operator (COSCO Pacific) and a newly trans-formed financial services and shipping leasing business (CSCL). The merger will eliminate irrational competition between the two Chinese shipping giants and create greater economies of scale to ride out the tough market conditions.

Domestically, consolidations are taking place between regional rivals as stifling competition threatens to destroy profits at a time of slowing global trade and overcapacity. Ningbo Port and Zhoushan Port completed their merger in August 2016, taking over Shanghai as the busiest port in China. Hebei Port and Tianjin Port also signed a frame-work agreement on 29 December 2015 to jointly develop a number of multi-purpose berths in Tianjin Province and Hebei Province.

Port safety is at the top of the agenda for the governing authority. The massive ‘8.12’ industrial explosions that tore through the Port of Tianjin have had a profound effect in the city and the country. There were serious concerns over the inadequate safety standards in China’s port operation following three decades of fast economic growth. The incident will have a significant impact on the standard of port safety and lead to a tougher enforcement regime.





It is highly unusual for a shareholder of a port operating company to grant security interest over its equity interest in the joint venture com-pany. This is because it is difficult for a secured party to enforce the security interest when any transfer of equity interest in the joint venture company is subject to the right of first refusal of the other joint venture parties and approval of the relevant Chinese government authorities. A private port investor often makes a cash contribution to the joint ven-ture company and funds this cash contribution through internal cash flow or financing at the parent company level.

The local port administration bureaus are in charge of local port planning and regulatory matters. They do not get involved with the operational matters of a joint venture company and do not enter into any direct agreement with the project finance banks.


A joint venture contract for the construction and operation of a port facility may only be varied by written agreement between the joint venture parties and approval of the relevant Chinese govern-ment authorities.

A joint venture contract may be terminated early on the grounds set out in the joint venture contract or pursuant to relevant Chinese laws and regulations. These include a prolonged event of force majeure; breach by a joint venture party; unprofitable operation (sub-ject to materiality or otherwise agreed threshold); nationalisation

of the operating company’s substantial assets; or a change in foreign exchange law which prevents the remittance of profit distribution by a foreign investor.


A breach of contract by a private investor will entitle the local port cor-poration and other joint venture parties to claim for damages, enforce the compulsory acquisition clause or terminate the joint venture early.


A port joint venture agreement is required to be governed by Chinese law.


A dispute between a local port corporation and a foreign port investor is often settled through international arbitration. The parties are encour-aged to first settle the dispute through friendly consultations before submitting it to arbitration.

Dispute resolution by foreign courts is not recommended due to the difficulty in enforcing a foreign court judgement in China.

Dispute resolution by local Chinese courts is also not recom-mended due to the perceived lack of independence of the Chinese judiciary from other branches of the Chinese government, the varying quality of Chinese judges, incidents of corruption and regional protec-tionism (particularly where the interests of state-owned companies and hence Chinese state or public interests are implicated).

Connie Chen [email protected] Joyce Fong [email protected]

1 Bligh StSydney NSW 2000Australia

Tel: +61 2 9320 4600Fax: +61 2 9320 4666www.hfw.com


Law Firm Vukić & Partners Ltd CROATIA


CroatiaMaja Dotlić and Gordan StankovićLaw Firm Vukić & Partners Ltd

General


The key public ports in Croatia are the ports of Rijeka, Zadar, Šibenik, Split, Ploče and Dubrovnik.

The port of Rijeka is the largest Croatian cargo port. It is positioned on the Northern Adriatic, where the Mediterranean Sea goes furthest north into the European continent. The port offers a very convenient sea route from Europe to the Middle and Far East, with transit times as much as seven days shorter compared with Baltic and Northern Sea ports. The port of Rijeka comprises a container terminal, liquid cargo (crude oil and derivatives) terminal, ro-ro terminal, cereal terminal, multi-purpose terminal, and terminals for general cargo, bulk cargo, timber and conditioned cargo, as well as a passenger and ferry termi-nal. The port’s primary purpose is as a gateway to Croatia, Hungary, Austria, the Czech Republic, Slovakia, Serbia, Bosnia and Herzegovina, west Ukraine, south Poland and south Germany.

The port of Ploče – the second largest Croatian cargo port – now serves as the main gateway to Bosnia and Herzegovina and is conveni-ently located at the southern terminus of Transport Corridor Vc, one of the three major pan-European transport corridors linking Croatia and EU markets. The port comprises terminals used for general cargo, bulk cargo, liquid cargo, grain, containers, slag, alumina and petcocks.

The port of Split, located in the Central Adriatic, is the largest Croatian passenger port and one of the busiest passenger ports on the entire Adriatic coast. In recent years it has gained importance as a cargo port, with facilities for general cargo, bulk cargo, conditioned cargo, special and heavy cargo and, to a limited extent, containers.

The port of Zadar (Central Adriatic) primarily operates as pas-senger port and continues to develop in that direction, with a focus on mega cruisers, ferry traffic and ro-ro traffic. The port also comprises the facilities to handle liquid, bulk and general cargo, and is very well con-nected to the hinterland with direct highway and railway connections.

The port of Šibenik (Central Adriatic) comprises a passenger ter-minal, a terminal for transhipment of phosphate, bulk and general cargo terminal and timber terminal. The development plans envisage the specialisation of the port for boutique ships and mega yachts.

The town of Dubrovnik, at the southernmost part of Croatia, is a world-renowned tourist location and is predominantly a cruise ship port. In addition to mega cruisers, the port receives passenger ferries on regular routes between Croatian and Italian ports.


In the late 1990s and early 2000s, the Croatian government initiated a number of steps to reform port operations, including adopting a new seaports law, creating landlord port authorities and initiating port concessions. The port enterprises that, during the socialist era, were ‘socially owned’ and in charge of the overall port business (manage-ment, investments and operations), have undergone transformation mostly into state-owned companies and, to some extent, companies owned by a number of small shareholders (mostly employees). These companies were granted the priority concessions, that is to say, master

concessions to operate the ports. Some of the priority concessions are still in force. Meanwhile, the privatisation process continues mostly by putting up for sale the shares of the port operators and their subsidiary companies as well as by announcing open tenders upon the elapse of priority concessions.

The principal port model in Croatia continues to be the land-lord model.


In July 2014, the Croatian government passed the Strategy of Maritime Development and Integrated Maritime Policy for the period 2014–2020. There are areas of the Strategy that introduce integrated, inno-vative and, to some extent, radical and controversial changes in state port policy, including the specialisation of Croatia’s major ports for certain activities: Rijeka for container traffic and liquid cargo; Ploče for container traffic and bulk cargo; Zadar, Šibenik and Split for ro-ro and passenger traffic and acceptance of cruise ships, and Dubrovnik for cruise ships.

According to the Strategy, the result of specialisation and further development of the ports would be measured through the increase of cargo traffic by up to 30 million tonnes by 2020 (compared to the present 19 million tonnes). This is expected to create a framework to achieve the self-sustainability of the port system, reducing the partici-pation of the State Budget in co-financing the construction of the port infrastructure in Croatian key ports.

Another measure explicitly mentioned in the Strategy, aimed at reduction of the state’s share, is the co-financing of port infrastruc-ture projects, providing more favourable conditions for private capital investment in the construction of port infrastructure and specialised port terminals (the development of public-private partnerships).


Croatian port authorities are strongly committed to the protection of the Croatian marine environment. They are introducing environmen-tal management systems according to internationally developed stand-ards, and they participate in numerous international organisations promoting ‘eco’ and ‘green’ ports, trying to establish uniform ecologi-cal and environmentally friendly standards.

Regarding ship operations in ports, the 2013 Amendments to the Croatian Maritime Code transposed into Croatian national law Directive 2000/59/EC of the European Parliament and of the Council of 27 November 2000 on Port Reception Facilities for Ship-Generated Waste and Cargo Residues. The Maritime Code obliges port authori-ties and special port concessionaires to adequately equip the ports and provide a system of reception and waste management from ships, in accordance with international and European standards.



Currently, the ports are arranged pursuant to the requirements of the Maritime Demesne and Seaports Act.


CROATIA Law Firm Vukić & Partners Ltd


Late in 2014, the Croatian parliament passed the Law on Strategic Investment Projects, with a view to facilitating the preparation and implementation of investment projects (private, public or public-private) that have been proclaimed as projects of national interest. Two large port projects are currently on the list of strategic projects: the development of the Zagreb Pier Container Terminal and the LNG Terminal (both within Rijeka port).


The regulatory powers for all Croatian ports are mainly vested in the central authority, which is the Ministry of Maritime Affairs, Transport and Infrastructure, seated in Zagreb.

In addition, each of the above-mentioned key ports has its own port authority, established by the Croatian government.

Local port authorities, which are mostly founded on a regional level, are in charge of smaller ports.


The Ministry of Maritime Affairs, Transport and Infrastructure is in charge of the overall national transport policy.

Port authorities are in charge of:• building, maintaining, managing, protecting and improving the

maritime demesne representing the port area;• building and maintaining the port’s infrastructure and supervising

building and maintenance activities;• smooth performance of port traffic, technical-technological integ-

rity and safety of the port area for navigation, as well as for the order in the port;

• providing for the services of general interest or services for which there is no economic interest of other business subjects (port guarding, fire protection etc);

• reception of waste from vessels and the organisation of its disposal;• coordinating and supervising the work of concessionaires in the

port area;• passing of decisions with regard to the establishment and manage-

ment of free zones inside the port area in accordance with the regu-lations governing free zones;

• granting of concessions and concession permits; and• other activities envisaged by the law.


The harbourmasters are appointed by the Minister of the Maritime Affairs, Transport and Infrastructure. The harbourmaster offices are, in fact, branches of the Ministry and their tasks include: control of navi-gation; search and rescue activities; navigation safety inspections; ves-sel registration; tonnage measurements; issuing documents required for navigation; establishing the level of proficiency for professionals employed in maritime transport; and some other duties.


Competition rules are not specific to the port sector. General national laws apply.


In Croatia, the term ‘port tariffs’ is a general term that entails both port dues and port charges that the operators collect from port ser-vice customers.

Port dues are determined and collected by the port authority and include quay dues, wharfage and berthage.

With regard to port charges, the operators are free to determine the prices for their services provided that they do not exceed the maxi-mum level set and published by the relevant port authority. In practice, the operators usually pay due regard to other formally published port charges in competing ports along the Adriatic coast, including ports in nearby countries.


There are certain public service obligations (eg, fire fighting services, video surveillance and dredging), and they can be satisfied through a contract with a private party.


Yes, a state entity can enter into a joint venture with a port operator for the development or operation of a port, and there is no percentage threshold for the state’s stake.

A perfect example can be found in Croatia’s largest port –Rijeka. Until recently, the state was the majority owner of the joint stock com-pany Luka Rijeka d.d. (The Port of Rijeka j.s.c.), which was the owner of all the shares in its subsidiary – Adriatic Gate Container Terminal (AGCT). In 2011, the predominantly state-owned Luka Rijeka d.d. sold 51 per cent of its stake in AGCT to International Container Terminal Services Inc of the Philippines. AGCT now operates Brajdica Container Terminal pursuant to the direct long-term concession contract with the Port of Rijeka Authority.

13 Are there restrictions on foreign participation in port projects? There are no restrictions on foreign participation in port projects. Foreign investments are generally very welcome.



In Croatia the legal term ‘PPP’ is restricted only to arrangements where the majority of the private partner’s revenue comes, under the contrac-tual arrangement, from government payments.

PPPs, in the strict sense explained above, are not typical for the Croatian port sector. This is because the port authorities are, in princi-ple, responsible for constructing the port and terminal infrastructure, and transfer of the public construction obligation happens rarely.

As for the port services, the port authorities only have a right to grant concessions to the same, and the vast majority of port services are not provided to general public, but to the benefit of a limited group of users (shipping lines transport companies, marine service providers), which cannot be considered as final beneficiaries.

For all these reasons, the Croatian PPP Act, passed in 2012 and revised in 2014, has had little practical impact on seaports and termi-nals so far. It may gain importance in build–operate–transfer projects, which are envisaged in some port development plans.

The term PPP is sometimes used in a broader sense to describe the cooperation of a public authority and a private partner, which, when ports and terminals are concerned, is almost exclusively arranged as a concession relationship.

Concessions are seen as long-term contracts where the majority of the partner’s revenue comes from the final users of the service. In a concession relationship, the government does not make any regular payments to the private partner, or such payments account only for the minority of the private partner’s revenue.

The main piece of legislation which is relevant for regulation of the arrangements between the public authority and a port or ter-minal operator is the Maritime Demesne and Seaports Act (2003, as amended), which is a specific legal text supplemented by general laws, that is to say the Concession Act (2012) and the Public Procurement Act (2011, as amended).

Unlike the Concessions Act and Public Procurement Act, the Maritime Demesne and Seaports Act has not yet been harmonised with acquis communautaire. This has caused rather a lot of practical problems in drafting proper tender documents for new projects that would satisfy both the national law and the principles that Croatia has accepted by joining the EU in 2013. Unfortunately, due to the frequent political changes in the recent period, the process of enactment of the new Maritime Demesne and Seaports Act has not yet finished.





Present concessions for port activities and related activities that require the use or construction of new infrastructure, superstructure or other objects may be granted only through the public tender procedure.

On the other hand, port concessions for port activities and related activities that do not require the use or construction of new infrastruc-ture or superstructure can be granted upon request – in other words, without tender.

Other models of privatisation (eg, change of operators ownership structure) need to involve a public element as well (eg, public offering of shares).


When awarding a port concession, the port authority would typically consider (by setting such tender evaluation criteria):• the offered fixed part of the concession fee;• the offered variable part of the concession fee (usually expressed as

percentage of the operator’s revenue);• the total offered investment into the development of the port;• the offered amount of investment into environmental protection;• the prospective new work places;• the operator’s experience; and• financial performances in preceding years.

As this is a typical, but not mandatory, list, one might expect other eval-uation criteria, such as terminal usage efficiency or guaranteed level of port traffic.

As for port joint venture agreements, they are not in common use. Under the present circumstances, a joint venture agreement might be suitable to regulate relations among the partners, which would together assume the role of the port operator. Eventually, the concession agree-ment would be needed again to regulate the relations between the operator (consisting of two or more joint venture partners) and the port authority, so that the above listed evaluation criteria would apply again.


There is no model PPP, concession agreement or joint venture agree-ment for port and terminal projects.


The decision to grant a concession in a port is within the competence of a port authority. Concessions that are intended to last more than 30 years must be approved by the Croatian government, and those over 50 years must be approved by the Croatian parliament.

PPPs, in the strict sense of the term (not including concessions), need to be approved by the Croatian Investment and Compet-itiveness Agency.

The passing of a specific law is not required.


Port projects are typically implemented on the basis of a conces-sion contract.


In Croatia, the arrangement between the port authority and a port or terminal operator is (almost exclusively) based on a conces-sion contract.

The law recognises several types of concession in the port sector:(i) a concession for the performance of port activities which does not

require the use or construction of new infrastructure, superstruc-ture or other objects;

(ii) a concession for the performance of secondary port activities which does not require the use or construction of new infrastruc-ture, superstructure or other objects;

(iii) a concession for the performance of port activities which requires use of the existing or construction of new infrastructure, super-structure or other objects; and

(iv) a concession for the performance of secondary port activities which requires use of the existing or construction of new infra-structure, superstructure or other objects.

The term of the aforementioned concessions may be up to 99 years. The concessions under (i) and (ii) may be granted by a competent port authority for a term of up to 10 years, and concessions under (iii) and (iv) may be granted by a port authority for up to 99 years, whereas the government of Croatia must give prior consent to concessions from 30 up to 50 years and the parliament of Croatia must give prior consent to concessions over 50 years.

Concessions under (iii) and (iv) are typically granted for 30 years.

21 On what basis can the term be extended? The Maritime Demesne and Seaports Act allows, on an exceptional basis, for the prolongation of concessions for the performance of port activities and secondary port activities which require use of the exist-ing or construction of new infrastructure, superstructure or other objects, in case of (i) force majeure or (ii) new investment which makes approval of an extension economically justifiable. The extension must be approved by the Croatian government, and the total duration of the concession must not exceed 50 years.

Another exception is provided by the Concession Act: when the concession grantor has initiated the concession award procedure for public services in good time and such procedure has not been com-pleted successfully due to justifiable reasons, the concession grantor may extend the existing concession for a period not longer than six months, provided that certain legal conditions are fulfilled.


Croatia applies concession fees that consist of fixed and variable parts. The fixed part is usually calculated based on the surface area occupied by the concessionaire, and the variable part as a percentage of the revenue realised by the operator. According to the current legislation, the fixed part of the concession fee may be subject to indexation if the exchange rate of Croatian currency (Croatian kuna) changes in relation to the euro by more or less than 3 per cent.


Government guarantees are not typical. Exclusivity is generally not provided except in cases where, as a matter of fact, the type of conces-sion involves exclusive use of a certain port area or facility.



Construction may start pursuant to a construction permit. The process of obtaining the permit lasts from two months to one year, depending on the complexity of the project. One of the prerequisites for obtain-ing the construction permit is preparation of the appropriate design documents, which can be a time-consuming process and usually lasts for several months. Additionally, to commence with the construction works, the port operator requires the consent of the port authority.


The port authorities typically undertake port construction (quay wall construction, breakwaters, access channels, dredging). In fact, this is one of their main activities.


Contracts for concessions that involve any construction works within the port area usually specify that the operator is obliged to obtain prior




consent of the port authority regarding the proposed technical solu-tion or design documentation, which consent would not be unreason-ably withheld.

The operators, their designers and contractors are obliged to adhere to the material and construction standards generally applicable in Croatia.

As for the freedom in election of the contractor, the answer depends on whether the port operator is the contracting authority in the sense of the Public Procurement Act or not.


An entity other than the port authority may be allowed to construct an object of port infrastructure or superstructure only based on the con-cession contract. Therefore, delays and defects in the construction of a port facility could be seen as a violation of the concession contract, in which case the port authority could claim contractual penalties (if stipulated) and compensation of damages, and could ultimately revoke the concession from the concessionaire. Present contracts usu-ally envisage security instruments in favour of the port authority to provide additional protection in the event of contractual breaches by the concessionaire.

The use of legal remedies by the port authority would, of course, depend of the nature and cause of the delay or defect, and the extent of responsibility of the concessionaire.

Port operations


Given that most of the infrastructure in Croatian ports has been con-structed by the port authorities, it is difficult to make any general state-ments from the operators’ perspective. The principal prerequisite for commencing any operations in a newly built facility, regardless of who has constructed it, is the operation permit that is issued by the Ministry of Construction and Physical Planning. If the construction works are executed properly, the operation permit could be obtained within two months following the completion of the construction works.


In principle, Croatian port authorities, as landlord port authorities, cannot perform port activities themselves. They can engage directly only when a certain public service needs to be provided or there is no market interest for the appropriate concession.

The port operators therefore provide port services based on con-cession contracts executed with the port authorities. According to the legal definition, port activities include:• loading, unloading, operation of, transhipment, transport and stor-

age goods and other materials;• berthing and de-berthing of ships, yachts, fishing and sport vessels

and floating objects;• operations of reception of vehicles, loading and unloading of vehi-

cles from port surfaces;• loading and unloading of passengers; and• various commercial activities incidental to the aforementioned

port activities (supply of ships, services to passengers, piloting, towing, agency, custom services, quality control etc).


The development of access routes and interconnections has so far been within the competence of the government, and operators have not been required to invest in hinterland connections. On the other hand, there are no legal obstacles to the consideration of that sort of arrangement.


The port authorities monitor compliance by a concessionaire with the terms and conditions of the concession and Port Order Regulations. Additionally, terminal operations fall into the competence of other authorities, such as the harbourmaster’s office and state inspections (safety at work, environment). Those inspection authorities are entitled to order the immediate suspension of a dangerous or improper activity.


Generally, the port authorities may access the port area at any (reason-able) time, taking care not to disturb the port operator’s business opera-tions unduly. The port authorities may take over only a minor segment of port operations, and only in exceptional cases. The port authorities are neither intended nor equipped to take over the operations of a cer-tain terminal or entire port.


The answer to this question depends on the contents of the concession agreement. Available remedies include contractual penalties, compen-sation for damages and, as an ultimate consequence, termination of the concession.

According to the Concessions Act (2012), prior to the conclusion or the entry into force of the concession contract, the concession gran-tor has a duty to collect from the most advantageous tenderer or the applicant for the concession the necessary guarantees or security of payment instruments for the concession fee and compensation of potential damages incurred due to the non-fulfilment of obligations under the concession contract (debentures, bank guarantees, personal guarantees, bills of exchange, escrow account etc), in accordance with the estimated concession value. Such guarantees need to be collected not only from new concessionaires, but also from existing ones.


A distinction must be made between immoveable and moveable assets.According to the current Maritime Demesne and Seaports Act, if

a concessionaire has constructed any part of a port infrastructure or superstructure, that property would become (once the concession is terminated) an integral part of the maritime demesne. The concession-aire is free to remove and take away only those objects that are eas-ily detachable or that can be removed without destroying or inflicting damage to the maritime demesne.

The rights and duties of the parties with regard to moveable assets that the operator brought to the site (eg, the operator’s equipment) depend on how they regulated this issue in the concession agreement. As far as the legislative framework is concerned, there is no generally prescribed obligation of a port operator to transfer any of its moveable assets to the port authority once the concession is terminated. A rea-sonable concession grantor would, however, make sure that the con-cession agreement properly addresses this issue, providing appropriate legal tools to allow the continuity of the port’s or terminal’s operation to industry best practices upon the expiry or termination of any current concession agreement.

The law does not provide for compensation for any immoveable assets that were constructed by the operator and transferred to the port authority upon termination of the concession. An exception is the situation where the concession agreement is prematurely termi-nated in the national interest, determined by the Croatian parliament. Even in such a case, the amount of compensation could not exceed the value of the constructed object at the time of transfer, decreased for the depreciation.

Potential investors in port infrastructure see these provisions as rather restrictive. In practice, the problem is resolved by allowing long-term concessions, enabling full depreciation of the newly built objects. Notwithstanding this, a more flexible legal framework could attract more interest in new port projects, especially those involving the con-struction of new port infrastructure.




Miscellaneous


The construction of port infrastructure has so far been mostly in the competence of the port authorities, and there have not been many cases of the introduction of new port operators. Therefore, it is not currently possible to make general statements. Considering the legal framework that is in force, and depending on the terms of the tender for a new port concession, the prospective port operator might be allowed to establish a Croatian SPV as this could significantly facilitate its daily operations during the construction or operation of the port. In that case, one should expect a detailed set of rules aimed to protect the concession grantor’s interests (eg, prescribing a minimal amount of the share capital and restrictions on free transfer of ownership interests).


The ownership interests in the port operators are generally freely transferable, but it is (theoretically) possible to introduce restrictions by, for example, the concession agreement, or internally, by the opera-tor’s statute.


According to the applicable laws, the transfer of the concession may be stipulated in the concession contract, in favour of financial institutions issuing loans to the concessionaire, for the purposes of the concession contract execution, or in the case of the concessionaire’s breach of concession contract, which may result in contract termination. In such cases, financial institutions may be authorised to transfer the conces-sion contract to a third party, provided that such party fulfils the suit-ability criteria of a concessionaire set out in tender documents and in the notice of intent to award the concession.

In addition, the port operator can grant security over the entire concession by setting up a lien in favour of a financial institution, pro-viding a loan for the purpose of performing the concession. The lien provides the financial institution, upon default, with the right to trans-fer the concession to a qualifying third party.

In practice, such and similar arrangements are exceptionally rare.


The concession to construct or operate a port facility may be revoked (terminated) in the following cases of the operator’s breaches of the concession agreement:

• failure to construct, within the agreed period, the buildings or other objects for which the concession was granted;

• failure to comply with the provisions of Maritime Demesne and Seaports Act or terms of the concession;

• failure to exercise the concession rights, or using the concession in violation of the purpose for which it has been granted;

• exercising the activities which are not provided in the concession, or carrying out works that contradict the approved design;

• failing to settle the concession fees in due time; and• failing to maintain and protect the maritime demesne in the man-

ner determined by the concession contract.

If the concession is revoked pursuant to the above provisions, the con-cessionaire (ie, the operator) shall not be entitled to any compensation for early termination of the contract. It is to be noted that in the vast majority of cases of contractual breaches, the concession is not revoked automatically – the concessionaires are generally allowed additional reasonable time for remedial actions, depending on the severity of the breach and the overall circumstances that caused it.

Regrettably, the above termination provisions make any terminal concession unbankable. No bank will grant credit to a terminal opera-tor that might be terminated for any reason without compensation. Therefore, the legislative framework is indeed still rather restrictive.

Variations to the concession contract during its term can be allowed, by proposal of the concession grantor (port authority) or con-cessionaire (port operator), only when conditions and possibilities of change were foreseen in the tender documents and concession con-tract in a clear, unambiguous and precise way.

Special cases allowing substantial changes to the concession con-tract include: threat to national security and defence of the state, envi-ronment or human health; special interest of Croatia as determined in the Croatian parliament, and reasons specified in special laws.

Other than that, substantial changes to the concession contract during its term shall require the implementation of a new concession award procedure and the conclusion of new concession contract. The law sets precise criteria for what is considered a substantial change of the concession agreement. Among other circumstances, change of the concessionaire is also considered to be a substantial change that, by way of exception, can be permitted when it is the result of corporative restructuring of the concessionaire or when the concession contract is transferred to financial institutions. If the scope of the change may be expressed in currency, such a change shall not be deemed substantial if the value of the change does not exceed 5 per cent of the estimated concession value.

Exceptionally, the concession grantor shall not require a new con-cession award procedure, but instead will conclude an annex to the concession contract regarding the substantial changes of the conces-sion contract which cumulatively fulfils following conditions:• the need for change results after the conclusion of the concession

contract, from circumstances which could not have been foreseen by the concession grantor despite due diligence;

Law Firm Vukić & Partners LtdMaja Dotlić [email protected] Gordan Stanković [email protected]

Nikole Tesle 951 000 RijekaCroatia

Tel: +385 51 211 600Fax: +385 51 336 884www.vukic-lawfirm.hr




• changes cannot be technically or economically separated from the initial concession contract without causing major difficulties to the concession grantor, or the changes are, although separable from the initial concession contract, strictly necessary for its performance;

• the change does not alter the type or matter of the contract; and• the value of the change is less than 50 per cent of the initially esti-

mated concession value.

The concession contract cannot be changed when the change is aimed at eliminating the defects in the concessionaire’s performance or con-sequences of improper performance or when the change is aimed at compensating the risk of price increase, where such price increase is the result of market price fluctuations which could have a significant impact on the performance of the concession contract and from which the concessionaire has secured itself by risk hedging instruments.


See question 33.


Yes, all port PPP arrangements must be governed by the laws of Croatia.


The concession contracts that the port authorities typically enter into with the port operators envisage settlement of disputes in ordinary judicial procedure (administered by Croatian commercial courts) or arbitration.


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CyprusCostas Stamatiou, Kyriacos Kourtellos and Nikoletta LambrouAndreas Neocleous & Co LLC

General


Limassol is the main port of Cyprus. Located on the south coast, it is a multipurpose port with modern facilities for handling passengers, con-tainers, ro-ro, general cargo vessels and bulk carriers; it also provides support to offshore oil and gas operations. It includes 1,980 metres of quays (container, general cargo, passenger etc), one ro-ro ramp, two container berths and a range of mooring and anchorage options. The marine area of the port is approximately 1 square kilometre and the land area is 1.3 square kilometres. The port is capable of handling ves-sels of up to 340 metres in length. Limassol handles all container traffic entering or leaving Cyprus. It has a nominal annual handling capac-ity of 600,000 TEUs; actual throughput in 2014 was 308,000 TEUs. The multipurpose terminal handles almost one million tonnes of gen-eral cargo traffic and close to 300,000 passengers per year. Overall, Limassol port currently services on the order of 3,200 ships per year, including container, general cargo, cruise, ro-ro and naval ships, using three tugs.

The second port in size is Larnaca, also on the south coast, approx-imately 60 kilometres east of Limassol, close to the principal inter-national airport. It is a multipurpose port having an area of 445,000 square metres and deals with all types of cargo, including containers, ro-ro, bulk (animal fodder, grain, gypsum), conventional (lumber, iron, fertilisers, automobiles) and oil products. Larnaca also has an oil ter-minal for tankers.

There is a smaller port at Vasiliko, on the south coast approximately midway between Limassol and Larnaca. It belongs to the Cyprus Ports Authority but is leased on a long-term basis to the main cement pro-ducer in Cyprus. It principally deals with bulk cargo including exports of cement and imports of animal feed, cereals, minerals, construction materials and scrap metal.

The main oil terminal is nearby at Vasiliko. New facilities opened for business in 2014, including 28 tanks with a capacity of 544,000 cubic metres, a deep water marine jetty and road tanker loading facili-ties. An expansion is currently under evaluation which would create an additional 13 tanks and further capacity of 305,000 cubic metres. Its strategic location makes it the first terminal of its kind in the Eastern Mediterranean, connecting Europe and the Black Sea with the Middle East and Asia.

There are also smaller dedicated oil terminals for the electric-ity generation stations at Vasiliko and at Dhekelia, east of Larnaca. Mooring is effected on buoys and unloading takes place through sub-marine pipelines.

In addition, there are several ports for fishing and recreational ves-sels, the largest of which are at Paphos, Limassol and Latchi.

There is also a commercial port in the area occupied by Turkey, at Famagusta.


Most ports in Cyprus are owned and operated by the Cyprus Ports Authority (CPA), which provides piloting and towage services, facilities

for loading and unloading of ships, cargo handling and storage, tran-shipment trade and passenger handling.

The piloting and towage of all ships within the port area is provided by the CPA, without exception. Piloting is mandatory.

The law constituting the CPA, Law 38 of 1973 (the CPA Law) explicitly prohibits the CPA from undertaking loading and unload-ing of ships. These activities are carried out by agents appointed by the shippers. The agent is responsible for securing the use of cranes and storage facilities from the CPA and the services of stevedores to load and unload the vessel and porters for the horizontal movement of loads. United Stevedoring Company Limited, which is owned by the Shipping Agents Association of Cyprus, currently loads and unloads an estimated 40 per cent of the ships mooring at Limassol and Larnaca.

Loading and unloading of ships at the Vasiliko industrial port is carried out by the lessee, which manages the port under licence from the CPA, using the lessee’s equipment and personnel.

The Vasiliko oil terminal is operated by its owner, a private com-pany, and the oil terminals for the electricity generation stations are operated by the Electricity Authority of Cyprus.

There has recently been substantial change to this traditional model arising from the privatisation of Limassol port. In April 2016 concession agreements were signed to outsource the operations of the Limassol port, with the state retaining ownership of the port and the operators taking responsibility for its future development through the expansion of commercial activities and the implementation of best operational practice. The agreements involved an initial fee, a mini-mum annual fixed fee and a revenue share payable by the concession-aires. Based on the business plans submitted by the concessionaires, privatisation should yield revenues of almost €2 billion. In addition, it is expected to provide other benefits. Making the port more efficient and competitive should reduce costs for importers and should also increase the volume of transhipment business. It is now intended to extend the privatisation model to Larnaca port.


Upgrading of port facilities is a priority for the government and the CPA. Limassol port has been deepened and the existing quays and parts of the breakwater were strengthened, and a project is under way to extend the quays in order to accommodate the next generation of ships. A new passenger terminal has recently been completed. It is fully compliant with EU safety and security requirements and includes a departure hall and two arrival halls, separate luggage handling facili-ties and catering and other facilities.

New facilities were completed in 2014 at the Vasiliko oil terminal and a second-phase expansion is being studied. A master plan is also being developed for reconstruction of the Vasiliko bulk cargo port, aimed at improving efficiency and capacity.


Ports and port development are subject to domestic environmental legislation, which is fully aligned with EU legislation. Major projects are subject to completion of appropriate environmental impact assess-ment, and pollution control laws impose obligations regarding waste management and environmental sustainability.


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The direct legislative framework for port development and opera-tions is the CPA Law, which was enacted as a condition for World Bank funding of the construction of Limassol and Larnaca ports. It gave the CPA responsibility for the formulation of policy regarding ports and for the development, management and operation of ports. It aimed to create an independent and flexible organisation free of public sec-tor bureaucratic procedures, able to operate on a commercial basis. Following completion of the first stage of the privatisation of Limassol port a review of the CPA is in progress, aimed at defining a new role and structure for it. It is understood that this review will include all the port regulations.


Yes, the CPA.


Apart from the power to declare a port closed, which is reserved to the Council of Ministers, the CPA Law gives the CPA comprehensive pow-ers over the provision and management of port services, including the power to: • prescribe, regulate, control and prohibit the use of any port areas or

movement or any activity in them;• provide piloting and towage and other navigational facilities such

as lighthouses and buoys;• promote the use, development and growth of ports;• appoint, license and manage pilots, and license and supervise

other workers in port areas;• provide fire and, subject to the approval of the Council of Ministers,

security services at ports and their approaches;• advise the minister of transport on any matter falling within its

remit; and• anything else which is incidental to its duties.

In the performance of its duties the CPA may hold property, undertake commercial activities and provide services and enter into contracts of any nature. It may compulsorily acquire property under the provisions of the relevant law and it may borrow and incur credit.


Harbourmasters are appointed by the CPA.


There are no specific competition rules applying to ports: the general domestic and EU competition law framework applies.


Article 25 of the CPA Law gives the CPA the power, in consultation with the Council of Ministers, to set fees payable for the use of ports and facilities provided by the CPA or by others within port areas, the terms of payment and the manner of enforcement and collection. The law was amended in preparation for privatisation to give the operators of privatised ports the power to set their own charges and commercial terms. Vessels belonging to the National Guard or the police service or those providing humanitarian services are exempt from charges.


The state has obligations with regard to the operation and safety of ports derived from international maritime conventions, from member-ship of the Paris Memorandum of Understanding and, as Cyprus is an EU member, from EU legislation.


Given that the CPA may contract out the entire operation of a port (and has done so) there would be nothing to stop it entering into a joint ven-ture with a port operator for the development or operation of a port.

13 Are there restrictions on foreign participation in port projects? There are no restrictions on foreign participation. The majority part-ners in the consortia awarded concessions to operate Limassol port are all overseas companies, some from non-EU countries.



The legislation enabling the privatisation of the ports is specific, but as Cyprus is an EU member it is required to comply with EU public pro-curement legislation. There is a comprehensive framework of public procurement law. The principal law regulating public procurement is Law 12(I)/2006 as amended, which transposes EU Directive 2004/18/EC on public procurement into domestic law, and the detailed regula-tions on the coordination of procedures for the award of public works contracts, public supply contracts, public service contracts and related matters issued under the law. All other EU public procurement direc-tives have also been transposed or are in the course of being transposed.


This is unlikely. In all cases the process would be required to comply with public procurement legislation, which generally involves a tender.


There is no explicit legislation, but guidance can be obtained from the recent Limassol port award process. This included Personal Situation Criteria, which had to be met by all members of any consortium; Financial Eligibility Criteria, which had to be met by the consortium as a whole, weighted by individual members’ participation; and Technical Eligibility Criteria, which had to be met by the member designated as port operator. The Personal Situation Criteria are used to ensure that consortium members are ‘fit and proper’ and that no consortium mem-ber meets any of the grounds for mandatory or discretionary exclu-sion on grounds of integrity. In addition, the CPA reserved the right to disqualify any consortium or member on grounds of the protection of the essential interests of the state, including its national security. The Financial Eligibility Criteria were designed to ensure that inter-ested parties were in a sound financial position and in possession of the necessary financial resources to execute the project. Similarly, the Technical Eligibility Criteria confirm that interested parties have the requisite operational resources, expertise and experience.

In addition, tenders were evaluated on the basis of the financial terms offered, in terms of an initial sum, annual payment and rev-enue share.


There is no model as such, but it is reasonable to assume that any future PPP agreement will be based on the Limassol model.


The CPA Law contains the necessary powers.


With few ports to deal with, there is no ‘typical’ basis as such, but it is reasonable to assume that any future project will be based on the Limassol model.


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There is no explicit minimum or maximum duration. The Limassol port process envisaged a duration of between 20 and 25 years for con-tainer and multipurpose terminal operations and between 10 and 20 years for pilotage, towage and other marine services.

21 On what basis can the term be extended? There is no standard provision.


The Limassol port process envisaged an initial sum, annual payment and revenue share. Details of the final commercial terms agreed with the successful bidders have not been made public.


In the Limassol PPP the concessionaires have exclusivity in terms of the services they have contracted to provide.



Details of the specific commercial arrangements relating to the Limassol port and the Vasiliko industrial port are not public, but they would need to be compatible with the general legal framework regard-ing planning and environmental protection.


There is no precedent in this regard.


There is no precedent in this regard and all that can be said is that any construction would have to meet legal standards.


This would be a matter for negotiation on a case-by-case basis, depend-ing on factors such as the nature of the works and the relative bargain-ing powers of the parties.

Port operations


This will vary according to the circumstances of the case, but in general compliance with all environmental, safety and marine legislation will be required. In the case of the Vasiliko oil terminal the entire process from planning to commencement of operations was completed in less than three years.


In the Limassol port and the Vasiliko industrial port, which are the only ports where ownership and operation are segregated, the port authority makes available the existing facilities. The concessionaires operate these facilities, and may supplement them with equipment they provide.


This would be a matter for negotiation on a case-by-case basis.


Such transactions are made on an individual basis, so this would be a matter for agreement between the parties. The specific arrangements in the case of Limassol port are confidential.







Miscellaneous




Such transactions are made on an individual basis, so this would be a matter for agreement between the parties. The arrangements in the case of Limassol port are confidential, but common sense would indi-cate that the port authority would wish to have a means of ensuring that the port operator maintained sufficient resources and could not trans-fer its obligations to a ‘straw man’.



Update and trends

Following completion of the first stage of the privatisation of Limassol port a comprehensive review of the CPA is in progress, aimed at defining a new role and structure for it. It is understood that this review will include all the port regulations.


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Costas Stamatiou Kyriacos Kourtellos Nikoletta Lambrou

Neocleous HouseMakarios AvenueP O Box 50613LimassolCY 3608Cyprus

Tel: +357 25 110000Fax: +357 25 [email protected]


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DenmarkUlla Fabricius and Christian Benedictsen-NislevNJORD Law Firm

General


Denmark has more than 130 active commercial ports of various sizes and areas of expertise, from larger scale shipping terminals engaged in international trade to small municipal ports serving local industries. Together the Danish ports handle 75–80 per cent of Danish foreign trade measured in tons. The key ports in Denmark include:• Fredericia;• Esbjerg;• Odense (Lindø Port);• Copenhagen (CMP);• Aarhus;• Aalborg;• Kolding;• Aabenraa; and• Kalundborg.

Fredericia is the biggest port in Denmark measured by the amount of cargo volume per year. This port comprises the facilities to handle con-tainers, ro-ro ships and general cargo. Further oil and gas terminals are available in the port of Fredericia.

The port is the container port for the entire region of Southern Denmark, and its frequent connections to Hamburg, Bremerhaven and Antwerp link it to overseas container routes. Danish North Sea oil is shipped from the Port of Fredericia. At the same time, oil and petroleum products are distributed to the entire region of Southern Denmark.

The nearby motorway network (E20/E45) and Denmark’s interna-tional railway hub make the port of Fredericia a logistics junction for ro-ro (trailer) traffic to eastern Europe.

Esbjerg comprises ro-ro and oil and gas terminals. It is the lead-ing ro-ro port in Denmark and one of the Nordic area’s major inter-modal hubs. The port of Esbjerg has been the primary base for all oil and gas activity in the Danish North Sea since the extraction of oil and gas began more than 40 years ago. Finally, Esbjerg is the leading port for wind power in Europe. The port played a key role in the rise of Denmark’s offshore wind industry.

Lindø Port is the third largest port in Denmark. The focus of this port is bulk cargo. Its north terminal has cranes with the ability to lift up to 150 tons. The port also comprises the Lindø industrial park, where a wide range of maritime companies are based. The industrial park includes four dry docks and repair yard facilities.

The port of Copenhagen and Malmø (CMP) comprises container, car, cruise, ferry, general cargo and liquid bulk facilities.

CMP has passenger traffic to Norway and Germany, and Copenhagen is the hub for the cruise industry in the region. DFDS oper-ates the Copenhagen–Oslo route, and is CMP’s largest passenger ship-ping customer. CMP is also a hub for importing and handling of new cars in the Baltic Sea Region. CMP has the largest dry bulk terminals in Western Sweden and Eastern Denmark. Imports and exports of bulk products are mainly oriented towards the regional market, but some products are also handled for transit. Finally, CMP has the largest liq-uid bulk terminals in the Øresund region. Imports and exports of liquid bulk products are oriented towards international and regional markets.

Aarhus is an all-purpose port and comprises container, general cargo, oil and gas, RO-RO cruise ship and ferry facilities. The Port of Aarhus is the largest container port in Denmark and also includes the largest public bulk terminal in Denmark.

Aalborg comprises facilities for bulk and general cargo and project loads, alongside facilities for container and cruise ships.

Kolding comprises facilities for bulk and general cargo, tanker ves-sels, ro-ro vessels and cruise ships. Kolding is close to Fredericia, and hence is also located close to the nearby motorway network (E20/E45) and Denmark’s international railway hub.

Aabenraa is capable of handling general cargo, dry bulk, ro-ro, pro-ject cargo, cruise ships and liquid bulk.

Kalundborg comprises facilities for ferries, cruise ships, gen-eral cargo, liquid cargo, dry cargo, ro-ro vessels, containers and pro-ject cargo.

Danske Havne is the industry organisation for Danish ports, while the industry organisation Danske Havnevirksomheder represents ste-vedores and other companies operating in Danish ports.


In the period from 2000–2001, 10 of the 12 state ports were assigned to Danish local authorities (municipalities). In 2005 and 2012 the last two state-owned ports were assigned to local municipalities, and today no ports in Denmark are operated as state ports.

The Danish Port Act (Consolidating Act N0. 457 of 23 May 2012) governs all Danish ports. Pursuant to section 6 of this Act, a Danish port may be organised in five different ways:• a state port;• a municipal port;• a self-governing municipal port;• a private limited company wholly or partly owned by a municipality

(hereinafter limited company ports); or• a privately organised port, other than such company as set out in

the preceding point.

Various requirements and restrictions apply under the Danish Port Act depending on which of these models is used, except for privately organ-ised ports, which are not subject to the Danish Port Act.

A municipal port is subject to the local municipal administration, and the local municipality is itself subject to Danish regulation of pub-lic authorities. A municipality is considered an independent and self-governing public authority and receives funding from the government, including with respect to port development. The municipality is respon-sible for financing and operating the port, including the maintenance of docks, jetties, fairways etc. The municipality is under no obligation to procure or make available cranes, warehouses or similar port facilities. A port organised as a municipal port provides for very limited commer-cial freedom. Typically, only small non-industrial ports are organised using this model.

A state port is subject to the same restrictions as a municipal port. In addition, a state port must provide for and maintain cranes, ware-houses and similar port facilities. A state port is operated by the Ministry of Transportation or those authorised by the Minister of Transportation to do so. Currently, no Danish ports are organised as state ports.


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A self-governing municipal port is controlled by the municipality in which the port is located. The municipality has general responsibility for the port and its finances, and appoints a board of directors for the port. The board is responsible for the daily operation and maintenance of the port. Such daily operation is subject to the restriction in section 9 of the Danish Port Act, which provides that the board must contract out port operations, ship operations, the operation of warehousing and storage, and the operation of wind farms and wave energy facilities to independent third parties.

A self-governing municipal port is considered an independent legal entity. This means that the finances of the port are separate from the finances of the municipality. The port must be run so that the earnings of the port cover its expenses, and any revenue accrued must benefit the users of the port (eg, through lowering the port charges).

A limited company port wholly or partly owned by a municipality allows for a certain level of commercial freedom. The municipality is only liable to the extent of its equity in the company port. A key fea-ture of this model for port ownership is that the owning company may undertake port operations. The restriction regarding ship operations still applies, however, and the municipality must as a general rule out-source such operations.

Subject to certain limitations with regard to the allotment of the shares, the profits of the port must benefit the owners of the port. A pri-vate limited company owning a port may invest up to 15 per cent of its equity in foreign ports in an attempt to improve its own development.

Twenty-five Danish ports are organised as municipal ports (includ-ing Esbjerg, Frederikshavn, Kolding, Odense, Kalundborg and Aarhus), 28 as self-governing municipal ports, six as limited companies wholly or partly owned by the local municipality (including Fredericia, Aalborg and Copenhagen) and five as private organisations.


In recent years, the Danish government has had an increasing focus on promoting Danish ports and improving the connection between the ports and the rest of the Danish infrastructure.

The Green Transportation Policy Reform was adopted in 2009 and provides a framework for the area until 2020. The framework agree-ment consists of two central elements;• a reduction in CO2 emissions; and• a reduction of the pressure on Danish land-based infrastructure

(rail and road).

Despite the focus of this agreement being on the general infrastructure of Denmark, the agreement has already had an impact on Danish ports in the pursuit of promoting sea transport to and from Denmark.

Since 2009 the Danish ports have become more interconnected with the Danish road and train network. In addition, the industrial ports of Denmark have been subject to extensive expansions, renovations, reconstructions and general developments. The Danish Association of Consulting Engineers (a Danish trade organisation) issued a report in March 2016 describing the future development of Danish ports. The report anticipates an upgrade and expansion of docks and quays and other port facilities of about 1,000 hectares by 2020.


Danish ports are subject to the general policy framework set out in the Green Transportation Policy Reform, as well as Danish and EU envi-ronmental legislation. This legislation plays a vital role when ports engage in new projects with a potential environmental impact, and includes the Danish Marine Environment Act (the Consolidating Act No. 1616 of 10 December 2015) and the Danish Act for the regulation of Danish ports’ facilities reception of waste from ships (the Consolidated Act No. 415 of 10 May 2012).

Green port principles are often developed by the owners of the port (local municipalities and private operators).

Some of the proposed ways to make Danish ports more green are:• to increase the use of sustainable energy in the port;• to develop new bunkers for ships, such as hydrogen gas and fuel

cells, and to develop techniques which enable ports to connect the ships to an electricity grid when berthing;

• to focus on preventing any environmental accidents by establishing and maintaining contingency plans;

• to obtain ISO certification; and• to play an active role in stimulating the development of more sus-

tainable ports.



The Danish Port Act provides the framework within which Danish ports may be developed and operated. The Danish Port Act applies in combi-nation with the Danish Planning Act (the Consolidated Act No. 1529 of 23 November 2015) and other applicable Danish and EU environmental laws. Also, EU regulation on competition and state aid will be of rel-evance, subject to the specific port development.


The Danish Minister of Transportation is the regulatory authority for Danish ports (sections 1a, 3, 4 and 15 of the Danish Port Act).


The key competences of the Danish Minister of Transportation include:• issuing regulations for the ports (sections 1a and 15 of the Danish

Port Act);• implementing and applying rules deriving from International

Conventions (eg, SOLAS, the ISPS-Code) and from EU law (section 1a of the Act);

• determining the distribution of costs between two or more ports for improvements of fairways etc estimated to benefit those ports (sec-tion 3 of the Act); and

• issuing notices when the security of a port is unsatisfactory (section 4 of the Act).


A Danish harbourmaster is employed by the port. The harbourmaster performs multiple tasks and will typically be an ex-seafarer. A Danish harbourmaster will be subject to a collective agreement regulating his or her employment.


Generally speaking, Danish municipalities may not be engaged in the operation of businesses with the aim of creating a profit. However, the Danish Port Act specifically empowers local municipalities to do so under certain conditions. In addition to the EU competition rules as enacted in the Danish Competition Act (Consolidating Act No. 869 of 8 July 2015), Danish ports are also subject to the specific competition rules set out in sections 9 and 10 of the Danish Port Act.

Section 9 of the Act contains specific competition rules for self-governing council ports, while section 10 contains specific competition rules for ports operated as a limited company wholly or partly owned by a local municipality. A key difference between self-governing munici-pal ports and limited company ports is that the latter may undertake port operations.

With regard to a self-governing municipal port, the municipal-ity is only entitled to conduct ship and port operations if it does so in competition with private operators. If it is estimated that a specific port operation task will create an annual turnover of 500,000 kroner, the municipality must make a public tender of such a task and may not itself engage in this operation if a private operator offers to undertake the task on market conditions. Certain exceptions apply under the Danish Public Procurement Act (Consolidated Act No. 1564 of 15 December 2015) and the Danish Act for Procurement within the Building and Construction Sector (Consolidated Act No. 1410 of 7 December 2007), to the extent that the task in question falls under those acts.

If no private operator is willing to tender for a given port opera-tion task, the municipality may undertake such a task itself, but must re-announce the tender every five years. The municipality must also




establish an independent limited company responsible for this port operation task. Apart from the initial equity injection by the municipal-ity, no further economic aid must be provided to this company for as long as it is owned and operated by the municipality.


Subject to competition laws and rules, in particular regarding the abuse of dominant position, it is for the independent ports to collect the tariffs from the users.

Danish municipal ports are exempt from the duty to pay tax on the revenue from its activities under section 3 of the Danish Corporate Tax Act (Consolidated Act No. 680 of 20 May 2015).

A private limited company port wholly or partly owned by a munici-pality may also be subject to the tax exemption in section 3(1), No. 4, provided the following conditions are met:• the port must be open for public maritime traffic;• the income of the port must benefit the port and this must be clear

from the by-laws of the port; and• any operations that are outsourced by the owners of the port or

undertaken by the owner itself must be port-related.


The Danish state sets out the legal framework for Danish ports. With regard to port access, it follows from section 5 the Danish Port Act that Danish ports are under a duty to receive ships subject to available space in the port and subject to security concerns.


Subject to the special competition rules in sections 9 and 10 of the Danish Port Act (as discussed above), a state entity such as a local municipality may be engaged in ship and port operation as defined in question 2, as well as in the development of the port. Both self-governing ports and limited company ports will often contract out such develop-ment projects to private contractors.

Due to the way in which Danish ports are organised, it is not com-mon practice for the Danish state to be financially involved in port pro-jects owned by municipalities or private parties.

13 Are there restrictions on foreign participation in port projects? There are no general restrictions on foreign participation in port pro-jects. However, such foreign participation will have to be carried out subject to Danish law, including Danish environmental regulation.



The legislation governing procurement and PPP is subject to the gen-eral rules in the Danish Public Procurement Act, as well as the more specific rules in the Danish Act on Procurement within the Building and Construction Sector and finally sections 9 and 10 of the Danish Port Act.


If one of the port operation tasks listed in sections 9 and 10 of the Danish Port Act is estimated to create a turnover of 500,000 kroner or more per year, the owners of the port must make a public announce-ment of the task. An operation estimated to create a turnover of less than 500,000 kroner may only be undertaken by the port owner them-selves if no private operator is willing to do so. Such private operators may be contracted with or without a formal tender.


This will depend on the rules governing the tender.First, sections 9 and 10 of the Danish Port Act require the port to

ensure transparency regarding the criteria that the port takes into con-sideration when awarding a contract to a private operator. Such criteria may include price, quality, environmental effects etc.

Secondly, under applicable EU regulation on public procurement, the criteria which the port is able to consider when awarding a port con-cession or joint venture agreement will generally have to be included in the tender offer. Criteria for awarding a project may encompass economics, commercial impact, competition, tourism, environmental impacts, general impact on nature, good design, health and security considerations and port infrastructure considerations.


PPP and concession agreements are subject to general freedom of con-tract. Such agreements are drafted on a case-by-case basis.

In the case of construction work between Danish parties, the par-ties will typically contract on one of the Danish standard term turnkey contracts (ie, AB92 and AB93).

In the case of leases of land at port facilities, the Association of Danish Ports have drafted a set of standard terms, which can be found at http://danskehavne.dk.linux16.curanetserver.dk/medlemsservice/lovgivning/havnedrift/.


In the case of the construction of a new port, the relevant parties involved in such a project must seek permission from the Danish Ministry of Transportation.

Expansions of existing ports must comply with applicable environ-mental and planning regulation.


They are typically implemented on a case-by-case basis.


There is no minimum or maximum period for PPPs in Denmark. With regard to leases of port areas or buildings owned by the port, lease con-tracts tend to run for a period of between 20 and 50 years. Private ship and port operators will also typically agree on long-term contracts with the port owners.

21 On what basis can the term be extended? An extension may follow from the contract or may be negotiated between, for example, a local municipality and a private operator.


The individual ports have the authority to determine their own port fees. The calculation of port fees typically depends on the type of cargo carried, the dimensions of the ship, the duration of the mooring period etc. The fees vary from port to port. With regard to land rents, the prices are negotiated in each individual contract. With regard to storage of cargo, the fee payable will depend on the area used for the storage of the said cargo.


Government guarantees may only be provided to PPPs subject to EU regulations on state aid. As no Danish ports are owned by the gov-ernment, it is therefore not for the government to grant exclusivity. However, such exclusivity may arise under a contract between the port owners and a third-party port operator (subject to applicable competi-tion regulation).


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Construction of a new port requires approval from the Minister of Transportation. The time for obtaining approvals may depend on a range of factors and it is difficult to provide a general estimate.

If the owner wants to expand an existing port within its current area, such expansion would not require approval from the Minister of Transportation. It could include the establishment of new works, new port facilities, general improvements of the infrastructure of the port etc. The expansion would have to comply with the Danish Act regarding the estimation of environmental impacts when expanding Danish ports.

If a port development is deemed ‘significant’ under sections 11 and 13 of the Danish Planning Act, a special permission must be obtained from the relevant local municipality to carry out the expansion. In a recent case the port of Randers filed for permission to expand its port in 2009. A permission to do so was granted in 2015. Further consents and licences may be required, depending on the nature of the specific project, for example with respect to LNG terminals.


The duty to maintain the port and its facilities lies with the owners of the port (sections 7, 9, 10 and 11 of the Danish Port Act).

Road and railroad construction is undertaken by public authorities. Normally, the state would employ private contractors to carry out con-struction projects involving ports.


The construction standards are agreed between the port owners and the third party contractor. See question 16.


The remedies will be regulated by the contracts between the port own-ers and the third-party contractor, and generally include damages (including liquidated damages).

Port operations


See question 24.


The primary services of self-governing municipal ports and limited company ports wholly or partly owned by a municipality are to put the infrastructure of the port at the disposal of private contractors.

The port authority of a self-governing municipal port will nor-mally outsource port-related operations. It will therefore be for the third-party port operator to handle services such as stevedoring, sale of bunkers, sale of storage space, truck services and related transporta-tion activities.

For a limited company port, the port authority may itself conduct these port operations, while it will normally have to outsource ship operations such as towage, salvage, line handling (mooring services etc), ice removal and pilot services.

The port authority (the owners of the port) will charge the private operators for allowing them to offer such operations and services to the customers of the port. The charge will be individually negotiated in each contract.


As the rail and road infrastructure in Denmark is a public affair, there is no need for such commitments. The operator will not be required to finance the development of the access routes or interconnections. See also question 25.


The overseeing of terminal operations will be regulated in the general terms and conditions (by-laws) of the ports. Whether the port author-ity may suspend the operation will depend on the contract between the port authority and the relevant private contractor or operator.


This will depend on the by-laws of the port.


The normal remedies for breach of contract under Danish law, includ-ing damages and termination of the contract, for example.





The port operators are not under an obligation to transfer their assets or equipment to the owners of the port on termination of a concession.

Miscellaneous


Many of the bigger port projects must obtain permission from a public authority containing the special requirements with which the operator may be obligated to comply. Such requirements may vary depending on the project and where the project is to be carried out.


On the assumption that ‘port operator’ in this question refers to the port owners, it is for the port owners to decide whether to transfer ownership or not.


Yes. The key terms vary from project to project.


This may be achieved in accordance with the contract agreed to between the port owners or port authority and the third-party contractor.


The contractual remedies generally available for breach of contract under Danish law (ie, damages and termination of the contract).


Not necessarily, but such agreements tend to be governed by Danish law.


Such disputes are normally settled through court proceedings if an amicable settlement cannot be reached. For construction works, dis-putes tend to be settled by reference to arbitration at the Arbitrational Tribunal for Building and Construction Works.


GERMANY Luther Rechtsanwaltsgesellschaft mbH


GermanyBenjamin Hub, Gernot-Rüdiger Engel and Christoph von BurgsdorffLuther Rechtsanwaltsgesellschaft mbH

General


Germany’s major ports of Hamburg, Bremerhaven and Wilhelmshaven serve as transhipment and gateway ports as well as hubs for all kinds of cargo. Some of the more specialised terminals at other ports are owned or operated by or for industrial corporations for their specific purposes, including those for the offshore industry (mostly wind energy). Many terminals include special handling, processing and storage facilities.

The major ferry terminals are located on the Baltic Sea, where ports mostly serve as gateways for both passengers and cargo.

Besides the high-turnover seaports Germany has several inland ports, which serve as gateways to smaller inland waterways. Germany’s major inland port is the port of Duisburg (also known as Duisport), which is considered to be the largest inland port worldwide.


There has not been any major port reform in Germany recently. For a long time, German seaports have mostly operated as landlord ports or, in some cases such as Puttgarden, as private service ports.


Both the German government and the federal state governments have supplied port concepts (eg, Hamburg currently has a development con-cept until 2025) that comprise and explain the policies applied to the development and maintenance of ports and relevant infrastructure. The national port concept by which the state, federal states and port authorities abide was recently revised.

The 2015 federal port concept focuses on:• the further development of port-relevant transportation links and

hubs in order to eliminate capacity bottlenecks within the ports;• the improvement of ports’ infrastructure in general, within, around

and between ports, to handle the increasing load capacities;• the improvement of German ports’ competitiveness as well as the

encouragement of cooperation between ports, especially between seaports and inland ports;

• the optimisation of supply chains;• a sustainable promotion of environmental and climate protection,

which is to be achieved by an increase of environmental stand-ards as well as the regulation and supervision of the emission of pollutants;

• the promotion of sea transportation as a more environmentally sound means of transportation than overland transportation;

• the improvement of ports’ security (including protection from ter-rorism, natural disasters and IT-related dangers); and

• the safeguarding and enhancing of training and employment.


Aside from provisions under public environmental law, there are no compulsory or recommended green port principles in Germany.

However, the 2015 national port concept aims for the reduction of the emission of pollutants and greenhouse gases in particular, as well as noise in ports, on waterways and in the hinterland; the preservation of ecosystems; the promotion of new propulsion systems and fuels; and the minimisation of the usage and consumption of land as envi-ronmental key aspects. Most ports have adopted their own green port principles and programmes. These differ from port to port, depending on the port’s setting and its facilities, purposes and resources.

The EU Directive 2014/94/EU on the deployment of alterna-tive fuels infrastructure of 22 October 2014 requires member states to develop a national concept on the development of the alternative fuels infrastructure until the end of 2016. This regards especially the supply of LNG (liquid natural gas) as well as shore-side electricity.



In Germany, the federal states are competent to regulate their ports. This competence derives from articles 30, 73 and 74 of the German constitution. Therefore, each federal state possesses its own legislative framework for port development and operations, usually by way of spe-cial port operations laws.

The legislative framework for port operations also includes federal legislation such as water law, nature protection law and construction law. In contrast to state laws, which may vary from one federal state to another, federal legislation sets out rules for all matters in need of identical regulation in every federal state.

There is currently no specific set of laws concerning privatisation or public-private partnership (PPP) and private finance initiatives for port projects. Such projects are governed by general public and civil law. In particular, PPPs are principally covered by general budget law and sometimes by PPP guidelines, although at both the federal level and the states’ level there may be laws for specific areas of PPP. Past years have seen various approaches for PPP or privatisation projects, but few actually succeeded.


All ports set in one federal state are assigned to the same regulatory authority of that federal state. However, some states also assign certain regulatory powers and competences to local authorities.

As for the Free and Hanseatic City of Hamburg, this federal state has assigned its general powers as well as its property in the port area to the Hamburg Port Authority. This institution acts as both a regula-tory authority for the port of Hamburg and as a lessor of property in the port area.


The port regulatory authorities are competent for a number of tasks. First of all, the port regulatory authorities are responsible for ensur-ing the general safety and ease of traffic within and around the port. Further, handling, planning and maintenance of traffic and infrastruc-tures in the port area and the hinterland are part of the port regula-tory authorities’ competences. Certain security measures such as the


Luther Rechtsanwaltsgesellschaft mbH GERMANY


port state control of ships are also within the port regulatory authori-ties’ responsibilities.

Besides the traffic-related issues the port regulatory authori-ties manage the ports’ property. The port regulatory authorities rent out property to suitable lessees and manage the existing lessees. Furthermore, the port regulatory authorities supervise any construc-tions conducted within the port area, be it by an operator or anyone else. Doing that, the port regulatory authorities are able to ensure a steady development of the port and its infrastructures.


The harbourmaster represents the port authority. The procedure and requirements for the appointment of harbourmasters are subject to state law, and therefore differ from state to state. This position is appointed to eligible applicants who fulfil the requirements needed to hold the office of harbourmaster. Said requirements are set out in the relevant administrative provisions for the appointment of pub-lic servants.


Since ports are usually owned by public entities, they are subject to the Federal German Law Against Restraints of Competition, including the rules of public procurement. Whenever ports as public institutions assign construction services or other services to undertakings, strict competition rules are to be observed in order for the assignment to be transparent and fair.

In 2013 a draft for an EU regulation establishing a framework on market access to port services and financial transparency of ports (EU port services regulation) was proposed. If an EU regulation according to this draft came to pass, the port authorities would be able to impose differing charges and restrict the number of operators providing a cer-tain service. Until then, however, this is usually not possible under national law.


Each relevant federal law authorises the regulatory authority to impose tariffs on port and terminal users. The mode of tariff collection differs between federal states. In the Free and Hanseatic City of Hamburg, the Hamburg Port Authority is authorised to impose tariffs through terms and conditions of rental contracts with terminals users.

In order to use a port, the vessel operators enter into civil law agreements with the relevant port operator that also cover the tariffs imposed for the utilisation of the port. In certain cases, for example if a vessel or the vessels of the same operator regularly visit a specific port, the port operator may agree to special conditions for the vessel or liner operator, for example with respect to frequency discounts. Generally, however, the tariffs are provided for in port operator’s general terms and conditions or connected price lists. Depending on the ownership and operating structure of a state’s ports, there may also be some statu-tory provision that allows and sets the limits of the determination of port tariffs.


It is the obligation of the federal state to ensure security in port areas as well as regional planning and construction planning. These key pub-lic service obligations cannot be privatised. However, such obligations can be delegated to a private party through a contract governed by pub-lic law.

Also, in principle anyone is entitled to access and use a port with a vessel under public law provisions for the utilisation of ports. Such right to use the port is usually only limited by the rights and the safety of other port users as well as the port and its facilities itself. Accordingly, access to ports may be restricted for vessels that are sinking or burning or that are too large or have too much draught to use the port safely.


Based on commercial law, a legal entity may enter into a joint venture. Thus, state entities in the form of legal entities can enter into joint ventures with a port operator, albeit always subject to public procure-ment law.

A good example of joint ventures between state entities and pri-vate legal entities is the inland port of Duisburg (Duisport). Duisport has realised numerous joint ventures, for example with several big chemical companies, a Turkish logistics company and a leading con-struction group.

13 Are there restrictions on foreign participation in port projects? Port projects are assigned based on German and European competition law. Therefore, in order for the assignment to be fair, transparent and equal, there is no general restriction on foreign participation.

Still, the federal government may scrutinise, restrict and even pro-hibit the acquisition of a participation in a German target by investors from non-EU member states and, in cases of evasive transactions, from EU member states, if the acquisition is deemed to pose a serious threat to internal public policy or security. These provisions apply to ports or their operators. While there have been some reviews of such acquisi-tions in other industries, there have been few, if any, prohibitions of port-related transactions yet.



There is no specific legislation for port PPP projects or privatisation. Yet the general German and EU provisions for tender procedures prin-cipally apply to port projects. Also, there may be specific privatisation laws for certain projects. For some areas, the federal government and some of the federal states’ governments have issued PPP guidelines that may serve as indications of relevant principles.


Port privatisation and PPP are subject to general public procurement law, including the relevant law of the European Union as applicable under national law. Hence, as a general rule, proposals for projects whose values exceed the relevant thresholds under applicable law may only be considered as a part of a formal tender.

Nevertheless, European and German law provide that either the German government or the relevant principal, usually the port author-ity, may apply for an exemption from public procurement law if an activity is directly exposed to competition on markets to which access is not restricted.


Under public procurement law, concessions, agreements and other arrangements have to be awarded to the tenderer offering the best price-performance ratio. The criteria to be considered in this respect need to have been published in the course of the tender procedure. By way of example, they may include pricing; quality; environmental aspects; operating expenses; efficiency and productivity; technical aspects; timing and punctuality; and even aesthetics, provided always that there is some connection to the project.

Bidders need to fulfil certain requirements regarding technical qualifications, general capability, legal compliance and reliability. If relevant for the project, there may be further requirements regarding social, environmental and innovative matters. If specific legal pro-visions apply to the project, they may set out further requirements regarding the bidder.





The German PPP market is less standardised than, for example, the UK market, which has a tradition of proceeding under standard contracts. At the same time this leads to the public body being free to choose the best project model for a project (concession, lease, joint venture etc). Still, the federal government and some of the federal states’ govern-ments have issued guidelines for certain PPP projects.


Specific state or shareholders’ agreements are required that may vary from project to project (municipal or state; typically with no federal approval). Such approvals are typically not based on laws to be passed specifically for such projects, but on the applicable general laws.


As there have been no, or at most only few, port projects, there is no general model used (build–operate–transfer (BOT) or build–own–oper-ate–transfer (BOOT)). However, infrastructure projects, including port projects, are often structured as BOT models.


There is no legal minimum or maximum term for PPP projects in Germany. The average term is 20–25 years, depending on the economic life cycle of the project.

21 On what basis can the term be extended? Prolongation of the term is legally possible. Terms can be negotiated, but must be part of the tender procedure and be fixed with the award of the contract.


The structure of fees payable by port operators or joint venture partners in a PPP project depends on the relevant port and the chosen operat-ing model.


Usually there are no guarantees or exclusivity agreements regarding port PPPs by the competent government. However, general planning law and area restrictions would usually prevent the construction of closely competing ports.



The construction of a port requires various approvals, including those under planning and construction law, industrial law, environmental law and water law. Only if the construction in planning meets all require-ments set by the mentioned regulations the needed approvals will be granted. There is no one-stop shop for the approval procedure so that different authorities on a federal, federal state and municipal level may be competent for different approvals. The port regulatory authorities, however, support and consult operators in matters regarding obtaining the needed approvals. Besides that, there are certain approvals that the port authorities themselves are competent to grant. The entire process may take up to several years, in particular since third-party stakehold-ers may challenge granted approvals in court.


While there is no general rule for the involvement of governmen-tal agencies or port authorities, the competent port authority usually

provides the general port infrastructure, in other words the quays, docks, basins, roads etc. within the port area.

As the construction of the port infrastructure and the hinterland access will usually be part of the planning process under public law, gov-ernment agencies will often provide for the building of roads. However, other means of transport, such as railroads, are usually built by private companies, such as Deutsche Bahn. In some cases the port authorities will provide (build and maintain) the railway network within the port area; for example, the Hamburg Port Authority has provided the port railway since 2005.


In constructing the port infrastructure and suprastructure, the port operator will have to comply with the relevant construction standards under applicable public law. Also, the conditions of tender under public procurement law may provide for specific construction standards.

In principle, the port operator may also engage any contractor for the construction of the port, albeit subject to the contractor’s com-pliance with applicable law, in particular regarding industrial and labour law.


Any remedies for delays and defects in a port’s construction are pro-vided for by the applicable contract law. In Germany this includes the German Civil Law Code, the German Commercial Law Code, the German Construction Contract Procedures and the provisions of the relevant contracts themselves. Remedies provided for under German Civil Law generally include specific performance, damages, contrac-tual penalties and rescission of the contract.

Port operations


The port operator will require various approvals, some concerning his or her reliability, such as a general business licence, and others con-cerning the port facilities and their operation. Obtaining these approv-als should not take more than a few months.


Most port services are privatised and will be provided by the port oper-ator or other privately organised service providers. The port authority will usually only provide services that are related to public law obliga-tions and security issues.


The hinterland access of a port as a vital part of the port’s infrastruc-ture will usually be considered in the general planning of the port under public law. Also, the agreements on the planning and construction of a new port usually provide for sufficient hinterland access by road, railway or inland navigation. If and to what extent a port operator par-ticipates in the financing of such hinterland access depends on the rel-evant agreements, and is therefore subject to the negotiations of the parties involved.


The port authorities will oversee compliance with the relevant approval conditions and take care of general security issues. Suspension of port


Luther Rechtsanwaltsgesellschaft mbH GERMANY


operations will only be a remedy of last resort. Before a suspension is issued, other (milder) means such as fines will be deployed.


Port authorities may enter the port area to the extent required to ful-fil their public duties, or if provided for in any relevant agreement with the port operator. There are no practically conceivable circum-stances in which the port authorities would take over the port opera-tions themselves.


If the port operator does not operate and maintain the port as agreed, the port authorities’ remedies will depend on the content of the rele-vant agreements and of the approvals whose terms have been violated. Contractual remedies include specific performance, damages, contrac-tual penalties and rescission, while remedies in connection with the violation of public law approvals include penalty payments and fines as well as substitute performance or even the revocation of an approval. The most common remedies are contractual penalties and fines.


Whether the port operator has to transfer any suprastructures or is enti-tled or obliged to remove such assets depends on the contractual basis for the concession.

Under German statutory civil law, any assets that the operator adds to the port as replacement of equipment provided by the port authority as lessor need to be handed to the port authority without compensation, unless the port authority rejects the assets. Moveable assets added by the port operator may principally be removed by him or her or remain in the port area in return for a compensation by the port authority.

If the concession is based on a hereditary building right, immove-able assets, such as buildings, that were constructed by the port opera-tor remain in the port area, with the port authority as owner. In turn, the port authority as owner of the land and grantor of the hereditary building right is principally obliged to compensate the port operator for the loss of rights.

Miscellaneous


There is neither an obligation nor a prohibition to operate a German port by an SPV incorporated in Germany. In particular, EU law and certain other international agreements and conventions provide for freedom of establishment and equal treatment of the covered legal entities incorporated in other jurisdictions. Thus, setting up an SPV for the operation of a port is subject to practical and general legal and tax considerations, such as liability and tax transparency.


There are no general restrictions on the transfer of shares or interests in the port operator. Depending on the legal form of the port operator, there may be restrictions on the transfer of shares or interests under German corporate law. In particular, the transfer of interests in general and limited partnerships is subject to the approval of the other partners. The transfer of shares in a corporation may be made subject to such approvals in the articles of association, but this is not necessarily so.

The federal government may scrutinise, restrict and even prohibit the acquisition of a participation in a German target by investors from non-EU member states and, in cases of evasive transactions, from EU member states, if the acquisition is deemed to pose a serious threat to internal public policy or security. These provisions might apply to ports or their operators (see question 13).


In principle, a port operator may grant any security it wishes to its financing banks. However, using the rights under the PPP agreement as collateral will usually be subject to the provisions of the PPP agree-ment itself and any restriction imposed by public procurement law.

A port authority might enter into direct agreements with the financing parties. However, governments holding a stake in the rel-evant port project will likely directly agree with the financing banks on potential additional collaterals.

Update and trends

As mentioned in question 3, the national port concept has recently been revised. It addresses several crucial issues that concern operators, port authorities and federal states as well as the German government. Within the next couple of years, numerous changes and innovations will take place according to the National Port Concept.Currently the National Port Concept is with the German Parliament (Bundestag) as a notification (18/7340). According to this notifica-tion the new National Port Concept is to be a strategic guide for the next 10 years to improve the functioning of German ports as hubs of national and international trade in goods as well as centres for logistics activities and industrial sites at the highest level.

In the context of the competitiveness of ports, statistics show that the importance of large vessels is constantly growing. Therefore, the further development of German ports, in particular those at Bremen and Hamburg, and their adaptation to the needs of continuously increasing ship sizes, depends on the practical consequences of the European Court of Justice’s judgment regarding the application of environmental provisions to the dredging of the river Weser (Grand Chamber, judgement of 1 July 2015 – C-461/13).

Following this judgement by the European Court of Justice, the member states are required – unless a derogation provided for by the Directive is granted – to refuse approval of an individual project where it may cause a deterioration of the status of a body of surface water or where it jeopardises the attainment of good surface water status or of good ecological potential and good surface water chemical status. A derogation may apply – and the approval be granted – especially if an individual project is backed by an overriding public interest.

As to the question of from what moment a ‘deterioration of the status’ of a body of surface water occurs, the court replies that such deterioration is established as soon as the status of at least one of the quality elements, within the meaning of Annex V to the Directive, falls by one class, even if that fall does not result in a fall in classification of the body of surface water as a whole. However, if the quality element concerned is already in the lowest class, any deterioration of that ele-ment constitutes a deterioration of the status of a body of surface water.

As a consequence, the requirements and obligations imposed by the directive influence the development of ports, terminals and similar projects. However, it remains to be seen how the German authorities apply the derogations provided for by the relevant directives.

Also, the decision by the German Federal Administrative Court regarding the dredging of the river Elbe, which has been expected for quite some time, remains pending. The court proceedings are sched-uled to continue in the second half of December 2016 with another three trial days. Whereas the Ministry of Economics of Free and Hanseatic City of Hamburg maintains a positive assessment of the outcome, representatives of business associations are less enthusiastic. Environmental organisations suspect that another three trial days may indicate an in-depth evaluation and a tendency of the court to demand a strict re-evaluation under environmental law, taking into account the standards set out by the aforementioned European Court of Justice’s judgment. By all means, the pending decision by the German Federal Administrative Court regarding the dredging of the river Elbe will pro-vide further guidance and set cornerstones for the development of all German ports.





Amendments to agreements for the construction or operation of a port that have been entered into by a public entity are subject to public pro-curement law in the same way as the original agreement.

Aside from that, such amendments are subject to general contract law; in other words, if the parties do not agree, a contract may only be varied or terminated if one party is in breach of contract, if there has been a significant change of circumstances or if the contract itself pro-vides such rights.


As the contract on the operation of a port is subject to civil law, the government’s or port authority’s remedies are either stipulated by the contract or limited to the general remedies under German statutory civil law. These include, in particular, specific performance, damages and rescission.


To the extent that the PPP agreement is subject to German civil law, there is no mandatory legal requirement to provide for the application of German law to a PPP agreement. Still, general civil law might pro-vide limits to choice-of-law clauses. Further, for practical and political reasons, German law is likely chosen in most cases. To the extent to which the PPP agreement concerns matters of German public and, in particular, administrative law, the agreement will always be subject to German law.


Generally, the courts of general jurisdiction and the administra-tive courts are competent to adjudicate any disputes that may arise between the government or the port authority and the port operators. Where a dispute is governed by civil law, as opposed to administra-tive law, there are no specific restrictions regarding the agreement on arbitral tribunals for port projects. Hence, the stipulation of arbitration clauses is common.

Benjamin Hub [email protected] Gernot-Rüdiger Engel [email protected] Christoph von Burgsdorff [email protected]

Gänsemarkt 4520354 HamburgGermany

Tel: +49 40 18067 0Fax: +49 40 18067 110www.luther-lawfirm.com


Singhania & Co INDIA


IndiaKrishan Singhania, SN Verma and Purvai SharmaSinghania & Co

General


In India the ports are classified into two categories: major and minor. There are 13 major ports in India, namely Kolkata, Paradip, Visakhapatnam, Ennore (corporatised), Chennai, Tuticorin, Cochin, New Mangalore, Mormugao, Jawaharlal Nehru Port (JNP), Mumbai, Kandla and Port Blair. Similarly, there are 200 minor ports in India. Each port provides all shipping industry allied services except cruise services, which are provided by the major ports at Mumbai, Cochin and Chennai and the minor port at Panaji. Adani Ports and Special Economic Zones Limited (APSEZ) is India’s largest private multi-port operator, operating ports in Mundra, Dahej, Hazira, Dhamra and Kattupalli. Terminals in Murmugao, Visakhapatnam, Tuna-Tekra, among others, are under construction.


Reforms in the Indian port sector began with the 1994 policy docu-ment issued by Ministry of Surface Transport, wherein the privatisa-tion of ports and reformation of governing rules and regulation was laid down. However, it was only after the 1995 World Bank Report, that the Ministry framed the first Maritime Policy (in 1996), which provided for the following privatisation:• allowing major ports to give their existing assets on lease to private

entities, by entering into agreement with private parties and also empowering the port authority to enter into a contract with the pri-vate entities for the development of new assets;

• permission for the leasing of equipment and floating crafts to pri-vate entities; and

• leasing of 1,005 captive facilities to private port bodies.

The Ministry of Shipping in the past year has taken up several ini-tiatives to promote trade and improve India’s ranking in the ‘Trading across Borders’ indicator of the World Bank’s Doing Business Report. The following steps were taken by the Ministry on 24 May 2016 to facili-tate ease of doing business:• the major ports were asked to switch from manual to elec-

tronic forms;• instructions were given by the Ministry to all major ports to facili-

tate and provide land area for setting up of laboratories for ani-mal and plant quarantine, for textiles and the Food Safety and Standards Authority of India (FSSAI);

• the Ministry has directed all major ports to extend the Direct Port Delivery facility to all Accredited Client Programme (ACP) clients and to provide additional land area for parking of DPD containers.;

• in order to decongest the major ports, the Ministry has taken up the issue of reduction of fees and charges with the Tariff Authority for major ports to issue direction to all major ports and BOT Operators in those ports to fix separate lower charges for cargo and vessels-related services and also to give a special discount for the services rendered to exporters and importers after regular hours; and

• the Ministry has also called for the installation of container scan-ners at major ports and automation of Issuance of Delivery Orders. All the major ports are in the process of implementing the RFID Gate Automation System. The major ports are using advance infor-mation of import cargo online by accessing IGM message through (PCS) integration with customs software ICEGATE.

In order to remove congestion at ports on a war footing, all major ports have been directed to take necessary corrective measures, such as the development of parking areas and widening of roads.

India has traditionally focused on the public service model of port operation, but with the passage of time this approach has changed to the landlord model.


Through its Maritime Agenda, The Ministry of Shipping emphasises the importance and possibility of framing a Maritime Policy. The Agenda focuses on increasing the present capacity of Indian ports in a sustainable manner through the modification of existing ports and construction of new ports. It also emphasises the benefits of private partnership in Indian ports.


India has stringent rules for controlling air and water pollution, and for the use and maintenance of hazardous material. Through its Maritime Agenda for 2010–2020, the government has endeavoured to emphasise the need for the development of Indian port capacity in a more envi-ronmentally friendly way. The government has also suggested some of the following measures for moving towards ‘green ports’.

Economic measures include:• the use of cleaner fuels such as low sulphur diesels, biodiesel and

Fischer-Tropsch diesel in all port equipments;• well-enforced idling time restrictions of the vehicles in the

port area;• measures such as terminal gate improvements, simplifying trade

procedures, and designing a logistic chain which produces less traf-fic and lower air emissions;

• controlling the temperature of bunkers during storage or using scav-enging agents to reduce emissions during bunkering operations;

• speed reduction, and the use of specially designed paints to reduce drag and vessel assignment planning for harbour craft;

• the formulation of green tariffs for vessels which reduce their speed and use distillate fuel within port limits; and

• water curtains for the coal storage area to prevent coal dust flying from the storage yard and spreading through the port.

Capital intensive measures include:• replacing or retrofitting cleaner engines for cargo-handling equip-

ment, vehicles and harbour craft;• repowering of the old, highly polluting locomotives and tugboats

with several new low emission engine options, including natu-ral gas and hybrid battery–electric engines (Bailey and Solomon, 2004: http://202.114.89.60/resource/pdf/1875.pdf );

• cold ironing for ships and port tugboats;


INDIA Singhania & Co


• the building of infrastructure such as separate corridors for cargo, widening of roads and flyovers, and improving intersections for better traffic;

• the use of volatile organic compounds for oil installations, gas fill-ing stations and bunkering barges in the port area;

• the use of renewable energy such as wind, solar power, biogas or alternative fuel such as natural gas or propane for the port’s energy needs; and

• green curtains through tree plantation, mainly to mitigate the effect of carbon dioxide emission.

The Ministry of Shipping started ‘Project Green Ports’ on 19 January 2016. The aim of the project is to make ports greener and cleaner. Project Green Ports will have two strands: one is ‘Green Ports Initiatives’ and the other ‘Swachh Bharat Abhiyaan’. The Green Port Initiatives include 12 initiatives, such as preparing and monitoring plans, acquiring the equipment required for monitoring environmental pollution, acquiring a dust suppression system, setting up of sewage and waste water treat-ment plants and a garbage disposal plant, setting up projects for energy generation from renewable energy sources, completion of shortfalls of Oil Spill Response (OSR) facilities (Tier-1), prohibition of disposal of almost all kinds of garbage at sea and improving the quality of harbour wastes. In Swachh Bharat Abhiyaan, 20 activities will be undertaken to promote cleanliness at the port premises, such as cleaning the wharf, cleaning and repairing of sheds, cleaning and repairing of port roads, painting road signs, zebra crossings and pavement edges, and modern-ising and cleaning of all the toilet complexes in the operational area.

To achieve these objectives, regular training will be provided to staff. All the major ports have already initiated action on the above-mentioned activities and are seen to be making progress.



The development and operation of major ports in India is regulated by the Indian Ports Act 1908, and the Major Port Trust Act 1963. However, as far as the minor ports are concerned, their development and opera-tions are regulated by the respective state maritime boards. There have been many public-private partnerships (PPP) undertaken in the port sector, such as the development of the Mundra Port in Gujarat, as well as the leasing of existing facilities such as a container and marine liquid terminal for private parties in ports such as Chennai and JNP. Further, privatisation of major ports has only been done in Ennore, and all of the minor ports are on a private ownership basis.


By virtue of being placed on the Union List of the Constitution, the major ports fall under the jurisdiction of the Government of India. However, the day-to-day functioning of the major ports is governed by the board of trustees of the respective ports, constituted under the Major Port Trust Act 1963. The minor ports are under the Concurrent List of the Constitution of India, and fall under the jurisdiction of the respective state government and the respective state maritime board (Maharashtra Maritime Board, Tamil Nadu Maritime Board etc).


The chief regulatory authority in India is the Government of India. It exercises its power through the board of trustees of the respective ports, which in turn regulates the functioning of the ports. The key powers of the board of trustees, as stated under the Major Port Trust Act 1963, are as follows:• performance of works inside or outside the limits of the port and

provision of necessary appliances;• development of private wharfs within the port;• performance of port and terminal services such as stevedoring,

handling of passengers, delivery, transport and dispatch of goods, pilotage and towage; and

• providing the land inside the port.

The Director General of Shipping also plays an important supervisory role in the navigation, safety and security of ships entering and exiting the port.


The appointment of a harbourmaster in all major ports is done by the board of trustees under section 28 of the Major Port Trust Act 1963 by the framing of rules and regulation for such appointments – for exam-ple the Mormugao Port Rules 1966. For the minor ports, the appoint-ment takes place in accordance with the regulations framed by the respective state maritime boards.


All Indian ports are subject to the Competition Act 2002. However, to provide an incentive for investment in Indian ports, the Ministry of Corporate Affairs has excluded the vessel sharing agreement from the requirement of approval from the Competition Commission of India for the financial year of 2015–2016.


Yes. There are regulations that govern tariff determination in India, and they are updated yearly. The most recent one is the Policy for Determination of Tariff for Major Port Trusts 2015, issued by the Tariff Authority for Major Ports. However, the determination of tariffs in minor ports is not governed by the Tariff Policy. They are free to deter-mine their own tariff rate, subject to Indian competition laws. Tariff col-lection is done through escrow accounts.


The state has the social responsibility. For private party involvement, there are no such responsibilities. Further to this, minor ports mainly function through private parties.


As per the government guidelines, a port operator can enter into a joint venture with the state for the development or operation of a port in India. However, at all times the government must hold the controlling share in the joint venture contract. The most recent example is that of the Maharashtra Maritime Board (MMB) joining hands with Jawaharlal Nehru Port Trust (JNPT) through a joint venture for development of a port at Wadhwan.

13 Are there restrictions on foreign participation in port projects? As per the current foreign direct investment policy, a foreign entity can make an investment of 100 per cent through the automatic route in a development project. Further, to provide an incentive for the invest-ment, the government has given a 100 per cent tax exemption on income tax for companies investing in port infrastructure, and in addi-tion a 10-year tax holiday for companies involved in the development, maintenance and operation of ports, inland ports and waterways. The most recent example is that of the concession agreement entered into between the Jawaharlal Nehru Port Trust (JNPT) and the Port of Singapore Authority. This 80 billion rupees project is being funded through 100 per cent foreign direct investment, and is the fourth pro-ject by the Port of Singapore Authority in India.



As an agreement is usually based on the model agreement, it falls under the Contract Act 1872, which is specific in nature. Besides this, there are other laws like the Major Port Trusts Act 1963, which governs




PPP, and the Dock Workers (Regulation and Employment) Act of 1948, which governs labour procurement, which are also specific in nature.


A major port trust can enter into an arrangement (for not more than 30 years) without a formal tender on a build–own–operate–transfer (BOOT) basis with a foreign port, which should be selected by the for-eign government of their respective country irrespective of whether they are publicly owned foreign port or privately owned foreign port. However, such an agreement can only be entered into instead of a for-mal tender if the port authority feels that there is a need to import from the foreign country certain technology, managerial practices, expertise etc. As far as minor ports are concerned, there are no such restrictions, and they can be built and operated under a private concession agree-ment between the port authority and the private entities. Further, all of the minor ports exist under a private agreement only.


There are no set criteria, but generally the authority, while vetting the PPP or joint venture agreement, takes into consideration the following, among others:• a brief description of the project, which includes:

• the scope of the proposed project;• the nature of concession to be granted;• the period of concession along with the justification for alloca-

tion of such period;• the estimated capital cost, along with the basis of such estima-

tion and the bifurcation under major heads of expenditure;• the tentative construction time period;• the conditions, if any, for the implementation of the agree-

ment; and• the status of land acquisition;• justification for the project;• whether there are any possible alternatives to the proposed project;• the phases in which investment will be made and utilised;• the project implementation schedule;• the reputation of concessionaire, the sources of finance, and

whether any foreign investors are involved; and• tariffs.

Cabinet approved a policy on 27 July 2016 for the award of water-front and associated land to port-dependent industries in major ports. The policy includes creation of new assets as well as utilisation of cur-rently unutilised existing assets such as vacant berths. The policy will grant concession to Port Dependent Industries (PDI) for setting up dedicated facilities in major ports for import and export of cargo and their storage before transportation to their destination for a period of 30 years. Extension of concession period on certain conditions will be allowed. After a maximum of 30 years of operation, the waterfront and associated land in a major port will be allotted for the construc-tion of berths, offshore anchorages, transhipment jetties, single point moorings etc according to the terms and conditions of the Concession Agreement (CA) between the Port Authority and the concerned PDI. The objective of this policy is to ensure uniformity and transparency in the procedure for awarding captive facilities.


Indian port authorities have a Model Concession Agreement, but not for any other form of PPP agreement (such as a joint venture). Any devi-ation from the model agreement which is not of substantial or mate-rial in nature requires clearance from the PPP Agreement Appraisal Committee, whereas any substantial or material deviation requires approval from the authority which approved the model agreement.


As per the guidelines issued by the Government of India, the imple-mentation of a PPP agreement requires approvals from the PPP Appraisal Committee, the Ministry of Law and Justice and the Ministry of Finance.


In India, the implementation of port projects, in general practice, is done on a build–own–operate–transfer basis.


In accordance with government guidelines, no PPPs shall exceed a time limit of 30 years unless extended by the Government of India. In India the average term of a PPP is around 27–30 years.

21 On what basis can the term be extended? The extension of the term of PPP can only be done by the concessions authority (ie, the board of trustees of the respective port), on reason-able grounds.


There are no set principles. However, in practice the port operator under the agreement pays the licence fees for the port site and assets to the port authority, along with royalty at the agreed rate and rent for any additional services provided by the port authority.


Under the Model Concession Agreement, the government provides a guarantee to the port operator to the effect that the government will not construct a competing port. In addition, it also provides an exclusive licence to the port operator for designing, engineering, financing, con-structing, equipping, operating, maintaining and replacing the project, project facilities and services.



Major approvals required during the construction phase include:• permission from the Central Ground Water Authority for extrac-

tion of ground water;• an intimation to and the acknowledgment of the same from the

local authorities (the Municipal Corporation, the Metropolitan Region Development Authority, etc) stating the beginning of the construction of ports;

• approval from the local authorities in relation to the plinth level of the port;

• approval from the Storm Water Drain Department; and• approval from the respective state authority responsible for the dis-

tribution and supply of power.


The government generally acts as the enabler for the construction of the ancillary services (land acquisition, railways etc), but does not take part in any construction.


The port operator has to follow the specific construction standards mentioned under the agreement. Further, they are allowed to employ a contractor of their choice provided the specified requirements men-tioned under the concession agreement are fulfilled. However, there




are certain mandatory standards, a list whereof is provided under the Model Concession Agreement.


The authorities will have the remedy of terminating the agreement and obtaining compensation as provided under the agreement. Further, the concessionaire will also be liable to pay stamp duty, a transfer fee and any other charges that may have been specified, if so detailed in the agreement.

Port operations


Following the completion of the construction of the port, the port opera-tor needs to get a completion certificate from the independent engineer appointed under the agreement. Next, the operator needs approval from the Navigational Safety in Port Committee, Chief Hydrographer and Director General of Lighthouses and Lightships.


The port operator typically provides the following, among other services:• berth and terminal operations;• it maintains the project facilities and services at its own cost;• it repairs, replaces or restores the project facilities and services at

its own cost;• replacement and removal of assets comprised in the project facili-

ties and services;• payments to the port authority;• access for inspection;• provide port authority monthly reports;• maintenance of computer systems and networks as specified by

the port authority from time to time;• security arrangements for the project site or assets;• employs professionals;• unconditionally guarantees the port authority annual cargo han-

dling of the levels set out; and• provides for indemnity against cases for loss of goods.

The port authority typically provides the following, among other services:

• marine and port services such as scheduling; berthing; sailing of the vessels; maintenance of the channel draught; waterside safety of navigation and maintenance of dredged draught alongside the berth; carrying out capital or maintenance of dredging operations; maintaining project infrastructure; assisting the port operator in prosecuting offenders; and reaching an overall mutual understand-ing for sharing common costs; and

• granting all relevant approvals as sought by the port operator and assisting in the same.


The government or port authority puts in place and provides arrange-ments for provision of supporting project infrastructure including the following:• access to the port for inland transport such as roads, bridges

and tunnels;• maritime access channels;• port entrance;• sea locks; and• protective works such as shore protection and breakwaters.

However, these arrangements can be modified as per the commit-ments made by the port authority on a project-by-project basis.


General practice involves the submission of periodic reports by the port operator to the port authority, detailing cargo traffic; unit gross output and discharge rates at berth; daily output rated per vessel; tariffs earned and collected in respect of project facilities and services; and any other information as may be required by the port authority. For suspension of port operation, the following prerequisite circumstances are taken into consideration:• an application filed with the port authority by the lenders or financ-

ers, stating any financial default by port operator;• a declaration of emergency by the competent authority; and• violation of the Indian Ports Act 1908 or other applicable laws.


The port authority can take over the operations in follow-ing circumstances:• once the termination notice is issued in the event of default of the

port operator;

Update and trends

JNPT and the MMB (on behalf of the government of Maharashtra) signed a memorandum of understanding on 5 June 2015 to build and establish India’s new major port.

This new major port will be at Dahanu, near Mumbai, on fully reclaimed land, and will be named Vadhavan Port. It is expected to be operational by 2021–2022.

One of the major advantages of the proposed port near Dahanu is its natural depth of sea level (called draft) of about 20 metres, which will allow larger vessels to sail in closer to the port. In comparison, the ports at JNPT and Mumbai have an average draft of about 14–15 metres.

In the Vadhavan project, JNPT will have 74 per cent equity while MMB will hold 26 per cent equity in the proposed 25 billion rupees project.

The proposed port at Dahanu will be established as a corporate port under the Companies Act 2013, along the lines of Ennore port in Tamil Nadu. This new port will be developed as a landlord port with the basic port infrastructure being developed by the port company, and the berths, terminals and associated facilities being developed with private participation on the PPP model.

On 25 March 2015, the Cabinet gave in-principle approval for a new port development project, called the Sagarmala Project, for

the development of 12 Indian ports. Six megaports are planned in Sagarmala Project (Vizhinjam International Seaport, Colachel Seaport, Vadhavan Port, Tadadi Port, Machilipatnam Port and Sagar Island Port).

The National Perspective Plan for the Sagarmala programme was prepared and approved by the National Sagarmala Apex Committee on 9 April 2016. It was released by the Honorable Prime Minister at the maiden Maritime India Summit on 14 April 2016. It is an initiative from the Ministry of Shipping and the government of India, and as per their working paper it is explained as a strategic and customer-oriented initiative to modernise India’s ports so that port-led development can be augmented and coastlines can be developed to contribute to India’s growth. It aims to transform existing ports into modern world-class ports. A total of 173 projects have been initially identified under four project archetypes of Sagarmala in the National Perspective Plan, April 2016. Twenty-six port rail connectivity projects were identified under NPP, of which two have been completed and 18 are under imple-mentation by the Ministry of Railways. Most of these projects will be completed by 2019–2020.

The Ministry of Shipping has also drafted the Central Port Authorities Act 2016 to replace the Major Port Trust Act 1963 in order to give more autonomy and flexibility to the major ports.




• when the operation of the port threatens the safety and security of the nation or anything against the sovereignty of India; and

• upon election by the port authority.


When a port operator fails to operate and maintain the port as agreed, a notice is issued whereupon the parties along with the lenders try to arrive at an agreement as to the manner of rectifying or remedying the event of default and adopt one or more of the following measures as they deem fit:• the change of management, ownership or control of the port opera-

tor; and• the replacement by a new operator and the specific terms and con-

ditions of such replacement shall include criteria for the selection of the selectee; transfer of rights and obligations to the selectee surviving under the agreement; handing over the port’s site, assets, facilities and services to the selectee; acceptance by the selectee on the remaining obligations; and the amount due to the port author-ity. This also involves the payment of the port operator’s assets comprised in the project facilities and services in the manner of appropriation thereof.

The port authority can also take over the operations once the termina-tion notice is issued in the event of default of the port operator.


The port operator, without prejudice to any other consequences or requirements under any law or agreement, transfers all the assets and rights upon expiry of the concession period by passing of time or ter-mination of the agreement due to a force majeure event or on account of default. The port authority is entitled to encash any bank guaran-tee. The port operator shall peacefully hand over the port’s assets, the project site and project facilities and services free of encumbrance. Transfer will take place of all rights, titles and interests comprised in the project facilities and services. All the documents, such as draw-ings and records, must be handed over to the port authority, including transfer of technology and know-how of the operations of the port. Furthermore, it should transfer all the project contracts which are valid and subsisting. All the permits are transferred at the cost of the port operator, subject to the step-in rights of the lender. The port author-ity generally provides compensation to the port operator in the case of premature termination of the agreement.

Miscellaneous


As per the guidelines for foreign collaboration, the port operator is allowed to operate a port through an SPV provided it is an Indian incor-porated company.


The port operator has ownership (for the term of the agreement unless terminated before that) of any construction, addition and equipment installed, located or provided by it, and does not include the project site and project assets (as may be defined under the agreement). This ownership right is transferable only in the case of termination of the agreement and in the case of financial default (transfer to lender) by the port operator.


The port operator can create charge over its ownership, provided it is in conformity with the PPP agreement. The port authority does not enter into a direct agreement with the financing banks, but parties may agree to payment of any due compensation on the part of the port authority directly to the lenders.


Any variation to the agreement is generally made with the written con-sent of both parties, or through any other measure as may have been detailed by the party under the agreement. Termination of the agree-ment is achieved in accordance with the circumstances mentioned under the agreement, which generally include:• force majeure;• default on the part of the port authority; and• default on the part of the port operator.


The port authority generally has the remedy of terminating the agree-ment along with the transfer of ownership from the port operator and payment of compensation. The agreement may also provide for pay-ment of transfer fees, stamp duty or any other charges applicable.

Krishan Singhania [email protected] SN Verma Purvai Sharma

102–103, 10th FloorJolly Maker Chambers-IINariman PointMumbai 400 021India

Tel: +91 22 22020320Fax: +91 22 [email protected]





As per the government guidelines and the Model Concession Agreement, all PPP agreements are governed by Indian law.


In India, disputes arising under an agreement are customarily first referred to mediation, which is followed by arbitration if mediation does not result in an amicable settlement. Lastly, disputes are resolved with the intervention of the court for any additional remedy or altera-tion of the arbitration award.


Arfidea Kadri Sahetapy-Engel Tisnadisastra (AKSET) INDONESIA


IndonesiaArfidea D Saraswati, Gabriella MC Ticoalu and Tara Priscilla OgilvieArfidea Kadri Sahetapy-Engel Tisnadisastra (AKSET)

General


The key public ports in Indonesia are Tanjung Priok, Merak, Tanjung Perak and Batam Center. Most offer similar facilities, such as loading and unloading of containers, heavy machinery, bulk raw materials and imported and exported goods; vessel services; passenger trans-port; and ro-ro services for motor vehicles. The primary purpose of the ports commonly includes transhipment, gateway and passenger ferry transport.

In order to prepare the country for future growth and address infra-structure gaps, the government has made new port development a major priority. The Official 2015 Public Private Partnership Book lists several major port projects, including Maloy International Port (East Kalimantan), Kuala Tanjung International Hub Port (North Sumatera), Bitung International Hub Port (North Sulawesi) and the expansion of Kabil Port (Batam, Riau Island), among others.

Separately, the Indonesian government has proposed that 14 public ports be dedicated to coal export. Some of these are existing ports: Southern Aceh; Padang; Riau Bay; Jambi Bay; Port of Bengkulu; Tanjung Api-api in South Sumatera; Tarahan in Lampung; Balikpapan, Adang Bay, Berau and Maloy in East Kalimantan; and Taboneo, Sungai Danau and Batulicin in South Kalimantan.


Formerly, Law No. 21 of 1992 on Shipping (the Old Shipping Law) gave a monopoly to port administrators (the representatives of the govern-ment at ports; ie, the port authority and port administrator unit) and four state-owned enterprises established under government regula-tions named PT Pelabuhan Indonesia (Pelindo) I, II, III and IV to per-form port operations. Since the enactment of Law No. 17 of 2008 on Shipping (the Shipping Law), ports can be operated by an Indonesian private ‘port business entity’ (BUP) holding a port business entity licence (BUP Licence) through a concession agreement with the port authority (for commercial ports) or port administrator unit (for non-commercial ports).

The Shipping Law also introduced ‘terminals for own interest’, which are owned and operated by a private party to support their busi-ness activities inside a port working area and port interest area. Under the Old Shipping Law, private parties could only operate ‘special ports’ (now called ‘special terminals’), which had to be outside a port working area and port interest area.

In short, the Shipping Law aims to separate the roles of port regula-tors and operators and encourage the participation of private parties in port operation.


Article 9 of Government Regulation No. 61 of 2009 on Ports, as amended by Government Regulation No. 64 of 2015 (the Port Regulation), provides that existing and future ports shall follow the national port policy, location plan and port hierarchy. The national port

masterplan is determined by the Minister of Transportation (MOT) for a period of 20 years and can be reviewed every five years. The port loca-tion plan is based on national, provincial and regional spatial planning; social and economic development; natural resources potential; and strategic environmental development, either national or international.


In general, the Port Regulation provides the obligation of port authori-ties and port business entities to preserve the environment and comply with prevailing environmental laws and regulations. The MOT must determine a port masterplan and port location stipulation based on an environmental feasibility study. The port authority, port administrator unit and BUPs also have a duty to preserve the environment and pre-vent pollution in port areas.

The Lamong Bay expansion of Tanjung Perak is said to be the first ‘green’ container terminal in Indonesia because it will use gas-fuelled modern equipment to reduce carbon emissions.



Yes. Port development is regulated under the Port Regulation, which allows privatisation through a concession agreement between the port authority and a private BUP. Further regulations are enacted at the presidential, ministerial and director general levels to administer technical matters, such as the procedure to obtain concessions through public tender or direct selection/appointment, as well as the minimum capital requirements for a BUP.

Public-private partnership (PPP) for ports is permitted under Presidential Regulation No. 38 of 2015 on Cooperation between the Government and Business Entities in the Provision of Infrastructure (the PPP Regulation).


Yes, all ports in Indonesia are subject to the following regula-tory authorities:• the port authority, which is responsible for regulations and devel-

opment, control and supervision of the port. Port authorities are responsible for ports that are commercially operated;

• the port administrator unit, which is responsible for ports that are not yet commercially operated; and

• the harbourmaster, who is responsible for the safety and security of the port.


The port authority is responsible for:• providing onshore and offshore land for the port;• providing and maintaining anchor, port pool, cruise lane and

road arrangement;• providing and maintaining aids to navigation;• ensuring safety and order in the port;


INDONESIA Arfidea Kadri Sahetapy-Engel Tisnadisastra (AKSET)


• ensuring and maintaining the sustainability of the port environment;

• preparing the port masterplan comprising the port working area and port interest area;

• suggesting a rate to be determined by the MOT, for use of water or land, and port facilities provided by the government, as well as port services convened by the port authorities in accordance with the prevailing laws and regulations; and

• ensuring smooth distribution of goods.

In addition to the competences above, the port authority is responsible for funding port operations.

The port administrator unit is responsible for:• providing and maintaining anchor, port pool and shipping lane;• providing and maintaining a navigation-shipping aid facility;• ensuring safety and order in the port;• ensuring and maintain sustainability of the port environment;• preparing the port masterplan, comprising the port working area

and port interest area;• ensuring the smooth distribution of goods; and• providing port facilities.

The harbourmaster is responsible for safety and security of the port, including implementation, supervision and law enforcement in the field of water transportation, ports and maritime environmental pro-tection. In addition, the harbourmaster is responsible for search and rescue around the port vicinity.


The Port Regulation provides that the harbourmaster will be appointed by a minister upon prior consultation with the relevant sectoral minis-try (ie, appointment of a harbourmaster in a fishery port is subject to consultation with the Minister of Marine Affairs and Fisheries).


No. Since the reformation of the port regime through the enactment of the Shipping Law, BUPs are free to compete with one another in pro-viding port services commercially in one or more terminals. However, this is subject to the general Indonesian anti-competition rules under Law No. 5 of 1999 on the Prohibition of Monopoly Practices and Unfair Business Competition (the Anti-Trust Law).

Under the Old Shipping Law, port business was monopolised by the government and the four Pelindos, which was permissible under Indonesia’s Constitution and the Anti-Trust Law, which allow monop-olies in sectors of production that are important for the livelihood of the state by state-owned enterprises or a body or institution formed or appointed by the government.


Tariffs are determined based on public service, improvement of service quality, the interest of service users, improvement of the flow of ser-vices, return on investment and business development, as stipulated under the Port Regulation.

Tariffs for services provided by a BUP are determined based on the type, structure and tariff classification determined by the MOT using guidelines stipulated under MOT Regulation No. PM.95 of 2015 on Guidelines for Stipulation of Tariffs for Port Services by BUP. In the concession agreement, the initial tariff and tariff adjustments are agreed between the BUP and the port authority by considering the foregoing regulation.

Tariffs for services performed by the port authorities are deter-mined by the port authorities themselves after consulting with the MOT. For ports commercialised by provincial and regional or city gov-ernments, tariffs will be determined based on regional regulation and will serve as regional income. Tariffs for non-commercial ports oper-ated by the government are determined by government regulation and will be non-tax state revenue.

The collection of tariffs is performed by the relevant port authority.


Yes, the state is obliged to provide certain public services in relation to port access or services.

A port must be constructed based on the port masterplan stipu-lated by the MOT in accordance with social and economic conditions, and shall fulfil a number of public facilities: among others, road and railway access to the terminals.

Port access can be fulfilled through a concession agreement with a private party.


Yes. A state-owned enterprise can operate a port on its own or it can enter into a joint venture (JV) with a port operator (either a local or for-eign party) to create a BUP (a single purpose company established for port business) with minimum paid-up capital ranging from 25 billion rupiah to 1 trillion rupiah as regulated under MOT Regulation No. 45 of 2015 on Capital Requirements for Business Entities in the Field of Transportation. The state’s stake in the venture is not subject to any percentage threshold. However, if the venture also wishes to hold a state entity’s status then the state’s share ownership in the venture must at least be 51 per cent.

13 Are there restrictions on foreign participation in port projects? Yes. Based on Presidential Regulation No. 44 of 2016 on List of Business Fields Closed, and Business Fields Open, with Conditions, to Investment (the Negative Investment List), foreign capital ownership in a BUP is limited up to 49 per cent. However, if the BUP is publicly listed at the Indonesian Stock Exchange then such foreign restriction should not be applicable. If the port business is implemented through a PPP scheme, it is allowed to have up to 95 per cent foreign ownership during the period of concession.



Both procurement and PPP for public services are specifically gov-erned in Indonesia. Procurement is governed under Presidential Regulation No. 54 of 2010 on Procurement of Goods and Services by the Government (as amended by Regulation No. 35 of 2011 (First Amendment), Regulation No. 70 of 2012 (Second Amendment), Regulation No. 172 of 2014 (Third Amendment) and Regulation No. 4 of 2015 (Fourth Amendment)).

The PPP Regulation recently replaced the previous Presidential Regulation. Further, Presidential Regulation No. 78 of 2010 on Provision of Government Guarantees for PPP Infrastructure Projects through Indonesia Infrastructure Guarantee Fund (IIGF) (the IIGF Regulation) regulates guarantees on the financial obligations of PPP supervisors (the government or state-owned enterprise) through financial compensation to the business entity for infrastructure risks through a guarantee agreement.

PPP is also governed using a cross-sector regulatory framework. Minister of Finance (MOF) Regulation No. 260 of 2010 regulates the procedure for requesting and providing government guarantees, whereas MOF Regulation No. 223 of 2012 regulates the viability gap fund. BAPPENAS Regulation No. 4 of 2015 on Procedure to Implement Government and Business Entity Cooperation in the Provision of Infrastructure (BAPPENAS Reg. 4/2015) also provides procedures to implement a PPP.


Yes, ports can be cooperated through a PPP scheme as affirmed by the PPP Regulation and BAPPENAS Reg. 4/2015 on Procedures to Implement Cooperation between the Government and Business Entities in the Provision of Infrastructure.




The PPP Regulation stipulates that a business entity may propose a PPP (unsolicited proposal) to the minister or head of the region if it:• is technically integrated with the master plan of the relevant sector;• is economically and financially feasible; and• the business entity concerned has the financial capability to fund

the provision of infrastructure.

The business entity must submit a feasibility study of the unsolicited proposal for the government’s assessment. After the government approves the unsolicited proposal, a tender process should still be conducted. There are, however, special benefits for the initiator of the unsolicited proposal, whereby they will be granted:• 10 per cent additional points in the tender assessment;• the right to match the best bid in the tender; and• the purchase of the intellectual property rights and documents

attached to the unsolicited proposal by the minister or winner of the tender.

Direct appointment, as opposed to tender, can be conducted under cer-tain conditions, namely:• there is only one participant for the project;• the proposed infrastructure has already been built by the same

business entity;• the business entity is the only entity which can provide the required

technology for the infrastructure; or• the business entity has acquired most of the land needed for

the infrastructure.


Under the Port Regulation, concessions can only be given to a BUP through a tender, assignment or appointment, with procedures fur-ther regulated under MOT Regulation No. 15 of 2015 as amended by Regulation No. 166 of 2015 on Concessions and other forms of Cooperation between the Government and BUP in the Field of Ports (MOT Reg. 15/2015). For granting of concession through assignment or appointment:• the land must be owned by the BUP; and• the whole investment must be implemented by the BUP, without

using funds sourced from the state budget.

A BUP must be established as an Indonesian limited liability company, must meet minimum capital thresholds and, if foreign shareholders are involved, is in general subject to a maximum of 49 per cent for-eign ownership.


The PPP Regulation stipulates that a PPP agreement shall contain the following provisions at least:• scope of work;• period of the project;• guarantee;• tariff and adjustment mechanism;• rights and obligations, including risk allocation;• performance service standard;• share transfer before PPP commercially operates;• sanction for default;• termination of agreement;• asset ownership;• a tiered dispute settlement mechanism;• a supervision mechanism for procurement;• a change of work or service mechanism;• mechanism of the government’s right to take over or to give loans;• utilisation and ownership of assets or its development to the PJPK

(supervisor of the PPP project, which can be the minister or rel-evant head of the region);

• return of infrastructure assets or its development to the PJPK;• force majeure;• representations and warranties;• Bahasa Indonesia as the governing language; and• Indonesian law as the governing law.

Other than the mandatory provisions, the content of the agreement can be customised so far as it is not specifically regulated or restricted in the Regulation. For example, in the matter of determining return on investment, the business entity and the government can impose tariffs, availability payments or other means so long as it is not against the law. On the other hand, the PPP Regulation restricts the amount of govern-ment guarantee to 5 per cent of the total PPP investment value.


According to the PPP Regulation, before being able to sign a PPP agree-ment, the business entity must participate in and win the tender for the PPP project. If there is only one tender participant or if such business entity can meet certain requirements provided in the PPP Regulation as explained in question 15, they can be directly appointed to imple-ment the PPP project.


Port projects through concession between the port authority and BUP can be implemented with various schemes, including build–operate–transfer and build–own–operate–transfer as accommodated under the PPP Regulation. The Port Regulation states that after the conces-sion period ends, the port shall be transferred or returned to the port authority, including the land and all facilities acquired or developed by the BUP throughout the concession period. Nonetheless, the port can be operated by the BUP again, through a joint utilisation cooperation scheme between the port authority and the BUP.


There is no minimum or maximum term for PPP in Indonesia. The period of a PPP project is freely determined in the PPP agreement con-sidering the type, complexity and characteristics of the PPP project and the period of expected return on investment (ROI).

However, in the case of infrastructure in general, and ports in par-ticular, 30 years is generally agreed following a common port conces-sion period.

21 On what basis can the term be extended? An extension may be given based on, among other things:• the need for government support in the form of PPP to continue

port operations;• the economic scale of state revenues;• the mutual consent of the parties; and• the possibility of divestment of foreign share ownership in the port

operator – because if the PPP is ceased, then foreign ownership must be reduced from up to 95 per cent to 49 per cent.


In a PPP scheme (as regulated by the PPP Regulation), the method for returning the investment of the business entity shall be obtained from:• tariff payment by users;• availability payment; or• another form, as long as it does not contradict prevailing laws

and regulations.

The initial tariff and its adjustment formula will be determined by the PJPK based on the ROI. In the event that a tariff cannot be determined based on ROI expectations, the tariff shall be imposed based on the capability of the users whereby the government, to secure the business entity’s ROI, will give feasibility support.

Availability payment will be given by the PJPK for the provision of infrastructure conducted by a business entity in the operational period determined under the PPP agreement. The availability payment will be determined by the PJPK considering the cost of funding, operational costs and the business entity’s profits.





A government infrastructure guarantee is available in a PPP scheme to secure the financial obligation of the PJPK to pay compensation to busi-ness entities for infrastructure risks based on the allocation stipulated under a guarantee agreement. Government guarantees are regulated under the PPP Regulation and the IIGF Regulation. The guarantee agreement shall be signed on the day or after the PPP agreement is executed by IIGF, as the guarantor given such right by the Minister of Finance, the PJPK and the BUP.



To commence construction, the port authority must apply for a port construction licence from the:• minister for main ports and collector ports;• governor for regional feeder ports; and• regent or mayor for local feeder ports.

Licences will be issued by the relevant authority within 30 days after receiving the application in a correct and complete manner, as regu-lated under the Port Regulation.

A port authority which has obtained a port construction licence may then grant a concession to a BUP to construct the port pursuant to a concession agreement.


The Port Regulation stipulates that construction will be carried out by the holder of the port construction licence (port authorities for ports that are utilised commercially and port administrators for ports that are not yet utilised commercially), but their role in the construction work may be shifted to the BUP through a concession agreement.


Yes, a BUP will have to adhere to specific construction standards pro-vided in the port masterplan, feasibility study and the technical design approved by the issuer of the port construction licence.


The Port Regulation stipulates that port authorities, port administra-tors and BUPs (upon bestowment of a concession from the port author-ities) are obliged to commence construction within two years after

issuance of the port construction licence. Sanctions may be imposed for non-compliance with the concession agreement.

If the BUP subcontracts the construction to another company, any failure of construction work performed by the subcontractor will be subject to the sanctions available under Law No. 18 of 1999 on Construction Services, Government Regulation No. 29 of 2000 on Implementation of Construction Services and the construction agree-ment between the BUP and the contractor.

Port operations


The port authorities must obtain a port operation licence from the rel-evant authorities to commence operation of the port. The port opera-tion licence will be issued by the minister for main and collector ports, the governor for regional feeder ports and the regent or mayor for local feeder and river ports. The licence shall be issued within 30 days after receipt of a complete application and requirements. The port authority may engage a BUP through a concession agreement to operate the port.


As the port operator, a BUP may provide the following services:• harbour services for ships to dock;• refuelling and clean water services;• loading and unloading of passengers and vehicles;• harbour services for loading and unloading of goods and containers;• warehouse, stockpiling, loading and unloading equipment and

port equipment;• container terminal services, liquid bulk, dry bulk and ro-ro;• loading and unloading of goods;• distribution centre and goods consolidation; and• ship postponement services.

Port authorities may provide services needed by users that have not been fulfilled by the BUP, as provided under the Port Regulation.

For any port services provided by the BUP, the users will be charged a tariff, which will be collected by the port authority. The concession agreement will determine the amount and formula for calculating fees or compensation for the BUP, based on the tariff collected by the port authority, considering ROI for the BUP.


The MOT, in granting or determining a port location that is requested by the government or regional government, shall consider the result of the feasibility study showing that such port location has accessibility to the hinterland.

The port master plan, determined by the MOT, shall also have main facilities in the form of road or railway access. Concessions can-not be given without making sure existing terminals and facilities (ie, access roads) can fulfil the demand on port services.


As regulated under the Port Regulation, the port authority is obliged to:• prepare a port services provision system and procedures based on

guidelines stipulated by the MOT;• maintain the order of ship and goods services, as well as other par-

ties’ activities in accordance with the stipulated port services provi-sion system and procedure;

• supervise loading and unloading activities;• implement an integrated system for information technology and

communication for smooth distribution of goods; and• coordinate with relevant parties for smooth distribution of goods.

Update and trends

The government introduced direct assignment/direct appointment as a method of granting concession agreements to BUPs under MOT Reg. 15/2015. Prior to the enactment of MOT Reg. 15/2015, concessions could only be obtained through a public tender. Nonetheless, direct assignment is only viable if the BUP already owns the land and will implement the entire investment without using funds from the state budget.

To assure the quality of transportation services, the Government introduced minimum capital requirements for trans-portation companies, including the ones carrying out ports and/or terminal businesses under MOT Reg. 45/2015, which was fol-lowed up with specific requirements contained in the Negative Investment List enacted in May 2016. Directorate General of Sea Transportation Circular Letter No. PP.008/113/UPP.SBK-2016 re-stipulated the need to fulfil minimum paid-up capital requirements prior to applying for a terminal licence.

The minimum capital requirements between 25 billion rupiah to 1 trillion rupiah must be met before 24 February 2018. Failure to comply will be subject to administrative sanctions, including potential revocation of business licence, and criminal sanction of imprisonment or fine for continuing violations.




In addition, they are authorised to set out operational standards for the provision of port services, to be evaluated annually.

Port authorities are authorised to suspend activities of the port operator or revoke the concession agreement if it is proven that the port operator did not conduct its business in accordance with the conces-sion agreement.


When the concession agreement with the BUP has reached termina-tion, all facilities in the port will be transferred or returned to the man-agement of the port authority.


Based on MOT Regulation No. 23 of 2015 on Improvement of Port Administrator Function at Commercial Ports, port authorities may impose the following sanctions for non-compliance, breach or devia-tion of port utilisation by BUPs:• corrective action with respect to land utilisation of ports that is not

in accordance with its function;• licence suspension; and• banning the imposition of tariffs by BUPs that do not perform

their services.

Port authorities or the government may also resort to the concession agreement for remedies or sanctions.


The Port Regulation stipulates that, on termination of the concession agreement, port facilities and the land used during the concession period will be transferred or returned to the port authority in accord-ance with the concession agreement. The concession agreement will accommodate and ensure that the BUP will obtain its return on invest-ment and reasonable profit during the concession period, including any expenditure for procurement and acquisition of assets.

Miscellaneous


Besides the port authorities and the state-owned enterprises, the only entity that can operate a port is a BUP through a concession agreement with the port authority. Based on the Port Regulation, a BUP must be a single-purpose entity established to operate in the field of ports, and it is restricted to do any activities other than port services business. Thus,

a BUP is a special purpose vehicle (SPV) and it must be in the form of an Indonesian limited liability company.


We suppose a port operator, in this case a BUP, has ownership interest over the assets of the port only if the concession agreement is using the build–own–operate–transfer model or another model that requires the BUP to first own the assets during the concession. In such case, the assets procured and owned by the BUP are not freely transferable. The rationale is that at the end of the concession period all assets will be transferred to the port authority.


This depends on the PPP agreement. For the purpose of financing, the port operator should be permitted to encumber its port and facilities in favour of the lenders. Some ‘right to step in’ may also be granted by the port operator in favour of the creditors, under certain circum-stances and subject to conditions under the regulations. Typically, the Indonesian government or port authorities would allow such secu-ritisation provided that it is released prior to the end of the PPP term, because after the PPP ends, the ownership of the port and its facilities should be transferred to the port authority for continued operation by a state-owned or local government-owned entity.

On the other hand, the Indonesian government or port authority would not typically enter into an agreement with the project financ-ing banks.


An agreement to construct or operate a port facility will vary according to what is being agreed upon by the parties to the concession agree-ment, so long as it does not contravene the Port Regulation, which stip-ulates that a concession agreement must at least cover the following:• scope of business activity;• term of concession agreement;• basic tariff and tariff adjustment formula;• rights and obligations of the parties, including risk allocation;• services performance standards as well as a customer complaint

management procedure;• sanctions;• dispute settlement;• termination of the concession agreement;• prevailing law in the concession agreement is the law of the

Republic of Indonesia;• force majeure; and• amendments to the concession agreement.

Arfidea D Saraswati [email protected] Gabriella MC Ticoalu [email protected] Tara Priscilla Ogilvie [email protected]

The Plaza Office Tower 29th FloorJl M H Thamrin Kav. 28–30Jakarta 10350Indonesia

Tel: +62 21 2992 1515Fax: +62 21 2992 1516www.aksetlaw.com




An agreement to operate or to construct the port may be terminated due to expiry of the agreement, or if there is non-compliance by either of the parties.


As explained earlier, a port operator can only exercise their right in the port pursuant to the concession agreement. Non-compliance will result in termination of the agreement. The remedies that the government or port authority can resort to will depend on what is agreed between the parties as long as it is in compliance with the laws and regulations.


Yes, all PPP agreements must be governed by the laws of the Republic of Indonesia. This is explicitly stipulated under the PPP Regulation.


The PPP Regulation provides that a PPP agreement shall contain a progressive dispute settlement mechanism through deliberation, mediation and arbitration or court if the parties fail to reach an amica-ble settlement.


Tagawa Law Office JAPAN


JapanMitsunari Taketani Tagawa Law Office

General


Keihin Port (Tokyo, Yokohama and Kawasaki) and Hanshin Port (Osaka and Kobe) are the key ports, because they are specified by a Cabinet Order as being an ‘international strategic hub’.

These ports have the functions of:• being the hubs of an international maritime transport network in

long-distance international maritime container transport; and• connecting the international maritime transport network and

domestic cargo.

The primary purpose of the ports is as a gateway.


Japanese ports have been managed by port management bodies (PMBs) and operated by public companies, but the positions of the main ports in Japan within the international arena have become relatively lower in status. Therefore, reform of the management and operation of ports has been undertaken.

Reform of port maintenance procedures has been undertaken to reduce port costs from the viewpoint of strengthening international competitiveness, along with reform of port management and operation so as to utilise private sector business capabilities. In accordance with such actions, the Port and Harbour Act (PHA) has been revised.

According to PHA article 2(1), ports are classified into the follow-ing categories:• international strategic hub: ports that are specified as such by a

Cabinet Order as their international competitiveness needs to be strengthened, predominantly because they have the important function of being hubs of an international maritime transport net-work involving long-distance international maritime container transport connecting the international maritime transport network and domestic cargo;

• international hub: those ports other than international strategic hubs, which are specified by a Cabinet Order as hubs of an interna-tional maritime transfer network;

• major port: those ports other than international strategic hubs and international hubs, which are specified by a Cabinet Order as hav-ing great importance to the national interest, including those serv-ing as hubs of a maritime transport network; and

• minor port: those ports other than international strategic hubs, international hubs and major ports.

The revision of the PHA in 2011 allowed the Minister of Land, Infrastructure, Transport and Tourism (MLITT) and a PMB to appoint a port managing company (PMC) at international strategic hubs (five ports) and international hubs (18 ports), in order to utilise private sec-tor business capabilities. Public companies that managed ports and terminals became joint-stock companies with investment from private funds, and these joint-stock companies were appointed as PMCs.

Therefore, the principal port model of international strategic hubs and international hubs is that a PMB maintains port facilities (quay walls, anchorages, land etc) and a PMC manages onshore facilities (warehouses, gantry cranes etc). The principal port model of major ports and minor ports is that a PMB maintains, manages and operates port and onshore facilities.

In addition, the PHA stipulates that a port authority and a local government can be a PMB (PHA article 2(1) and article 33), but there is only one port authority in Japan (Niihama Port). Local governments are the PMBs in almost all ports in Japan.


The overall state policy is to strengthen international competitiveness and improve the business environment by maintaining and recovering international main routes to Japanese ports.

In order to make this policy a reality, international strategic hubs (international strategic container hubs) are chosen based on the con-centration of core competence. International strategic hubs intensively implement the following measures:• to promote collecting cargo from a wide area;• to improve services for shippers (to extend the gate opening time);• to improve services for shippers (computerisation and a counter-

measure for delay);• to deal with the increasing size of container vessels;• to realise the strategic port operation from the view of the pri-

vate; and• to reduce terminal costs.


The national government promotes a zero emission policy. In order to make this policy a reality, it has taken the following measures:• promoting the use of power supply facilities from the shore to a

landing vessel; • promoting energy-saving loading machines; and• promoting energy-saving refrigeration containers.



See question 2.A port zone designated as an ‘industrial zone’ by the relevant

PMB should be sold to a private company after being developed by the national government or a PMB, and the zone is then used by the company.

There are only a few cases of port PPP in Japan.


Yes, the PMB and the coast guard act as regulatory authorities.The PMB regulates the port to keep the port area and port facilities

in good operating condition under the management of the PMB (PHA article 12(1)).


JAPAN Tagawa Law Office


The coast guard regulates the port for the safety and good order of marine traffic (Japan Coast Guard Act article 5(9)).

As stated above, the purpose of regulation by a PMB is different from that of a coast guard.


PMBAny party who intends to engage in works that may seriously obstruct the development, utilisation or preservation of the port within the port area needs to obtain approval from the PMB (PHA article 37(1)). The PMB may order any party who undertakes such works without approval, or infringes the conditions attached to the approval, to sus-pend works and other acts; to alter, relocate or remove structures or vessels and other property; to eliminate obstructions; and so on (PHA article 56-4(1)).

If any party does not obey said order, the PMB can initiate an administrative subrogation.

HarbourmasterWhen the harbourmaster finds it necessary, it may order vessels berth-ing in the port to move (Act on Port Regulations (APR) article 10).

When the harbourmaster finds it necessary for the safety of marine traffic, it may designate a passage or an area in the port and restrict or prohibit marine traffic (APR article 37(1)).


A harbourmaster is appointed only for a ‘specified port’, stipulated in APR article 3(2).

The director general of the Japan Coast Guard appoints a harbour-master of coast guard officers (Japan Coast Guard Act article 21(1)).


There is no specific national competition rule for ports. The general rule (Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade) shall apply to ports.

If there is a risk that the fares or fees of a port operator or pilotages will lead to discriminatory treatment or will cause unfair competition, the MLITT can order them to be changed (Port Transport Business Act article 9(2), article 22-3(2) and Pilot Act article 46(5)).


When intending to collect charges from a beneficiary of the facilities or the services it provides, the PMB prepares the tariff in advance and makes it public (PHA article 44(1)). When the PMB is the local govern-ment, the tariff shall be stipulated by local by-law (Local Autonomy Act article 228).

Any party other than the PMB that intends to collect charges for the facilities and services it provides in the port should prepare the tariff and submit a statement showing the rates to the said PMB (PHA article 45(1)).

A PMC that intends to collect charges for facilities it operates should prepare the tariff and submit a statement showing the rates to the MLITT or the PMB of the international hub (PHA article 45(2)). The MLITT will inform the PMB of the tariff submitted by the PMC (PHA article 45(5)).

As stated above, all the tariffs are collected by the PMB and it pre-pares and publicises all the tariffs of the port (PHA article 12(1)(xiii) and (4)).


The national government does not provide any services.The Act on Assurance of Security of International Ships and Port

Facility article 3(1) stipulates that the MLITT has to set and monitor the Maritime Security Level on all ships and port facilities that engage in international services (this is according to a Cabinet Order).

The state is not able to satisfy those obligations through a contract with a private party.


There is no provision to prohibit it, but we are unaware of any such joint venture in Japan.

13 Are there restrictions on foreign participation in port projects? No, there are no restrictions.

PSA International Pte Ltd in Singapore invested in the SPV which was incorporated for the port PPP project of the Hibiki container ter-minal in Japan.



Yes, it is. The Public Accounting Act and a by-law have provisions regarding public procurement. The Act on Promotion of Private Finance Initiative (PFI Act) stipulates for PPP. The National Property Law has provisions about PPP.


Yes, it can consider such proposals. A private company can propose a plan to a PMB for PPP, along with the plan of the project and docu-ments which evaluate effectiveness and efficiency as part of a formal tender (PFI Act article 6(1)).

When the PMB receives the proposal, it has to consider it and inform the company of the result (PFI Act article 6(2)).


The criteria are an overall judgment of the price (fees which are paid by the company to the PMB) and the service provided by the company.


The Cabinet’s action plan lists the three models below, which should be promoted in the future. These models are for general PPPs, and not only for port projects:• concession;• a PFI project on which profitable facilities are established next to

public facilities and expenses are recovered from the fees by using profitable facilities; and

• a PPP project on which private proposals, such as an effective use of public land, is used.

These are just models. The public body can deviate from them.


Resolutions by the local council are required (the Local Autonomy Act article 96(1), PFI Act article 9).


The PFI port projects in Japan are typically implemented on a build–own–operate–transfer basis.


There is no minimum term for port PPPs. A private company leases port land from the national government or the PMB of a PPP. The maxi-mum term of a port land lease is 30 years.




There are only a few PPP projects in Japan. It is therefore difficult to provide an average term.

21 On what basis can the term be extended? This depends on PPP agreements. Whether an extension is permitted or not also depends on the PPP agreement.


Fixed land rents are typically used in Japan. Whether they are subject to indexation or not depends on the PPP agreement. There are some agreements that provide that fees shall be reconsidered every five years.


This depends on the PPP agreement.



When a port operator commences construction of waterways and basins, protective facilities for harbours, mooring facilities, canals and irrigation ditches or drainage ditches at the relevant port, it shall obtain approval from the PMB (PHA article 37(1)). Most additional PMBs are local governments.

A port operator who intends to engage in construction in the speci-fied port or in the vicinity of the boundary of the specified port should obtain permission from the captain of the port (APR article 37(1)).

The Administrative Procedure Act article 6 provides that adminis-trative agencies should endeavour to establish standard periods of time to be typically needed between an application’s arrival at their offices and the rendering of a disposition regarding that application.

The standard periods of time for the above approval and permis-sion are typically from 20 to 30 days.


The relevant PMB typically undertakes the port construction. The national government also bears the cost pursuant to the follow-ing provisions:• if major works such as construction or improvement of waterways

and basins, protective facilities for harbours or mooring facilities in international strategic hubs, international hubs and major ports are undertaken by the PMB for the purpose of public use, the cost of such works shall be shared between the national government and the PMB, with each bearing half of the total cost (PHA article 42(1)); and

• the national government may, when it finds it particularly neces-sary, provide a subsidy, other than that specified under the provi-sions of the preceding article, within the limit of the budget, to help finance port and harbour works for public use undertaken by the PMB (PHA article 43).


Waterways and basins, protective facilities, mooring facilities and other port facilities specified by a Cabinet Order shall be constructed, improved and maintained in compliance with the technical standards provided by an Ordinance of the Ministry of Land, Infrastructure, Transport and Tourism regarding the necessary performance required by port facilities subject to the technical standards (PHA article 56-2-2).

Technical standards are decided from the viewpoint of safety, impact on the environment and the function of a port.

PMCs receive financial help from national and local governments. Therefore, as a general rule, public tenders take place to maintain fair-ness when a contractor is engaged.


The PMB may order a party who has received approval by the PMB to suspend works, alter, relocate or remove structures, to eliminate obstructions which have resulted or may result from the works; and may revoke or suspend the approval given by the PMB or alter the conditions attached to the approval or make new conditions for the approval of a party (PHA article 56-4(1)).

The PMB is able to demand damages against a contractor by virtue of responsibility for default.

Port operations


For an international strategic hub, a company which intends to become a PMC first applies to the MLITT with a management plan for becom-ing the PMC of the port. Secondly, the MLITT appoints the company as the PMC. Then it can commence operations (PHA article 43-11 and 43-12). There is only one PMC per port.

For an international hub, a company which intends to become a PMC first applies to the relevant PMB with a management plan for becoming the PMC of the port. Secondly, the PMB appoints the com-pany as the PMC. Then it can commence operations (PHA article 43-11 and 43-12). Again, there is only one PMC per port.

According to the precedents, it takes from one to four months for a PMC to be appointed.


The PMB constructs and maintains port facilities (quay walls, anchor-ages and lands etc) and leases them to a PMC. The PMC pays rent to the PMB.

A PMC establishes and manages onshore facilities (warehouses and gantry cranes etc). Onshore facilities are used by private compa-nies, and they pay fees to the PMC.

Update and trends

As mentioned in question 1, the important ports are Keihin Port (Tokyo, Yokohama and Kawasaki) and Hanshin Port (Osaka and Kobe).

The national government intends to appoint PMCs for Keihin Port and Hanshin Port so that they are effectively and integrally developed and managed, in order to strengthen their interna-tional competitiveness.

However, ports in Tokyo, Yokohama, Kawasaki, Osaka and Kobe have been managed by five different PMBs; therefore, time and adjustments were needed to integrate the five ports into two ports. Then the PHA permitted the five ports to integrate five PMCs into two PMCs.

The revision of PHA in 2011 permitted the national government to fund the PMC of an international strategic hub. The national gov-ernment decided to fund the PMC after the integration.

The PMCs of Osaka and Kobe were integrated into Hanshin Port in October 2014, and the PMC began to be funded by the national government in December 2014.

However, Tokyo, which manages Tokyo port, has enough funding and does not necessarily need funding from the national government, and wants to avoid being controlled by the national government through finance.

Finally, the PMCs of Yokohama and Kawasaki were integrated into Keihin port in January 2016, and the PMC began to be funded by the national government in March 2016. Tokyo has passed on joining this plan, so there are now two PMCs in Keihin port. One is Yokohama-Kawasaki International Port Corporation and the other is the PMC of Tokyo.


JAPAN Tagawa Law Office



Roads, railways and tramways in the port are defined as port transport facilities (PHA article 2(5)).

The national government or the relevant PMB constructs port transport facilities (PHA articles 34, 12(1) and 52(1)).

The MLITT shall formulate a basic policy for the development and utilisation of ports and harbours (PHA article 3-2(1)). The PMB shall formulate a port plan for the development and utilisation of ports and harbours (PHA article 3-3(1)). When he or she finds the submitted port plan does not conform with the basic policy, the MLITT may request the said PMB to revise the port plan (PHA article 3-3(6)). Therefore, when the required access to the hinterland is not provided in the port plan, the MLITT may request the PMB to revise the port plan and pro-vide the required access.


Almost all PMBs are local governments. Each local government over-sees terminal operations by their by-laws. The by-law of Tokyo on ter-minal management requires that the governor provide licences for the use of port facilities.

In the following cases, the governor may cancel the licence:• the application to obtain the licence is fraudulent;• an operator does not pay fees; or• an operator violates the disposal or indication according to the by-

law or the regulation.


When entry to the land owned by others is necessary for field investiga-tions and surveying for port and harbour works, the MLITT or the PMB may allow his or her staff engaged in such works access to the said land (PHA article 55-2(1)).

This article allows the MLITT or the PMB to access the port area from the viewpoint of the development of a port.

If it is necessary to protect a port facility from immediate danger in case of emergency, the PMB may order any person present at the scene or any resident in the vicinity to engage in works to protect the port facility or to temporarily use the land owned by others; or use, expropri-ate or dispose of soils and stones, bamboo and wood, and other materi-als (PHA article 55-3(1)).

This article allows the PMB to access the port area in order to ensure the safety of the port.

The PMB provides services to ships, including water supply, assis-tance in docking and undocking of ships and treatment of waste oils generated by ships, and other services when they are not provided properly and adequately by others (PHA articles 12(1) and 34).

This article stipulates the PMB to provide services in order to main-tain the functions of the port.


The MLITT or the PMB of the international hub may give the necessary regulatory order of operations to the PMC when it acknowledges the necessity to secure the fair operations of the port (PHA articles 12(1) and 34).


When the concession of a PMC is terminated, the PMC shall hand over all management operations to the next PMC.

Miscellaneous


There is no provision for an SPV for the construction and operation of a port.


It is prohibited for a person or a company (except for the national or local government) to have more than 20 per cent shares of a PMC (PHA article 43-21).

PMC articles of association usually provide that the approval of the board of directors is required for a transfer of shares.

The article and articles of association prevent PMCs from being ruled by a private individual or a private company.


Yes, the port operator can grant security over its rights under the PPP agreement to its project financing banks.

There are few port PPP cases in Japan so far, so it is difficult to state what is typical.

The key term is whether it is appropriate or not that the PMB directly negotiates with the project financing bank regarding the dis-posal of the project and assets.

Tagawa Law OfficeMitsunari Taketani [email protected]

6th Floor Ichigo Ginza612 Bldg 12–15Ginza 6-ChomeChuo-kuTokyo 104-0061Japan

Tel: +81 3 3575 0361Fax: +81 3 3575 0364www.taketani.sakura.ne.jp/eng/





Construction of a port facilityThe MLITT or the PMB may order a party that does construction works at a port facility and infringes the conditions attached to the approval to terminate the approval or alter the conditions (PHA article 56-4(1)).

Operation of a port facilityThe MLITT or the PMB of the International Hub may terminate the concession to a PMC in the following cases (PHA article 43-19):• it acknowledges that a PMC cannot manage the port opera-

tion properly; • when a PMC infringes the PHA or the order pursuant to the PHA; or• when a PMC does not obey the order mentioned in question 33.


Civil laws are applied to the lease agreements of port facilities between a government or port authority and a port operator. Therefore, it will claim for damages or cancel the agreement.


There are no provisions regarding the governing law, but it seems that in a bidding situation Japanese laws are chosen as the governing law.


The most popular method in Japan is a negotiated settlement.


MEXICO Basham, Ringe y Correa


MexicoJuan Carlos Serra and Rodolfo BarredaBasham, Ringe y Correa

General


The National Port System is composed of 117 ports and terminals, of which 71 are federal and are granted to 25 port administration compa-nies. Out of these 25 granted ports, the Ministry of Communications and Transportation (Ministry) is in charge of 16, the National Fund of Tourism Development is in charge of two, six are controlled by the state and one of them is a private port. Terminals, ports and military ports controlled by the Federal Executive to the Navy Minister have their own regulations.

The Ministry is a governmental entity – part of the Federal Executive Branch whose mission is to promote safe, efficient and com-petitive transportation and communications systems.

In 2007, the federal government allocated an investment of 2.1267 billion pesos to improve the infrastructure of port administration companies. A port administration company is a corporation dully con-stituted under corporate law (Federal Acts), which is entrusted – via public concession – with the planning, programming, development and other activities related to the goods and services provided in a port for its use, development and exploitation.

Since 2010, the Mexican government has promoted the construc-tion of specialised terminals and industrial plants. In 2011, the Lázaro Cárdenas port proved that it has the capacity to dock the largest con-tainer ships. These actions reflect Mexico’s interest in being a major player in the international trade scene.

The kinds of services and activities provided by these ports consist of general loading, loading of containers, roll-on roll-off vessels, agri-cultural and mineral loads (in bulk) and fluid loads.

The exponential growth of the commercial cargo trade has caused the infrastructure of the strategic port regions of Altamira, Veracruz, Manzanillo and Lázaro Cárdenas to reach their capacity limit. This limit is strained in particular in the container terminals, due to the growing mobilisation of containerised cargo; the TEUs were 3.3 million in 2008, and reached 4.9 million in 2012.

The 2012 Economic World Forum’s Global Competitiveness Report ranked Mexico 41st out of 144 countries in transportation infra-structure competitiveness. This ranking positions Mexico almost 40 places below its main commercial partners (the USA and Canada), and below nations with similar development in the region, which indicates a dispersion of efforts to connect Mexico.

Globally, the ports of Mexico are ranked in 64th place. Along with the 2013–2018 National Development Plan, the 2014–2018 National Infrastructure Disposition seeks to guide the functions of the infra-structure of the country through compliance with specific objectives for the communication, transportation, energy, hydraulic, health, urban development, housing and tourism sectors.


On 19 July 1993, the Ports Law was published in the Federal Official Gazette. This regulation derogated the articles of the General Communications Law, which governed the terminal ports. The General

Communications Law was published in the Federal Official Gazette on 19 February 1940. Furthermore, the Ports Law also derogated the arti-cles of the Navigation and Maritime Commercial Law (published on 21 November 1963).

Said law is currently the legal basis of the terminal ports. Although they have been amended in the past few years, these reforms were not structural, so the original statement of the law is the same. Nevertheless, the last amendment, published on 11 June 2012, was intended to provide reassurance in relation to the port authorities’ power, as well as to private investment.

An administrative concession is the method by which the state entrusts the private sector (companies or individuals) to conduct certain activities, or gives them the right to exploit certain federal resources. The state is not entitled to exploit such activities, either for economic profitability or for internal organisational issues. Furthermore, the assignment of rights is an agreement by which the person who holds the legal rights grants them in favour of another person in order to exer-cise the rights on its own behalf.

Owing to the 2012 reform, private investors may provide public port services through a concession, permit or licence granted by the Ministry. Constitutionally, the property of the ports belongs to the state; therefore, port administration companies acquire the rights to operate them by means of concessions. Port administration companies operate through partial assignment of rights; that is, a partial assign-ment of rights executed for the port’s operation.

Those persons who are interested in occupying areas and in build-ing and operating terminals, maritime and port facilities, as well as pro-viding port services within the granted areas through a concession to a port administration company, execute either a partial assignment of rights agreement or a service agreement, if applicable.

The agreements have civil liability insurance and do not grant exclusive rights, so interested third parties are able to exploit, under equal circumstances, the equipment’s technical characteristics on identical or similar services. Likewise, they should comply with the fol-lowing legal requirements. They should:• describe or explain the necessary commitments and instruments

in order to ensure compliance with the obligations contained in the concession title;

• include a transcription of the obligations established in the conces-sion title regarding the agreement’s object;

• adhere to the port master development programme;• describe the agreement’s term based on the concession’s term

(without exceeding it); and• register before the Ministry within five days.

In March, 2016 the Mexican President sent to the Senator’s Chamber (part of the Union Congress) an initiative regarding the transfer of the Harbourmaster faculty to the Ministry of the Navy. This initiative has not been taken into parliamentary discussion, as several groups and associations of maritime merchant expressed their opposition to ‘mili-tarisation of Mexican Ports’. The purposes of the Federal Executive in taking this initiative for reforming the legislative framework of ports are proportionate security to sovereignty, legal security to all users and maritime development for the country.


Basham, Ringe y Correa MEXICO



In accordance with the National Development Plan issued by the Mexican President, the Ministry issued the Investment in Transport Infrastructure and Communications Program, which summarises the port development system for the Mexican Gulf, the Pacific Ocean, Veracruz, Altamira, Manzanillo and Lázaro Cárdenas ports. Among other works, nine specialised load terminals and one terminal for tour-istic cruises will be constructed.

It is possible that Mexico’s terminal load capacity could increase by 60 per cent, growing from 5 million containers to 8.5 million contain-ers, and from 0.86 million vehicles to 1.3 million vehicles handled at our ports.

The competent authority to take cognisance and rule administra-tively on port matters is the head of the Federal Executive Power, that is to say the President, who acts through the Ministry, which in turn operates by agencies and decentralised bodies under its jurisdiction, such as the General Coordination of Ports and Merchant Marine and the General Ports Department.

An administrative concession is granted through the Ministry for the use and exploitation of public property goods inside the ports, ter-minals and marinas, as well as for the works inside the premises and the services provision. The concessions are granted to the port admin-istration companies. The port administration companies may perform their operations with their own equipment and personnel or by the execution of commercial agreements with other companies.

With the prior authorisation of the Ministry, concessionaires or assignees of cruises and marine terminals can enter into agreements with third parties for the use of establishments or areas related to activ-ities regarding the concession or the agreement. As a unique considera-tion for the use, benefit from and exploitation of government-owned property and services under concession, port administration compa-nies and other concessionaires must pay government charges. The basis and frequency of payment shall be determined in the concession title, taking the property’s market value into consideration.

The Mexican policy for port development has been achieved through the port administration companies (or Integral Port Administrations) that were created as a government-controlled corpo-ration of the Mexican government. Pursuant to the Ports Law, a port administration company exists when the planning, programming, development and other acts related to port goods and services are entirely entrusted to a business corporation through the granting of a concession for the use, benefit from and exploitation of the assets, and for rendering the respective service.

The administration of the majority of the Mexican ports is in the hands of Integral Port Administrations, which, in accordance with the provisions of the Ports Law and its Regulations, have the concession from the Ministry and render port services through third parties by entering into rendering services agreements.

The concession titles establish the general basis that the conces-sioner must follow for its organisation and functioning. The master development programme (which is created by the ports administrator and authorised by the Ministry) must be included along with the usage, destination plans, operation plans, measurements and necessary provi-sions to guarantee efficient exploitation of the port area. Details should also be included of the facilities required in order to receive seagoing vessels and cabotage (a term of maritime law that refers to transit of a vessel along the coast of a nation for trading purposes, from one port to another within the territorial limits of the relevant nation); the required space for goods and the necessary port services for the vessels; and the cabotage rendering services. The rights and obligations in the partial assignment of rights agreement and in the services agreement are lim-ited or restricted.


On 31 August 2015, for the first time in Mexico and the second time in Latin America, the Ensenada port (located in Baja California) received a ‘green port’ certificate. The reason for this achievement is that the port is considered eco-friendly and energy sustainable. The award was granted by the ECO Sustainable Logistic Chain Foundation.



In Mexico, the legislative framework that applies in port matters is as follows:• the Ports Law;• the Navigation and Maritime Merchant Law;• the General Communications Law;• the Commercial Code;• the Federal Civil Code;• the Rules of the Ports Law; • the Public-Private Partnership Law;• the Organic Law of the Federal Public Administration;• the Federal Government Controlled Entities Law;• the Internal Regulations of Ministry of Communications

and Transports;• the Federal Government Controlled Entities Regulations; and• the Port Master Development Program. Each port administra-

tion company has to issue its corresponding Master Program for a specific period; the Master Program and substantial modifica-tions must be drafted and issued by the port administrator, and afterwards authorised by the Ministry based on the policies and programs for the national port system development. The Master Program should consider an overview of 20 years and be reviewed every five years.

According to the legislative framework referred to above, it is legally possible to create public or private ports through concessions granted for their exploitation and use:• for the benefit of public property in ports, terminals and mari-

time areas;• for construction works under the same terms; and• for the act of providing services.

The ports belong in the public domain; therefore, the Ministry may grant concessions to ports administration companies for the use, ben-efit from and exploitation of government-owned property in the ports. Ports administration companies may perform the operations on their own behalf or through an assignment of rights agreements executed with third parties.

In general, the private investment plan that the Mexican ports have been following is the government granting of concession titles by the port administration to state majority-owned companies (a company where at least 51 per cent of its voting stock is held by the government or by one or more government agencies), through which commercial agreements grant the rights for providing services and the use of a por-tion of the granted real estate.


The Federal Executive is the authority in charge of port matters. Enforcement is exercised by the Ministry. The Ministry materialises the execution through many entities that act by their own competence. In port matters, the entity in charge of the correct application of the legal framework is the General Coordination of Ports and Merchant Marine, and inside of its structure, the General Ports Direction and the General Merchant Marine Direction.

Each port has a harbourmaster, who is in charge of enforcing the port authority. Each harbourmaster has the power, among other things, to monitor the navigation, berthing and stay of ships, and to supervise safe pilotage and towing in ports.

The territorial jurisdiction where the harbourmaster may exercise his or her powers and authority includes the extent of coast or shore within geographical limits that will be determined by agreement with the General Merchant Marine Direction. The master’s maritime juris-diction on waterways includes internal marine waters up to the limit of the territorial sea.

It is important to note that the port administration concessions in Mexico are mostly carried out by Integral Port Administrations for each port. In accordance with the provisions of the Federal Government Controlled Entities Law, the Integral Port Administrations are con-trolled entities of the federal government. These were created in order




to receive directly, and without public bidding, concession titles for each of the ports as established in the Ports Law. These companies are not port authorities, however: they belong to the federal government and carry out the administration of the port.


The Ministry has, among others, the following powers regarding port matters:• it can prepare and conduct policies and programmes for the devel-

opment of the National Port System; for example, master develop-ment programmes, which are prepared by port administrators and authorised by the Ministry;

• it encourages the participation of the private sector, and state and municipal entities, in the operation of ports, terminals, maritime and port facilities, as well as improving the competitiveness of Mexican port facilities, services and rates, in the nation’s interest;

• it grants concessions, permits and licences as required by law, veri-fies compliance therewith and determines whether licences need to be amended, renewed or revoked; and

• it imposes the penalties set forth in the applicable law and its regulations.

Through the Consolidated Centres for Attention to Maritime and Port Incidents (CUMAR; an inter-agency organisation between the navy and the Ministry), the Ministry and the navy have, among others, the following powers regarding port matters:• the power to enforce measures for maritime and port security mat-

ters, to ensure effective care regarding maritime and port incidents;• the power to cooperate in the fulfilment of conventions to which

Mexico is a party on maritime and port security matters;• the power to set at all times minimum measures of maritime and

port security; and• when national security is compromised, prior to issuance of the

master development programme, the navy needs to issue previ-ous observations.

The Ministry of the Environment and Natural Resources has the fol-lowing powers, among others, on port matters:• the power to grant concessions to private parties for the use of the

federal maritime zone; and• regarding ecological and environmental impact, prior to issuance

of the master development programme, the Ministry needs to issue previous observations.


The Ministry appoints the harbourmaster. According to the internal regulations of the Ministry, the decision is made through the Ports General Coordinator and the General Commercial Marine Direction. The candidate has to hold the title of admiral. There are currently no legal requirements for the appointment of the harbourmaster. There is, however, a parliamentary initiative to regulate the minimum require-ments for the candidate, such as:• being Mexican by birth, and having no other nationality;• having a properly registered degree in maritime studies;• having a minimum of five years’ experience in port matters; and• having not been sentenced for an intentional crime, or been sus-

pended, disqualified or dismissed by a final decision as a pub-lic servant.


Yes, the Federal Competition Law regulates article 28 of the Federal Constitution on free competition, antitrust, monopolies, monopolistic practices and concentration matters. It is a system of public order and social interest, applicable to all areas of economic activity and gener-ally observed throughout the Republic. It aims to promote, protect and ensure free competition and economic competition and to prevent, investigate, fight, prosecute effectively, severely punish and eliminate monopolies, monopolistic practices, illicit concentration, and barriers to free competition and economic competition, and other restrictions on the efficient functioning of markets.

The provisions of economic competition regulate the titles of con-cessions, permits and authorisations ruled by the Ports Law. All acts of dealers, licensees, terminal operators, marinas, port facilities and ser-vice providers are subject to the provisions applicable to antitrust laws, including fixed prices and maximum rates according to the Ports Law.


In concession titles and permits, the Ministry may establish the basis of price regulation and fees for the use of certain goods in ports, termi-nals and marinas, as well as for the provision of services when there are no optional ports or other models that encourage a fair environment for competition.

When they obtain a concession title or permit issued by the Ministry, or when they enter into a partial assignment of rights agree-ment or a services agreement with the ports administration companies, the concessionaires, assignees or port services providers must obtain the tariff registry for the use of port infrastructure from the General Ports Direction. The registry must also be obtained for an increase or modification of the tariff.

Port managers may establish in their concession agreements in accordance with the Ministry. The fees and price basis for terminal operators, marinas, port facilities and service providers are subject to executed agreements.

Rates and maximum prices for the use of goods or the provision of specific services may be established in the regulation, as well as adjust-ment mechanisms and periods of force. This will enable the provision of services under satisfactory conditions of quality, competitiveness and permanence.

When the subjects of price and tariff regulation consider that the conditions mentioned are not met, they may request an opinion on the matter to the Federal Competition Commission. If the Commission finds that the conditions of competition make the regulation inappro-priate, in whole or in part, it should be deleted or amended within 30 days of the issuance of the resolution.


The state has the constitutional obligation to grant services to all the ports in Mexico. Through the National Development Plan, the Mexican President identifies those services as improving road and rail con-nectivity to port systems, generating conditions that enable modern logistics in ports, including increasing the installed capacity at the ports – especially those that are saturated. These obligations are the responsibility of the port administration companies, who may execute assignment right agreements and service agreements with third par-ties in order to obtain more economic benefits in favour of the state.

It is possible for individuals to assist the authority through vari-ous legal instruments such as concessions, permits and authorisations. Those who are interested can execute agreements for the partial grant of rights or for the provision of services, as appropriate.

As a general rule, agreements of partial assignment of rights entered by the Integral Port Administration with third parties for rendering port services are granted through public tenders, where the awarded participant is selected based on the best conditions for the development of the port, as well as on the price and quality of the services.

Exceptionally, the agreements can be awarded with no tender process when the service providers comply with the requirements established in the regulations and operation rules of the port based on technical considerations of effectiveness and safety.


Port administration companies can have private investment. The Federal Government Organisational Law and the Federal Government Owned-Entities Law grant the possibility of private investment for cer-tain owned and controlled government entities. The investment can be




given when the public service is based on strategic and priority areas, and for rendering of public service.

Under the Ports Law, those who are interested in holding areas, building and operating terminals, marinas and port facilities, or pro-viding port services within the concession areas of a port administra-tion company may request a concession title or, if it is already assigned to a port administration company, may execute an agreement for the partial transfer of rights or provision of services, as appropriate.

In accordance with the provisions of article 90 of the Federal Constitution, port administration companies have the legal nature of a government-controlled corporation, formed with the purpose of receiving directly and without bidding the concessions for each of the ports, in accordance with the provisions of the transitional article 7 of the Ports Law.

13 Are there restrictions on foreign participation in port projects? Foreign investment in port activities is regulated by the Foreign Investment Law, which regards Mexico’s control, supervision and sur-veillance of ports. There is a restriction in said law that provides that any foreign investment has a limit of up to 49 per cent in port adminis-tration companies.

Concessions for port authority companies are only granted to Mexican corporations. Other concessions (those that are not granted to the port administration companies) and permits are granted to Mexican citizens and legal entities.

Foreign investment may hold up to 49 per cent of a port adminis-tration company concession. Concessions for the construction, estab-lishment or operation of communication channels are only granted to Mexican citizens or companies incorporated under the laws of the country. In the case of companies with one or more foreign partners, the deed shall establish that partners are considered as nationals in respect of the concession, agreeing not to invoke the protection of their governments under penalty of forfeiture, for the benefit of the nation, of all the property they have acquired to build, establish or operate for the communication channels and other rights granted to them under the concession.

In no case may the concession or the rights thereunder (tracks, buildings, stations, ancillary services, outbuildings or accessories) be directly or indirectly assigned, mortgaged or in any way encumbered or disposed of to any government or foreign state. No foreign government or state may be admitted as a partner of the concessionaire.

However, port administration companies have no restriction on executing assignment agreements of rights with foreign companies; nevertheless, the Ports Law establishes a prohibition against the rights of any assignment, mortgage, tax or transfer of the concession or per-mit being assigned to any foreign government, or admitting them as partners within the company that owns those rights.



Constitutionally public procurement is based on article 134, which states that purchases, leases and sales of all kinds of goods, provision of services of any kind and contracting work shall be awarded through public tenders through public announcement, ensuring the best con-ditions available in terms of price, quality, financing, opportunity and other relevant circumstances.

Constitutional articles 25, 26, 27, 28 and 134 are considered part of the economic chapter of the Constitution due to their relevance for the economic development of the Mexican state, since they govern the procurement activities of the Mexican government. Said articles must be understood as procurement principles, and therefore analysed and understood as a whole.

On port matters, grants are awarded through a public tender to select the successful bidder. In all cases where the port administrator is required to contract with third parties, the port administrator makes the award by contest, under the terms established in the respective reg-ulations and the concession. They will then select the one that offers the best conditions for the development of the port and the best quality and prices for the user.

Article 54 of the Ports Law establishes that any person interested in operating, installing or providing a service in a terminal operated by a

Port Administrator may request a direct award assignment (if appropri-ate, in accordance with what is mentioned in this opinion) or the open-ing of a public tender.

There is a Federal Act for Public-Private Partnerships and a local law for every state in the country. However, since the function of a port is a federal matter, all internal projects of each port should observe fed-eral regulations.

The Federal Public-Private Partnership Law (PPP Law) is pub-lic policy and seeks to regulate the plans for the development of PPP projects under the principles of articles 25 and 134 of the Federal Constitution. The purpose of a PPP is regulated by its rules; therefore, there is specific legislation.

The PPP projects covered by the PPP Law are those that occur when intermediate wholesalers establish a long-term contractual rela-tionship between public sector bodies and the private sector for the provision of services to the public sector or end user, and in which all or part of the input provided by the private sector aims to increase social welfare and investment levels in the country’s infrastructure.

PPP schemes governed by this law are optional and may be used for activities where specific legislation provides for the unrestricted participation of the private sector, or through the granting of permits, authorisations or concessions for the provision of related services, and may not be referred in cases where the provisions indicate that the pri-vate sector cannot intervene.


The Ministry, by itself or upon private request, may issue a public call for proposals for the provision of port concession awards. For a private request, the Ministry, within 60 calendar days from the request, will issue the call or state the reasons for the invalidity of the request.

Pursuant to the PPP Law’s regulations, the projects are consid-ered viable when a federal agency or entity determines their viability. The procedure for awarding a project of PPP and the conclusion of the corresponding contract can only begin when the viability opinion has been issued.

Federal permits for the development of a project are preferably awarded within the tendering procedure, and are executed simultane-ously with the conclusion of the corresponding PPP contract.


To determine the viability of a proposed PPP, the dependency or inter-ested entity must fulfil an analysis with the following aspects:• the project description and technical feasibility thereof;• the property, assets and rights necessary for the project;• the authorisations for project development if they are necessary;• the legal viability of the project;• the environmental impact;• the social profitability of the project;• estimates of investment and contributions in cash and in kind, both

federal and private and, where appropriate, state and municipal;• estimates of investment and contributions in cash and in kind, both

federal and private and, where appropriate, state and municipal;• the economic and financial viability of the project; and• the need to carry out the project through a scheme of public-private

partnership, in which an analysis over other options is included.

Under their own responsibility, agencies and entities may undertake PPP projects without being subject to the bid process, through invita-tion to at least three people or by direct concession when:• there are not enough options for infrastructure or equipment

development, or one sole potential bidder exists in the market, or in the event of a person with exclusive ownership of patents, copy-rights or other property rights;

• for military or army purposes exclusively, or if awarding through the bid process jeopardises national security or public safety, in terms of the applicable law;

• the existence of circumstances that may cause losses or significant measurable and verifiable additional costs;

• a project award granted through a bid process is terminated before it begins. In such an event, the project may be awarded to the




contestant who obtained the second or subsequent places, pro-vided that the difference in price from the initial winning bid does not exceed 10 per cent. In the case of bids with points and percent-ages for evaluation, it may be awarded to the proposal that follows the winner on qualification;

• a project is replacing a developer for reasons of early termination or termination of a proposed public-private partnership in place; and

• there is execution of a strategic alliance carried out by the enti-ties with companies dedicated to engineering, research and to the development and transfer of technology, in order to put techno-logical innovations in place inside the national infrastructure.


No, there is no model PPP agreement. The PPP Law was published on 16 January 2012, with the last amended date being 11 August 2014. We can therefore conceptualise it as a recent law that has not gone as far as the legislature intended. To our knowledge, to date, no investor or authority has created a model contract to assist with investment schemes in Mexican ports.

The Ministry of Finance reviews a PPP project’s viability based on the manual, setting out the rules to determine social profitability as well as the convenience of carrying out a project using PPP. Among others, the requirements that shall be considered to carry out the project are:• the project description and its technical feasibility;• the properties, assets and necessary rights for the project;• the authorisations for project development;• the legal document for the feasibility of the PPP project;• the environmental impact analysis record, preservation and con-

servation of the ecological equilibrium;• the social profitability of the project;• the estimates of investment and contributions;• the economic and financial viability of the project; and• the convenience of carrying out the project through a PPP scheme.


The law applicable to the PPP is the PPP Law. Being ports of federal jurisdiction, the federal authorities will intervene through the Ministry. Even the states and municipalities that use federal resources to partici-pate in these projects will be governed by this federal law.


Concession assets of a port terminal are considered to be public prop-erty. Therefore, their transmission is through the concession where the use is transferred, but not the property. At the end of its term, the prop-erty and the assets attached will revert to the Mexican state.

At the end of the concession or its extension, the works and instal-lations permanently attached to such goods shall pass into the national domain, at no charge and free of any cost. In Mexico, port projects are typically implemented as build–own–operate–transfer.

Agreements related to the rendering of a port service shall be entered in accordance with the applicable legal provisions and proce-dures in order to ensure the best conditions for the Mexican state. It should be noted that, as provided in article 51 of the Ports Law, agree-ments, their amendments and any termination agreements must be register before the General Ports Directorate of the Ministry in order to be enforceable.


The PPP Law establishes a period of up to 40 years as a term for the association agreement. However, it refers to the provisions of the Ports Law, which provides a maximum period of 50 years (renewable). Therefore, we conclude that the PPP on ports can be up to 50 years, renewable for the same period of time.

The association agreement sets forth the rights and obligations of the public entity executing the agreement, and on the one hand sets forth the rights and obligations of the developers who provide the services and, if applicable, of those who carry out the works. The

PPP agreement is only executed between private companies, whose exclusive objects or purposes are to perform the activities necessary to develop the respective project. Corporate objects can also be included in the corresponding bid process.

21 On what basis can the term be extended? The grantee must submit an application during the last fifth of the origi-nal given term, and no longer than one year before its completion.

For the term extension, the Ministry will consider whether the licensee is up to date in fulfilling its obligations as well as with the pay-ment of its duties, fees and compensations.


The concessionaire may only collect from terminal and facilities opera-tors, and service providers’ considerations for the use of land areas or facilities and for the provision of port services.

Such considerations are fixed in agreements of partial transfer of rights for the provision of services, considering the market value of the goods and the temporality of use. For the payment of common services at the port, the concessionaire may charge respective fees to operators and service providers.

In the partial assignment of rights held by the concessionaire with various service providers, it is customary to set a consideration seen as payment for the assignment of rights and the use of port areas; this con-sideration may be fixed or variable.


The government does not provide any guarantee for the port project developer. The prevailing scheme would be the sale of the operation in the terms foreseen in the concession of the port in question.



Approval takes the form of an authorisation issued by the Ministry for initiating the construction of the port. This authorisation can be requested by the dealer, either for him or herself or for the concession-aire who has contracted the exploitation of an area or the provision of a service. Authorisation to commence construction takes about 30 days once it has been requested of the authority.


This is not a legal requirement; however, it is common for the govern-ment, at federal, state or municipal level, to perform works within the port, such as dredging (at least the first dredging to set it up; it then becomes the duty of the dealer) or construction of the quay wall. Similarly, the government may facilitate the construction of roads, rail-ways etc, according to the needs and requirements of each project.


The port operator, licensee or assignee must adhere to any construc-tion standards. However, the technical project for development must be approved by the General Ports Director. If this office considers that standards and requirements for quality, effectiveness and efficiency of the construction of the port are not met, the authority will deny the technical project, which will force the port operator to submit a new one with a correction of the shortcomings.

The obligation to perform the work is always the responsibility of the port operator. The operator may contract with any contractor; however, this will be to its detriment in the event of delays or failures in the performance of the work, as the operator is responsible to the port authority.

However, it is important to note that works shall be based on the Master Program for Port Development of each port.





There is a graduation of sanctions in the event of delays and defects in construction, according to the nature and gravity of the offence. This ranges from the application of penalties, up to the enforcement of spe-cific performance, rescission or early termination of the concession or contract of partial assignment of rights and obligations.

Port operations


The approval required is an authorisation issued by the Ministry to commence operations. This authorisation may be requested by the licensee or assignee. If requested by the assignee, the authorisation could legally take up to three months; however, its expedition is usually quite fast.

Based on each port’s requirements, the following permits (at least) must be obtained:• environmental impact authorisation;• registry as a hazardous waste generator;• registry of the hazardous waste generation handling plan;• a discharge permit;• a comprehensive environmental licence (local);• registry as a special handling waste generator;• a permit for consumption water;• a civil protection programme for accidents and emergencies;• authorisation to carry out services that include manoeuvring, load-

ing and discharging of goods (foreign trade);• a concession for the installation, operation or use of public tel-

ecommunication networks; and• a permit for the use and enjoyment of right of way for federal toll

roads and surrounding areas.


Yes. Among others, the services provided are:• charging and related: manoeuvres of loading, unloading and trans-

portation, storage, inspection and certification of goods, customs area and surveillance;

• for vessels: towing, pilotage, water supplies, docking and undock-ing ends, repairs, hazardous waste collection; and

• for navigation: a control centre of maritime traffic and mari-time signals.

The port authorities charge the operators based on the Fees Rules for concession titles of the port administration companies. Such rules were published in the Federal Official Gazette on 22 December 1999.


It is common for the federal, state or municipal government to per-form works to provide access through the construction of roads, rail-ways etc, according to the needs and requirements of each project. At other times it is the operator who finances the development of paths or interconnections.


The nation reserves the right to declare at any time that certain territo-ries are temporarily or permanently closed to sea, river or air transport. The harbourmaster has the authority to invoke the referred right.

In the event of international war, serious disturbance of public order or where imminent danger to the internal peace of the country

or the national economy is feared, the government is entitled to req-uisition (if it judges it required for the security, defence, economy or quiet of the country) its general communications facilities, transports, auxiliary services, accessories and dependencies, and moveable and immoveable property. It may then dispose of all this as it deems appro-priate. The government may also use the staff of such facilities when necessary. In such a case, the nation will indemnify stakeholders, pay-ing damages for their actual value, and the damage at a 50 per cent discount. If there is no compromise on the amount of compensation, damages are fixed by experts appointed by both parties and damages are based on the average net income in the previous and subsequent years to the seizure. The costs of the procedure shall be borne by the nation.


At all times, the Ministry has the power to verify ports’, terminals’, marinas’ and port facilities’ due fulfilment of obligations, pointing to the Ports Law, its regulations, concessions or permits and required Mexican official standards.

The Mexican navy, as well as federal, state and municipal police agencies, will help in the preservation of the order and security of the port at the request of the harbourmaster. The port customs, health, and immigration authorities will perform their duties within the port.

In addition, CUMAR is an inter-agency coordination between the navy and the Ministry to implement measures for maritime and port security and effective care of maritime and port incidents by the navy.

As mentioned in question 2, there exists a parliamentary initiative, sent by the Mexican President, regarding the transfer of the faculties of the harbourmaster to the Ministry of the Navy, instead of the Ministry. This initiative was based on the results of CUMAR for port security.


The remedies available may be monetary sanctions, revocation or early termination of the agreement.

The damages and lost profits that may arise from the failure of the port’s operation are, for example, environmental damages and disable-ment of construction.


The buildings and port facilities run on public property are considered to be the property of the concessionaire for the duration of the conces-sion. At the end of it or its extension, only the works and installations permanently attached to such goods shall pass into the domain of the nation at no charge and free of any cost.

Update and trends

The ports business is currently focusing on efficiency. An increase in transporting capacity is sought in Manzanillo, Veracruz, Altamira and Lázaro Cárdenas, among other ports. With Mexico’s energy reform, it is expected that ports located within the Mexican gulf will expand their capacity and infrastructure. Undoubtedly, the latter will be translated into economic progress, investments, job opportu-nities and development for the country ahead of other economies.

Due to the extension of the Port of Veracruz, the so-called ‘New Port of Veracruz’, the authority has forecast five tenders for the awarding of agreements for the operation of the specialised terminals, which will be published during the second half of 2016. The largest terminal of the New Port of Veracruz will specialise in containers, with 50 hectares of land surface and 700 metres of water surface to receive the vessels, which could be extended up to 70 additional hectares.

The General Coordinator of the Ports and Merchant Navy stated that the New Port of Veracruz might become the largest terminal of the country, with greater capacity than the Lázaro Cárdenas and Manzanillo ports.




Miscellaneous


No. Mexican regulation allows the transfer of payment rights to the SVP only with the prior authorisation of the concessionaire.


As a general rule, concessions in the Mexican legal system are delectus personae/intuitu personae, and are not transferable.

The Ministry may authorise complete transfer of the obligations and rights derived from a concession, provided that the concession has been in effect for a period of at least five years; the transferor has fulfilled all its obligations; and that the transferee meets the same requirements that were taken into account for the granting of the original concession.


Usually, the assignees are the ones who obtain the financing from banks in order to comply with their obligations. If the assignee does not com-ply with the partial assignment of rights agreement, the port adminis-tration company will continue allocating the cash flow arising from the port’s operation to the financing bank.


Concessions will be terminated by:• deadline set in the title or the extension that has been granted;• waiver of the holder;• revocation;• rescue;• disappearance of the object or purpose of the grant; and• liquidation, termination or bankruptcy if it is a corporation, or

death of the licensee.

The termination of the concession does not relieve the concessionaire of liabilities incurred during the term of the same with the federal gov-ernment and third parties.

Concessions or permits may be revoked for any of the follow-ing causes:• failure to comply with the order, obligations or conditions of the

licences and permits or the terms established in them;• failure to exercise the rights of the licences or permits during a term

of six months;• stopping the operation or services to the public, in whole or in part,

without cause;

• failure to implement or update approved tariffs;• failure to arrange for compensation for damage arising in connec-

tion with the provision of services;• committing acts that impede or prevent the performance of other

operators, service providers or permit holders;• assigning or transferring concessions, permits or rights without

authorisation from the Ministry, except as provided in article 20 (last paragraph) and article 30 (second paragraph) of the Ports Law;

• assigning, mortgaging, encumbering or transferring licences and permits, the rights conferred on them or the assets assigned to them, to any foreign government or state, or admitting them as members of the proprietor of those;

• not preserving and properly maintaining concession assets;• modifying or substantially altering the nature or conditions of

works or services without authorisation from the Ministry;• not covering the federal government’s considerations that have

been imposed;• not ensuring compliance with the licences or permits or insurance

policies for damage to third parties;• failure to comply with the obligations under the concession on eco-

logical protection; and• repeated failure to comply with any of the obligations or conditions

set out in the Ports Law or its regulations.

In the event that the breach of partial assignment referred to in the Ports Law constitutes a reason for revoking those provided in article 33, the Ministry, having previously heard the affected party, revokes the registration of such contracts, and they cease to have effect.

Concessions may be reviewed and modified when adjournment thereof or extension of its object is requested; when the direct or indi-rect ownership interest of federal government becomes less than 51 per cent of the paid capital or it loses administrative control and man-agement of the company; or by agreement between the Ministry and the concessionaire.

The partial assignment of rights will conclude in accordance with the set causes in the agreement (the agreement’s early termination can occur generically for breach of it). Likewise, the port administration company may request the registry’s revocation to the Ministry (for ful-filment with the purpose, duties or conditions of the concessions and permits under the terms established in them, among other cases estab-lished by the Ports Law in articles 33 and 34).


See question 7.To resolve any controversy or conflict that may arise with regard to

the interpretation and enforcement of the various provisions on ports, the competent federal courts are responsible for settling any dispute. Alternatively, where appropriate the corresponding arbitration proce-dure might be followed.

Juan Carlos Serra [email protected] Rodolfo Barreda [email protected]

Paseo de los Tamarindos 400-A, 9th FloorBosques de las Lomas 05120CuajimalpaMexico CityMexico

Tel: +52 55 5261 0400Fax: +52 55 5261 0496www.basham.com.mx





Yes, they are governed by the provisions of such laws. Regarding PPP, the following apply on a supplementary basis: the Commercial Code, the Federal Civil Code, the Federal Law of Administrative Procedure and the Federal Code of Civil Procedure.

However, the provisions of the PPP law are without prejudice to the provisions of international treaties.


Everything related to management, operation and port services is sub-ject to the jurisdiction of the federal courts.

It is up to the federal courts to hear disputes arising in connection with the application of the law in the administration of port operations. Notwithstanding, under the terms of the applicable legal provisions, the parties may submit to arbitration.


NETHERLANDS Van Steenderen MainportLawyers BV


NetherlandsArnold J van Steenderen and Charlotte J van Steenderen Van Steenderen MainportLawyers BV

General


Several ports of significant importance to Europe are located in the Netherlands. Rotterdam and Amsterdam are generally regarded as the key ports. Other notable ports are Groningen seaport and Zeeland seaport. The port of Rotterdam has almost every port facility imagi-nable, including cruise, container, general cargo and oil and gas ter-minals as well as bulk terminals and an LNG terminal. While the port of Amsterdam has the largest cacao and potato terminals in the world, as well as considerable gasoline terminals, the port of Rotterdam is Europe’s largest seaport, measured by the total number of containers and bulk (notably crude oil, chemicals, ores and coal) passing through each year.


The Dutch government has retreated from port operations in the belief that enterprise-based port services and operations would allow for greater flexibility and efficiency in the market through more competi-tion and a better response to consumers’ demands. The landlord port model is the dominant one in large and medium-sized Dutch ports. Under the Dutch landlord model, a port authority is usually a separate legal entity with the capacity to conclude contracts (including con-cession agreements) and to enforce standards. In the Rotterdam and Amsterdam port areas, the landlord port authorities are public lim-ited companies and consequently not government agencies any more. These companies are highly commercialised entities, as public influ-ence is only indirectly accomplished through the ownership interests that the Dutch state or municipal governments maintain in these pub-lic limited companies. Although legal title to the land in the port areas remains with the municipal government in most cases, the port author-ities of Rotterdam and Amsterdam have leased this land in perpetu-ity. These lease agreements with the relevant municipal governments therefore allocate the economic ownership of the port area to the port authorities. To date, the Dutch state has only acquired an ownership interest (29.2 per cent) in the Port of Rotterdam Authority in return for financial investments from the state. These investments were neces-sary to realise a relatively large expansion of the port area by reclaiming land from the North Sea (Maasvlakte II), on which land modern and fully automated container terminals (APM and RWG) were built.


The government considers Dutch seaports to be of great significance to the Dutch economy, and therefore the government regularly publishes policy documents with regard to port development, port management and environmental and safety issues in ports aimed at safeguarding the competitiveness of Dutch seaports.


For the development of a port it is necessary to obtain a permit under the Nature Conservation Act. The key condition for obtaining such a permit is met by compensation for the main effects on the surround-ing areas. For example, a special protection zone has been created that is 10 times the size of Maasvlakte II in order to meet this criterion. Furthermore, during the tender for a concession of land for terminals on the new Maasvlakte II port area, the port authority as commission-ing party also explicitly considered sustainability. The tenders sub-mitted were assessed not only for direct commercial value to the port authority, but also for 20 per cent on sustainability, such as the way in which spatial distribution, energy, emissions and hinterland transport issues were addressed. In addition to green standards with regard to port development, port authorities have committed to CO2 emission reductions and a variety of sustainability principles with regard to the operation of the port in their official outlooks and policy documents, such as the World Port Climate Initiative. In accordance with an agree-ment concluded with the Dutch government, the harbourmaster has set standards for the Safety Environmental Index. Furthermore, there is a large body of applicable international, European and national leg-islation that imposes environmental and safety standards on vessels, companies and regulatory and enforcement bodies active within the Dutch ports.



The Dutch legislator has not enacted specific public-private partner-ship law in the Netherlands. Public-private partnerships and privatisa-tion are therefore undertaken pursuant to the government’s general powers. However, port development concessions may be subject to European procurement rules pursuant to Directive 2004/17/EC on public works contracts and Directive 2004/18 on the procurement procedures of entities operating in the water, energy, transport and tel-ecommunications sectors. The Dutch legislator has implemented these European Directives in a single act, the Dutch Public Procurement Act (PPA), which generally requires contracting authorities to put port development concessions out to tender.


Every local municipal government issues regulations with regard to ports within their jurisdiction, such as the Port Management By-Laws. Some municipalities have chosen to harmonise their regulations with those of other municipalities in the region. The local regulations are only in addition to the various international and national safety and environmental rules applicable within all port areas and on waterways.


The regulatory authorities, such as the Dutch national legislator and the relevant municipalities, have wide regulatory powers with respect to all aspects of port regulation. Many safety and environmental rules,


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however, are derived from international conventions, often imple-mented in national laws.


The Minister of Infrastructure and Environment and the municipal government have delegated certain public powers to the harbourmas-ter. The harbourmasters of the ports of Rotterdam and Amsterdam are employed by the privatised port authorities. At the moment of priva-tisation of the port authorities, the port authorities concluded agree-ments with the national and local governments, which, inter alia, stipulate that the appointment of the harbourmasters of the Rotterdam and Amsterdam port authorities are subject to the approval of the respective municipal governments and of the Minister of Infrastructure and Environment.


No. However, the European Commission has submitted a proposal for a new Port Services Regulation (applicable to port services other than cargo handling), which having come into force will regulate market access to port services. If adopted as proposed, the Regulation will apply to the provision of the following categories of port services, either inside the port area or on the waterway access to and from the ports:• bunkering;• cargo handling;• dredging;• mooring;• passenger services;• port reception facilities;• pilotage; and• towage.


As the port authorities of large ports in the Netherlands have been pri-vatised, these port authorities have set their own tariffs and lease prices. Despite the monopoly that these port authorities enjoy with regard to the economic ownership of the land in the port areas, the government has decided not to introduce specific regulations. The government maintains public influence through agreements with the independ-ent port authorities in which a procedure for determining the annual tariffs is outlined. The national government is therefore still involved in the decision-making process, albeit in a less transparent fashion. At the EU level, however, the proposed European Port Services Regulation could bring new restrictions to the determination of port tariffs in the near future.

Some port authorities are not privatised and are government agen-cies, and therefore part of the local government in which the ports are situated. Local governments are subject to the national Municipality Act and need to adhere to certain fiscal principles when they levy har-bour dues on vessels in ports within their jurisdiction. For example, they need to maintain clear substantial and non-discriminatory criteria for levying taxes.


The state has several public service obligations with regard to the oper-ation and safety of the Dutch waterways and ports derived from inter-national conventions, for example those based on the International Convention for the Safety of Life at Sea 1974, and from several European Regulations and Directives. Some public service obligations may be satisfied by agreements and administrative licences given to private entities or persons outside the government, such as a privatised port authority. The Mayor of Rotterdam, for example, delegated his power as port safety officer to the harbourmaster, who is employed by the privatised port authority of Rotterdam.


Yes, this is possible and decided on a case-by-case basis. Although the government has committed to a policy of privatisation, it has formu-lated four policy conditions which must be fulfilled before the Dutch state may acquire shares in a private entity:• the national public interests can only be safeguarded by acquiring a

position in the private entity;• these national public interests and how they can be safeguarded

need to be defined in a precise manner;• the entity must be able to realise a return on investment; and• there needs to be a periodic reassessment. If the circumstances

leading to the decision to have the state invest in a private entity are no longer present, the government should in principle retreat from the private sector again.

The Dutch state’s investment in the port of Rotterdam is, however, regarded as one of its few permanent investments. Notably, the port of Rotterdam (although no longer a state entity) has recently concluded several joint ventures with other commercial entities and foreign ports and is considering more foreign investments. Examples are joint ven-tures with the government of Oman regarding the SOHAR port area, with a Brazilian company for the port development of Porto Central, and with the Port Authorities of Antwerp, Mannheim and Switzerland for research and cooperation in the area of LNG terminals.

13 Are there restrictions on foreign participation in port projects? In principle there are no restrictions on foreign participation in port projects.



The legislation governing procurement in the Netherlands is based on European Directives 2004/17/EC and 2004/18/EC, and is imple-mented in the Netherlands in the PPA (and delegated legislation and guidelines). With regard to port development, some more specific rules based on Directive 2004/17/EC (special sectors) are applicable to port development procurement. There is no comprehensive legisla-tive framework for PPPs in the Netherlands. PPP projects are usually tendered, making use of existing procurement legislation. Dutch PPP projects are typically governed by standardised design–build–finance–maintain–(operate) (DBFM(O)) contracts.


There are no specific rules applicable to privatisation of Dutch govern-ment entities. Privatisation of a port authority does not necessarily involve a formal tender. Assets previously owned by a local government may be transferred or leased in perpetuity to the newly formed inde-pendent port authority, but the government has retained full ownership interest in the newly formed privatised port authority in Rotterdam.


This is decided by the relevant port authority or commissioning author-ity. For example, with regard to the Maasvlakte II project the port authority of Rotterdam used the criteria below for the concession of a container terminal:• the financial bid, including volume guarantees and revenue projec-

tions (40 per cent);• the business plan, in other words the degree to which the new ter-

minal would attract new cargo to the port (25 per cent);• the sustainability of the bid, including percentages of rail, truck

and inland waterway modes of transportation that would be used (20 per cent); and

• the terminal concept, with regard to the efficiency and the quality of the proposed terminal (15 per cent).





Nowadays, the Dutch government regularly opts for a DBFM(O) con-tract to realise large public works and transport infrastructure projects. All elements concerning the design, realisation and maintenance of a building project form an integral part of one contract to be commis-sioned by the commissioning party to the contractor. Distinctive for a design–build–finance–maintain (DBFM) contract is that the financ-ing of the building project is shifted to the contractor in exchange for regular payments as compensation during the running period of the contract. Since there is a link between the running period and the eco-nomic life of the realised works, the contract is usually concluded for a longer period (20–25 years).

A consortium is, in most cases, incorporated as a special purpose vehicle (SPV) to conclude and execute the contract for the port develop-ment with the commissioning party (government). An SPV is a private company with limited liability financed either by banks and equity capi-tal, or by loans from the government itself, all in exchange for shares in the company. It can be said that operating a port has become an inter-esting business, attracting the attention of large investment groups and equity fund managers.

The Dutch government issued a standard DBFM model agreement for large infrastructure projects initiated by the national government, but parties are free to deviate from this model. Furthermore, there are guidelines which provide a decision model with regard to whether a project is suitable for PPP and if so, for DBFM. Recently, local govern-ments have also experimented with a light version of DBFM for smaller port development projects.

For existing port areas, the relevant port authorities apply standard terms and conditions in their sublease agreements.


For realisation of the project a variety of permits may be required, related to the environment, construction and occupational health, and safety standards. With regard to a DBFM agreement itself, a national government agency will need to obtain approval from the Minister of Finance. Under certain circumstances large projects financed by the government may be regarded as state aid within the European context, and in these cases approval from the European Commission is there-fore sought before there can be substantial government investment in port areas.


Relatively large projects may be implemented as DBFM(O) projects. Other projects can be implemented as a more classical government procurement for works, as either a ‘design–build’ project or a ‘design–build–maintain’ project.


There is no minimum or maximum term for concessions or PPPs. In the concession for a very large project involving a large investment from private parties such as the newly built Maasvlakte II terminal, a term of 60 years can be applied. Usually concessions and lease agree-ments in port areas are concluded for 20–30 years. In principle, govern-ment agencies are free to determine the term; however, a term may be regarded as too long if the term is not proportional to the investments that the concession holder is required to make (see, eg, ECJ 9 March 2006, C-231/06, Commission v Spain).

21 On what basis can the term be extended? In principle, the term may be extended if provided for in the conces-sion, but this is not a standard approach.


With regard to the land rent of existing port areas, the port author-ity leases or subleases plots of the port area to private companies. On

the basis of those lease agreements, the port authority may charge an occupancy fee for the site (fixed per square metre or per metre of quay length) and for the facilities (if applicable). These fees may be subject to discounts specifically negotiated with the port authority. Normally, the occupancy fee is revised annually according to inflation. Concessions of port terminals may contain cargo-handling fees (revenue sharing).

Additionally, port authorities may collect harbour dues for the pro-vision of its services that are calculated on the basis of several variables, such as gross tonnage, the type of the vessel and the type of cargo. The quay dues or berthing fees, buoy dues and dolphin dues are based on a fixed fee per linear metre of the ship (overall length). The waste fees are based on the capacity of the main engine of a ship; exemption from the waste contribution is possible provided that a number of requirements are met.


Generally the government does not provide any guarantees. A con-cession, lease or sublease agreement inherently grants exclusiv-ity to a port operator for the duration of the concession, lease or sublease agreement.



For every port construction project, several permits and decisions are required which need to be obtained from local, provincial and national government. These include construction permits, environmental per-mits, operational permits, land planning decisions and even permits to reclaim land, if applicable.


Although the government will always instruct private parties to per-form construction projects, some projects may be fully financed by the government, as private financing may be difficult to obtain with regard to certain large projects. Furthermore, in some cases the government or port authority will arrange for the necessary infrastructure (for exam-ple, connecting roads).


Building, safety and labour legislation may impose construction stand-ards upon contractors and these need to be strictly adhered to in order to obtain relevant permits and to avoid administrative or even criminal liability. Independent certification is often included as a precondition of the validity of permits.


The contractual remedies will be outlined in the agreement between the government or port authority and the contractor and/or the Dutch Civil Code. Should there be violations in environmental or safety standards, the relevant authorities may additionally have criminal or administrative sanctions at their disposal.

Port operations


Several environmental and construction permits need to be obtained from national and local authorities. Although this is a process which takes some time, several permits may be obtained during the building process in order to prevent considerable delays.


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Key competences of the port authority are predominantly related to the operational side of the port. As an example, an overview of the key competences of the port authority of Rotterdam is given below:• planning and access of vessels in the port area: from two traffic con-

trol centres the traffic service operators monitor all vessels which enter and leave the port of Rotterdam or travel through it;

• the harbourmaster’s division checks whether vessels comply with shipping regulations concerning environment and safety. In the event of incorrect or unsafe actions, measures are taken. In addi-tion, systematic checks are carried out to make sure shipping companies and agents comply with the statutory administrative reporting obligations; and

• as Port Security Officer in the port of Rotterdam, the harbourmas-ter is the authority for security in the entire port on behalf of the Mayor of Rotterdam.

Under certain circumstances the harbourmaster may grant permits, exemptions, approvals or directions. For example, the harbourmaster grants permits for the operation of communication vessels or for lash-ing containers on seagoing vessels. Furthermore, the harbourmaster may grant exemptions from certain provisions in the port regulations – for example, under certain conditions it may be allowed to use anchors or disinfect vessels.

In addition to the public tasks outlined above, the port authorities typically conclude commercial lease agreements with port operators for which the port authorities charge tariffs. Furthermore, they may levy tariffs to vessels accessing their ports.


Accessibility and interconnectivity of port areas is one of the policy commitments of the national government. Operators generally do not finance the main access routes, as infrastructure is regarded as one of the public service obligations of the government. The national, pro-vincial and local governments will instruct other parties to build main roads and other infrastructure, such as railways, connecting the port of Rotterdam with the European hinterland. Private access routes within the port area may be privately owned.


A shutdown of operations, for example due to an ongoing disaster or calamity, may be ordered by the relevant safety authorities (eg, the mayor of a larger town or city in the region of the port or environmen-tal authorities).


The relevant lease and concession agreements may contain a provi-sion granting a contractual right of unrestricted access to the terminal grounds by personnel of the port authority. Authorised harbourmaster division’s personnel and other inspection agencies such as the Human Environment and Transport Inspectorate and environmental and safety agencies may also access port terminals regularly for inspection purposes when exercising public powers.


In addition to general contractual remedies, the government may have administrative sanctions at its disposal if such a breach would also entail incompatibility with permit conditions or safety and environ-mental regulations.


As mentioned before, legal title to the land in key port areas rests with the municipality in which the port is located. The municipalities of Rotterdam and Amsterdam have concluded a master-lease agreement with the port authorities of Rotterdam and Amsterdam, effectively granting these public limited companies the economic ownership of the port area in perpetuity. The port authorities may sublease the land to private port operators in order to generate revenue (this can be done through a tender procedure). In principle, the port authorities are free to agree on a transfer arrangement with the port operator on a case-by-case basis. In many sublease contracts, however, a provision is included which imposes an obligation on the service provider to return the land in the same condition as it was handed over to the port operator at the start of the lease period. Consequently, the port operator is under an obligation to remove any facilities owned by it on the land. Should the government or port authority wish to acquire any of these facilities, it may negotiate with the port operator whether any compensation will be paid for this transfer.

In the event of a (DBFM) PPP project, a transfer of the facilities to the government is generally part of the DBFM agreement. The trans-fer usually takes place through a transfer certificate in which all the requirements (eg, refurbishment) and procedures for the transfer of these assets are spelled out in detail.

Miscellaneous


In the event of a DBFM project, the Dutch government requires the parties involved to establish an SPV in the form of a private limited company. Although this is not required by law, this will normally be a private limited company incorporated in the Netherlands. If no DBFM structure is applied, port operators may in principle construct or oper-ate a port without establishing an SPV.

Update and trends

As of 1 July 2016, shippers and freight forwarders around the world will be required to establish the gross weight of an export container before loading it for transport. The shipper or freight forwarder needs to communicate the container’s VGM (Verified Gross Mass) as specified on the Shipping Document to the shipping company in time. Only export containers for which the gross mass has been established according to regulations will be allowed on board a seagoing vessel. In the Netherlands, these new regulations and their implementation will be incorporated into the Ships Act. The shipper or freight forwarder bears responsibility for informing the ship’s agent of the container’s correct weight. The shipper or freight for-warder is required to notify the shipping company of the container’s correct weight by means of a signed document. The ship’s master is not allowed to transport the cargo without this document. In cases where a shipping company does not receive the correct VGM information in time, it will refuse to accept the cargo in question on board the ship. The Rotterdam Terminal Operators’ Association has declared that, in principle, containers that do not have a verified weight will be admitted on the terminal premises; however, these containers will not be loaded on board until the shipping company has received the required data.

Furthermore, on 27 June 2016 the European Parliament and the Council of the EU reached a landmark agreement on a com-mon European framework for seaports. The Ports Regulation was put forward by the European Commission in May 2013 as part of a broader strategy to strengthen the port sector.

The objective of the Ports Regulation is to strengthen the European port sector by attracting new investments and enhancing the efficiency of port operations for the benefit of Europe’s trade, economy and global positioning. The Ports Regulation must now be formally endorsed and adopted by the European Parliament and the Council of the EU. This is expected to be done by the end of 2016.





Generally, ownership interests in port operators are freely transfer-able. However, in the event that a new terminal were to be constructed and operated pursuant to a DBFM agreement, this may be different. In accordance with a change of control provision in the model DBFM agreement, the transfer of ownership interests in the SPV may be subject to approval from the government entity (or port authority, if applicable). The commissioning authority may only refuse to grant this approval on limited predetermined grounds.


If external finance may be obtained under a PPP agreement, the port authority may agree to enter into a direct agreement with project financ-ing banks. However, there have not been sufficient PPP port projects financed by banks to consider the direct agreement between the financ-ing banks, contractors and the port authority as a standard approach.


This primarily depends on the contractual arrangement with the con-tractor. For example, with regard to the Maasvlakte II container ter-minal the port authority of Rotterdam has the right to terminate the contract in the event the terminal would cause a substantial shift of container volume from other terminals. A provision could be included which entitles the port authority to terminate the agreement at its convenience.

As a general principle under Dutch law, a party may request the judge to vary the agreement concluded in the event of unforeseen cir-cumstances. This only applies if the circumstances are of such nature

that the other party, according to standards of reasonableness and fairness, may not expect the contract to be maintained in unmodified form. Only in true exceptional circumstances will a court amend a con-tract on this basis. Although the parties cannot exclude this provision, the DBFM standard agreement contains an unforeseen circumstances provision with the aim of limiting the effect of this general principle of Dutch law.


These are often defined in the contract with the port operator. They vary from termination to variation or dissolution of the agreement. For certain breaches, liquidated damages may also be defined in advance. In DBFM contracts the remedies of the commissioning party are, how-ever, restricted. The model contract restricts the remedies available to claiming specific performance before a competent court.


No, but usually this will be the case, as the model contracts used by the governments and their lawyers are based on the application of Dutch law. If banks are involved (DBFM), the loan documentation may be subject to English law.


Generally, dispute resolution clauses will be included in the concession or lease agreements, which may confer jurisdiction on a civil court, or alternatively on an arbitral panel, for disputes that arise from or in con-nection with the agreement at hand. The standard DBFM agreement contains a choice of forum clause in favour of the jurisdiction of a Dutch court. The parties may also be required to enter into preliminary dis-pute resolution procedures as a precondition to seeking a binding judg-ment from a civil court.

Arnold J van Steenderen [email protected] Charlotte J van Steenderen [email protected]

Zeemansstraat 133016 CN RotterdamNetherlands

Tel: +31 10 266 78 66Fax: +31 10 266 78 68www.mainportlawyers.com


Adepetun Caxton-Martins Agbor & Segun (ACAS-Law) NIGERIA


NigeriaBen UnaegbunamAdepetun Caxton-Martins Agbor & Segun (ACAS-Law)

General


The major ports in Nigeria are:• the Lagos Ports which comprises:

• the Lagos Port Complex, Apapa, Lagos;• Tin Can Island Port, Lagos (which now comprises of a roll-on,

roll-off (ro-ro) port), a container terminal etc;• Kirikiri Lighter Terminal (1 and 2); and• the Ikorodu Lighter Terminal;

• Warri Port, Delta State;• Burutu Port, Bayelsa State;• Calabar Port, Cross Rivers State;• Port Harcourt ports, Rivers State; and• Onne Port in Onne Oil and Gas Export Free Zone, Rivers State

(comprising the Federal Lighter Terminal, which handles mostly non-container cargo, and the Federal Ocean Terminal (FOT), which is primarily a container terminal).

Other terminals include the Akassa Terminal, the Bonny Terminal, and the Degema, Forcados, Koko Town, Sapele and Tiko Terminals.

The Lagos Port Complex contains facilities for berthing, cargo handling, stacking and storage. The Tin Can Island Port is comprised of the old Tin Can ports and the old ro-ro ports. The ports are primarily engaged in transhipment, gateway and berthing activities. The Onne Port also has an oil and gas supply base and other facilities.

Two new deep-sea ports are to be constructed within the Lekki Free Trade Zone and the proposed Badagry Free Trade Zone within the next couple of years. In addition, there are several dry ports, inland container depots and bonded terminals which can be found all over Nigeria, with a few of them at least 1,000 kilometres from any water-front facility.


Legal title to all the seaports in Nigeria is vested in the Nigerian Ports Authority (NPA). Major port reform in Nigeria commenced in 2003. The reform adopted the Landlord Model, which is similar to the model adopted by the Port of Antwerp, Belgium, with the objective of increas-ing efficiency in port operations by way of operating leases between the NPA and private sector operators while the NPA remains both the land-lord and technical regulator of the ports.


The Federal Government of Nigeria (FGN) and the NPA have operated the Landlord Model for the past 10 years. The FGN is committed to pro-moting the development of new ports in Nigeria through public-private partnerships pursuant to which the NPA grants concessions to private port developers supported by several investment incentives from the FGN under a Government Support Agreement. In addition, the FGN is also considering draft legislation, such as the Nigerian Ports and

Harbours Authority Bill 2015 and the National Transport Commission Bill 2015, to regulate the ownership and operation of ports, including new ports in Nigeria. Unfortunately, earlier drafts of this draft legisla-tion have been pending before the Nigerian National Assembly for a very long time and are yet to be passed.


Nigeria published a document called ‘Nigeria’s Path to Sustainable Development Through Green Economy’ in conjunction with the United Nations Development Programme in June 2012, in connection with the processes leading up to the United Nations Conference on Sustainable Development (Rio+20). That policy document addressed several green port principles including flood and coastal erosion, waste manage-ment, environmental challenge etc. In addition, several local laws, including the NPA Act, the National and Environmental Standards and Regulatory Enforcement Authority Act and the Environmental Impact Assessment Act, all provide further guidance on the FGN’s require-ments for green ports.



As stated earlier (see question 3), there are draft bills for the regula-tion of all ports as well as the entire maritime sector in Nigeria pend-ing before the National Assembly. The Ports and Harbour Reform Bill aims to deal with the ownership of ports and expand the powers of the NPA while the National Transport Commission Bill seeks to estab-lish a statutory agency for the regulation of all forms of land and sea transportation in Nigeria, including rail and maritime transportation. If passed, a port owner such as the NPA would no longer regulate the technical aspects of port operations and the Nigerian Shippers Council (NSC) would also no longer attempt to regulate the commercial aspects of port operations, including the imposition of tariffs.

Public-private partnerships are still undertaken under the Landlord Model under a concession or lease agreement with the NPA, with the consent of the President of the Federal Republic of Nigeria if the lease is for more than five years.


Previously, the NPA was the highest regulatory authority for all ports in Nigeria on all matters. Recently, however, a division seems to have been imposed by the FGN and there is now the concept of a techni-cal regulator and an interim economic regulator reserved for the NPA and the NSC respectively. This has led to concern in certain quarters, and it is hoped that the bills pending at the National Assembly will be reviewed and passed to resolve the matter with finality. Currently, both organisations report to the Minister of Transport. It is felt that Nigeria requires an independent transport commission, as the constitution of the membership of both the NSC and the NPA will not guarantee such independence and impartiality.


NIGERIA Adepetun Caxton-Martins Agbor & Segun (ACAS-Law)



The main powers of the NPA include:• to provide and operate facilities in the ports aimed to serve the best

interest of Nigerians as well as to construct, execute, carry out, equip, improve, work and develop ports, docks, harbours, piers, wharves, canals, watercourses, embankments and jetties;

• to maintain, improve and regulate the use of ports in Nigeria;• to ensure the efficient management of port operations, optimal

allocation and use of resources;• to provide facilities within the port including those for berthing,

towing, mooring, moving or dry-docking of ships; loading and unloading; carriage of passengers or goods, etc;

• to manage, supervise and control any entity in which it has interest;• to undertake investments and act as consultant and adviser in rela-

tion to ports;• to control pollution resulting from oil or any other substances from

ships using the port limits or their approaches; and• with the authority of the Minister of Transport, to make regula-

tions for the maintenance, control and management of any ports.

The functions of the NSC are as follows:• provide a forum for the protection of the interest of shippers on

matters affecting the shipment of imports and exports to and from Nigeria;

• provide a forum for consultation between conference and non-conference lines, tramp-owners, the NPA and the FGN on matters of common interest;

• encourage the formation of shippers’ associations all over Nigeria;• liaise with the appropriate arms of the FGN and other organisa-

tions in assessing the stability and adequacy of existing services and make appropriate recommendations on that behalf;

• advise the FGN through the Minister of Transport on matters relating to the structure of freight rates, availability and adequacy of shipping space, frequency of sailings, terms of shipment, class and quality of vessels, port charges and facilities and other related matters;

• negotiate and enter into agreements with conference lines, non-conference lines, ship-owners, the NPA and any other bodies on matters affecting the interests of shippers;

• consider the problems faced by shippers with regards to coastal transport, inland waterways transport and matters relating gener-ally to the transportation of goods by water, and advise the govern-ment on possible solutions thereto;

• promote and encourage the study of and research into problems affecting shippers in Nigeria;

• arrange, from time to time, seminars and conferences on any mat-ter relating to its functions; and

• carry out such other activities as are conducive to the discharge of its functions under the Nigerian Shippers Council Act.

The NPA is the statutory owner of seaports and the ‘technical regula-tor’ of ports, while the NSC is labelled the interim economic regulator based on the Nigerian Shippers’ Council (Port Economic Regulator) Order 2015. This regulation has been challenged in court by port operators on the basis that said regulations are ultra vires the Nigerian Shippers Council Act.


The NPA is statutorily empowered to appoint the harbourmaster in respect of a port.


Ports in Nigeria are not subject to any specific formalised national competition rules. However, in the concession of seaport assets, the NPA insists that each asset must be a common user facility and bars lines from owning waterfront terminal assets. Under the new Nigerian Shippers’ Council (Port Economic) Regulation 2015, one of the assumed roles of the NSC is to encourage competition and guard against the abuse of monopoly and dominant market position.


The imposition of tariffs is covered in various concession agreements between the NPA and private operators. However, with the recent dichotomy between technical and economic regulatory functions, the NSC recently published two regulations: the Nigerian Shippers’ Council (Port Economic) Regulations on 27 April 2015 and the Nigerian Shippers’ Council (Port Economic Regulator) Order on 27 March, 2015.

The combined effect is to declare the NSC the interim market regulator and vest the regulation of port tariffs in all its ramifications in the NSC. Under the new regime, the NPA, terminal operators etc, are required to collect tariffs at rates that are approved by the NSC. Sanctions are provided for any infraction ranging from a fine to the clo-sure of the offending terminal.


The state does have public service obligations in relation to port access and services under existing legislation. In our experience, the NPA studiously avoids direct positive obligations to maintain existing port access roads in accordance with any applicable international stand-ards. The NPA’s position is that it does not control the FGN and is only a state parastatal. The additional difficulty is that in certain cases the access roads belong to state governments and not the FGN.

However, on the channel, the NPA provides pilotage, towage and other port services.


That is possible. They are legal entities and entitled to enter into such joint venture relationships under the general law. The NPA held a minority in the FOT when the facility was built. In addition, the FGN and the Government of Lagos State of Nigeria are equity holders in the construction of a deep-sea port at Lekki. No percentage threshold is prescribed by law, and shareholders are at liberty to negotiate and agree equity proportions. Under current Nigerian law, however, the usual practice is for the NPA to designate the facility, when built, as a customs port and grant a concession for a specified period of years. At the expiration of the term of years granted, including any renewal peri-ods, the ownership, operation and management of the port will vest in or revert to the NPA.

Deep sea port projects have been planned for Lekki in Lagos, Badagry in Lagos, Bakassi in Cross River, Ibom in Akwa Ibom, Gbaramatu in the Warri area, Olokola in Ondo State and Agge in Bayelsa State. Recently, the NPA has taken the view that all the pro-posed port projects are not economically viable and that in any event, future port developments must be in line with the NPA’s 25-year port development master plan.

13 Are there restrictions on foreign participation in port projects? Presently, there are no restrictions on foreign participation in port pro-jects in Nigeria. Local content restrictions currently apply to the oil and gas sector, the IT sector and for cabotage only.



The Public Procurement Act 2007 requires an open tender for the concessioning of a port asset, and the Infrastructure Concession Regulatory Commission (Establishment) Act 2005 approves the award of all port concessions. We are not aware of any specific federal legisla-tion for PPP in the port sector. However, existing legislation on general procurement and tendering applies to the FGN and must be obeyed.





It is possible to engage the NPA and discuss projects or proposals for port development, but the approval of the president of the FGN is required to dispense with the need to comply with the Public Procurement Act.


Financial, technical and commercial bids are considered. Specific fac-tors to be considered would include the track record of the operator, the ability to finance the project, the technical capacity of the operator, the relevant expertise and experience in undertaking such projects and the overall impact of the concession including the socio-economic impact of the project etc.


There is no statutory model PPP agreement, although the NPA used to try to ensure that all concession agreements are substantially similar to one of the drafts produced for the 2005 privatisation exercise for one of the terminals. There are, however, deviations from said agreement based on the circumstances of each case.


The framework for granting operating leases of ports to private opera-tors is contained in the NPA Act, namely the grant of lease or concession agreements for five or more years with the consent of the President and the approval of the Infrastructure Concession Regulatory Commission. No specific new legislation is required to authorise the PPP contract with the private operator.


Typically, the privatisation model is rehabilitate, operate and trans-fer (for existing ports) or build, operate and transfer (for new ports). Ownership of seaports is vested in the NPA, while the private entity is responsible for the financing, design, construction and operation of the project facility (specific responsibilities dependent on the terms of the concession contract). As private individuals or companies cannot lawfully own ports in Nigeria, the build–own–operate–transfer model is excluded.


This is subject to negotiation between the parties. The usual term, how-ever, is between 15 and 40 years.

21 On what basis can the term be extended? Any extension is typically at the discretion of the NPA and the FGN. Ordinarily the extension should be advertised, but critical consid-erations that would encourage the President of Nigeria to exclude the extension from being subject to the application of the provisions of the Public Procurement Act would include, in our opinion, the per-formance record of the private operator and the terms offered by said operator for the renewal.


The fee structure is usually multi-layered, and will usually include a commencement fee paid only once at the commencement of the agree-ment, fixed lease fees accepted by the NPA and FGN based on the pri-vate operator’s financial bid, throughput fees etc.


Exclusivity relates to the operation of the asset only, and does not extend to other terminals in the area. In any event, the NPA and the FGN insist that all assets must be common-user terminals and, accord-ingly, no lines or other public users may be denied access to the facil-ity unlawfully. The only guarantee offered to private port operators is a waiver of sovereign immunity in the event that the private operator presses a claim for compensation for unlawful acquisition. In early PPP projects in other sectors, the FGN used to offer sovereign guar-antees in the form of government support agreements, but that is now extremely rare. No private operator should realistically expect to extract one today.



Existing NPA assets must be differentiated from greenfield develop-ments. In 2005 and 2006, the FGN actually requested concessionnaires to ‘move in’ and commence operations, and they did. Greenfield devel-opments require a land grant or allocation by a state government or the FGN, approval of feasibility studies, EIA approval from the Federal Ministry of Environment and planning permission. Both greenfield and existing government-owned assets must be approved by the Nigerian Maritime Administration and Safety Agency, which regulates mari-time labour and cabotage, NSC approval, Infrastructure Concessions and Regulatory Commission, the National and Environmental Standards and Regulatory Enforcement Authority, the NPA, Minister of Transport and the President. Other approvals required include the town planning authorities, waste management approvals from the state government authorities etc. It is difficult to estimate the timeline for all these permits and approvals. It is almost impossible to correctly esti-mate the times for the above approvals. A lot will depend on the opera-tor or developer, availability of the statutory authorities or persons mentioned, the diligence with which each application is pursued etc.


These facilities are available in existing government-owned terminals. In greenfield projects, it is the task of the operator. The government will, however, pay for its cash calls.


The operator will have to adhere to the minimum standards prescribed by the NPA and may engage any contractor it desires.


This would depend on the concession agreement.

Update and trends

The trends relate to the development of deep-sea ports, the enhanced role of the NSC, and the pending legislations at the National Assembly which are all intended to create an impartial regulator and free the sector from overwhelming government influ-ence. Existing operators groan under the burden of the very low exchange rate of the local currency, the naira, triggered by the fall in oil prices. At the commencement of most of the concessions, the ruling rate was 119 naira = US$1 and the current rate is 315 naira = US$1, with a prognosis for a further slide in the value of the naira. This affects the importing and maintenance of handling equipment. Shipping lines recently increased local charges by 100 per cent while port operators find that they are restrained from doing the same by local laws. Low volumes pose another challenge and it is safe to conclude that this is a very difficult period for port operators.


NIGERIA Adepetun Caxton-Martins Agbor & Segun (ACAS-Law)


Port operations


See question 24.


The operator usually is responsible for scheduling berthing windows, terminal handling, stacking of boxes, placing boxes for scanning, yard extension, positioning of containers for customs examination and redevelopment, storage, security, collection of throughput fees, etc. The NPA will handle dredging, pilotage, towage etc.


The government usually does not give any such commitments. In addi-tion, the government does not usually require the operator to finance the development of access routes or interconnections. Parties rely on existing infrastructure and then discuss improvements separately.


The NPA controls the channel and periodically inspects operations as well as books of account. Suspension of operations or shutdowns have grave consequences for both the NPA and the economy. Failure to operate the port for a long time, failure to meet development targets, failure to pay lease fees or throughput fees, collection of unauthorised charges etc, are the usual triggers and could generate serious threats from the regulators, but any precipitate action could attract compensa-tion at arbitration. Therefore, such recourse is usually avoided unless directed by the Minister of Transport.


This may happen at the expiry of the PPP contract, or where the private operator breaches fundamental conditions of the concession agree-ment (see question 31).


The remedies are fines or forfeiture, but this would depend largely on the concession agreement. The new NSC regulations also provide for a possible shut-down.


Typically, the port authority would have an option to purchase han-dling equipment and other moveable assets at a price to be agreed by the parties, but real estate improvements will revert automatically to the port authority without charge.

Miscellaneous


An international operator may bid for a concession in its own name, but if it wins the bid it must incorporate a local company to operate the concession.


The NPA is a public statutory corporation that belongs to the FGN. It is not privatised and therefore no transferable ownership rights may exist in the NPA.


The port operator would be well advised to insist on the inclusion of the relevant clause in the agreement. The clause would simply allow the operator to raise financing on the security of the concession, but would exclude any specific pledge, charge, mortgage etc, of the port asset since they belong to the government.


Variations may occur at the discretion of the parties, and termination is based on the triggers contained in the agreement. The Infrastructure Concession Regulatory Commission Act provides that agreements reached in respect of the Act cannot be arbitrarily suspended, stopped, cancelled or changed except in accordance with the provisions of the Act.

Ben Unaegbunam [email protected]

9th Floor, St Nicholas HouseCatholic Mission StreetLagosNigeria

Tel: +234 1 462 2094/2480Fax: +234 1 461 3140www.acas-law.com





Damages are the usual remedy. An injunction can also be granted if the breach has not yet occurred.


There is no such legal requirement, but the FGN often insists on such government.


Disputes are settled based on the terms of the agreement. The usual provision is by arbitration and, in the absence of an arbitration clause (which would be rare), the courts.


PANAMA Icaza, González-Ruiz & Alemán


PanamaJoel R Medina and Rudy Cedeño GIcaza, González-Ruiz & Alemán

General


The key ports at the Atlantic entrance of the Panama Canal are as follows:• Manzanillo International Terminal is a North American and

Panamanian private equity firm affiliated with Carrix Inc that provides port services to shipping lines transiting the Panama Canal, the waters of the Caribbean and the Atlantic coast of South America. Its purpose is trans-shipment and as a logistics park (con-tainer, general cargo and roll-on, roll-off );

• Colón Container Terminal, a subsidiary company of the Evergreen Group. Its purposes are transhipment and the embarking and dis-embarking of containers. It serves the Colón Free Zone, the largest free zone in the Americas (since 1948), and the second largest in the world;

• Port of Cristóbal/Panama Ports Company (PPC), a unit of the Hong Kong-based conglomerate Hutchison Whampoa Ltd. Its main purposes are the embarking, disembarking and tranship-ment of containers, general cargo, fuel and dry bulk; and

• Colón 2000, which serves as a passenger terminal.

Key ports at the Pacific entrance of the Panama Canal include:• Balboa/PPC Hutchison Whampoa Ltd. Its purposes are the

embarking, disembarking and transhipment of containers, general cargo, fuel, dry bulk and roll-on, roll-off; and

• PSA Panama International Terminal (containers and general cargo). Its purpose is transhipment

A key port at the Provinces of Chiriquí and Bocas del Toro is the Petroterminal de Panamá, SA (PTP). This involves crude oil-handling facilities on the Atlantic and Pacific coasts of the Republic of Panama, with an oil pipeline that runs through the Panamanian Isthmus, energy generation power plants and a general cargo pier on the Atlantic Coast.

In total, Panama boasts 14 private ports and 14 state-owned and operated ports. Port facilities in Panama will boost their capacity with the expanded Panama Canal, inaugurated in June 2016, to be able to meet demand increases for Post-Panamax vessels of up to 14,000 TEUs in size. This has doubled the capacity of the Panama Canal, up from the 5,000 TEUs it handled in the past. The expansion could shift about 10 per cent of the Asia-to-US container traffic from West Coast ports to East Coast terminals by 2020.


Law 56 of 6 August 2008 (the General Law of Ports) establishes the rules for port facilities, regardless of the type of terminal in question (whether public or private), the kind of merchandise that is transported and regardless of maritime services. The aforementioned Act recog-nises that ports are required for the development of the country, and that the services they provide are public, whether exercised by public or private companies, in accordance with the National Maritime Strategy and the General Ports Law in the shaping of a modern and efficient

maritime cluster, promoting competitiveness in companies that are part of the activities of trade; transport and logistics; industrial and maritime traffic; generation; and development of regional cabotage.

Private ports in Panama have been assigned to private port operators through the ‘Ports Concessions’ privatisation process regu-lated under Agreement 9-76 of 24 March 1976 (the Regulation of Concessions). State-owned ports are still operated by the govern-ment of Panama under the administration of the Panama Maritime Authority, and provide dockage and other related services for local users and short-sea services.


Yes: Agreement 9-76 of 24 March 1976 for Concessions. The state authorises the development, design, engineering, hiring, construc-tion, installation, maintenance, use and operation of maritime or port facilities. Prior to the beginning of the construction of any maritime or port infrastructure, the concessionaire shall fulfil the requirements and meet the specifications presented by the norms and rules in effect. It will ensure compliance with its obligations, and will submit the appli-cable documents and requirements to the Panama Maritime Authority for its review, registry, approval and control.


Port operators in Panama promote environmental stewardship and sustainability, employing the best available technology to avoid or reduce environmental impact under the General Law of Ports. Some companies have already shown interest in the development of green ports. However, green port principles are not included in the regula-tions for the development of port facilities and are separate from the environmental assessments, public consultations and approvals from the Ministry of Environment needed in order to comply with an Environmental Impact Study Category III to prevent, mitigate, moni-tor, correct and compensate potential negative environmental effects or impacts.



Private port operators are authorised by means of a concession agree-ment known as a ‘contract law’, which is negotiated and approved by the Executive Branch and the National Assembly and it will govern specifically the services provider legal agreement with the Panama Maritime Authority.

Concessions, procurements and direct contracts are available for infrastructure projects in Panama.

Public-private partnerships (PPPs) are not yet regulated in the Panamanian jurisdiction with regard to port concessions.


All ports are regulated by the Panama Maritime Authority through the General Directorate of Ports and Maritime Ancillary Industries.


Icaza, González-Ruiz & Alemán PANAMA



The key powers are as follows:• Law Decree No. 7 of 10 February 1998 (Creating the Panama

Maritime Authority);• Law 56 of 6 August 2008 (the General Law of Ports); and• the contract law for each specific concession.

The key competences are as follows:• to propose, coordinate and carry out the National Maritime Strategy;• to recommend policies and measures, perform administrative

acts and enforce the laws and regulations applicable to the mari-time sector;

• to carry out measures to safeguard the national interests in the maritime zones and internal waters;

• to administer, preserve, restore and exploit marine and coastal resources; and

• to manage, expand and maintain ports and port facilities.


The harbourmaster is appointed by each private port operator.


The law that regulates public procurements in Panama is Law 22 of 27 June 2006, and regulated by the Executive Decree No. 366 of 28 December 2006 and its amendments.


The tariffs are collected in the account of the National Treasury. The regulations in relation to the tariffs that are imposed on ports are included in the specific contract law, and can be given the follow-ing structure:• an initial payment, given three months after signing the respec-

tive contract;• a fixed payment annuity, paid monthly after the first payment;• a variable annual payment, which would be 10 per cent of the

gross income for the activities performed by the company and paid monthly, starting two months after the first payment of the fixed rates; and

• as set forth in the respective contract law, an initial investment in different phases within the first five years of the contract.

The tariffs are collected as follows:• a movement fee (loading and unloading of containers) for interna-

tional cargo, local cargo and dry bulk;• dock payments per boat landed and anchor, if applicable for gross

registered tonnage per day or fraction of day; and• lighthouses and buoys are paid for by gross registered tonnage.


The concessionaire shall procure separately the construction of port accesses and interconnection with public services in all circumstances. The state is not responsible for providing public services or access to premises.


In Panama, joint ventures (public or private) are not used for port con-trol, operations or administration; such ventures are only entered into by means of concession agreements.

13 Are there restrictions on foreign participation in port projects? There are non-discriminatory regulations and restrictions against for-eign private participations in port developments. Panama is the top recipient of foreign direct investment in Central America, and the Panamanian government and the business milieu actively encourage direct foreign investment due to its political and economic stability, reduced tax, the Panama Canal and the strategic geographical position for trade and services. In general, the laws do not differentiate between national and foreign companies.



The Panamanian Law 22 of 27 June 2006, and Executive Decree No. 366 of 28 December 2006 as amended by Law 48 of 2011 among others, rule in general on government procurements and other related issues. Law 22 uses fair and transparent procurement procedures, and timely and effective bid review procedures that require the publication of all proposed government purchases, sales or lease properties of the state, via PanamaCompra, an internet-based procurement system (www.panamacompra.gob.pa). Panama has the government procurement court to handle public contracting disputes.


Yes, the Panama Maritime Authority may consider and evaluate feasi-ble proposals according to the Regulation for Concessions (Agreement 9-76) to negotiate the terms and conditions of a concession approved by means of a contract law or a concession agreement.


Neither joint ventures (public-private) nor PPPs are considered in the Panamanian jurisdiction for port concessions. The award of port con-cessions requires the fulfilment of all the requirements to meet with the specifications, feasibility study, economic proposal and applicable documents to the Panama Maritime Authority for its approval.


Each key port operator in Panama is regulated by its particular con-tract law.


In accordance with Law 56 of 6 August 2008 (the General Law of Ports), Agreement 9-76 for Port Concessions and Law 22 of 27 June 2006 for government-procured PPP agreements are not included, and a spe-cific law must be approved by the Executive Branch and the National Assembly for the implementation of a PPP for a port project.


Ports are implemented on a build–own–operate–transfer basis.In addition, the port operator can assign or transfer a part of or the

entire concession with the prior authorisation of the Panama Maritime Authority. Also, with prior authorisation from the Authority, the port operator may engage in a lease agreement with a third party for a part of or the entire concession.


The concession for a private port has a term of 20 years, renewable for an additional 20 or 25 years if the concession is awarded via contract law renewable for the same period of time (25 years).


PANAMA Icaza, González-Ruiz & Alemán


21 On what basis can the term be extended? If the port operator desires to extend the term of the contract, it must submit a written request 90 days prior to the termination of the con-tract. The Panama Maritime Authority will review if the operator meets the obligations contained in the contract, and will grant an extension for an additional period under the same terms and conditions as stipu-lated in the contract.


The fee structures are as follows:• a fixed annual fee for the land lease (the amount per square metre

under the contract law);• variable annual fees, charged to the services rendered to their cli-

ents, of the gross income from all the sources of income derived from activities carried out by the operator that will be calculated and paid on a monthly basis; and

• participation by the state as a stockholder in the operator’s com-pany: fully paid shares equivalent to 10 per cent of the capital.

These fees are not subject to indexation.


Subject to the terms of the contract law or concession, the Panama Maritime Authority will grant the port operator exclusivity in the devel-opment, construction, operation, administration and management of the port terminal. Also, in the event of interest from the port operator to extend the term of the concession, the operator will have priority over new clients on the same land and infrastructures.



All the requirements are listed by the General Directorate of Ports and Maritime Ancillary Services of the Maritime Authority of Panama. For port operators to commence construction they require all per-mits and licences granted by the respective authorities, including the Environmental Impact Study Category III and the classification of the project site as an industrial zone granted by the Ministry of Housing; fire department permits; and land use permits. Due to the requirements and approvals of different institutions involved in the process, there are no specific terms to obtain the approvals. A concession contract of 20 years is approved in around four months, subject to obtaining the final approval of the General Comptroller Office; 25-year contract laws require the approval of the National Assembly.


The construction of facilities is entirely the responsibility of the opera-tor and developer of the project. The Panama Maritime Authority will be involved in the approval of construction plans and giving technical advice, if necessary.


There are no specific international construction standards and no obli-gations to hire any contractor in particular. However, the construction plans and designs are expected to be of the highest international stand-ards and duly authorised for the concession. For example, Panama Ports/Balboa has some specific construction standards due to an air-port facility nearby.


This is entirely the responsibility of the port operator and shall be specified in the concession agreement. In the event of delays, the port operator should commence the lease payments even if they are not able to operate.

Port operations


At least a month before the operator is ready to initiate operations, they should send a notification to the Panama Maritime Authority to inform them of the start-up of port activities. The Port Protection Office of the Panama Maritime Authority evaluates the installations, verifying that everything is according to the concession and providing permissions through a Delivery Act for the premises.


Depending on the activities and purposes of the project, the port opera-tor shall contract the companies that can provide services or complete their services through shipping agencies. The Maritime Authority only provides services on board to verify the documentation of vessels, including that pertaining to crew members. The port authorities do not charge the port operator for their legal services.


All access routes or interconnections must be financed and undertaken by the port operator as part of their investment in the project.


Every port facility has a harbourmaster’s office with representatives of the Panama Maritime Authority in charge of ensuring that all the activities comply with the terms and conditions established under the contract law or the concessions regulations. For public safety reasons and duly justified national interest, the Maritime Authority requires the temporary entry of maritime services providers or cargo in the execu-tion of particular acts in the port facilities. The Maritime Authority may suspend the activities of an operator based on cases of force majeure and unforeseen circumstances, or third party acts that could affect the operation of the port facilities.


This may only happen at the termination of the contract, and the pro-cedures shall be determined in the contract law. In such cases, the state will take control of the operation and administration of the port.

Update and trends

There is a new port in Aguadulce (created through an international public bid).

The port at Puerto Armuelles is currently going through an advisory stage.

The PSA Panama International Terminal is going through a second phase of development.

The Port of Corozal is a new port in the Pacific entrance of the Panama Canal.


Icaza, González-Ruiz & Alemán PANAMA



All remedies and penalties are included in the contract law negotiated by the parties. When the port operator commits a violation or fails to fulfil the requirements of the concession, the authority may determine to grant a reasonable period of time for remedy.


The assets the port operator must transfer to the Authority are those that are removable and which are included in a previous inventory, with a certificate of delivery.

There is no payment compensation from the Authority.

Miscellaneous


SPVs are permitted as a subsidiary or part of a holding company or prin-cipal entity enabled to engage in the terms and conditions under the concession agreement signed with the Panama Maritime Authority. The use of SPVs under the Panamanian jurisdiction is more commonly accepted. In the case of SPVs from different jurisdictions, they shall be incorporated in the Public Registry of Panama.


A port operator can assign or transfer a part of or the entire conces-sion with the prior written authorisation of the Panama Maritime Authority. Also, the port operator may, with prior authorisation from the Authority, make a lease agreement with a third party for part of or the entire concession. It is very important that the port operator fulfil all their obligations during the term of the concession. The port opera-tor shall submit the request for the transfer of ownership together with the third party (Agreement 9-76, articles 31–37).


The Panama Maritime Authority does not participate in agreements with banks or financial institutions to finance port projects on behalf of their private counterparts. The Authority, through the Secretary General of the Panama Maritime Authority, provides the port opera-tor with a certificate to prove they are into the process of obtaining a concession.


In the course of the construction the parties may agree to redefine or vary the initial plans subject to the prior written approval of the Panama Maritime Authority.

Articles 41 and 42 of the regulation for concessions (Agreement No. 9-76) establish the causes for terminating the concession. Such causes are also included in the contract law.


All such remedies can be found in the contract law. They involve grant-ing a period of time to remedy the situation, having declared the breach of contract.


As a result of new regulations regarding PPP agreements, such agree-ments will be entirely governed by the Panamanian jurisdiction.


The procedure to solve disputes between parties is established in the contract law or concession agreement. Mediation and international arbitration clauses are included.

Joel R Medina [email protected] Rudy Cedeño G [email protected]

Aquilino de la Guardia StNo. 8 IGRA BuildingPO Box 0823-02435Panama CityPanama

Tel: +507 205 6000Fax: +507 269 4891www.icazalaw.com


PARAGUAY Palacios, Prono & Talavera


ParaguayRaúl Prono Toñanez and Juan Pablo Palacios VelázquezPalacios, Prono & Talavera

General


Paraguay is an economy dependent on foreign trade (it is among the five largest soya exporters in the world), and in the past 20 years the major international agri-commodity companies have settled in the heart of South America, developing port terminals that are among the best in the world.

The most important ports in Paraguay are owned and operated by private entities and were developed and constructed within the legal framework of Law No. 419/94 (the Private Port Statute). The port industry has grown steadily in the past decade, mainly because of the significance that agribusiness has for the local economy and the natural need to store commodities before carrying them overseas. The likes of Bunge, Louis Dreyfus and ADM have built model commodities ports that are concentrated in the city of Villeta, among which stands the port of CAIASA.

It is also pertinent to note that the foreign trade conducted by Paraguay has increased by 400 per cent in the last 10 years, leading to greater investment in infrastructure in port terminals. These invest-ments have been made mainly by private capital – approximately US$500 million – to the detriment of public participation, which is demonstrated by the fact that of the 10 port terminals that have the highest revenues, only three are managed by the government.

The most important state-owned terminals are located in the cit-ies of Asunción, Ciudad del Este, Concepción, Pilar and Villeta. While these public ports have become less competitive in the past decade, this trend may gradually change in the future due to the current gov-ernment policy of promoting public ports through private investment (both local and international) within the legal framework of public-private participation contracts.

Apart from bulk cargo ports, general cargo and container ports also play a major part in the port industry of Paraguay. Terport, which has announced this year an investment of approximately US$40 million in the construction of a second port in the city of Villeta, is currently the most important port with regard to cargo movement and revenues, fol-lowed by Caacupe-Mi, Fenix and Seguro.

Likewise, the country has dedicated oil ports managed and oper-ated by the main players in the oil market, such as Monte Alegre, Copetrol, Petrosur and the state-owned Petropar.


The Private Port Statute establishes the legal regime for the con-struction and operation of private ports. It authorises the construc-tion, installation and operation of privately owned river ports in the Paraguayan territory. The Private Port Statute has proven to be the legal instrument under which the majority of private terminals, cur-rently leading the Paraguayan market, have developed.

The Ministry of Public Works and Communications (MOPC) is the authority in charge of application of and policy compliance with the Private Port Statute, through the Merchant Marine and the Department of Private Ports.


Bearing in mind that Paraguay is a landlocked country, the government aims to plan, in the short, medium and long term, the development of infrastructure, transport services and logistics, with the goal of effi-ciently satisfying the requirements of the production activity, so as to contribute to social development, the competitiveness of the economy and the access of domestic products to international markets.


There are no compulsory or specific ‘green port’ principles adopted by local regulation. The Private Port Statute requires that each terminal must have an environmental impact statement and a licence granted by the competent body, the Environment Secretariat, in accordance with the provisions of Law No. 294/93. Within this legal framework, each project is evaluated individually according to its characteristics.



As previously mentioned, the Private Port Statute regulates the con-struction and operation of private ports. Decree No. 14.402/01, issued by the Executive Branch, created the Department of Private Ports as a body of the Direction of Merchant Marine, which is in turn a depend-ency of the Ministry of Public Works and Communications. The Decree complemented the Private Port Statute and established the regulation for private ports construction and operation.

The current government of Paraguay has adopted a package of legislation to promote the country’s infrastructure and attract for-eign investment capital. In 2013, the legislative power issued Law No. 5102/13 (the PPP Law), creating a legal public-private partnership regime to promote investment in public infrastructure. Among the projects that can be developed within this legal framework, of particu-lar interest are the ports, waterway, dredging and maintenance of the navigability of the rivers projects.

Each contract adopted within the frame of the PPP Law can last up to 30 years. The PPP Law basically conceives a distribution of commit-ments and risks between the private sector and the government, so that the government does not have to assume full responsibility for carrying out major physical works required by the country.

The MOPC is the government body responsible for the develop-ment, selection and execution of the PPP projects in the field of trans-port and communication channels, including dredging and signalling of rivers and airports.

The decision to promote a project through public-private participa-tion arrangements requires the approval of the Executive Branch. The PPP Law allows all kinds of infrastructure and services projects. The MOPC has developed a portfolio of priority projects for the develop-ment of the country. These include the waterway, a project to make the Paraguay River navigable 24 hours a day all year long, which is critical to the state’s interests since Paraguay transports 80 per cent of its for-eign trade though the waterway.

Decree No. 1.350/14, issued by the Executive Branch in 2014, regu-lates the PPP Law.


Palacios, Prono & Talavera PARAGUAY



In Paraguay there is a regulatory authority for all public ports, and another regulatory authority for all private ports.

The regulatory authority for state-owned ports is the National Administration of Ports (ANNP), created by Law 1066/65. For pri-vate ports, the Department of Private Ports, created by Decree No. 14,402/01 as a body of the Merchant Marine (in turn a dependency of MOPC), is the authority that polices private ports.


The ANNP’s competences and powers are, among others, the following:• plan, study, design and build new ports, facilities and access;• expand and retain existing ports, facilities and equipment to meet

the needs of the traffic;• exploit all port services;• keep the channels, river navigation routes and access to ports in

good condition, permitting navigation throughout the year;• study, project and build works related to the exploitation of rivers

and canals;• carry out topographic, geological, hydrological and hydrographic

surveys and studies of the rivers and streams of the country;• participate in the international coordination of the navigation;• acquire, maintain and operate dredging equipment or other equip-

ment necessary for the maintenance of rivers;• construct, install and provide the services of dry and floating

docks, cranes, docks, dredgers and others;• advise the Executive Branch on all matters related to

their competence;• organise and maintain the service of pilotage, whether for the navi-

gation or movement of ships within ports;• supervise the ports operated under concession; and• adopt labour regulations in order to provide effective services.

Regarding private ports, the Department of Private Ports of the Merchant Marine is the body responsible for enforcing local regulation. They conduct surveys on a regular and ad hoc basis to private ports, monitoring and policing operations. In that sense, the private ports authorised to operate are obliged to submit a monthly report of cargo and vessel movements to the Merchant Marine.

The Private Port Statute also determines that the administration of each port must arbitrate the necessary measures to allow strict com-pliance with the law, and facilitate the performance of customs, tax, immigration and coast guard authorities so they can run police meas-ures and surveillance. Moreover, each administration is responsible for dredging, markings, signage and other related services in their respec-tive access channels and lakes near its facilities.


In state-owned ports, harbourmasters are appointed by the ANNP, and in private ports they are appointed by the private administration at its sole discretion.


Yes they are. Port economic activity, whether conducted by a private or public entity, falls within the scope of local Competition Law No. 4,956/13 and its regulatory Decree No. 1,490/14.

In addition, Decree No. 14,402/01, which regulates the Private Port Statute, stresses that any violation to the rules of competition, or the exercise of monopolistic or unfair competition practices, constitute serious misconduct that authorises the competent authority to apply the most severe sanctions.


Law No. 1,066/65 establishes that the board of the ANNP is responsible for projecting the tariffs. The Executive Branch must then approve the proposed tariffs. They normally include, among others, tariffs, rates,

fares and fees for port services, maintenance services, navigability of the rivers and canals, buoys and pilings and other services that are within the competence of the ANNP.

Local regulation establishes that tariffs and rates are determined in such a way that the revenue resulting from its application shall allow the ANNP to cover all of its expenses and to ensure the availability of resources to meet their debts, and to allow the normal expansion of its services.

There is no regulation imposed on private administrations. They fix and adjust the rates according to the market.


In public state ports, the primary purpose of the ANNP as per its organic law is to maintain the navigability of the rivers at all times, and to keep the channels, river navigation routes and access to ports in good con-dition, permitting normal navigation throughout the year. Regarding private ports, the Private Port Statute states that the administration of each port will be in charge of provision and payment of costs for dredg-ing, signalling, marking and other related services in their respective access channels.

Both the state and the private sector can satisfy their obligations in contractual relationships with private parties.


Yes it can. This is currently the situation at the state-owned port of Villeta, currently operated by the Argentinian PTP Group, who entered into a contractual relationship (operational strategic alliance) with the ANNP. The state’s stake is not subject to any percentage threshold: it is subject to private negotiation and contractual ordinary rules.

13 Are there restrictions on foreign participation in port projects? No. Additionally, the current government has a very strong policy to attract foreign capital for all types of infrastructure projects, includ-ing ports.



The legislation is general.


The selection of private participants takes place through transparent and competitive procedures, respecting the principles of non-discrim-ination, equality and wide publicity, so as to promote the participation of the largest number of operators, in order to select the private partici-pant who can provide the most efficient and effective service.

The projects executed under the PPP Law are normally subject to formal tender procedures. The PPP Law provides that the selection of participants will be made by formal tender procedures, but also leaves room to establish, through regulation, other sorts of competitive proce-dures, provided that they are not contrary to the general principles of economy and efficiency, transparency and equality.

The development of PPP projects might start as a result of a public initiative, within the relevant contracting authority, or might be pre-sented to the contracting authority by the private sector. Private initia-tive projects can be substantiated and evaluated whenever there is not a previous submission made by another private proponent in study, and when the contracting authority is not conducting a similar project for promotion as a public initiative project.

In both scenarios the contracting authority, under the coordination of the PPP Project Unit of the Ministry of Planning, will be responsible for the structure, selection, adjudication and conclusion of the public-private participation contract. Likewise, the contracting authority has




the power to control the proper execution of the contract and the fulfil-ment of the obligations assumed by private participants.


First, it is relevant to clarify that all PPP projects must have a technical, economic and legal analysis presented and approved by the contract-ing authority. In addition, the projects should have a favourable opin-ion issued by the Ministry of Planning, and the approval of the Ministry of Finance.

The regulation of the PPP Law (Decree No 1,350/14) establishes the scope, form and content of the previous assessments required, such as engineering, operational, commercial, economic, financial, legal, environmental and economic, as may be applicable to each case.

The award of the PPP project to a certain private participant is decided in accordance with the evaluation system, which consists of a predetermined scoring system established in the specifications of the tender.

The evaluation system must meet one or more of the follow-ing factors:• fees paid by users;• remuneration for services rendered to the state;• the term of the contract;• government contributions to the bidder to supplement revenues

coming from users;• payments offered by the bidder to the contracting authority;• income guaranteed by the government;• the total or partial score obtained in the technical qualification;• qualification of additional useful and necessary services;• total contract revenues, calculated in accordance with the provi-

sions of the tender; and• other objective factors defined in the regulations.


There is no model PPP agreement. The legal terms of the project are included in contracts negotiated between the private participant and the contracting authority.


A decree issued by the Executive Branch is required to start a PPP pro-ject. Below is a brief description of the process.

The project, whether generated by public or a private initia-tive, needs to be submitted to the PPP Project Unit of the Ministry of Planning, the technical body of the Executive Branch in charge of developing PPP projects. The evaluation process starts there, where the projects are submitted at a pre-feasibility level.

As previously mentioned, the PPP Law and its regulatory decree establish that before the execution of PPP projects, different sorts of studies are submitted, such as technical, economic and legal. The assessments and favourable opinion of three different governmen-tal bodies (the Ministry of Planning, the Ministry of Finance and the Contracting Authority) are compulsory.

The evaluation process involves analysis in stages. The first evalu-ation is given to the proposal submitted at a pre-feasibility level. Then the process advances to the feasibility level, and if there are favour-able assessments the project is raised to the Executive Power. With the approval of the Executive Power, the project proceeds to the stage of preparation of the terms and conditions of the tender and the basis for a competitive procedure. All the initiatives, whether public or private, must pass through the described evaluation process.

Upon completion of the assessment process and once the terms and conditions for bidding are approved, the process goes through the stage of submitting the bids from the private sector, which lasts at least 60 days. After this period, the bids are evaluated and then the contracts are awarded and signed.


The vast majority of ports in Paraguay are based on fully privatised port models.


There is no minimum term. The maximum term for a PPP project, including its extensions, is 30 years.

21 On what basis can the term be extended? The term can be extended up to 10 years, under exceptional circum-stances only, for unforeseeable and extraordinary acts after the signing of the PPP contract, provided that those acts provoke serious economic damage to the private participant and substantially alter the financial balance of the PPP contract. Article 34 of the PPP Law provides the casuistic details.


The position of the private participant will be determined in each con-tract according to the type and characteristics of the proposed public-private partnership. Different forms of remuneration may be provided, such as granting the right to charge fees to users, public contributions or other sources of income.

A public contribution may include proceeds from public revenue, project financing guarantees, guarantees of minimum income collec-tion, tax exemptions provided for in the laws, contributions to the capi-talisation of special purpose corporations and loans, among others.


The government is empowered to grant exclusivity to the pri-vate operators.

Regarding guarantees, the PPP Law establishes the creation of a trust fund in order to effectively and efficiently meet the firm and con-tingent commitments assumed by the state under a PPP contract.

The trust is financially administered by the Financial Development Agency in a separate patrimony, pursuant to the provisions under Law No. 921/96 and its regulations. The state, acting as trustee, acts through the Ministry of Finance. Resources transferred to the fund are not returned to the Treasury, and remain within the affected fund until its conclusion.

The effectiveness and efficiency of the payment of state commit-ments is assured in that way.



To obtain the construction permit for a private port, commercial companies registered in Paraguay must submit an application to the Merchant Marine, specifying the role and characteristics of the port they seek to exploit and operate. Decree No. 14,402/01 establishes the requisites that the applicant needs to submit to the Merchant Marine.

The applications, once they have the favourable opinion of the Merchant Marine, are raised to the MOPC, which studies the appli-cation together with the Council for Economic Development and Finance. Lastly, the MOPC elevates the application for the approval of the Executive Branch, which authorises the construction of the private port though a decree.

The entire process can last up to two months.


The government does not take part in private port constructions, which are conducted entirely by the operators on a private basis. The Merchant Marine and the coast guard have supervisory functions over the works, especially when they pose any sort of risk to navigation.





Private operators do not have to adhere to any specific construc-tion standards. Each investor designs and constructs the terminals in accordance to its preferences, and elects the constructor of its choice with absolute freedom. Normally construction processes are carried out by private tenders.


This is a matter entirely governed by private contractual law. In that sense, the remedies available to the owner with regard to the builder will be those conceived in the construction contract and the Paraguayan Civil Code. They can typically be any of the following: specific compli-ance, compensation for damages, liquidated penalties, termination of the contract etc.

Port operations


There are two different licences enabling private ports to operate:• a temporary licence: this authorisation is granted by a decree of the

Executive Branch for a period of five years; and• a permanent licence: this is the final authorisation granted by

a decree of the Executive Branch when a private port has been authorised to operate continuously for a period of 10 years.

Temporary licences may be suspended or terminated by the competent authorities for breach of specific circumstances detailed in Decree No. 14,402/01.

The application process can last up to two months.


In private ports, the operator provides and charges for all sorts of ser-vices for importers, exporters, ship owners and shipping lines.

For importers and exporters, these services would include, among others:• container storage;• storage and stock control of general cargo in a customs warehouse;• storage and stock control of general cargo in a temporary stor-

age warehouse;• unstuffing;• customs inspection;• coordination of import deliveries;• electricity supply for refrigerated cargo;• monitoring of the cold chain;• multimodal transportation of containers across the country; and• special services for cargo, packaging, labelling, car and truck stor-

age, and care.

For ship owners, the services would typically consist of:• stevedoring of containers and general cargo;• quay assistance;• potable water supply;• electricity supply;• general supply services; and• mooring area.

For shipping lines the port would normally provide:• stowage of containers and general cargo;• container storage;• container inspection;• stock information; and• sealing and reporting.

For special cargo, the ports would normally provide:• stowage of cargo;• crane services;• container transport; and• transport of heavy and oversized cargo.


The government would typically cooperate in providing access to the terminal by road. The operator is not compelled or bound to finance public infrastructure outside the port perimeter, but nothing prevents the owner from proposing that the local municipality sign agreements in order to finance roads.


See question 32.


Owners must operate their ports in accordance with the Private Port Statute and its regulatory Decree (No. 14,402/01).

The Merchant Marine conducts regular and ad hoc audits through-out the year to monitor compliance with local regulation. If this com-petent authority acknowledges the existence of irregularities, or any breach or violation of the rules governing the licensing and operation of private ports, the Merchant Marine would instruct the port to comply with regulations or rectify the irregularity.

If, within 10 days of receipt of the instruction, the private port does not respond, the Merchant Marine will proceed to apply a preventive suspension of the activities of the terminal. The preventive suspen-sion of port activities can be extended for a period of 10 to 90 days, in accordance with the gravity of the irregularities. The suspension would normally last until such irregularities are remedied or rectified by the port.

Cancellation of the licence is the most severe sanction. It is con-ducted by the Merchant Marine using a summary process. A report detailing and stating the irregularities is then raised to the MOPC, which finally takes the decision of cancelling or not cancelling the licence.

All administrative measures and decisions taken by the Merchant Marine regarding the suspension or cancellation of licenses can first be appealed to the MOPC and then to ordinary justice in the administra-tive jurisdiction.

Decree No. 14,402/01 considers the following conduct as seri-ous offences:• breach of the conditions that were taken into account to grant

the licence;• operate the port outside the scope of the activities authorised and

granted by the respective license;• failure to satisfy, provide and secure within the port area the safety

of navigation, port security, health measures, environmental pro-tection, customs and immigration controls;

• violation of the rules of free competition, such as exercising monopolistic or unfair practices; and

• in general, breach of the provision of Law No. 419/94 and the Decree No. 14,402/01.

Recidivism of any of the above offences by the operator might consti-tute sufficient ground for application of the penalty of cancellation of the licence.


As described, the first remedy would be the provisory suspension of the licence and the activities by the Merchant Marine, followed by the can-cellation of the licence by the MOPC.





In the development of PPP projects, the private participant may use dif-ferent types of goods, namely:• real property of the contracting authority or other public entities,

existing or to be created or supplied during the contract term, which the contracting authority gives the private participant the right to use. In such cases the private participant is obliged to return these goods to the Administration at the termination of the contract.

• Property owned by the private participant, existing at the time of signing the PPP contract, or to be created or provided during the contract term. The property owned by the private participant might be transferred to the contracting administration or removed from the project area at the end of the term, depending on the spe-cific terms of the PPP contract.

Miscellaneous


A port operator has the possibility – but not the obligation – to construct or operate a port via an SPV. The Private Port Statute establishes that the MOPC will grant authorisation for the construction and operation of private ports to commercial companies registered in the Republic of Paraguay.

Likewise, if the port is constructed within the legal framework of a PPP project, the PPP Law states that the bidder awarded with a project is obliged to constitute, within the period specified in the bidding terms and conditions, a corporation in Paraguay, of which the awarded bidder shall be the majority shareholder.

This corporation shall be incorporated only for the purposes deter-mined in the bidding terms and conditions. It will last for at least the duration of the contract term plus two years.


The Private Port Statute does not pose any sort of interference. The change of ownership in the port must be communicated to the Merchant Marine.

Regarding ports constructed and operated under the PPP Law, the majority shareholder must remain as the successful bidder. In the case of successful bidders that were awarded in consortiums, the com-pany shall remain constituted with the same partners, shareholders or members of the consortium, and in the same proportions they had when the award took place. The contracting authority shall approve any modification of these shares, without affecting the commitment of the bidders, which can influence the technical and financial capacity of the consortium.


The PPP Law states that private participants may finance the develop-ment of PPP projects, through the modalities, instruments and financial transactions recognised and regularly used in national or international financial markets. For the benefit of its creditors and to ensure obliga-tions directly related to the development of the corresponding PPP contract, private participants may constitute a special guarantee con-sisting of a pledge or creation of collateral trust in respect of rights aris-ing from the PPP contracts, including future cash flows generated by the project, and the shares of capital stock of the corporation.


The contracting authority may unilaterally change the PPP contract on grounds of public interest, which has to be duly supported by expert advice. The changes made to the contract under this prerogative should be appropriate and proportionate to the causes that motivate them, but must respect the nature of the contract and the contractually agreed economic and technical conditions.

In such cases, the contracting authority is obliged to rebalance the economic and financial equation of the PPP contract, and has an obli-gation to fully compensate the private participant for any damages that the alteration may cause to the economic equation of the PPP contract.

The regulatory decree establishes the maximum amount of invest-ment that the private participant may be required to make by any vari-ation of the PPP contract, and the maximum period within which the contracting authority may order the modification of the project.

The contracting authority and the private participant may also mutually agree to modify the characteristics of the works and services contracted, in order to increase levels of service and the technical standards set out in the tender, by signing the corresponding supple-mentary agreement. The addendum signed by the parties shall respect the nature of the contract and the economic and technical conditions originally agreed.


The PPP Law regulates two important remedies: the suspension and the termination of the contract.

The contracting authority may reasonably suspend the con-tract under:• fortuitous or force majeure events duly verified in accordance with

the terms of the contract; or• for any other reason established in the PPP contract.

Following the suspension of the contract, the private participant shall have an extension of the term of the contract equal to the period of

Raúl Prono Toñanez [email protected] Juan Pablo Palacios Velázquez [email protected]

José Berges No. 988 Esquina PeruAsunciónParaguay

Tel: +595 21 228 950Fax: +595 21 202 148www.ppt.com.py




suspension. Additionally, if it is stipulated in the contract, the private participant might be entitled to claim any compensation.

The suspension shall not exceed a period of 60 days.As regards the contractual remedy of termination, local law

provides that the PPP contract would be terminated for the follow-ing reasons:• the end of the term of the contract or its extensions;• unilaterally, for a material breach of the private participant or of

the contracting authority, in accordance with the provisions of the PPP contract. The breach entitling to termination must be estab-lished by final resolution issued in accordance with the system of dispute resolution provided in the contract;

• redemption provisions of the contracting authority for reasons of public interest, without prejudice to the compensation due to the private participant in accordance with the terms of the contract, the law and the regulation;

• due to the impossibility of the private participant of fulfilling the contract as a result of measures taken by the government;

• if the private participant initiates bankruptcy or insol-vency proceedings;

• on the occurrence of any event which prevents the private partici-pant from complying with the contract;

• by mutual agreement between the contracting authority and the private participant; and

• in other cases expressly provided for in the contract.


Yes.


Disputes on PPP contracts must be solved, if not by direct negotiations, then by arbitration processes. The procedures are established in each specific contract. Disputes of a technical nature can be solved in a tech-nical panel formed by experts.


PERU Estudio Arca & Paoli Abogados SAC


PeruFrancisco Arca Patiño and Carla Paoli ConsigliereEstudio Arca & Paoli Abogados SAC

General


The Peruvian port system has more than 100 port facilities, which are classified as marine, river and lake ports. In spite of such port facili-ties, maritime commerce in Peru is mainly concentrated on eight major coastal ports: Callao, Talara, Paita, Salaverry, Chimbote, San Martín (Pisco), Ilo and Matarani. Among these ports, Callao is the most impor-tant in terms of cargo movement since 70 per cent of the total cargo in Peru is loaded and discharged in this port. In addition, it has positioned itself as a regional hub, considered the most important container trans-shipment port on the west coast of South America.

The major private maritime ports and terminals in Peru offer the following facilities, from north to south:• Port of Talara (operated by Petroperu). This is a pier for loading and

discharging various types of fuel such as oil liquid cargo, including industrial fuels and liquefied petroleum gas (LPG) and one buoy for the discharge of dirty products.

• Port Terminal of Paita (operated by TPE). It mainly loads and dis-charges agricultural, natural and frozen products, as well as grain, minerals and fishing products.

• Pier of Bayovar (operated by Valle Do Rio). This is a pier for the loading of phosphates and other minerals.

• Port of Salaverry (operated by ENAPU). It consists of two piers; one for general cargo and the other for sugar and ethanol. It also contains a multi-buoy terminal (operated by Petroperu) for liq-uid cargo.

• Piers of Chimbote (operated by Siderperu). Two piers for the load-ing and discharge of iron ore, coal and steel.

• Pier Punta Lobitos (operated by Antamina) specialises in bulk car-goes such as concentrate of copper and zinc.

• Port of Callao. It contains four terminals and berths and specialises in containerised cargo and general cargo such as metals, grains, fertilisers and chemicals, coal, vegetable, fish oil, machinery, min-eral concentrates, hydrocarbons, liquid and gas carbon. DP World Callao operates the south terminal, and APM Terminals operates the north terminal and Pier 7, which specialises in hydrocarbons. Finally, Transportadora Callao SA is in charge of the mineral pier located at the northernmost side of the port, which has access via a railway and consists of an isolated belt of 3.1 km.

• Pier of Conchan (operated by Cementos Lima). Its main activity is the export of cement and the import of coal.

• Multi-buoy Terminal of Conchan (operated by Petroperu). Its main activity is the coastal trade of oil cargo and industrial fuels.

• Pier of Melchorita (operated by Peru LNG). This is a gas liquefac-tion plant which is the first of its kind in South America for the export of liquid natural gas (LNG).

• Off-shore terminal of Camisea at Pisco (operated by Pluspetrol). Its main activity is the coastal trade of LNG and white and dirty oil cargo, as well as some exports of Naftas.

• Port of San Martin – Pisco (operated by Terminales Portuarios Paracas). Its main activity is scrap and bulk, general cargo, contain-ers, machinery, grain/maize silk in bulk and fishmeal.

• Pier San Nicolas (operated by Shougang Hierro Peru) specialises in bulk cargo (iron ore concentrates) and liquid cargo (diesel).

• Port of Matarani (operated by TISUR). This port facility has access via road and rail. This is a port for loading and discharging grains and minerals.

• Port of Ilo (operated by ENAPU). Its main activity is the import and export of cargo in pallets and containers. It is mainly used for serv-ing Bolivia. There is also a pier operated by Southern Peru Copper Corporation. Its main activity is the coastal trade of liquid cargo (chemicals) and the export of copper concentrates.


The main port reform undertaken by the government is applied through the Law of the National Port System, modified by Legislative Decree No. 1022, which entered into force in 2003. It was enacted in order to modernise the Peruvian Port System, promoting private sector investment in port infrastructure. Further, this law provides a new legal and regulatory framework that guarantees legal certainty and stability to a booming sector.

In this regard, there are substantial reforms such as the creation of the National Port Authority (APN), which is a public entity ascribed to the Ministry of Transport and Communications. It was created to promote private investment in ports, improve port infrastructure and design a new model of port services.

Both the public and private sector port models apply in Peru. Peru cedes the administration of its ports by means of a concession contract in favour of the private sector.


Peru has a National Port Development Plan, which was enacted by means of Supreme Decree No. 009-2012 on 11 August 2012.

This official document focuses on modernising infrastructure and services to bring them up to the levels necessary to allow the country to compete internationally. The framework includes putting in place national and regional port authorities, and issuing regulations clarify-ing the working relations between these authorities, the Ministry of Transport and other relevant regulatory agencies.

Furthermore, the Law of the National Port System establishes, among other things, the following port policies:• the promotion and planning of competitive port services and

national, regional and international trade;• the promotion of coastal trade and multimodal transport;• the promotion of activities to offer aggregate value to the services

provided by port facilities; • the protection of the environment; and • the preservation of the national port heritage.


There are no green port principles or regulations in the Peruvian legal framework.


Estudio Arca & Paoli Abogados SAC PERU




Apart from the Law of the National Port System and the National Port Development Plan, there is the Law of PPP dated 25 September 2015 (Legislative Decree No. 1224) and its regulations. These rules set out the classification of, among other things, PPP, financial and non-finan-cial guarantees, private finance initiative, rates of return and proceed-ings regarding the declaration of interest of private initiatives.


OSITRAN is the agency that controls the execution of the port con-cession, including the regulation of tariffs as well as deciding claims on appeal by port users against the corresponding ports. Peruvian regulations also provide shared functions to the APN and the General Directorate of Captaincies (DICAPI) for the monitoring and surveil-lance of national ports. These institutions regulate the applicable poli-cies at national level, but nonetheless, the execution of these policies is performed through the regional port authorities and port captaincies.


The APN establishes their main competences as follows:• carrying out the strategy for public investments and inviting pri-

vate investors for the development of port services; • promoting concessions of port facilities to the private sector and

protecting the interests of port users;• coordinating the integration of port terminals, infrastructure and

port facilities into the national port system, and promoting its development; and

• promoting the modernisation of ports and the preservation of the environment.

OSITRAN regulates the execution of the concession and the port tariffs.


The institution in charge of designating harbourmasters for each port is DICAPI, the Maritime Authority in Peru. The harbourmaster must be a navy officer specialised in coast guard activities.


All Peruvian ports are regulated under the Law of the National Port System dated 1 March 2003, and its regulations.


Yes, the tariffs are subject to regulation. The collection method of these tariffs are as per the internal rules of each port or terminal.


As established in concession agreements, the state provides facilities in order to allow appropriate port access via land or sea. In such contracts, the state and the private entity agree to cooperate in order to provide safe access to the port.


No. The state has no participation in the administration or operation of any port or terminal in a joint venture model.

However, some port facilities are administrated by the National Company of Ports (ENAPU). The participation of ENAPU as a national port operator has decreased over the years, as the current port policy of Peru is to cede its ports and terminals to the private sector.

13 Are there restrictions on foreign participation in port projects? No. However, at present there is no longer a need to register in the National Register of Suppliers.



Legislative Decree No. 1224, which derogated Legislative Decree No. 1012, approves the Public Private Partnership Law, is mainly of general character and is applicable nationwide.


The Peruvian government accepts private investment proposals that are not part of an existing formal tender, through the National Agency of Promotion of Private Investment (Proinversion) created by Supreme Decree No. 060-97-PCM, in order to promote the competitiveness of Peru and sustainable development.

If interest is declared, Proinversion is instructed to analyse the proposal and liaise with the party and the sector in order to determine the definitive interest of the latter in the original proposal or a revised alternative. Only the Ministry of Transport may declare its definitive interest (with a declaration of interest) after a period of time and a com-prehensive assessment. If so, the law provides for a term of 90 days for third parties to file alternative proposals. If there is more than one competitor with a project proposal for or on a given port, Proinversion launches a process (ie, bid terms and contracts) according to the regu-lar terms for any PPP public initiative. If there are no competitors after 90 days, the project is awarded to the original proposer party directly.

A PPP proposal can be submitted by any public entity of the three levels of government (national, regional and local), in which case it is called a PPP by public initiative, and also by any private investor who submits a project to Proinversion or the private investment promoting entities in regional or local governments.

For instance, the government is presently evaluating private pro-posals for operating the ports of Salaverry, Ilo and Chimbote, which are now administrated by ENAPU. These three ports will be granted in concession in 2016 to the companies that manifested their original interest. However, if there are more proposals to each port afterwards, a public process for granting a concession will have to be launched by Proinversion.


Concessions have a self-sustaining nature, so the basic criterion for the awarding of port concessions and joint ventures is that they comply with the terms and conditions of the public tender.

Generally, the rules of a public tender are focused on the infra-structure design, the shape of the construction, financing, and the operation of infrastructure and port equipment.


According to the Public Contracting Law and its regulations, a PPP is construed as a concession agreement.

Supreme Decree No. 410-2015-EF, which derogated Supreme Decree 059-96-PCM, and the Text of Concessions provide that the state cannot deviate from the duties agreed in the concession con-tract. In case of disputes, an arbitration clause is always set out in the agreement.

In connection with the above, Law No. 28933 regulates the system of coordination and response of the state in international investment disputes. The main objective is to establish compensations for the investor in case of breach of obligations or fines or compulsory acts, or even to put an end to the concession if necessary.





The APN is the entity which promotes the participation of the private sector regarding investment in the infrastructure’s development and port equipment, and has the support of Proinversion.

In this regard, the APN is responsible for coordinating the promo-tion processes for private investment in national port infrastructure and equipment, and proposed cooperation agreements with Proinversion.

No specific law must be passed. The concession enters into force once the agreement is duly signed by the state and the private investor.


Port projects in our jurisdiction are typically implemented as design–finance–build–operate–transfer (DFBOT).


Article 19 of Legislative Decree No. 1224 does not establish a minimum term for concession agreements for the private sector in public works of infrastructure and services in general, but requires that the term should not exceed 60 years.

The average term of concession contracts for infrastructure devel-opment is 30 years.

21 On what basis can the term be extended? The extension of the concession is determined only by the clauses incorporated into the agreement.


In Peru, the port concession is self-sustaining and the fee structure is based on a percentage of revenue shares.

The concession agreement includes a scheme of price realignment through economic formulas that are set out in that contract.


The government provides guarantees with regard to compliance with the obligations agreed under concession agreements. Regulation establishes that the state provides investors with legal certainty in the context of free competition, non-discrimination and equality before the law, neutrality and price transfer prohibition.

Usually, the formal tender sets clauses exclusively in favour of the party to whom the concession has been granted (the concessionaire).

In order to improve a project’s risk profile and promote pri-vate investment, the government may establish the following types of guarantee:• financial guarantees: unconditional, immediately executable guar-

antees given by the government to support the obligations of the private sector and derived from loans or bonds issued to finance PPP projects or support the government’s payment obligations; and

• non-financial guarantees: guarantees established in the contract, derived from risks inherent to a PPP project.



To begin the construction of a port, authorisation is required from national and local entities, specifically from the APN, DICAPI and the district municipality’s home port.

The estimated time for obtaining permits, licences and authori-sations is approximately three months from the date of filing the application.


No, the Peruvian government does not undertake any part of the construction of the port. The development of port infrastructure and

equipment is the obligation of the concessionaire in accordance with the clauses established in the concession agreement, as governed by Peruvian law.


The port operator or concessionaire must comply with the terms and references established in the bases of the public tender, which are part of the concession agreement.

The port operator may engage the services of any contractor they wish.


The remedy available for delays and defects in the construction of the port is the execution of the penalties laid down in the concession agree-ment and, additionally, in the provisions of the Peruvian Civil Code.

In the concession agreement, the parties should establish the pen-alties for breach of obligations. The penalties may vary according to the clause breached by the port operator.

Port operations


The agencies responsible for granting permits for port operators are the APN and DICAPI. The permits that should be obtained are as follows:• a permit for temporary use of the water area or coastal land for

port entitlements;• the granting of a port concession; • an inspection request for a percentage of work completion and the

corresponding certificate; and• an inspection request for work completion (100 per cent) and the

corresponding certificate.

The process for obtaining these permits usually takes around 60 days, according to the Text of Administrative Proceedings of the APN. However, due to the usual administrative burden, these proceedings may take about 90 days.


A port operator and the port authority can provide the follow-ing services:• basic port services: fuelling, storage, docking and undocking of

ships, supplies, diving, piloting, waste collection, towing, passen-ger transport, loading and discharge of cargo; and

• general port services: port traffic control, cleaning, sweeping, light-ing, signalling, safety and security.

Apart from these services, where the state may cooperate with the pri-vate investor, the government may make the following commitments:

Definitive commitmentsThese are the payment obligations assumed by the government as a consideration of the activities established in a PPP contract. They include the payment of:• periodical installments to compensate for the investments incurred

by the private sector. In practice, they are called ‘annual payment for works’ or ‘retribution for investments’; and

• periodical investments intended to compensate for operation and preservation costs incurred by the private sector for the pro-vision of the service. In practice, they are called ‘annual payment for maintenance and operation’ or ‘retribution for maintenance and operation’.


Estudio Arca & Paoli Abogados SAC PERU


Contingent commitmentsThese are the potential payment obligations of the government to the private sector for the financial and non-financial guarantees that the latter may have issued.

Definitive and contingent commitments are usually included in con-cession contracts, in order to cover the risks inherent to the project.

On the other hand, the APN can charge the port operator for the basic port services, as long as this has been agreed in the conces-sion contract.


No, the government and the APN rarely grant commitments in relation to access to the hinterland. In most cases, the APN and the Ministry of Transport and Communications do not include a section regarding finance development of access routes or interconnections in the con-cession agreement.


In Peru, the authority which oversees the operations at port terminals is the APN.

As established in Supreme Decree No. 410-2015-EF, which regu-lates the delivery of concessions to the private sector in public infra-structure and public services, the concessionaire can be suspended due to the following reasons:• in case of foreign war, civil war or force majeure preventing the

implementation of the work or service;• when a partial destruction of the work or its elements occurs, so

that it is impossible to use it as stated in the contract;• any cause agreed in the concession contract;• by fundamental contractual breach by the state; or• unilateral termination by the state due to public interest.

It should be noted that the suspension extends the term of the conces-sion for the period of the suspension cause.


As established in Supreme Decree No. 410-2015-EF, a port terminal concession will expire on the following grounds:• by the deadline agreed when the concession was awarded;• for the fundamental breach of the concessionaire’s obligations,

which constitute grounds for termination of the contract; • by agreement between the state and the concessionaire;• by the complete destruction of the work; or• for other causes stipulated in the contract.


The resource available for the port authority to act against the port operator when they fail in the operation and maintenance of the port, as agreed between the parties in the concession agreement, is the exe-cution of the penalties set out in such agreement and, additionally, in the provisions of the Peruvian Civil Code.

The state may also submit financial controversies arising from con-cessions to national or international arbitration, in accordance with the provisions of article 69 of the Political Constitution of Peru.


At the end of the concession, port operators must transfer to the state all goods that have become integral parts of the concession and receive compensation for the assets transferred, according to the clauses of the concession contract.

Miscellaneous


The port operator is permitted to use a special purpose vehicle (SPV) in DFBOT contracts, as a newly incorporated company or as a subsidiary company. Both types of company should be incorporated in the normal way – under the system of project finance used by a private financier for the PPP.

The DFBOT contracts provide the SPV with the project compo-nents to be managed (such as raising funds; paying debts and share-holders; hiring and supervising the builder). Then the SPV should build, operate and transfer the project to the state.

The SPV must be incorporated in the Peruvian jurisdiction.


According to the provisions of the law, the concessionaire, with the approval of the state, may transfer the concession, with the same terms and conditions, to another entity.

In other words, the transfer will be complete and all the rights and obligations of the transferor will be passed to the new concessionaire provided that it is authorised by the state.


The port operator cannot mortgage its rights under the PPP agreement. The port authority does not enter into agreements with the project-

financing banks.


According to the provisions of the legislation, it is the prerogative of the state to modify the concession contract when necessary, in compli-ance with the nature of the concession, the economic conditions and the contractual technical agreements, and the financial balance perfor-mance by the parties.


If the concessionaire fails to comply with the provisions of the con-cession agreement, in accordance with the provisions of the law, the state is entitled to terminate the concession for breach of its obligations under the concession agreement and they will enforce the penalties established therein.

For example, in the concession agreement the parties can stipulate penalties for the following reasons:

Update and trends

The new berth F located at the Bay of Islay in Matarani is a project under construction. It is designed to provide for the reception, stor-age and shipment of minerals concentrate. It is a private investment involving Mineral and Metals Group (MMG), which is in charge of the Las Bambas mining project; Freeport McMoran Inc, which operates the Cerro Verde mine; Glencore, which is in charge of the Antapaccay copper mining project; and TISUR, which is the port operator at Matarani.

This project will apply a modern system of shipment of miner-als concentrate with a capacity of 2,000 tons per hour, and will be able to receive 55,000 DWT Supramax Bulk Carriers.

In such a context, this new berth F will be capable of exporting 10 per cent of the world production of copper concentrates: almost 18 million tons. Hence, the Port of Matarani will also be positioned as an international hub.

On 25 September 2015 the PPP law was derogated by Legislative Decree 1224, which is now in force.




• for a delay in presenting the technical file to the APN;• for delays in the initiation of the construction operations of

the port;• for delays in remedying technical file observations; and• for delays in the delivery of the concession.

The concession agreement must have a section in which the parties stipulate penalties for the breach of the obligations of the port operator.


PPP agreements are governed under the rules of the Peruvian jurisdic-tion, with respect to the rights and obligations under the contract. The parties may also submit disputes arising from the concession agree-ment to an arbitration forum, in accordance with the provisions of the law.

PPP agreements must be governed by Legislative Decree No. 1012, Supreme Decree No. 127-2014-EF, by the specific regulations on concessions and port systems and the provisions of the Peruvian Civil Code.


Disagreements between the parties are commonly solved by arbitra-tion, under the rules incorporated into the concession contract. If, under the concession contract, the parties agree to solve the disputes of the concession agreement according to Peruvian law, then the terms and regulations of Arbitration Law No. 1071 will apply.

Supreme Decree No. 127-2014-EF, which regulates the Law of PPP, stipulates the disputes that can be solved under arbitration. Further, in this Law it is stated that the tribunal must be made up of professional experts with a minimum of five years’ experience in controversial mat-ters, or a lawyer with experience in regulations or concessions.

Francisco Arca Patiño [email protected] Carla Paoli Consigliere [email protected]

Calle Virtud y Unión (ex Calle 12) No. 160 Urb CorpacLima 27Peru

Tel: +51 1 475 2930Fax: +51 1 475 2936www.arcalaw.com.pe


SRS Advogados, RL PORTUGAL


PortugalJose Luis Moreira da SilvaSRS Advogados, RL

General


There are five key ports in Portugal: Aveiro and Douro & Leixões in the north; and Lisbon, Setubal and Sines in the south. Apart from these, there are also ports in the Autonomous Regions of Madeira and Açores and some other small ports that are managed by the four main ones: Viana do Castelo, managed by Douro & Leixões; Figueira da Foz, man-aged by Aveiro; and Algarve, managed by Sines. Recently the govern-ment has put in place a joint board of directors to manage the ports of Lisbon and Setubal in what can be seen as a first step to joining these two ports, something that has been under discussion for a long time.

The key ports have capacity for all sorts of facilities, although they tend to specialise in some types of cargo ahead of others. Douro & Leixões and Lisbon have the capacity for all types of cargo, having specialised facilities for containers, oil and gas, bulk, general cargo and cruises. Sines is the main Portuguese port for oil and gas, but also has the largest container terminal. Setubal specialises in ro-ro and general cargo. Sines is also Portugal’s main transhipment port, stretching its influence into the centre (Estremadura) and north (Galicia) of Spain.


The main ports in Portugal underwent a large change in their organisa-tion model around 20 years ago.

The main port authorities were transformed from state integrated public entities to limited liability companies, although at the moment they are still wholly owned by the state.

The model mostly used is the landlord model, where the port authority is responsible for regulation and infrastructure and opera-tions are carried out via public service concessions or licensed pri-vate operators.

Discussions are currently ongoing as to whether the model should evolve to a mix of private service port and landlord, transferring the overall responsibility for certain terminals from the port authority to private operators, including construction and maintenance of the infra-structure. It should be noted that for the moment the legal regime in Portugal prohibits the privatisation of ports, allowing only the conces-sion regime.

In the last five years the ports have also undergone a management reform, with the main ports in charge of the smaller ports, as stated above. Thus Douro & Leixões, Aveiro and Sines manage some small ports (respectively, Viana do Castelo, Figueira da Foz and Algarve). Also, Lisbon and Setubal are managed by the same board of directors, giving them a unified policy and investment strategy. The government felt that they are complementary to each other and not far apart, having the same territorial influence. They remain autonomous ports for the moment, although with a joint board.


There is a special member of government responsible for ports (the Sea Minister) who supervises all the ports and oversees the main

investment policy. The general economic regulation of ports, namely the fixing of tariffs, is also done by an independent government body (Autoridade da Mobilidade e dos Transportes).

Notwithstanding, each port authority has full autonomy to define its own strategic goals within the general policy lines defined by the government.


Environmental policies are becoming more and more important for port authorities. For instance, with the Decree-Law No. 165/2003, which implemented the Community Directive 2000/59/EC in Portugal, the port authorities became liable for the management of the waste brought by ships and their loads. Some ports have been designated as ‘green ports’, taking into consideration the environmental measures in the way they do business. Also, the Water Law (Law 58/2005, which implemented the Water Directive) is mandatory to keep the port envi-ronments clean and to manage them in order to preserve the water con-ditions and the environment.

All public service concessions have obligations to the private opera-tor to keep the terminal environmentally aware.

The Port of Setubal has been recognised as an EcoPort by the European Sea Ports Organisation (ESPO), recognising the excellent environmental quality of the port.



The existing legal framework is under revision, but still prioritises the traditional public service contracts. Notwithstanding this, the newest concession in place (Lisbon) tends to include most of a PPP model con-tract. The older concession contracts in all ports are undergoing revi-sion in order to include some PPP structures.

This change show the need to modify the present law, which dates from the 1990s (Decree-Law No. 298/93 and Decree-Law No. 324/94).


Nowadays, the Autoridade da Mobilidade e dos Transportes is the reg-ulatory entity for all ports.

Also, the Ministry of the Sea, in coordination with the Ministry of Planning and Infrastructures and the Ministry of Finance, supervises the port authorities.


The main powers are of supervision and economic regulation, having influence on tariffs and investments.


The harbourmaster is a naval officer appointed by the National Maritime Authority.


PORTUGAL SRS Advogados, RL



The ports are subject to general competition rules, national and European.

The Portuguese Competition Authority is presently making a general review of the way in which ports comply with competition rules and the services that are offered. A preliminary report from the Competition Authority was published in 2015, but was severely criti-cised, mainly about the lack of knowledge of port operation on the part of the Authority, and is being revised. However, this shows that the competition rules already apply in the ports. In the past the Competition Authority has fined towage services for anticompetitive practices.


There is a general law on port tariffs (Decree-Law No. 273/2000), but all port authorities have their own regulations on tariffs for operations alongside the general rules set by the law. The tariffs are fixed by the port authorities after having been approved by the AMT (the Regulator).

In specific terminals under concession contracts, the concession-aire fixes the tariffs after consultation with the port authority, normally taking into consideration the rules fixed in the contract.


The ports afford free access to all because they are in the public domain and are managed by the state through port authorities under limita-tions on safety and security.

Notwithstanding this, the services supplied in the ports are limited to those operators and suppliers that apply and fulfil the legal require-ments, including public service obligations. The port authority passes on these public service obligations to private operators through conces-sion contracts (port terminals) and licences (other port services).


There are no examples to date of such a joint venture. In the past, the state managed all the terminals through the port authorities, and today the terminals are managed by private operators through public service concessions. Nevertheless, the law allows for the possibility of joint ven-tures in ports as they are permitted by law and occur in other sectors.

Portuguese law does not impose a specific percentage threshold.

13 Are there restrictions on foreign participation in port projects? There are no restrictions on foreign participation in port projects.

As Portugal is a full member of the European Union it cannot impose any restrictions on the participation of another member of the EU. For countries outside the EU it can restrict their participation, but it has never done so.

Currently the largest container terminal in Portugal is managed and operated by a Singapore company (PSA), in Sines. Several termi-nals in the Lisbon port are managed and operated by Turkish compa-nies (Yildirim in containers and GPH in cruises).



The legislation governing procurement and PPP is general.Procurement is regulated by the Public Procurement Code

(PPC) approved by Decree-Law 18/2008, of 29 January 2008, which incorporates in the Portuguese legal system Directives 2004/17/EC and 2004/18/EC of the European Parliament and of the Council of 31 March. The decree regulates both the procedural rules applicable to public tenders and the substantive regime governing the execution of public contracts, including specific liability rules. The PPC is under revision in order to adapt the 2014 Directives on public procurement. It should be noted that ports are included in the specific utilities rules included in the PPC.

In turn, PPP are regulated by Decree Law No. 111/2012, which states the general standards applicable to the intervention of the state in the definition, design, preparation, launch, award, modification, supervision and monitoring of PPPs.

There have been some discussions about the application of the general PPP law to ports as they have a specific regime, but the princi-ples of the PPP law are applicable.


There is no room for unsolicited proposals or for privatisation, as stated above. The procedure used for port concessions is a public tender regu-lated by the PPC.


The criterion is always the best proposal for the public interest. Within this are included the criteria of the best technical solution and the best capacity to attract cargo and revenue to the port authority. The value of the investment to be made and the duration of the concession, along with other criteria specific to the tender, may also be considered.


In the tender to be launched the Authority proposes a model contract. The public body can only deviate from its terms as specified in the ten-der and when it is allowed a negotiating procedure. It is common to allow some deviations negotiated within the tender procedure.


There is no need for a specific law in our jurisdiction, but some approv-als (eg, permits) and licences (eg, environmental) are needed.


As a rule, until now the port concessions have not been greenfield projects, as they have been designed and built by the government or port authority, and what is transferred to the private operator is just the operation and management of the port terminal. In specific cases where it is included in the concession for the improvement of the termi-nal, the model used is build–own–operate–transfer (BOOT).


The applicable law establishes a general term of 30 years. This period may vary according to the value of the investment, because the term should allow recovery of the amount invested. Discussions are ongoing as to whether this term should be increased to at least 50 years, as other European countries have already done, taking into consideration the huge investment that a port operation represents especially if the gov-ernment wants to transfer more responsibility to the private operator, such as the enlargement of the terminal and the necessary dredging.

21 On what basis can the term be extended? As a rule, the initial term of the contract can only be extended in cases expressly stated in the contract. The EU rules and the PPC limit the possibility to extend the term of the concessions.

Nevertheless, even the PPC in some cases allows the extension of a concession as a mechanism to rebalance the finances of the conces-sion in the event of a change of circumstances. The extension is made considering the investments made and the time necessary to conclude the return on the investment, for example.


As a rule, the fees are a mix of fixed land rents and revenue shares. The fees usually are subject to indexation. The new model of recent con-cessions (Lisbon) establishes a formula that benefits an operator that




attracts more cargo to the port and allows more risk partnership with the port authority.


No guarantees are given by the government or the port authority, so the operator assumes all the demand and financial risks.

As the model contract in use is a public service concession contract it is granted with exclusivity for the terminal.



The construction licence is given by the port authority with the con-cession contract. An environmental licence may also be needed on a case-by-case basis. The time needed to obtain the said permits depends on the specifics of the case, but as the construction part of a concession is normally limited the environmental approval assumes low relevance and is easily obtained. That is not the case when the private operator assumes the construction or expansion of a new terminal, because the environmental impact assessment is then important and can take some time to obtain, with no assurance that it will be (as happened in one recent case in Lisbon).


Normally the public authority (government or relevant port authority) undertakes all of the construction, access and dredging of the port.

Sometimes the contract transfers that construction responsibility, or part of it (dredging and maintenance) to the private operator.


The operator does not have to adhere to any specific construction stand-ards, although it normally assumes the responsibility to use best prac-tice and best engineering methods. The past experience of the operator in similar projects is a criterion for awarding this type of contract.

The operator may engage any contractor it wishes, unless other-wise specified in the contract.


In the case of delays or defects, the party responsible for construction of the port can be held liable for the said delays or defects and the con-tract can ultimately be terminated. A penalty may also be applied for each day of delay.

Port operations


No specific approvals are required, as the right to operate a terminal is given by the concession contract. The concession contract allows the port operator to commence operations immediately follow-ing construction.


The port authority may provide to port operators the use of equipment, workers and facilities, and electricity and water supplies. It may also supply pilots, towage and moorage. According to law the port authority has the obligation to supply waste services. These services are charged according to the regulations approved by each port authority. Some of these services may be supplied by private operators licensed by the

port authority, and in this case the tariffs are established by the pri-vate operators.


The government or relevant port authority does not give any com-mitments in relation to access to the hinterland (rail, road etc). Those are obligations of the government. All the ports in Portugal have good access by road and rail, and a new rail track is under construction to link the ports of Lisbon, Setubal and Sines more directly to the Spanish hinterland of Estremadura. Logistics terminals (dry ports) are also ready to serve all the ports, managed by either private operators or a government-owned company.


The port authorities oversee terminal operations through their inspec-tion powers given by law and by the concession contracts. The port authority is responsible for the whole port management, even if it is operated by private operators.

In a major emergency, a port authority can suspend the activities of a private operator. However, our jurisdiction allows only that the public entity suspend or even terminate the contract or the licence if the ces-sation of activity is imminent or if a serious disturbance in the man-agement of the terminal occurs that adversely affects the regularity of the operation. A legal procedure must take place that allows the private operator to be heard and to present its case. In the event of suspension the port authority can only maintain the suspension for a year, after which it has to resume the contract or licence or terminate it.


The port authorities may access the port for inspection and the opera-tor cannot deny or hamper this access under any circumstances. The port authority should liaise with the private operator in order to avoid any disturbance in the management of the terminal that could involve the responsibility of the authority.

The takeover of port operations can happen in two possible cases: default of the private operator or reasons of public interest. In the event of default, the authority can seize the concession (sequestro): the authority may take control over operations if a serious disturbance occurs, and in this case the operator must pay the authority operat-ing expenses if the value is higher than the operation revenues. In the public interest situation, there are two possible scenarios: concession redemption (denuncia), in which the authority has to communicate its intention one year in advance and only takes place if half of the con-tract period is completed; and termination (resolução), in which the authority may terminate the concession for specific reasons. In the last two cases the operator has the right to fair compensation.

Finally, in the event of a major emergency the authority may take control of port operations. If this happens the contract is suspended.

Update and trends

As stated, Portugal is undergoing a revision of its concession laws as applicable to ports. The concession contracts are under renegotia-tion in order to introduce new and more friendly modern clauses to attract more investment and cargo. The main aspects to be consid-ered are the duration and remuneration clauses. The general rules on port authority tariffs also need to be revised to accommodate the same scope.

With regard to the organisation of ports, the current trend is to have fewer ports, but with much greater size and investment capac-ity, allowing them to attract major cargos, namely transhipment and European and Mediterranean short sea.


PORTUGAL SRS Advogados, RL



It is normal to establish a penalty system in the contract depending on the seriousness of various criteria.

Another available remedy is concession seizure, referred to in question 32.

The port authorities can also terminate the contract in the event of non-fulfilment of the main obligations. In this case, the terminal will revert to the authority without any compensation and the authority can take over the terminal without needing the consent of the operator.

Finally, the operator is in any case subject to the general rules of civil liability and is responsible for all damages incurred.

In case of a licensee the authority can revoke the licence and apply a fine prohibiting the operator from working in the port for some years.


After the concession terminates the operator must transfer all the assets necessary to operate and maintain the terminal to the port authority, including those that it received at the beginning of the contract. These assets shall revert free of charge and in good working condition, with-out any right to claim compensation or retention by the operator.

Investments in replacement equipment or technological updates made by the operator during the last ten years of the contract which the authority has expressly approved and agreed to reimburse are excluded from the above rule, normally being reverted with the right for just compensation. The price to be paid is established taking into consideration the value of the non-redeemed asset.

The concession contract can foresee the terms under which the reversion and transfer of assets will take place, as the law is only sub-sidiary and the parties to the contract can overturn the general rule.

Miscellaneous


The port operator must establish an SPV with the sole object to oper-ate and manage the terminal. The SPV will be the concessionaire and it must be incorporated in Portugal.


The ownership in a port operator is freely transferable, but subject to prior authorisation by the public entity. This will not be denied it unless there are sufficient relevant grounds.


The PFI model has not been used widely in port concessions to date, but it is a model quite frequently in use in Portugal in roads, hospitals and other big infrastructure projects. The Portuguese PPP law is gener-ally applicable to ports and if this model of financing the construction and operation of terminals is to be chosen in the future it is easily appli-cable. There are some cases where the PFI model has already been applied to ports, and in those cases direct agreements were put in place (Setubal and Lisbon).

The only problem is that not all the assets transferred to private operators can serve as security, as some are public domain. Normally the contract allows the private operator to use some assets as securities or it specifies that to serve as securities the port authority must author-ise it previously. Another problem is that by specific EU rules the assets owned by the government or port authority and transferred to the con-cessionaire cannot be used as security, as this would transfer the risk from the private operator and thus would place a burden on the govern-ment deficit. Therefore, it limits the securities to those that are built or acquired and owned by the private operator.


The agreements to construct or operate a port facility have, as a rule, specific clauses related to the modification of the contract and the terms under which the said modification is admissible. The modifica-tion of a contract is limited by law (including the PPC and EU law) and can only happen in the event of a substantial variation from the initial conditions of the contract and will be very limited in scope. If these rules are not followed the contract is deemed to be terminated and a new contract must be put in place after launching a new procurement.

Termination of the contract can occur in the event of a severe breach or for reasons of public interest.


The remedies available to a government or port authority for contrac-tual breach by a port operator result, as a rule, from the contract: penal-ties for each day of breach and responsibility for damages. Also, if the breach is considered serious, the contract or the relation between the parties can be terminated.


As a rule, it is governed by the laws of Portugal. However, the parties may consider some parts of the contract to be ruled by laws of other jurisdictions, as normally happens with the financing clauses and

Jose Luis Moreira da Silva [email protected]

Rua D. Francisco Manuel de Melo, 211070-085 LisbonPortugal

Tel: +351 21 313 20 00Fax: +351 21 313 20 01www.srslegal.pt




agreements (English law). That has an impact in dispute resolution clauses – namely place, language and law ruling arbitration.


Usually disputes between the government or the port authority and the port operator are solved by arbitration, as set forth in the contract. Subsidiary law ruling arbitration, including international arbitration, is in place in Portugal (Law No. 63/2011, 14-12) that incorporates the best international practice.

Parties can resolve disputes in the general courts or in other alter-native ways, such as conciliation, mediation or dispute boards.


RUSSIA Jurinflot


RussiaAlexander MednikovJurinflot

General


Russia has the fourth longest coastline in the world (37,653 km). This coastline is divided between the coasts of the Atlantic Ocean, the Arctic Ocean and the Pacific Ocean. Russia is also one of the five Caspian states and has an extensive network of internal waterways. Due to this, Russia’s seaports relate to five separate areas (basins):• the Arctic;• Azov and the Black Sea;• the Baltic Sea;• the Caspian Sea; and• the Far East (Pacific coast).

The principal purpose of most of Russia’s major ports is to service Russia’s extensive foreign trade. This comprises the import and export of goods, principally hydrocarbons, metals, grain and fertilisers. At the same time, many of the ports of the Far-East and Arctic regions also support the fishing industry; ports in the Caspian, Far East and the Arctic service the offshore industries; and ports such as Saint Petersburg and Sochi are notable ports of call for cruise liners. The principal ports, by area, are:• the Arctic: Arkhangelsk (general cargo), Varandey (oil), Vitino (oil),

Dudinka (general cargo, containers, bulk) and Murmansk (contain-ers, bulk, oil, refrigerated cargo);

• Azov and the Black Sea: Novorossiysk (oil, general cargo, bulk), Tuapse (oil), Rostov-on-Don (general cargo, bulk) and Sochi (passenger);

• the Baltic: Saint Petersburg (general cargo, containers, ferry and passenger), Vysotsk (bulk, oil), Primorsk (oil) and Ust-Luga (general cargo, oil, containers);

• the Caspian Sea: Astrakhan (general cargo, oil) and Makhachkala (general cargo); and

• the Far East: Vladivostok (general cargo, oil), Vanino (bulk, general cargo), Vostochniy (bulk, oil), Nakhodka (general cargo, containers, bulk), De-Kastri (oil) and Prigorodnoye (oil, LNG).


In the early 1990s, as the Russian economy transitioned from a planned socialist model to a market economy, most of the major ports were pri-vatised. At the same time, the state has kept certain types of port assets, particularly those relating to ensuring the safety of port navigation in its ownership and, on the basis of these assets, has organised a system of port administrations through which state functions, including port con-trol and ship registration, have been exercised. However, throughout most of the 1990s Russia’s port system, from an organisational stand-point, did not follow one particular pattern. A gradual reform started at the end of that decade: in 1999, President Boris Yeltsin signed the new Merchant Shipping Code (MSC), which introduced the definition of a ‘merchant seaport’ (a ‘complex of installations located on the spe-cifically allocated territory and aquatory and intended for serving ves-sels used for the purposes of merchant shipping, serving passengers,

conducting cargo operations and other types of services which are normally rendered in the merchant seaport’) and laid down the general provisions in respect of state port control, which was thereupon to be exercised by the harbourmasters functioning as part of the port admin-istration and appointed by the federal agency responsible for exercis-ing supervision over sea transport. In 2002, a new federal state unitary enterprise ‘Rosmorport’ was founded in order to exercise centralised management of state property in the ports, including port fleet, berths and other hydrotechnical installations. In addition to managing the state-owned infrastructure, Rosmorport is entitled to collect port dues in Russian ports and also engages in rendering various port services as a commercial company. In 2007, a new federal law devoted specifically to regulating port activities ‘on seaports in the Russian Federation’ (FLSP) was adopted. This law essentially fixed the model for development of ports that originated in the 1990s, with the state being responsible for port control, safety of navigation and investment in the principal port infrastructure, and private enterprises being mostly responsible for ren-dering the principal cargo and passenger services and also being entitled to invest and own elements of port infrastructure, including terminals.

In accordance with the FLSP, decisions on the building, extension and closure of a seaport are in the competence of the federal govern-ment; however, in the last 15 years a number of port projects have imple-mented the public-private partnership model.


In general, development of ports will be effected in accordance with the Sea Doctrine of the Russian Federation in the Period up to 2020, and with the Strategy of Development of Seaports in the Period up to 2030 (Strategy-2030). Both documents set the goals for further development and modernisation of Russia’s port infrastructure; they aim to meet the demands of the Russian economy for handling cargo imported and exported using sea transport, as well as to ensure the growth of transit of goods through Russian territory in the course of international trade.


At present, documents governing the development of ports in Russia do not use ‘green port’ terminology, but Strategy-2030 stresses the aim to meet high environmental safety standards in the course of construction of new and extension of existing ports.



At present, the FLSP is the principal legislative act devoted to regulating various aspects of port activities and development. However, in many spheres (land issues, construction rules, antimonopoly regulations, foreign investment into port service providers etc), port activities and development are regulated by other applicable federal legislation.


From a regulative standpoint, port-related issues are in the compe-tence of the federal government. At an operational level, ports are


Jurinflot RUSSIA


under the control of the Ministry of Transport and the Federal Agency for Maritime and River Transport. The latter agency is responsible for appointing heads of port administrations and harbourmasters. In some areas (for example, the Baltic and the northern part of the Far East of Russia) some port management functions are exercised by port admin-istrations which manage more than one port.


The government of the Russian Federation is responsible for:• making decisions on the construction of a new seaport, or the

extension or closure of an existing seaport;• defining the limits of the seaport;• approving the rules of navigation in ports and adjacent areas, and

of staying in the ports; and• resolving other issues which fall into the competence of the fed-

eral government;

The Ministry of Transport is responsible for:• setting the rules for lease of state property located in the ports;• adopting the regulations on harbourmasters;• adopting the rules on ship registration; and• managing federal property which is located in the ports.

The Federal Agency for Maritime and River Transport:• has overall responsibility for rendering state services in ports;• has overall responsibility for ensuring safety of navigation;• is responsible for appointing heads of port administrations and

harbourmasters; and• is responsible for keeping of the registry of seaports.


Harbourmasters of Russian seaports are appointed by the Federal Agency for Maritime and River Transport, and are answerable to this authority.


Yes. Russian ports and the entities operating in ports, including both state and private companies, are subject to the same competition rules, in particular to the rules set by the federal laws ‘On protection of com-petition’ and ‘On natural monopolies’.


Port dues are payable by the respective users of port services directly or through agents through Rosmorport. Rates of port dues, as well as prices for certain services in ports if providers of such services are con-sidered to be subjects of natural monopoly, are regulated by the Federal Service for Tariffs – a special state authority responsible for regulating the prices and rates of products sold by natural monopolies.


There are a number of principal functions that the state performs in ports, such as ensuring security, safety of navigation, access and use of state-owned port infrastructure. In most cases, the state performs such functions directly through its bodies of authority or through state-owned entities, but in some cases private contractors are hired to assist in fulfilling these functions (for example, private companies may be hired to construct or repair navigation aids, dredge access canals etc).


Yes, this is possible and a number of port projects have been or are being implemented using PPP. However, so far there is no generally accepted model of implementing such partnerships, and each of the

past or ongoing projects have been effected using a combination of vari-ous legal mechanisms, which in most cases did not involve a direct joint venture (ie, a company co-owned by the state and by a private investor).

Due to this, responses to subsequent questions that concern aspects of ‘typical’ situations are to a certain extent an extrapolation of the general provisions and principles of Russian law.

13 Are there restrictions on foreign participation in port projects? Some of the service providers in the ports are considered ‘companies of strategic importance’. This mainly concerns entities whose services take up more than 20 per cent of the local market (ie, in a particular port). The purchase of shares in such companies by foreign investors or by their Russian affiliated entities may require preliminary approval.



Issues of procurement and PPP in the port sphere are regulated by the general legislation.


Normally such proposals are considered using tender procedures. There are few exceptions to this rule, which mostly concern cases when the development of new port projects is conducted at the initiative of the government.


As mentioned above, there is currently no single procedure which is used for implementing PPP in port projects, so there is no single set of criteria. For example, in accordance with the federal law ‘On creation of artificial land plots’, the principal criterion for identifying the winner of the tender is (subject to other conditions set in the terms) the price offered by the bidder for the right to create an artificial plot. In accord-ance with the federal law ‘On concession agreements’, applicable crite-ria could vary and include:• the term of construction of the object of an agreement (eg, a

port terminal);• the amount of concession fees; and• the technical parameters of the object of an agreement etc.


There is no such model at present.


Implementation of any port-related joint project using the PPP model requires approval from the federal government and, optionally, the regional government.


As mentioned above, no single model applies. However, considering that private enterprises are entitled to own items of port infrastructure, such as terminals, it may be assumed that the BOO model (build–own–operate, without obligatory transfer) will become increasingly popular.


There is no standard term at present.

21 On what basis can the term be extended? See question 20.


RUSSIA Jurinflot



These issues are determined on a project-by-project basis.


No.



In order to commence construction, the operator must first obtain per-mission. This must be issued by the competent authority within 10 days upon application. Together with the application, the applicant must also submit documents which, in particular, confirm the applicant’s rights to construct particular objects on the land plots in question and confirm the professional expertise of the applicant’s construction plans. Due to this, the overall preparation of documents might take several months.


Yes. In the port projects that have been implemented using the PPP model, the state effected part of the construction – quays, access roads etc.


The party that is responsible for the construction of the port facilities must ensure compliance with generally applicable building standards, but is normally free to appoint subcontractors as long as it remains responsible for their performance.


Remedies for delays and defects in the construction of a port can include:• penalties and interest;• compensation for damages;• reduction of the contract price; and• obligation of the contractor to make good the defects at its own cost

or to compensate the customer for the expenses incurred by the lat-ter in order to rectify the defects.

In the event of grave violations of the concession or construction con-tract, the concessionaire or customer is entitled to demand the termina-tion of the contract through the courts.

Port operations


In order to start operating the newly constructed item of port infra-structure, the operator must obtain permission for commencement of operations, which may be applied for upon completion of construction. An application must be accompanied by a substantial number of docu-ments that confirm the object’s acceptance and compliance with vari-ous applicable standards. Permission for commencement of operations must be issued by competent authorities within 10 days upon applica-tion; however, due to the need to gather all the supporting documenta-tion, preparations may take several months.

If the terminal in question is intended for handling dangerous cargo, it will also be necessary for an operator to obtain the respective licence. Together with the preparation period, this may take two to three months.


This differs greatly from port to port, as in some areas services related to cargo operations may be rendered by state organisations (though not port authorities as such). However, normally, state companies and port authorities would render services relating to safety of navigation, secu-rity etc, while private enterprises would render port fleet services, cargo operation services, servicing of passengers etc.


These issues are determined on a project-by-project basis.


The Federal Agency for Maritime and River Transport is the authority that supervises ports on an everyday level. Control over the operators’ activities is exercised by a number of methods, including inspections and licensing, among others. The operation of a terminal may be sus-pended in case of emergency or violation of the safety requirements or other licensing requirements (if applicable).


Essentially, a port area is open to port authorities whenever they are exercising their duties, particularly when conducting state control over the activities of the operators. Port operations can be taken over in case of emergency.


An operator that fails to operate the port facility in accordance with the applicable regulations or agreement may lose its licence (where appli-cable); have the facility’s operations suspended; or be subject to fines and other administrative sanctions (the operator’s officers may also be subject to administrative and criminal liability for the violations com-mitted). If the operator is bound by an agreement with state bodies, such an agreement may be terminated in the case of substantial breach of such contract.


The operator will be required to return the principal object of the con-cession to the state authority, as well as any property that must be returned or transferred to the concedent in accordance with the conces-sion agreement.

Miscellaneous


Yes, it is possible to use a company that is specifically designated for the construction or operation of the port facility. In most cases, such a com-pany must be incorporated in the Russian Federation.


Shares or interests in port operators are generally freely transferable, with the exception of stakes in such operators that are considered ‘com-panies of strategic importance’ (see question 13). Such transfer may also be subject to antimonopoly regulations, requiring the consent or notifi-cation of the antimonopoly authorities.


Jurinflot RUSSIA



Theoretically this may be possible, but only subject to the state party’s (concedent’s) consent.


Other than by mutual agreement of the parties, a concession agreement may be amended if the laws of Russia change the validity of the agree-ment to the effect that the concessionaire will be substantially deprived of the benefits which it was reasonably intending to obtain when enter-ing into the agreement. Other than upon expiry, the concession agree-ment may be terminated by mutual agreement or, in cases provided for in the agreement, by the court upon request of one of the parties in the case of a material breach of the agreement by another party.


See question 38. In addition to the right to terminate the agreement when provided by the contract, the concedent’s side may apply to the court in the event of material breach from the side of concessionaire for termination of the agreement.


In general, yes.


In most cases, such disputes are considered by the Russian courts.

Alexander Mednikov [email protected]

Ul Marxistskaya 34/8109147 MoscowRussia

Tel: +7 495 792 5701Fax: +7 495 792 5700www.jurinflot.ru


SOUTH AFRICA Bowmans


South AfricaAndrew Pike, Mark van Velden, Norma Wheeler and Karl LaureauBowmans

General


There are eight ports in South Africa, the most recently developed of which is Ngqura, 25 km north of Port Elizabeth. This was established in 2003 following the promulgation of the Port of Ngqura Establishment Act No. 77 of 1998.

Richard’s BayOne of the world’s leading bulk ports, Richard’s Bay is a gateway port to the hinterland of Northern KwaZulu-Natal, Gauteng and Mpumalanga, with extensive rail links to these areas. The port comprises 23 berths, with bunkering facilities available at three of these, as well as bunker barge facilities. The port houses six cargo handling terminals, as well as covered and open storage facilities. There is a repair berth at the small craft port.

Development of an LNG terminal (land-based and or floating (FRSU)) and additional bulk capacity, as well as the expansion of the South Dunes precinct, the addition of a new liquid bulk terminal and the acquisition of new tugs are planned for the port in the period lead-ing up to 2022, which additions are estimated at the value of R3.7 bil-lion. A new ship repair terminal, dry dock and dig out basin are also on the horizon.

DurbanAs South Africa’s foremost multi-cargo port, this is a key trade gateway between Far East trade, South-South trade, and East and West Africa regional trade, as well as trade between Europe and the United States. The port boasts 58 berths with a fresh water pipeline to all berths and contains several commercial fishing quays. Cruise traffic facilities are provided at the dedicated passenger terminal. The port provides a dedicated bunkering berth as well as dedicated ship repair facilities at a dock, two floating docks and a slipway. The port has a ro-ro terminal for car cargo, as well as several container terminals. The entrance channel to the port has been widened and deepened to allow safer navigation for vessels up to 9,200 TEUs.

As part of the mapped out infrastructure projects for the next 10 years, several planned expansions or upgrades are in the pipeline for the port of Durban. These include the expansion of Durban Container Terminal (DCT) Pier 1; deepening and lengthening of DCT Pier 2 to safely accommodate larger neo-Panamax vessels and sustain terminal capacity; the creation of further container capacity at other terminals such as the ro-ro and Maydon Wharf terminals through the acquisition of new equipment, including mobile cranes and various infrastructure upgrades; the infill of the Salisbury Island Naval base; upgrading of the dry dock; and the reconstruction of the sheet pile quay walls for berths 12, 13 and 14. Future plans include a new dedicated passenger termi-nal and tug jetty. The port will further acquire three new dredgers and eight tugboats.

The proposed dig-out of the old Durban international airport to create a new container and bulk liquid port has been put on hold until 2032.

East LondonThe only commercial river port on the South African coastline, the port consists of 11 commercial berths, with a dedicated grain terminal. Fuel and gas oil bunkering are available via road tanker and the port provides a multi-purpose container terminal and refurbished ship repair facility.

Planned in the short term is the acquisition north of the multi-purpose container terminal for back-of-port operations. In the medium term, lengthening the main breakwater, adding a new secondary breakwater and deepening the channel entrance are all planned.

NgquraOne of the fastest growing ports in the world, Ngqura handles indus-trial bulk for the hinterland, transhipment cargo and imports and exports from across the globe. The port comprises mainly of con-tainer terminals, but a manganese loading facility is planned, coupled with the planned relocation of existing manganese facilities from Port Elizabeth.

Development of a bulk minerals (including manganese) export terminal worth an estimated R8 billion is currently under way as part of the relocation of the Port Elizabeth manganese facilities, with two existing deep water berths to be equipped for this purpose in the short term. The port will gain two 70–80 ton bollard pull tugs in the short term. Looking further into the future, the dig out of the Coega River valley is planned in order to create six additional liquid bulk berths and access to a new tank farm and liquid bulk terminal. This expansion would include four new liquid bulk berths in anticipation of a reloca-tion of liquid bulk facilities from Port Elizabeth in 2019.

The port has also been identified as a potential site for a land-based LNG terminal and possibly also a FRSU.

Port ElizabethThis gateway port to expanding markets is ideally strategically posi-tioned along the South African coastline. It comprises 12 berths, tug and fishing trawler jetties and a container terminal. The port handles dry bulk, liquid bulk and general cargo.

With the planned relocation of the manganese ore and liquid bulk facilities to the Port of Nqgura, new space for development has opened up. In the short term, relocation of the car handling facility from the Charl Malan quay to the old manganese site is planned. Maritime com-mercial activity, fishing and break-bulk terminals are also on the map for expansions, with land adjacent to the port’s south-east boundary to be absorbed into the port for back-of-port activities. In the medium term, there are plans to expand the container terminal, including the deepening of the three container berths and reconfiguring of one ter-minal for rubber tyre gantry stack operations. In the long term, the addition of a new seaward basin is planned.

Port of Mossel BayMossel Bay is a fishing port and the home of the Mossgas project, which is owned by PetroSA, a state-owned company. It comprises five quays and two offshore mooring facilities, as well as a multipurpose general cargo berth.

Short-term development plans include the acquisition of land south of the port, as well as transformation of the quayside previously occupied by fishing activities for maritime commercial, commer-cial logistics and back-of-port activities. In the medium term, a new


Bowmans SOUTH AFRICA


small-craft harbour is planned for construction along with a breakwa-ter. Long-term plans include the potential lengthening of the existing main breakwater.

Cape TownThis container and general cargo port is known for fruit and fish exports. The port comprises 34 berths, sophisticated fishing vessel facilities for processing catches and maintenance of the world fishing fleet, an Agri and ro-ro terminal as well as bunkering facilities at some berths and via barge. One of the defining features of the port’s fishing vessel repair facilities is the synchrolift, which is mostly used to transfer fishing vessels from a raisable platform into a repair yard.

A new luxury cruise terminal is planned, entailing an estimated investment of 179 million rand. Once completed the new terminal will accommodate the port’s current and future passenger vessel fleet. The upgraded facility will also house retail and hospitality services. Medium-term plans for the harbour include expanding the container stacking seaward with additional berths in the Schoeman Basin and in the long term there are plans to build an outer basin. Short-term plans include the expansion of the container terminal to increase capacity and the expansion of the landside area of the harbour for ship repair, as well as the development of 160 hectares of the Culemborg site for back-of-port commercial logistics.

The harbour’s new and independent fuel storage and distribution facility (Burgan) is the first project under the government’s Operation Phakisa programme to be implemented, with 650 million rand to be invested over the first two years of development. Environmental approval for the terminal has been granted, and it is due to be com-pleted in 2017; it will be used for the storage and distribution of both locally produced and imported fuels.

Saldanha BayThis multipurpose iron ore and crude oil port houses five berths, two fishing quays for vessels, fishing vessel repair facilities and semi-auto-mated cargo handling facilities for the crude oil and iron ore terminals, as well as dry bulk and general cargo storage facilities. Additional liquid bulk storage and processing facilities are planned.

A planned investment of 9.2 billion rand by a public-private part-nership (PPP) will see Saldanha Bay established as an oil and gas hub. Construction on a crude oil terminal worth 3.1 billion rand has begun and is expected to be completed by the fourth quarter of 2017. Work has also begun on an offshore supply base, which will lead to the port attracting oil rigs for maintenance and repair. A concession has been awarded to a private entity to build and operate an LPG terminal. The latter is planned to be brought online during the second quarter of 2017. The port has also been identified as a potential site for a land-based LNG terminal and possibly also an FRSU.


The principal port reform which has taken place occurred in 2005 with the promulgation of the National Ports Act No. 12 of 2005 (the NP Act) together with its Regulations. This only came into effect in 2006 and redefined the role of the national port authority, Transnet National Ports Authority (TNPA) and directed the latter to corporatise: that is, unbundle from the parent company, Transnet SOC Limited (Transnet), which is a multi-divisional state-owned company (SOC) involved in the logistics of ports, terminals, rail and pipelines. In addition, the NP Act introduced a new independent ports regulator, the Ports Regulator of South Africa (PRSA) responsible for:• monitoring the activities of TNPA;• economic regulation;• determining complaints against TNPA by port users and hearing

appeals by port users against decisions of TNPA; and• fostering competition within the ports.

All of the ports in South Africa are landlord models.


Policies such as South Africa’s White Paper on National Environmental Management of the Ocean (2014), National Development Plan 2030

(2012) and National Commercial Ports Policy (2002) express the commitment of the South African government to developing the ocean economy.

Operation Phakisa is a government initiative to stimulate develop-ment in targeted areas, including marine transport and manufacturing activities, such as ship building, repair and refurbishment. Port devel-opment initiatives to arise from Operation Phakisa include plans to pursue inter alia the construction of a deep-water oil rig repair facil-ity at Saldanha Bay and the establishment of a vessel repair facility at Richards Bay.


There are eight key areas of port environmental sustainability: dredg-ing, ballast water, habitat restoration, air quality, water conservation, energy conservation, material conservation and waste handling. The National Environmental Management Act 107 of 1998 (NEMA) pro-motes the environmental principles of equitability and sustainability and regulates activities and aspects of these key areas.

S24 of NEMA provides for the creation of the National Environmental Management – Environmental Impact Assessment Regulations 2014 (NEM-EIA). In order to give effect to the principles of integrated environmental management in NEMA, the impact on the environment of certain listed activities must be reported to the rel-evant authority and an environmental authorisation obtained before the commencement of such activities. As part of the NEM-EIA listing notices, Activity 26 in listing notice 2 of 2014 (Activity 26) relates to the development of ports. The listed activities therein require environmen-tal authorisation from the Minister of Environmental Affairs (being the competent authority), following all the stringent authorisation require-ments of NEMA, before commencement.

The NP Act vests TNPA with the responsibility to develop the ports whilst balancing the need for environmental sustainability. TNPA has an overarching environmental policy which it encourages each port to follow verbatim or implement into its own Environmental Management System following the guidelines of ISO 14001 (an inter-nationally accepted framework for the creation of an Environmental Management System). In light of this, many ports have their own pur-pose-suited policies in terms of issues such as ballast water regulations and dredging regulations.

TNPA requires each port to develop a Strategic Environmental Assessment of their port regarding development plans, in accordance with the Department of Environmental Affairs guidance document for Strategic Environmental Assessments.

TNPA ensures that any listed activities in the NEM-EIA are prop-erly evaluated and are not commenced before proper authorisation is obtained. This policy is enforced on port tenants and terminal opera-tors contractually, through lease agreements and the like, wherein they are obliged to inform TNPA of any intention to engage in a listed activ-ity and follow the environmental authorisation process.

Chapter 4 of the Ports Rules in terms of the NP Act provides for general environmental regulations applying to all ports in South Africa, including prevention of pollution, deposit of harmful matter (including oil), cleanliness of the quayside, adherence to ballast water manage-ment plans, waste reception facilities, compliance with waste manage-ment plans, vessel emission regulations and protection of wildlife.



The legislation governing port development and operations in South Africa is the NP Act. In terms of section 10(1) of the NP Act, all ports in South Africa fall within the jurisdiction of TNPA, TNPA’s main func-tion in terms of section 11(1) is to ‘own, manage, control and administer ports’, and in so doing it must inter alia ‘plan, provide, maintain and improve port infrastructure’. The government has no general powers in relation to privatisation or PPP in the port sector.


The regulatory system is somewhat complicated. Prior to the coming into force of the NP Act in 2006, TNPA was the landlord for all ports.




Transnet Port Terminals (TPT – another division of Transnet) was (and remains) the operator of many of the terminals, including the various container terminals at different ports. TNPA is self-regulated and was and remains the regulator of TPT. To an extent, it regulates other activ-ities within the port.

In 2006 the PRSA was constituted. This is an independent regu-lator whose role is inter alia to monitor and oversee the activities of TNPA only. The PRSA is also responsible for economic regulation of the ports and TNPA requires PRSA approval of its tariffs each year. PRSA has ancillary functions of regulating competition in the ports and regulating the provision of adequate, affordable and efficient port ser-vices and facilities. Most of this is done in the context of its regulation of TNPA. The difficulty, however, is that the PRSA has no jurisdiction over TPT, meaning that the only regulation of the tariffs of the latter is by TNPA, which sits within the same corporate stable as TPT. Despite the fact that the NP Act requires TNPA to corporatise soon and thereby obtain a measure of independence from TPT, for pragmatic and his-torical reasons this has never happened.


The NP Act vests TNPA with powers and responsibilities with regard to port development and maintenance. TNPA is also charged with providing marine-related services out of the ports, such as provid-ing infrastructure for containers, dry bulk, liquid bulk, break bulk and the automotive industry, as well as dredging, aids to navigation, ship repairs and marine operations. As part of the provision of these services, TNPA manages port activities and fulfils each port’s regula-tory function, making licensing agreements with the operators of port facilities in order to facilitate service delivery. Lastly, TNPA is responsi-ble for navigation and assistance of the manoeuvring of vessels within each port’s limits and along the coast.


In terms of s.26 of the NP Act, the CEO of TNPA may appoint such per-sons as he or she deems fit for proper discharge of the functions of the Authority. There are internal procedures followed by TNPA with regard to their hiring policies, but it is ultimately the CEO who makes the final decision, as mandated by the NP Act.

Section 74(3)(a) of the NP Act further lays out the functions and discretionary powers of the harbourmaster, as well as providing a func-tional definition of the position.


No. The Competition Commission (constituted under the South African Competition Act 89 of 1998) and the PRSA have concurrent jurisdiction over port-related competition issues.


The tariffs of TNPA are regulated by the PRSA. In August of each year TNPA must submit its tariff proposal to PRSA. The latter then subjects the proposed tariff to a public consultation process pursuant to which the PRSA explains and opens to public debate the methodology to be utilised in determining the tariff. In principle, the tariff is determined having regard to a Regulated Asset Base (RAB) of TNPA and allows TNPA an overall revenue requirement which includes an allowance in the weighted average capital cost (WACC) element of the methodology for risk undertaken by TNPA in its investment. The PRSA then allows a percentage increase in the total revenue required by TNPA which is then reallocated by TNPA amongst port users.

Tariffs are collected through ships’ agents acting on behalf of the shipping lines and cargo interests at the ports who pay for cargo dues and marine services. Tariffs payable by lease holders are collected indi-rectly through rentals.


The state has public service obligations imposed on it by the NP Act, through the vehicle of Transnet (being an SOC). The obligations of TNPA are discussed in question 7.


Section 56 of the NP Act allows Transnet to enter into agreements in relation to inter alia design, financing, construction and operation of port terminals or facilities, and for the provision of services at a termi-nal or in the port generally.

Transnet may enter into such a joint venture subject to the provi-sions of the Public Finance Management Act (1 of 1999) (PFMA). The PFMA requires that before concluding any ‘significant’ joint venture, partnership or similar transaction Transnet must notify the National Treasury and seek approval from its executive authority, the Minister of Transport. There is no statutory guidance for determining what would qualify as ‘significant’. Nor is there any statutory minimum or maximum percentage threshold for Transnet’s stake, but where the venture is to be involved in performing functions which TNPA is obliged to perform under the NP Act (which it is not empowered to del-egate), Transnet would have to retain control of the venture (similar to majority shareholding or voting rights in a company).

13 Are there restrictions on foreign participation in port projects? There are no specific restrictions on foreign participation in port projects. However, it is very likely Broad-Based Black Economic Empowerment (B-BBEE) would be taken into account, per Transnet’s supply chain policy. The B-BBEE Act 53 of 2003 and codes of good prac-tice issued in terms thereof are aimed at promoting the participation of black South Africans in the ownership and management structures of enterprises. The act provides that every organ of state and public entity must take into account and apply any relevant code of good practice in developing and implementing a preferential procurement policy. An explanation of the B-BBEE laws is beyond the scope of this publication.



It is general.


Firstly, the limited extent to which port privatisation is currently allowed under the NP Act is discussed in question 12.

Secondly, Transnet’s default position is that a formal tender is required. Transnet’s supply chain policy provides that in ‘material and compelling circumstances’ the Board Acquisition and Disposal Committee may authorise a deviation from the policy.


To our knowledge, there have been no port concessions or port joint venture agreements in any of the ports of South Africa. Terminal con-cessions are possible and a number of privatised terminals operate in South Africa.

In compliance with the NP Act and PFMA Act, TNPA or Transnet procurement guidelines usually require a tender process. The princi-pal criteria which TNPA would follow in awarding terminal conces-sions are:• fairness and transparency;• social equity, including B-BBEE and preferential procurement; and• value for money in terms of competitiveness and cost effectiveness.

A detailed request for proposal specifying the requirements of TNPA and inviting the submission of bids will be published. Basic common




qualifying criteria are the submission of an original tax clearance certif-icate and a certificate issued in terms of the B-BBEE Act certifying the level of the applicant’s contribution to B-BBEE in accordance with vari-ous criteria. Foreign entities without a B-BBEE score wishing to tender will often seek to partner with a B-BBEE-compliant local company.


There is no model PPP agreement. The PPP Unit of the National Treasury has, however, issued ‘Standardised PPP Provisions’ in its Practice Note No. 1 of 2004. While these provisions are not applica-ble to TNPA, the provisions set the bar for best practice and we would therefore expect TNPA to be guided by the provisions.

The provisions describe the key issues likely to arise in a PPP and provide how these should be dealt with in a PPP agreement. These are general and not specific to port projects.

The provisions identify circumstances where an approach to an issue is not prescribed, but rather recommended or suggested (based on value for money considerations).


No specific law needs to be passed (unless an entirely new port is to be developed).


Up until the present date, all port projects have been fully developed by Transnet or its state-owned predecessors, so there is no current prec-edent for any new port project other than fully funded, built and oper-ated by the state or a para-statal organisation.


No. A definite term is likely to be agreed, based, amongst other things, on the time required for the operation of the facility to generate suf-ficient financial return for the project to pay for itself and to make the PPP sufficiently profitable to be attractive to the parties participating. We do not believe that one could point to an average term, but in rela-tion to a capital-intensive port project our view is that the term is likely to be anything from at least 20 to 30 years.

21 On what basis can the term be extended? The PPP agreement might contain contractual terms for renewal or extension of the agreement.


Fixed land rents are collected from lease holders within the port pre-cinct. In addition, the following tariffs are collected by TNPA:• cargo dues;• port dues, covering all marine costs;• vessel traffic services (VTS) charges;• berthing services and running of lines;• tug assistance;• pilotage;• light dues;• passenger levy; and• port service licence and permit fees.

In addition, the terminals themselves charge terminal handling costs (THC).


The government might, but is unlikely to issue guarantees. Exclusivity would only be granted where the circumstances would not render this anti-competitive, for example where the contract is for the construc-tion and operation of a port or port facility, as opposed to the provision of port services.



As discussed above, currently concessions are not given to port opera-tors, but are rather given to terminal operators. Any terminal operator or indeed port service provider may tender to operate in response to an invitation from TNPA. Public procurement is explained in question 16. It is possible that a specific concession will be given to the operator of the DDOP. Failing a concession, legislative approval would need to be granted, depending on the circumstances. (See question 28 for more on legislative approval.)

In terms of the NEMA, environmental impact assessments must be conducted for new development projects and such assessments must be approved by the Department of Environmental Affairs. Refer to question 4 for further details.

There are so many variables that no general timeline can be given for obtaining the requisite approvals before construction can commence.


In terms of the NP Act, it is the duty of TNPA to ‘plan, provide, main-tain and improve port infrastructure’. A terminal owner or operator will be responsible for infrastructure to the extent that it is specific to the terminal. Depending on the size of a port project, one could expect to see TNPA undertake the construction or financing of at least some portion thereof. The government would typically attend to hinterland access through PPPs, SOCs or private concessions.


Whether a terminal operator can appoint any contractor it wishes depends on the terms of its licence and the project in question. Generally private terminal operators can appoint any contractors they wish. Any development in South Africa must be constructed in accord-ance with the National Building Regulations and Building Standards Act 103 of 1977.


Typically, the relevant construction contracts will specify the available remedies. Contractual penalties and the customer’s right to terminate are usually negotiated to cover delay attributable to the building con-tractor. In the event of defects, construction contracts will often pro-vide that the customer can require the building contractor to remedy the defects at the contractor’s expense or the customer can remedy the defect and claim the costs thereof from the contractor.

Port operations


In terms of existing ports defined as such in the NP Act, TNPA, being a quasi-governmental statutory body exercising exclusive competences of a sphere of government, does not require any government approvals to commence operations.

A new port would need to be determined by proclamation by the Minister of Transport in terms of section 10(2) of the NP Act naming it a port, as defined. In this situation the only bar to commencement would be this proclamation. In terms of a completely newly constructed port, however, this would not fall within the definition of a port in terms of the NP Act, and before operations could commence new legislation defining and regulating it as such would have to be promulgated.





Terminal operators are typically liable for rental and port users are liable to pay TNPA for services rendered such as pilotage. The tariffs charged to port users are listed at question 22 and the services provided by TNPA are described at question 7.


There is insufficient precedent for PPPs in the port sector to provide a firm answer to this question. Where ports are TNPA owned and operated, the state usually attends to hinterland access. We believe that at a commercial level such commitments would need to be made in any PPP agreement being put out to tender where the scale of the investment and success of the venture are significantly dependent on such access (which in the case of rail, at least, is within the control of Transnet). Requirements for the financing of such infrastructure would depend on the circumstances prevailing (such as the transport links already in place) and the commercial realities.


The latter is obliged to ensure that any concession to a port service pro-vider must provide for monitoring and annual review of operational performance. Terminal operators are required periodically to submit to TNPA a detailed report of licensed operations during that finan-cial year, including the quality and level of services provided. TNPA is empowered to conduct routine inspections, and furthermore terminal operators are required to report incidents material to operations, such as labour disputes, fire and pollution.

TNPA may cancel or for a reasonable period suspend the licence of a terminal operator if the terminal contravenes or breaches any condi-tion of its licence in particular defined circumstances.


These aspects are legislated in the NP Act. During office hours a repre-sentative may enter ‘any premises occupied by a licensed operator to inspect any activity, process, building or facility therein.’

TNPA can take over operations if it has suspended or cancelled the licence of an operator and ‘it considers that such cancellation or sus-pension would materially affect the movement of cargo or passengers in a port’.


In terms of general contractual principles, TNPA would be entitled to cancel the contract for a material breach and sue for specific perfor-mance or loss arising from the breach. This would be in addition to rights in terms of the NP Act with regard to the suspension or cancella-tion of operating licenses outlined in questions 31 and 32.


Currently, leases between TNPA and terminal operators or port facili-ties usually provide for a tenant to waive any claim for improvements made to the leased property.

Miscellaneous


An operator would be permitted, but not required, to operate via an SPV, but the SPV would probably be required to provide parent company guarantees. It would not need to be incorporated in our jurisdiction.


No. There is no precedent for anyone other than TNPA to be a port operator and TNPA is ultimately state owned. Conceivably Transnet could be sold by the state. The NP Act does not contemplate anyone other than TNPA as a port operator and does not permit TNPA to con-tract out or licence its core functions under section 11, namely to ‘own, manage, control and administer’ ports.

Sections 56 and 57 permit contracting out the operation of terminals or facilities within the port, but not the port as a whole. Amendments to the legislation would be required to permit operation of the port gener-ally by anyone other than TNPA. In terms of operators of port terminals or facilities, there is no general restriction on a change in ownership of the operator, although section 58(2)(a) empowers TNPA to make limita-tion on such transfer a condition of the licence.


To our knowledge, TNPA, as the port authority, has never entered into a PPP agreement in respect of a port. It is not therefore possible to answer this question categorically, but we see no reason why in par-ticular circumstances a PPP with TNPA should not provide substitution rights for the benefit of the lenders, provided that TNPA approves of any substitute nominated.


Section 56 of the NP Act sets out the criteria for the awarding of a port facility operator’s licence. The licence will typically be granted on a concession basis over a fixed term. The concession is subject to nor-mal concessionary contractual terms and only a material breach by the concession holder which is not cured in terms of the dispute resolution procedure in the concession agreement will permit the variation or ter-mination of the agreement. The rights of the concession holder will be protected in terms of South African common law, the NP Act and the Constitution of South Africa.


Refer to question 33.


Yes.


Any dispute between the government and the ports authority are gen-erally informally resolved in discussion at executive level and (ulti-mately) ministerial level with the executive of the port authority, TNPA. As the port authority is part of Transnet, an SOC, and also the operator of the port, this dispute resolution procedure remains the customary

Update and trends

Operation Phakisa has seen the rise of terminal developments, which are key items on the government agenda, and of Transnet. Substantial progress on terminal projects described above, such as Cape Town’s fuel storage facility, Saldanha’s LPG terminal and the proposed LNG terminals in one or more ports suggest that South Africa is open for business, with commitment being shown from the public and private sectors.




dispute resolution method. Having said that, most SOCs usually have a confidential so-called ‘shareholder compact’ – an agreement – with the oversight ministry which would typically contain some sort of dispute resolution procedure. As a last resort, the parties could make use of the courts, but this would be most unusual.

Technically, the government could make use of the PRSA to resolve disputes with TNPA, but as the latter is a division of a SOC, it is largely open to the state to dictate policy as necessary. In addition, TNPA would fall under the jurisdiction of a sitting parliamentary port-folio committee which would have an oversight role and should be able to resolve disputes which arise with government.

To the extent that disputes arise between TNPA and the principal terminal operator, TPT, again this is usually resolved in-house at exec-utive level between the executives of TNPA and TPT. Technically it

could, however, be referred to arbitration pursuant to the licence agree-ment between TNPA and TPT. It is understood that government is cur-rently formalising aspects of its SOC framework, which is expected to include dispute resolution procedures.

All other disputes between port users, private terminal operators and TNPA may be resolved through the office of the PRSA, which has a sitting tribunal. Unfortunately, although the PRSA can give directions, interdict actions on the part of TNPA and so on, the only way that these can be enforced is if an order of the PRSA is made an order of court by way of a formal application. The PRSA in its own right has no enforce-ment procedures. The referral of complaints against and disputes with TNPA to the PRSA is not mandatory and may be resolved through court or arbitration procedures, as each situation presents itself.

Andrew Pike [email protected] Mark van Velden [email protected] Norma Wheeler [email protected] Karl Laureau [email protected]

1st Floor, Compendium House5 The CrescentWestway Office ParkHarry Gwala RoadWestvilleDurbanSouth Africa

Tel: +27 31 265 0651Fax: +27 86 604 6318www.bowmanslaw.com


SRI LANKA DL & F De Saram


Sri LankaSavantha De Saram and Jivan GoonetillekeDL & F De Saram

General


In Colombo there are mainly container operations:• transhipment and domestic;• general cargo;• liquid and dry bulk (refineries, gas terminals – mainly via SPBM);• bunkering ship repair;• ship building;• crew changes;• ship chandelling and anchorage services; and• off port and in port bunkering services.

In Galle there are the following:• bulk cargo;• ship chandelling;• off port services for crew changes;• supplies;• leisure craft;• armed guard transfers via launches; and• armoury (floating) and bunkering services.

In Magampura Port, Hambantota, there are generally vehicles (roll-on/roll-off vessels) at present. However, in the future, bunkering, sup-plies, ship repair, shipbuilding and crew change facilities will also be provided at this port.

In Trincomalee there are bulk cargo (wheat and clinker mainly) and bunkering.


The creation of the Magampura Port in Hambantota is the latest addi-tion to the international commercial ports in Sri Lanka. The estab-lishment of privately run container terminals, especially at the Port of Colombo (South Asia Gateway Terminals (SAGT) and Colombo International Container Terminals (CICT)) has further revolutionised the port operation process. Such terminals operate on a leasehold basis from the Sri Lanka Ports Authority (SLPA) for a period of not more than 35 years, and are generally operated through a special purpose vehicle (SPV) in which a minority stake is held by the SLPA on behalf of the government of Sri Lanka.


State policy has evolved in relation to the main international ports from that of strict operation by the public sector to the opening of investment and operational opportunities to the private sector (including foreign entities) on a PPP-based model.


Presently there are no requirements imposed on either of the inter-national ports to adhere to green port principles. However, the

Magampura Port at Hambantota has been constructed as a green port and steps have been implemented by the SLPA for new developments at the Port of Colombo to be implemented in accordance with ‘green port’ standards.



There is no specific legislative framework governing port or terminal development or operation. All ports and port lands fall under the own-ership and purview of the SLPA in terms of the SLPA Act. However, there has been a recent shift in policy towards private sector developed and operated terminals at the port of Colombo founded on a build–own–operate–transfer (BOOT) model with the SLPA through a SPV in which a minority stake will generally be held by the SLPA on behalf of the government of Sri Lanka.


All ports and port lands come within the domain and purview of the SLPA, under the terms of the SLPA Act.


The SLPA is granted wide and far-reaching powers by statute in rela-tion to the owning of port land and the development, maintenance, operation and supply of other services relative to all ports in Sri Lanka. Basically all matters concerning ports and port lands fall within the purview of the SLPA, who, in addition to being the owners of all ports, operate them (in some instances in competition with private opera-tors such as the JCT Terminal at Colombo, which is wholly operated by the SLPA).


The harbourmaster of each port is an employee of the SLPA and is appointed by the chairman and board of directors of the SLPA. In prac-tice, the main harbourmaster is based at the port of Colombo, with all other harbourmasters being ranked as deputy harbourmasters who report to the harbourmaster at the port of Colombo.


Previously the implementation and regulation of such national com-petition practices came under the purview of the Public Utilities Commission of Sri Lanka, a public body incorporated by statute. Subsequently all anti-competition practices have been removed by the Consumer Affairs Authority Act. The Minister in Charge of Ports is empowered under the terms of the SLPA Act to issue regulations in relation to such rules and practices applicable to port operations. However, no regulations have been issued to date.


DL & F De Saram SRI LANKA



There are no specific laws or regulations relating to the imposition of tariffs. Port tariffs are published by the SLPA from time to time and are applicable to terminals operated by the SLPA. Terminals operated by private entities are not bound by the SLPA tariffs and are entitled to impose and collect their own tariffs directly from service users.


The operation of ports is classified as an essential service, and the SLPA is under an obligation to make such services available to the Sri Lankan public without hindrance. The SLPA is empowered to enter into a con-tractual arrangement with the private entity in relation to the provision of port services based on negotiated terms including port access and development of such access facilities.


The SLPA is empowered to enter into agreement with a private entity in relation to the development or operation of a port. Such a project is gen-erally undertaken through an SPV incorporated for this purpose. The previous policy was for the majority stake in the SPV to be held by the SLPA on behalf of the government of Sri Lanka. However, pursuant to a change in policy the SLPA and government of Sri Lanka will confine its stake to 15 per cent. This is the PPP model for the proposed implemen-tation of the East Container Terminal at the Port of Colombo.

13 Are there restrictions on foreign participation in port projects? Foreign participation in port-related projects could be restricted by convention, which reflects the prevalent governmental or state policy. However, the private entity ownership of operating SPVs is currently restricted as set out above.



There is no specific legislation governing PPP projects. However, such projects will be subject to the general Governmental Procurement Guidelines in force. The terms and conditions relating to the imple-mentation of PPP projects will reflect the prevalent state or govern-mental policy relating to each industry at that time as framed within the general Procurement Guidelines.


The government of Sri Lanka is currently open to considering unso-licited proposals subject to the applicable laws governing unsolicited proposals in favour of a PPP model. The current state or governmental policy is to move towards a virtually fully privatised port operation.


The main criteria in determining the awarding of projects and port con-cessions are:• the highest return to the government of Sri Lanka (net pre-

sent value);• expertise based on other current port operations internation-

ally; and• the financial standing of such entity.

The criteria followed further depend on whether the proposed pro-ject is as per a solicited proposal or unsolicited proposal. For solicited proposals there are governmental tender guidelines that are appli-cable, and all bids are subject to technical evaluation by a technical

evaluation committee and thereafter managed and reviewed by a cabinet-appointed procurement committee.

In the case of unsolicited proposals, the relevant ministry makes representations on behalf of the proposing entity to a cabinet-appointed negotiating committee for review. In both instances, the cabinet will have to approve the project and the terms and conditions of the govern-ing concession agreement in consultation with the attorney general.

Unsolicited proposals may also be submitted as ‘strategic pro-jects’. Such projects were previously considered under the Strategic Development Projects Act. However, recent governmental policy indi-cates that projects will no longer be considered under the provisions of this Act.


There is no specified model or standard concession agreement tem-plate. However, recent concession agreements governing the SAGT and CICT can be considered model templates for future projects.


All projects and agreements for the implementation of port projects have to be with the SLPA, who are empowered by statute (ie, the SLPA Act) to enter into such agreement. No further statutory enactment is required to give effect to such implementation. However, the SLPA will necessarily seek cabinet approval on the negotiated terms in order to sign and enter into the underlying concession agreement.

Unsolicited proposals will be considered based on their public, social and economic utility, such as substantial investment or inflow of foreign exchange; employment generation; transfer of technology; national interests; and other factors capable of changing the economic landscape of the country. Such proposals are to be directed to the rel-evant line ministry directly or through the Board of Investment of Sri Lanka and scrutinised by the relevant line ministry and the Ministry of Finance and Planning before submission for endorsement by the cabi-net and final approval by parliament. Such projects will receive greater tax and duty waivers and concessions.


Port projects are generally founded on the BOOT model.


As per current state or governmental policy, the maximum operational term is a leasehold of 35 years.

21 On what basis can the term be extended? So far, no leaseholds have been extended beyond the initial demised period. The extension or non-extension will depend on the prevalent governmental or state policy at the time.


The fee structure will generally include:• upfront key money;• annual lease rentals;• throughput-based royalty payments; and• marine charges which are levied by and accrued directly by

the SLPA.

Annual payments are subject to indexation based on inflation (US Consumer Price Index), tariff increases, or both.


No government or sovereign guarantees are provided. However, exclu-sivity is granted to the SPV for the tenure of the concession agreement.


SRI LANKA DL & F De Saram




The process for approval varies from port to port, largely depending on its location. However, all requisite approvals would be incorporated into the concession agreement. All other ancillary approvals required for construction, such as environmental clearance from the Central Environmental Authority and Geological Survey and Mines Bureau approval for dredging, will be specified by the SLPA and the SLPA will facilitate the obtaining of such approvals from the relevant governmen-tal authorities. However, the responsibility for obtaining such approv-als for the implementation of the project lies with the entity.


Yes. Harbour infrastructure such as breakwaters, capital dredging of a channel, basin development and port access are carried out by the SLPA. The rest of the construction process will generally be the obliga-tion of the operator.


Adherence to ‘acceptable’ international construction standards (usu-ally British Standard or Australian Standard) is generally specified in the concession agreement. The concession agreement will generally specify restrictions on foreign contractors to grant preferential consid-eration to local subcontractors for subcontract works.


The remedies will be contractual as per the concession agreement, which will generally include liquidated damages and the right to termi-nate where such delays are tantamount to a fundamental breach.

Port operations


Approval for commencement of operations should be obtained by the SLPA. The timeline for such approval will be concurrent with the nego-tiation of the concession terms.


The SLPA provides marine services, pilotage and towage services on an exclusive basis. Port operators carry out terminal operations, ship to ship and import/export services. All charges and cargo dues are col-lected and recovered by the SLPA directly from vessel operators and cargo owners.


The SLPA will grant the operator and its authorised servants and agents access to the concession areas and access to and from such concession areas. Even though there is a railroad facility at the port of Colombo, it is not functional. There is currently no arrangement between an opera-tor and the SLPA for the development of access routes or interconnec-tions. However, there is nothing to restrict a prospective operator from including such development in its proposal to the SLPA.


The SLPA does not generally oversee private terminals. Its role in rela-tion to such terminals will be as specified in the governing conces-sion agreement entered into with the operator of such terminal. The SLPA may only intervene in such operations in the event of a national emergency, or under other circumstances specified in the conces-sion agreement.


The SLPA shall have access to all areas of a port at any time. It may take over operations in the event of a national emergency or where the operator commits a fundamental breach of the governing conces-sion agreement, or under other circumstances specified in the conces-sion agreement.


Such rights will be as per the default provisions of the concession agree-ment and will generally include step in or substitution rights in addition to standard provisions for liquidated damages and termination.


Such rights will be as per the negotiated terms of the concession agree-ment which are framed on a case-by-case basis. Handback provisions will generally contain a valuation method and payment for trans-ferred assets.

Miscellaneous


Yes. The project must be implemented through an SPV incorporated in Sri Lanka.


Generally yes, but subject to the negotiated provisions of the conces-sion agreement. However, in calling for Expressions of Interest for the proposed new East Container Terminal at the Port of Colombo the gov-ernment has made reference to a prospective regional investor.


Such security provisions are generally restricted to the operator’s equity stake in the SPV, which also include step in rights or right of sub-stitution. The SLPA generally do not enter into any direct relations with the project financing banks other than as part of their commitment as a shareholder.

Update and trends

The shifting of governmental and state policy towards PPP-based projects, the emergence of the privately operated SAGT and CICT terminals at the port of Colombo, and the introduction of the Magampura Port at Hambanthota are recent developments which have revolutionised port operations in Sri Lanka, optimising its stra-tegic location as a port hub in the Indian Ocean.

Future developments in the pipeline include the implementa-tion of a largely privately owned East Container Terminal at the Port of Colombo and private partnership in the operation of the Magampura Port at Hambanthota coupled with the incentive of a 1,000 hectare Free Trade Zone facility.


DL & F De Saram SRI LANKA



The right of variation or termination will be as per the governing con-cession agreement negotiated between the parties. Rights of variation will generally be on mutual agreement on the occurrence of superven-ing events.


Remedies are available as per the concession agreement. This will gen-erally include the right to claim for liquidated damages and termina-tion in the event of a fundamental or unremedied breach.


Yes. Commercial laws in Sri Lanka are founded on English legal princi-ples, practice and authorities.


Disputes are settled as per the dispute resolution procedure stipulated in the concession agreement, and generally by way of arbitration in the event that such dispute is not resolved through negotiation.

Savantha De Saram [email protected] Jivan Goonetilleke [email protected]

47 Alexandra PlaceColombo 7Sri Lanka

Tel: +94 11 2695782 / +94 11 2 697272Fax: +94 11 2695410www.desaram.com


TURKEY TURUNÇ


TurkeyEsin Çamlıbel and Grace Maral BurnettTURUNÇ

General


Turkey’s key port facilities, listed along with their primary purposes, are the following:• Ambarlı: cargo handling, general cargo, container, storehouse;• Mersin: cargo handling, general cargo, container, cruise, oil

and gas;• Gemlik: container, general cargo, liquids;• BOTAŞ (Ceyhan): oil and gas;• İskenderun: cargo handling, general cargo, container, storehouse;• Haydarpaşa: cargo handling, general cargo, container, ferry;• Marport: cargo handling, general cargo, container;• İzmir: cargo handling, cruise, store-house, general cargo, cast-

ing, container;• Derince: cargo handling, general cargo, container, oil and gas;• Tuzla: general cargo, passenger, tug, oil and gas;• Samsun: cargo handling, general cargo, container, cruise;• Antalya: cargo handling, general cargo, container, cruise; and• Bandırma: cargo handling, general cargo, container.

Except for the İzmir and Antalya ports, Turkey’s key ports are gener-ally focused on general cargo, cargo handling and container services. The İzmir and Antalya ports supply an important service to Turkey’s tourism industry by providing cruise port services. For additional infor-mation regarding certain key port facilities, please refer to the tables on pages 28 and 71 of the 2015 Marine Industry Report published by the Turkish Chamber of Shipping (www.denizticaretodasi.org.tr/Shared%20Documents/sektorraporu/2015_sektor_en.pdf ). Marport is not included in the tables.


As discussed in more detail below, there has been a major trend in port privatisations. This can be seen in that, as of 2015, of the 178 coastal facilities suitable for international shipping in Turkey, only two ports (Haydarpaşa and İzmir) are owned and operated by the Turkish gov-ernment. In 2004, the High Board of Privatisation issued Decision No. 2004/128, which allowed the privatisation of seven of Turkey’s largest and most significant ports (Bandırma, İzmir, Samsun, Derince, Mersin and Iskenderun) via a build–operate–transfer (BOT) model. Following the 2004 decision, the trend has continued, leading to the current sta-tus of nearly all of Turkey’s ports having been privatised through BOT structures or concession agreements. Turkey does not give private enti-ties the right of ownership of ports, but instead gives them a right of operation for a maximum of 49 years.


The overall state policy for the development of ports in Turkey is reflected in the trend towards the privatisation of ports, as well as Turkey’s ‘2023 goals’, which include improving and expanding overall port capacity in the country.

Turkey initially adopted privatisation laws and policies in the 1990s, as a result of which nearly all ports in Turkey have been priva-tised. These privatisations have been and continue to be governed by Law No. 4046 of 27 November 1994. Given that these privatisations transfer the right to operate an existing port for a certain duration of time to a private entity, they are sometimes referred to as ‘brownfield’ projects. The development of greenfield ports, in other words the crea-tion of new ports, has been governed by Law No. 3996 of 13 June 1994 and Council of Ministers Decree No. 2011/1807 implementing that law, which together constitute the general BOT legislation in place. Turkey has set certain development goals that it aims to reach by 2023, which will be the 100th anniversary of the Turkish Republic. Among Turkey’s 2023 goals, which cover a wide variety of sectors, are the construction of new ports, the rehabilitation of existing ports and the creation of uni-fied port complexes rather than individual piers.


There are no green port requirements for Turkish ports. However, a voluntary green port certification system was established in 2012 by the Ministry of Transport, Maritime Affairs and Communications. The first ‘Green Port’ certificate was given to the Port of Marport owned by Arkas Holding in July 2015.



As explained above, the privatisation of ports has been encouraged by the government through the passing of new laws and regulations. There is no single unified piece of legislation, and no single ministry or department that deals with such projects or ports in general. Turkey’s current port development and privatisation policies are supported by various pieces of legislation, including the following:• Law No. 618 (Law on Ports 1925);• Law No. 815 (Law on Cabotage 1926);• Law No. 3621 (Law on Coasts 1990);• Law No. 3996 (Law on Build–Operate–Transfer Projects 1994);• Law No. 4046 (Law on Privatisation 1994); and• Regulation on Ports of 31 October 2012.


There is no specific regulatory authority for ports, and there is no unified port authority that oversees all port related affairs, but there are a num-ber of port related-bodies including but not limited to the following:• the General Directorate for Construction of Railways, Seaports

and Airports;• the Ministry of Agriculture;• the Ministry of Environment;• the Ministry of Health;• the Ministry of Industry (MOI);• the Ministry of Interior;• the Ministry of Public Finance;• the Ministry of Public Works and Settlement;• the Ministry of Transport (MOT);


TURUNÇ TURKEY


• the State Planning Organisation (SPO) of the Prime Ministry;• the Turkish Maritime Organisation;• the Turkish State Railways (TSR); and • the Undersecretariat for Maritime Affairs.

Each of these listed bodies deals with various types of matters that could arise in port projects such as financial, regulatory, privatisa-tion and PPP issues in accordance with their respective jurisdiction and mandate. For example, the SPO determines when there will be new investment in specific port projects based on feasibility and the national investment budget, the MOT coordinates the development of ports and sets the port tariffs for TSR ports, while the MOI controls industrial ports operated by state-owned companies. Depending on the type of port and the nature of the project or issue at hand, there are several possible responsible bodies and bodies of regulations that could have jurisdiction or be applicable in each instance.


See question 6.


A harbourmaster is appointed by the Republic of Turkey Ministry of Transportation, Maritime Affairs and Communications.


Ports are not subject to specific national competition rules. However, in practice it has been observed that the Turkish Competition Board has followed EU competition rules and the approach of the EU Commission regarding maritime disputes in its decisions.

It should be noted that mergers and acquisitions, including priva-tisations which exceed certain thresholds, are subject to the Turkish Competition Board’s approval. The applicable pieces of legislation are:• the Communiqué Concerning Mergers And Acquisitions Requiring

the Authorisation Of The Competition Board (Communiqué No. 2010/4); and

• the Communiqué on the Procedures and Principles to be Pursued in Pre-Notifications and Authorisation Applications to be Filed with the Competition Authority in order for Acquisitions via Privatisation to Become Legally Valid (Communiqué No. 2013/2).


Tariffs are collected by the Ministry of Customs and Trade pursuant to Decree Law No. 640 (dated 3 June 2011) concerning the organisations and functions of the Ministry of Customs and Trade. The Port Service Fee to be collected from the both foreign and Turkish flagged ships are determined in accordance with article 26 of Law No. 5174 through the Turkish Chamber of Shipping (see www.denizticaretodasi.org.tr/en-en/pages/tariff.aspx).


No.


Pursuant to applicable privatisation legislation, which allows the trans-fer of the ownership of companies within the privatisation portfolio partially or fully, a state entity can enter into a joint venture with a port operator for the development or operation of a port in Turkey. There is no statutory percentage threshold applicable to the state’s stake in such joint ventures.

13 Are there restrictions on foreign participation in port projects? Law No. 815 of 1926 provides that certain maritime activities can only be performed by Turkish persons (such as the provision of certain aux-iliary services at Turkish ports). Therefore, if the operator of a Turkish port does not qualify as a Turkish person, it would need to outsource such reserved activities to Turkish persons. In practice, foreign enti-ties can normally acquire the operational rights of a port through a Turkish subsidiary.



The legislation governing procurement and PPP is specific. Although there are some general codes such as the Public Procurement Code (4734) and the Public Procurement Agreements Code (4735) that are also applicable, one must comply primarily with the specific procure-ment or PPP regulations applicable to the relevant activity. For exam-ple, some PPPs are made according to Code 4734; others fall under the health ministry or other relevant ministries regulations. As stated above, BOT projects are governed by Law No. 3996.


As a general rule, a formal tender process is required.The Privatisation Higher Council is the authorised entity for deci-

sions on privatisations according to the Law on Privatisation Practices (4046). Once the Council decides that a public entity will be privatised, the bidding process starts through a formal tender process.

However, there is no general code for PPPs in Turkey because there are various methods for the operation of public services. The author-ised entity for approving BOT projects is the Higher Planning Council and a formal tender is required for this process as well.


According to Law No. 3996, the principles and procedures of BOT pro-jects are brought into force by the Council of Ministers. Pursuant to the relevant Council of Ministers’ Decision (2011/1807), it is compulsory that a bidding company have a solid financial structure, be certified by independent auditors, and have experience performing activities related to the investment in question.


There is no model PPP agreement. The Higher Planning Council is the authorised entity that allows a government entity to enter into an agreement with a private entity. After the approval, the relevant gov-ernment entity determines the conditions of the agreement (subject always to constitutional, statutory and public policy limitations). In practice, concession agreements are used in the privatisation of exist-ing ports and the BOT model for new ports.


The relevant public entity must apply to the Higher Planning Council for permission to enter into a PPP agreement with a private entity. The Higher Planning Council then consults the relevant ministries, which could be one or more of the following: the Ministry of Environment and Urbanisation, the Ministry of Finance, the Ministry of Transport, Maritime Affairs and Communications, or the Ministry of Culture and Tourism. The Higher Planning Council may reject the request of the relevant public entity if such a decision is supported by the relevant ministry’s reports. If the application is approved, the relevant public entity determines the PPP agreement conditions and the bidding pro-cess ensues.


TURKEY TURUNÇ



In other sectors, build–operate (BO), transfer of operating rights (TOR) and build–lease–transfer (BLT) models are used, but there is no specific legal framework in place for build–own–operate–transfer (BOOT) pro-jects in Turkey.


There is no minimum term; however the maximum term is 49 years. In practice, 30-year or 36-year terms are most common.

There are no existing examples of greenfield port projects in Turkey in a pure PPP form (such as those recently seen in the Turkish healthcare sector). Private entity operated ports are all under the BOT model (for new ports) or concession agreements (for existing ports).

21 On what basis can the term be extended? Law No. 3996 specifically states that the 49-year term for BOT projects cannot be extended. It should be noted that there is legislation in place providing for other types of PPP projects such as BO, TOR and BLT, which may have different term durations, but the pertinent regulations governing these other types of PPP projects do not explicitly include ports and thus are not relevant here.


Various fees are collected for different activities, and for different kinds of ships and capacities (eg, registration fees, annual contribution fees and port service fees).

The fee structure is determined annually by the Chamber of Shipping (see www.denizticaretodasi.org.tr/Shared%20Documents/Gelirler/2016_ucret_tarifsi_2016.pdf ).


The government does not, in practice, provide guarantees in relation to port PPPs.

Once it has won the tender, the port operator is granted exclu-sivity under the relevant structure for a fixed period of time, as dis-cussed above.



Permission is required from relevant ministries determined by the Higher Planning Council. Generally it is necessary to get feasibil-ity reports from the Ministry of Transport, Maritime Affairs and Communications, Ministry of Environment and Urbanisation, and

Ministry of Finance. It is also generally required to get permission from the Ministry of Culture and Tourism to ensure that any cultural or historical heritage sites near the port will not be compromised by the project.


No. In Turkey, there are no examples of the government undertaking part of a port construction. Consistent with Turkey’s preferred BOT PPP model, the aim of privatisation is transferring the port opera-tion and construction to private entities, and this is reflected in cur-rent practice.


As per Council of Ministers’ Decision No. 2011/1807, the relevant administration designates specifications of any PPP type agreements, which can include terms governing construction. Additionally, there are some technical standards for the construction of ports that must be complied with. In 2007, a technical guideline (Coastal Structures and Ports, Planning and Designing Technical Guideline) was issued by the Ministry of Transport Directorate General of Railways, Ports and Airports Construction. In 2015, the Ministry of Transport, Maritime Affairs and Communications Directorate General of Infrastructure Investments prepared a draft amended version of the techni-cal guideline.


As per Council of Ministers’ Decision No. 2011/1807, provisions regard-ing delays and cost changes in a construction project must be covered in the relevant agreement. If these types of problems occur, they are considered contractual breaches and the administration may termi-nate the agreement. It is required that provisions regarding contract termination be included in the agreement. If the agreement is not ter-minated, the dispute can be resolved via arbitration or Turkish courts depending on the terms of the agreement.

Port operations


A private entity port operator that has already successfully entered into a PPP agreement with the government must submit a facility informa-tion form and a business permit application document and certain supporting documents in order to commence operations. The private entity port operator must apply to the Examination, Determination and Audit Commission with the required documents to get port opera-tion permission.


Private port operators perform all port services for their ports. The gov-ernment is not involved in providing port services when a private entity is the port operator.


The general practice is for operators to finance and develop access routes and interconnections. According to the Ministry of Development’s five-year development plan for 2014–2020, one of the goals of the Turkish government is to realise hinterland connections from existing ports by road and rail. As such, we expect to see a contin-ued increase in hinterland connection projects.

Update and trends

In Turkey, there is a general trend towards increased PPP projects, particularly greenfield projects. Significant investment is being made in port development projects by private entities and interna-tional organisations such as the European Bank for Reconstruction and Development (EBRD). The EBRD has estimated that Turkish ports will require US$3.5 billion in foreign direct investment over the next 10 years. Turkey’s plan to continue the record economic growth it has experienced over recent years includes a serious com-mitment to fully develop and cultivate its strategic maritime and shipping positions on the Aegean, Mediterranean and Black Seas. The Turkish Ministry of Development has set goals for further hinterland connection development, intermodal transport connec-tions of logistics centres development, and the formation of a port authority model specific to Turkey. We expect progress in these areas over the next several years. The establishment of the green port certification programme in 2012 has also created a new trend to watch; applications for this voluntary certification have begun to be submitted.


TURUNÇ TURKEY



The Examination, Determination and Audit Commission has the right to supervise ports. If any non-conformity is detected by the Commission, a maximum of six months is given by the commission to correct the non-conformity. If the private entity does not correct the nonconformity, the commission can suspend operations until the pri-vate company corrects the problem. The permission to operate the port may also be cancelled by the Commission if the documents provided by the operator are deficient. Further, if the name, coast facility name or the type of operation written in the permission to operate changes, the permission becomes invalid.


Accessing the port area is generally possible if there is a court decision granting such a right. If there is reasonable doubt or a court decision, law enforcement agencies may also access the port. Further, auditors from the Examination, Determination and Audit Commission may access the port. The Turkish Tax Inspection Board may also supervise port operations.


Pursuant to Law No. 3996, the agreement between the administra-tion and the private entity is a private law agreement if the relation-ship is part of a BOT PPP project. The administration may terminate the agreement if the conditions for termination set out in the agree-ment occur, and the auditors from the Examination, Determination and Audit Commission may suspend or cancel the permission to oper-ate. The administration can also apply to Turkish courts (or arbitration if it is provided for in the agreement) for remedies generally available under private law contracts.


Such requirements would be included in the terms of the PPP agree-ment, which is negotiated on a case-by-case basis.

Miscellaneous


As per Council of Ministers’ Decision No. 2011/1807 article 17, it is required that a private entity that has won a bid to operate or construct a port establish a Turkish joint-stock company SPV after it has been

selected for the job. The equity capital ratio of the SPV may not be less than 20 per cent of the amount that will be used for the investment. As an exception to this SPV formation requirement, if a Turkish public entity owns more than 51 per cent of the shares of the company, it is not required to establish an SPV.


As per Council of Ministers’ Decision No. 2011/1807 article 27, a pri-vate company may transfer its rights and obligations to another com-pany subject to the same agreement conditions. The new company must abide by the procedures and satisfy the requirements of Council of Minister’s Decision No. 2011/1807. The approval of the relevant administration and signature of the related minister are required for the transfer to take place.


With the approval of the relevant authority, the port operator can grant such security. In practice, some agreements include share pledges granting step-in rights to the financing banks.

There are no examples of regulatory authorities entering into a direct agreement with project financing banks.


As per Council of Ministers’ Decision No. 2011/1807, an agreement may be terminated by the relevant administration upon the private entity failing to fulfil its obligations, breaching the agreement, going into bankruptcy, entering into a composition with creditors or becom-ing insolvent. Further, as per Council of Ministers’ Decision No. 2011/1807, if the private entity changes the amount of its capital during the establishment period without the permission of the administration, the agreement may be terminated by the administration.


The administration may terminate the agreement within the scope of Council of Ministers’ Decision No. 2011/1807 if conditions trigger-ing termination as set forth in the agreement occur. In the event of a breach, it is possible to apply to Turkish courts, and if it is provided for in the agreement, it is possible to start an arbitration process.


As per Council of Ministers’ Decision No. 2011/1807, disputes may only be resolved by Turkish courts or, if specifically provided for in the agreement, through arbitration. If arbitration is provided for in the

Esin Çamlıbel [email protected] Grace Maral Burnett [email protected]

Teşvikiye Caddesi 19/11Teşvikiye 34365 IstanbulTurkey

Tel: +90 212 259 45 36Fax: +90 212 259 45 38www.turunc.av.tr


TURKEY TURUNÇ


agreement, it is compulsory that the substantive law applicable to the arbitration proceedings be Turkish law.


Such disputes are technically considered to be private law matters, but as discussed in question 40, they can be resolved only by Turkish courts or arbitration.


Holman Fenwick Willan LLP UNITED KINGDOM


United KingdomAlex Kyriakoulis and Joseph BothamHolman Fenwick Willan LLP

General


The key ports in the UK are the ports of Grimsby and Immingham; London; Milford Haven; Tees and Hartlepool; Southampton; Liverpool; Felixstowe; and Dover.

Immingham has specialist liquid bulk and coal-handling ter-minals and ro-ro and lift-on lift-off (lo-lo) facilities. At Grimsby, around 0.5 million vehicles are imported each year via its dedicated ro-ro berths.

The Port of London handles dry and liquid bulk, as well as cargo from ro-ro and container vessels.

Milford Haven handles liquid bulk including crude and refined oils, liquefied petroleum gas and liquefied natural gas.

Tees and Hartlepool handles bulk cargo.Southampton has a container terminal, ro-ro terminal, a major

cruise terminal, dry bulk and liquid bulk facilities that are primarily used for crude oil.

Liverpool handles bulk cargo and also ro-ro and container ves-sels. It is also used as a transhipment port for cargo bound for Ireland and Scotland. A new deep-water container terminal is due for opening in 2016.

Felixstowe handles container ships and ro-ro traffic.Dover is a ferry port and handles ro-ro cargo vessels.


Port ownership in the UK falls into three categories:• privately owned ports;• ‘trust ports’; and• municipal ports owned by local government authorities.

In the last 30 years there has been a move towards the private own-ership model, in particular for the larger UK ports. Privatisation of smaller ports has been slower, and most smaller ports adhere to the trust ports and municipal ports models.

Prior to 1983, the ports industry was largely nationalised. In 1983 the state-owned ports operator, the British Transport Docks Board, was privatised under its new name, Associated British Ports, with its shares being offered to the public. Most of the larger state-owned ports were sold in and since 1983.

Trust ports are generally run by self-governing independent statutory bodies whose constitutions are instituted by Acts of the UK Parliament. With exceptions such as the port of Dover and the port of Milford Haven, most trust ports are small harbours handling predomi-nantly leisure and local fishing vessels. In the 1980s and early 1990s, the UK government advocated the privatisation of trust ports, culmi-nating in the Ports Act 1991. However, as mentioned above, privatisa-tion of trust ports has been slow. The UK government has published guidance concerning trust ports’ governance – Modernising Trust Ports – and trust ports are subject to several statutory duties, including duties of maintenance.

Finally, some ports continue to be owned and operated by local authorities. On the whole, these ports tend to be small and handle low tonnages, with the exception of the port of Portsmouth.


In January 2012, the Department for Transport presented to the UK Parliament its National Policy Statement for Ports (NPS). This docu-ment sets out the framework for decisions taken relating to port devel-opment in England and Wales, in particular the UK government’s conclusions on the need for new port infrastructure.

The NPS states that the UK government’s ports policy is to encour-age sustainable long-term port development to cater for economic developments in the long term, to allow judgments about when and where new port developments might be made to be taken on the basis of commercial factors by developers operating within a free market environment, and to ensure that all developments satisfy the relevant legal and environmental obligations, including objectives under the relevant European Directives. In summary, a market-driven policy encouraging competition is the primary basis of policy, as it has been since the 1980s.


Ports and port development in the UK are subject to UK and EU envi-ronmental legislation.

In particular, projects could be subject to the requirement under the European Environmental Impact Assessment Directive (Council Directive 85/337/EEC, as amended) to produce an Environmental Statement describing the environmental impact of the proposed developments. If the Directive applies, it could require a significant amount of assessment and analysis to be undertaken prior to the pro-ject’s commencement. Producing an Environmental Statement would include an assessment of measures taken to reduce ships’ greenhouse gas emissions, as well as any increase in emissions caused by inland transport generated as a result of the port development. The UK gov-ernment requires Environmental Statements to take into account the projected changes in the UK’s climate that will result from climate change. Similarly, formal assessments may be necessary under the UK’s Habitats and Species Regulations.

The UK’s planning and pollution control regulations impose a series of obligations that require certain projects to be environmentally sustainable and to minimise pollution. In the context of port develop-ments, ‘nationally significant projects’ may require licences from UK government authorities, and parties considering projects should con-sult the Marine Management Organisation (MMO) (for projects in England) or the Welsh government (for projects in Wales) to establish whether any licences are required. In particular, this might involve obtaining permits under the ‘Environmental Permitting’ regime, which covers, among other things, projects with waste disposal and manage-ment facilities.


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Port developmentThe NPS sets out the broad framework applying to the ports develop-ment policy and details the legislation that applies to the development of ports. In particular, the Planning Act 2008 (in combination with the Localism Act 2011) states that a party planning to undertake a ‘nation-ally significant infrastructure project’ must submit its plans to the Planning Inspectorate, which will consider the proposals in light of the relevant legislation and the NPS. Following this review, the Planning Inspectorate will send the proposals to the Secretary of State with a rec-ommendation as to whether permission should be granted or refused. In addition, in most cases port developers must obtain a licence from the MMO, pursuant to the Marine and Coastal Access Act 2009.

Port operationEach port is overseen by a competent harbour authority (CHA) appointed by statute. CHAs are responsible for the management of the port. The CHA’s constitution will depend on how the port is incorpo-rated. For instance, private companies can be the CHA in the case of private ports, while in the case of a trust port the CHA will usually be the port’s board of directors. A CHA’s powers and duties are prescribed by a wide range of general and specific legislation. Some regulations apply to each CHA, including the guidance in the Port Marine Safety Code and statutes such as the Merchant Shipping Acts and its related second-ary legislation. Other legislation either devolves powers to the CHA to exercise on a semi-discretionary basis (for example, the Pilotage Act 1987) or is specific to a certain port or ports. This specific legisla-tion normally takes the form of Harbour Revision Orders or Harbour Empowerment Orders for which CHAs can submit applications. These Orders principally concern either matters of port development or the alteration or reconstitution of the powers held by the relevant CHA.


There is currently no single national regulatory authority entirely responsible for oversight of the UK’s ports sector. The European Parliament has recently voted in favour of a revised EU Ports Regulation pursuant to which the UK could be required to appoint such a regula-tor. The Ports Regulation will only be adopted after formal approval by both the European Parliament and Council which is expected to take place in the autumn of 2016.

In the absence of a single regulator, a series of bodies are respon-sible for regulating and licensing certain aspects of port development and operation (see question 5).


The key competences and powers will primarily be determined by the content of the legislation specific to each port’s CHA. In addition, every port or harbour has general competences and powers, mainly related to the general duties to ensure the safety, maintenance and conserva-tion of the port. In addition, there are several pieces of UK government-issued guidance applying to ports which, while lacking the full power of law, are authoritative guidance on issues such as corporate govern-ance and port management. Examples of such government-issued guidance include the Port Marine Safety Code and, in the case of trust ports, Modernising Trust Ports – Second Edition, sometimes abbreviated to ‘MTP2’.


In the case of specific ports with a partly naval function known as ‘dock-yard harbours’ (Portsmouth and Plymouth in England and Wales), har-bourmasters (with the title Queen’s Harbour Master) are appointed by a UK government minister pursuant to the Dockyard Ports Regulation Act 1865.

Otherwise, CHAs have the power to appoint a harbourmaster, whose primary responsibilities are detailed in the Harbours, Docks and Piers Clauses Act 1847.


Ports in the UK are not subject to specific national competition rules, although they are subject to the general competition rules that apply to the UK market.


Given that the powers of a CHA can vary from port to port, the local acts of parliament applying to a specific port (if any) may empower a CHA to levy a harbour due. The Harbours Act 1964 also governs the imposition of harbour dues by CHAs, as does other legislation such as the Harbours, Docks and Piers Clauses Act 1847.

The tariffs that are imposed on ports and terminal users by port operators are subject to competition laws and rules, in particular in relation to abuse of a dominant market position (see question 9).

The collection of tariffs will depend on the preferred practices of any given CHA or port operator.


The state does not have any public service obligations in relation to port access or services. As noted in question 5, the government has set out its policy for the ports industry, which includes guidance in respect of the evaluation of applications for consents to develop port projects, and may impact on any conditions attached to any such consent granted on a case-by-case basis.


There is no specific legislation in place that would hinder the UK gov-ernment (or rather a state-owned entity) from entering into a joint venture with a port operator for the development or operation of a port in the UK. However, given the fully privatised system which is implemented in respect of most large ports in the UK, this is not com-mon practice.

13 Are there restrictions on foreign participation in port projects? There are no restrictions on foreign participation in port projects in the UK. However, the government may seek to intervene in any projects or matters adversely affecting national interests, including where there is a risk of sanctions (as was the case in the recent North Sea gas dispute between the UK government and Mikhail Fridman) and where there may be serious health and safety and environmental risks.



The government’s new PPP framework – PF2 – was introduced in 2012 and is subject to guidance issued by the UK Treasury. It is not specific to any industry. In the context of procurement, the government has introduced the Public Contracts Regulations 2015, which could apply to aspects of PPP and PF2 transactions. The Regulations were enacted pursuant to EU directives concerning the free movement of goods and services.

In addition, it is worth noting that the UK Treasury’s guidance on procurement has indicated that, under PF2, procurement will increas-ingly be handled by the central government as opposed to the public authority (eg, local council) directly concerned with the project, as was the case under the previous regime (the Private Finance Initiative).


Port concessions and joint ventures with the government are not com-mon in the UK. Generally speaking, the NPS provides that where there has been a material change in circumstances which necessitates the


Holman Fenwick Willan LLP UNITED KINGDOM


review of the NPS, in whole or in part, and it is in the national inter-est that a case should be decided quickly, the Secretary of State has a reserve power to intervene and take the decision, ensuring that pro-posals for nationally significant infrastructure can be considered with-out delay. Generally speaking, contracting authorities, that is, state, regional and local authorities, bodies governed by public law and asso-ciations formed by one or several of such authorities or bodies are sub-ject to UK public procurement regulations.


The NPS provides the framework for decisions on proposals for new port development and, for the benefit of planning decision makers, sets out the approach they should take to proposals, including the main issues that will need to be addressed to ensure that future development is fully sustainable. It also details the need for new port infrastructure and the positive and negative impacts it may bring.

The guidance included in the NPS encompasses economic impacts; commercial impacts; competition; tourism; environmental impact assessment; Habitats and Species Regulations assessment; criteria for ‘good design’ port infrastructure; pollution control and other environ-mental regulatory regimes; climate change mitigation and adaptation; common law nuisance and statutory nuisance; hazardous substances; and health and security considerations. Other relevant criteria include, among other things, biodiversity and geological conservation; flood risk; traffic and transport impacts; waste management; water quality and resources; air quality and emissions; and socio-economic impacts.


There is no model PPP agreement that is used for port projects. As noted above, port project applications are considered and port project consents are granted on a case-by-case basis.


See question 5.


Port projects in the UK are implemented on a case-by-case basis, and in practice most port projects have been based on fully privatised port models.


No. As there have been no port PPPs in the UK, one cannot speak of an average concession term.

21 On what basis can the term be extended? See question 20.


Given that most port developments in the UK have been based on fully privatised port models, there are no fee structures as such. However, the port projects will be subject to taxation in the usual way.


No.



For a ‘nationally significant’ development, an application must be made to the Planning Inspectorate, which will give a recommendation to the Secretary of State (see question 5). Such developments will be

those which will lead to a port having an annual capacity of 0.5 mil-lion TEU for container terminals, 0.25 million movements for a ro-ro terminal, 5 million tonnes of other traffic for bulk and general cargo terminals, or a weighted equivalent including all three of such cat-egories. In addition, the Secretary of State has the power to determine that certain projects are of national significance even if they fall below the relevant threshold, in which case the plans will be referred to the Planning Inspectorate.

Further consents and licences may be required, depending on the nature of the plans, under a variety of legislation and regulations. In particular, MMO consent will be required.


No, however the NPS will apply to associated development, such as road and rail links, for which consent is sought alongside that for the principal port development. The NPS sets out that non-ports associ-ated development should be considered on a case-by-case basis, using appropriate assessment methods consistent with the NPS and with applicable official guidance.


As noted in question 16, the guidance included in the NPS for plan-ning decision-makers includes the criterion of ‘good design’ for port infrastructure. This criterion sets out that the decision maker needs to be satisfied that the port infrastructure developments are sustainably designed and, having regard to regulatory and other constraints, are as attractive, durable and adaptable (including taking into account natu-ral hazards such as flooding) as they can be. In so doing, the decision maker should satisfy itself that the applicant has taken into account both functionality (including fitness for purpose and sustainability) and aesthetics (including its contribution to the quality of the area in which it would be located) as far as possible. Finally, in considering applications, the decision maker should also take into account the ulti-mate purpose of the infrastructure and bear in mind the operational, safety and security requirements that the design has to satisfy.


As any agreements relating to the construction of the port will be entered into between the project applicant or port operator and a third party contractor, any remedies available to the project applicant or port operator will be subject to negotiation between such parties and will vary on a case-by-case basis, depending on factors such as the nature of the works and the bargaining powers of the parties.

Update and trends

On 23 June 2016, the UK voted to leave the European Union – widely referred to as Brexit. It remains to be seen what impact the imple-mentation of Brexit will have on the ports and terminals sector in the UK once negotiations between the UK and the European Union on the terms of Brexit are commenced and such terms are shaped and finally agreed. For example, the application or the extent of the application of a number of EU rules and regulations applying to ports and terminals in the UK (such as those included in the EU environmental legislation referred to in our response to question 4) or the adoption and the extent of the adoption of any new EU rules and regulation currently under consideration and which may apply to ports and terminals in the UK (such as through the EU Ports Regulation referred to in our response to question 6) is currently unknown and may well vary once the mechanics of Brexit and the Brexit road map are finalised. Brexit may also have an impact on the volumes of trade between the UK and the EU and the number of imports from the EU and exports to the EU which are handled by UK ports and terminals. While it appears that we are not likely to have any definitive answers to these questions in the immediate future, the Brexit process, its challenges and opportunities, will clearly need to be closely monitored by the ports and terminal sec-tor in the UK and internationally for the years to come.


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Port operations


See question 24.


In fully privatised ports the owner or operator provides all the services or grants licences or concessions for third parties to provide them. Trust ports are owned and operated by the same party, providing all services. With municipal ports, typically the port authority will provide services relating to dredging, lighting, safety, navigation and pilotage while the port operator will manage day-to-day matters such as cargo handling.


See question 25.31 How do port authorities in your jurisdiction oversee terminal

operations and in what circumstances may a port authority require the operator to suspend them?

See question 5.


This will depend on the by-laws of the CHA, any legislation empower-ing the CHA and the terms and conditions for the operation of the CHA.


The UK government’s approach to the ports industry is to intervene only where there is demonstrable ‘market failure’, and this is rare.


Given the fully privatised model that applies to most port projects in the UK, there are no obligations on port operators to transfer assets to the port authority or government. In the case of trust ports and munici-pal ports, this is not relevant.

Miscellaneous


As applications for port projects are considered and granted consent on a case-by-case basis, this will depend on the conditions attached to a consent approving any particular project. Generally speaking, there is no nationality requirement.


The ability to freely transfer ownership interests in the port operator will depend on the terms included in the constitution of the port opera-tor, together with the terms of any relevant joint venture or sharehold-ers’ agreement relating to the port operator. There are no laws (other than possibly competition rules) restricting the transfer of shares.


Given the fully privatised nature of most port projects in the UK, the private parties participating in the project can generally offer security over the assets of the project.


This may be achieved in accordance with the terms and conditions agreed by the signatory parties to any such agreements.


Given the fully privatised model that applies to most ports in the UK, this question is not relevant.


There are no port PPP agreements in the UK. The laws of the juris-diction governing the project agreements are a matter for agreement between the parties that are signatories to any such agreements. Generally speaking, we would expect that such agreements would be subject to English law.


The regime for settling disputes will be subject to negotiation and agreement between the parties participating in the project.

Alex Kyriakoulis [email protected] Joseph Botham [email protected]

Friary Court65 Crutched FriarsLondon EC3N 2AEUnited Kingdom

Tel: +44 20 7264 8000Fax: +44 20 7264 8888www.hfw.com


Blank Rome LLP UNITED STATES


United StatesMatthew J ThomasBlank Rome LLP

General


The US has a large and diverse marine terminal industry. In terms of total vessel calls, Houston, TX stands as the county’s busiest port, driven by its massive tanker trade. The rapid growth of domestic petro-leum production over the last five years has led to rapid development in new export facilities in Houston and other Gulf ports for crude, condensate, refined products and liquids. The first US LNG export ter-minal, located in Sabine Pass, Louisiana, came into service earlier this year. The Delaware River ports around Wilmington and Philadelphia, PA have also seen new investment in petroleum and natural gas liq-uids facilities.

For container shipping, the adjoining San Pedro Bay ports of Los Angeles and Long Beach, when viewed together, are the country’s big-gest gateway. However, the Port of New York and New Jersey is a close second, and East Coast ports like New York, Norfolk, VA, Charleston, SC and Jacksonville, FL are important gateways that expect further growth from the expansion of the Panama Canal.

In South Florida, the ports of Miami and Port Everglades represent key hubs in the trade with Latin America and the Caribbean, and are also home to the country’s largest cruise terminals. And in the middle of the country, the Mississippi River (the country’s largest waterway) and the Great Lakes continue to have their own thriving and diverse marine terminal industries. Accordingly, drawing broad generalisa-tions about the domestic terminal industry, and its challenges and opportunities, can be difficult.

Good sources of official data about maritime cargo types and vol-umes include the Army Corps of Engineers Waterborne Commerce Statistics Center and the US Department of Transportation Maritime Administration (MARAD) Maritime Open Data Portal.


For container terminals (and also most large breakbulk, general cargo and ro-ro facilities), the most common operating model is the landlord port, whereby the berth and backlands are owned by a state or local port authority and leased to a marine terminal operator. For large ter-minals, the trend has moved towards longer lease terms and greater infrastructure investment by the lessee terminal operators, to meet the critical financing needs for port infrastructure repair and expansion.

However, for historical and local reasons, this ownership model can vary from port to port. For example, in some major ports like Virginia, the facilities continue to be operated by a single government-owned corporation, although private stevedoring companies can com-pete within those terminals.

Also, while private ownership of container ports is relatively uncommon, private ownership of liquid and dry bulk terminal facili-ties (petroleum, grains, ores etc) is more commonplace. The country’s largest independent operator of bulk terminal facilities is energy and infrastructure giant Kinder Morgan Energy Partners LP. It and sev-eral other large pipeline and infrastructure operators (generally struc-tured as master limited partnerships) have invested billions of dollars

in developing bulk cargo terminal facilities in recent years, buoyed in large part by the growth of the US energy sector since 2007.


In the US, port development is influenced by numerous overlapping laws, regulations and policies at the federal, state and local levels.

At the Federal level, the US government has not played a signifi-cant a role in directing maritime and port development, particularly as compared to other modes, such as highways and mass transit. Unlike those other modes, ports and shipping have not enjoyed regular annual formula funding, often leaving the maritime industry to pursue other funding sources without the benefit of an overarching national strategy.

Slightly more federal legislative attention has been paid to cargo and shipping infrastructure recently. In December 2015, Congress passed its most recent five-year transportation funding plan, the FAST (Fixing America’s Surface Transportation) Act. While this bill remains primarily focused on highways and other surface transportation pri-orities, it does devote more attention to ports and the freight-handling industry than its predecessors, targeting close to $11 billion in funding for freight programmes. Among other things, the bill increases seaport eligibility for new infrastructure grants and other financing, creates a dedicated funding stream for multimodal freight projects, and pro-vides new policy direction on freight networks to the Department of Transportation. Still, these changes are likely to have only evolution-ary, not revolutionary, impacts on the federal role in funding and steer-ing port development.

Given the lack of a firm federal hand in the development of the country’s ports, it has fallen to state governments and local port author-ities to develop their own policies and strategies for financing and implementing growth strategies, and for attracting new cargo streams to and through their regions. This landscape has produced a US port industry that is dynamic and competitive, as individual ports fight to secure their places in the market.


Marine terminal operators must be aware of myriad environmental laws, regulations and programmes at the federal, state and local levels. For example, close attention must be given to air quality initiatives that aim to reduce harmful emissions from vessels (through the use of shore power and other initiatives), as well as cargo handling equipment, dray-age trucks and other emissions sources. The Environmental Protection Agency (EPA) maintains a Ports Program with goals to reduce air pol-lution and greenhouse gases, achieve environmental sustainability for ports, and improve air quality for near-port communities. The EPA in September 2016 released a National Port Strategy Assessment outlin-ing strategies for reducing air pollution and greenhouse gases at US ports. Terminal operators may face emission restrictions at the state or local level as well, or as key terms of their terminal leases. For example, several ports in recent years have implemented clean truck initiatives, using combinations of grants and regulations to remove older diesel trucks from port service.

Clean air is not the only environmental issue terminal operators face, however. Other critical compliance issues include stormwater runoff management and treatment, which must meet EPA-prescribed


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local permit requirements under the under the National Pollutant Discharge Elimination System (NPDES), as well as tightening rules for vessel ballast water management, which are subject to NPDES and Coast Guard regulations. Other regulatory schemes for wetlands pro-tections (including disposal of dredge spoils), handling and storage of oil and hazardous substances, and protection of endangered species also impact terminal construction and operation.

Also, as discussed further below, marine terminal construction generally triggers a requirement for an environmental impact study under the National Environmental Policy Act and similar state legisla-tion, analysing all projected environmental impacts from the project. As a result, environmental factors and mitigation options are often a lead-ing consideration in any decision to build or rebuild US port facilities.



There are numerous overlapping legislative and regulatory regimes that apply in the ports sector.

At the federal level, a special legislative scheme applies to marine terminal operators (including public ports) that serve ‘common carri-ers’ in the international trade – that is, vessels holding themselves out to the public carrying cargo for multiple shippers. Under the Shipping Act of 1984, the Federal Maritime Commission (FMC) regulates marine terminal operators that furnish wharfage, dock, warehouse or other terminal facilities in connection with common carriers in the interna-tional trade, or a mix of domestic and international common carriers.

The Shipping Act provides for the regulation of various aspects of marine terminal lease agreements and terminal operations, including:• Barring terminal operators from engaging in various ‘prohibited

acts’. Several of these prohibitions involve relatively vague ‘reason-ableness’ determinations, which fall to the regulators to determine on a case-by-case basis (often after extensive litigation). For exam-ple, regulated terminal operators are prohibited from engaging in unjust or unreasonable discrimination, or failing to maintain ‘just and reasonable regulations and practices relating to or connected with receiving, handling, storing, or delivering property’. See 46 USC §§ 41102(c), 41106 (2) and (3).

• Allowing for elective publication of rates, regulations and other practices in online ‘marine terminal operator schedules’ which are enforced as an implied contract. 46 USC §§ 40501(f ).

• Mandatory filing and regulation of agreements among terminal operators, or between terminal operators and ocean carriers, to discuss or fix prices, or to engage in cooperative working arrange-ments. Such agreements enjoy statutory antitrust immunity. 46 USC §§ 40301(b), 40302(a).

For more details on the FMC’s authorities over terminal operators, see the agency’s online guide for terminal operators at www.fmc.gov/resources/marine_terminal_operators.aspx.

The Shipping Act is only one of many federal legislative schemes applicable to ports, however. As noted above, the EPA regulates ports from an environmental perspective under the Clean Air Act, the Clean Water Act and other statutes. The Coast Guard is responsible for ves-sel safety and navigation, and also for port security under the Maritime Transportation Security Act. The Army Corps of Engineers is respon-sible for dredging in US ports and harbours. Workers in US ports are subject to health and safety protections under the Occupational Safety and Health Administration (OSHA), and are covered by a special workers’ compensation scheme, the Longshore and Harbor Workers’ Compensation Act, administered by the Department of Labor. Numerous federal agencies play a role in policing the flow of cargo and persons through US ports, especially Customs and Border Protection, the Animal and Plant Health Inspection Service of the United States Department of Agriculture and United States Citizenship and Immigration Services. Hazardous materials storage and handling are subject to a regulatory scheme administered by the US Department of Transportation Pipeline and Hazardous Materials Safety Administration.

Particular types of specialised terminals may be subject to their own legislative regimes. For example, deepwater ports (eg, offshore termi-nals like Louisiana Offshore Oil Port) are permitted by the Department

of Transportation, while onshore LNG export terminals fall under the lead jurisdiction of the Federal Energy Regulatory Commission.

At the state level, the states will generally have a legislative code setting out a legislative framework for port matters. For example, the California Harbors and Navigation Code sets out an extensive legisla-tive scheme for port financing, governance of harbour districts, bond authority, pilotage, vessel operations, safety, salvage, sanitation and numerous other matters. The charter or authorising legislation of the particular local port likely prescribes particular rights and authori-ties as well, making for a complex interplay of state, federal and local legal schemes.


See question 5.


See question 5. In the context of terminal leasing, it is particularly important to highlight the role of the FMC, especially the potential uncertainty injected into terminal agreements by the Shipping Act and its non-discrimination provisions. For example, litigation has been under way for more than eight years, brought by Maher Terminals before the FMC against the Port Authority of New York and New Jersey, regarding Maher’s lease terms. In 2008, Maher filed a complaint against the Port Authority alleging that the differential terms between its and APM/Maersk’s leases (which were negotiated in the late 1990s) violated 46 USC § 41106(2) in offering an ‘unreasonable preference’ to APM/Maersk. A federal appeals court recently overturned an FMC order dismissing Maher’s complaint, reviving the litigation before the agency. As a result of this dispute and the underlying uncertainty (apparently even on the part of the FMC) as to exactly what level of parity the Shipping Act requires, the port and operator in this case have had to contend with extraordinary economic uncertainty about the fundamentals of their lease deal for nearly two decades. Accordingly, ports and operators need to look for ways to prevent carefully crafted long-term PPP agreements from being unravelled by the Shipping Act.


The appointment of a harbourmaster varies from port to port based on local legislation. In many non-US jurisdictions a harbourmaster is the official primarily responsible for ensuring compliance with navigation, safety and security statutes; however, in the US many of those respon-sibilities are vested in the Captain of the Port, a United States Coast Guard officer. Similarly, key customs decisions in US ports lie with the Area Port Director, a Customs and Border Protection Official.


Ports that serve only domestic shipping, or that serve only ‘tramp’ oper-ators (ie, tankers and other vessels that sail on charter for a single char-terer, rather than multiple shippers) are fully subject to federal antitrust laws and their state counterparts. However, as noted above, terminals that serve common carriers enjoy a limited antitrust immunity under the Shipping Act, but in return their agreements with carriers and other terminals are subject to rigorous oversight by the FMC. In practice, determining whether a terminal serves common carriers and is subject to the Shipping Act can be a difficult and fact-intensive inquiry.


Under the Shipping Act of 1984 and FMC rules (specifically, 46 CFR Part 525), marine terminal operators are authorised, but not required, to publish marine terminal operator schedules setting forth their rates, regulations and practices. The benefit to terminal operators is that ‘[a]ny schedule that is made available to the public by the marine termi-nal operator shall be enforceable by an appropriate court as an implied contract between the marine terminal operator and the party receiving the services rendered by the marine terminal operator, without proof




that such party has actual knowledge of the provisions of the applicable terminal schedule’. 46 CFR 525.2(a)(2).

State or local law may also provide particular rules regarding the validity and enforcement of marine terminals tariffs, for example, making them enforceable as akin to local ordinances, but this varies from state to state.


Under the Shipping Act of 1984, marine terminal operators (includ-ing public ports) are subject to fairness and non-discrimination stand-ards that apply to their dealings with carriers, cargo owners, and other waterfront business (stevedores, tug operators, line handlers etc). Also, marine terminal operators cannot unreasonably refuse to deal with any party. Accordingly, ports and terminals that serve common carriers have a public interest obligation that can be at odds with their narrow commercial or financial interests.


As a general matter, yes, a public entity can enter into a joint venture with a private sector operator, and there are no general limits on equity participation levels. However, in practice, such joint venture struc-tures have not been used regularly in the port sector. Rather, public entities have turned over terminal development and operation rights and responsibilities to private operators through leases, concession agreements, exclusive or preferential use agreements or other contrac-tual structures.

13 Are there restrictions on foreign participation in port projects? Yes. The Exon-Florio law, 50 USC Appendix § 2170, specifies the pro-cess by which foreign investments are reviewed, regardless of sector. The President has the authority under this measure to block proposed or pending foreign ‘mergers, acquisitions, or takeovers’ of ‘persons engaged in interstate commerce in the United States’ if they are found to threaten to impair national security. To take such action, the President must (i) conclude that other US laws are inadequate or inap-propriate to protect national security; and (ii) have ‘credible evidence’ that the foreign investment will impair national security.

The Committee on Foreign Investment in the United States (CFIUS) is the interagency committee that serves the President in investigating and reviewing the national security implications of for-eign investment under this section. The investigative authorities and procedures for CFIUS were significantly strengthened in 2007 in response to the attempted takeover of P&O Ports US marine terminal operations by UAE-owned DP World, and some members of Congress continue to press for even tighter restrictions.



The legislation directly controlling the administration of port procure-ment and PPP agreements is specific to the port’s state or locality. In some areas it might be maritime-specific, but often it is the same set of standards that apply to public procurement across many sectors.


This issue turns on a case-specific review of the procurement rules that apply in the state or locality where the port is sited. There are no fed-eral port procurement authorities. However, if a port authority awards a terminal concession without a fair, open and competitive process, it places itself at higher risk of facing a complaint of unreasonable dis-crimination and refusal to deal from an aggrieved competitor under the Shipping Act of 1984.


While ports’ priorities vary from case to case, generally port authori-ties are looking at an economic cost-benefit analysis for a port project. Over the term of the agreement (which can extend for decades), they consider what the bidder is promising for annual payments and how is it structured. Rental payments can include fixed fees and components based on acreage, throughput (and minimum annual guarantees), rev-enues or other factors, sometimes making direct comparisons between competitors difficult. Of course, long-term capital investment is a cru-cial factor as well, as ports are increasingly looking for private sector operators and investors to finance infrastructure investments that are out of reach for financially strapped state and local governments.

Managing risk is an important factor as well: for example, who bears the risk if world trade and port volumes decline, the port is hob-bled by climate change or environmental factors, the surrounding road and rail infrastructure fails, or myriad other risk factors come to pass?

The financial soundness and the legal and regulatory track record of the bidder and any partners, lenders or other backers is also closely examined. Insurance, indemnities and remedies in default are also key terms that ports examine closely.

Port authorities often look beyond the four corners of the prop-erty at the broader impacts of a terminal proposal: does the bidder have the right incentives and wherewithal to grow the amount of cargo and carriers coming to the port? How will the deal impact waterfront labour unions? How will the ecosystem of other maritime businesses surrounding the port be affected? How is the bidder proposing to meet its environmental compliance responsibilities and also address com-munity concerns regarding pollution, congestion, noise, social justice, security and other issues?


No, these agreements vary from deal to deal. The Federal Maritime Commission maintains an online library of marine terminal opera-tor agreements which provides examples of some terminal leases and other agreements.


There is no federal authorisation required for terminal agreements, although the FMC can go to court to seek and have one enjoined if it is found to be substantially anticompetitive, unreasonably impacting shipping prices and service. (The FMC has never successfully done so.) The legislative framework and authorisations required for port PPP deals are generally established at the state or local level.


The most typical approach is a landlord port awarding a lease to an operator under a build–operate–transfer model.


Marine terminal lease agreements can range from just a few years to several decades; there are no fixed limits. In one recent particularly high-profile PPP, the State of Maryland in 2009 awarded a 50-year lease for the operation of Baltimore’s main container terminal, an important East Coast port. Elsewhere, private operators have signed leases for smaller facilities (eg, Jasper County, SC and Texas City, TX) for terms exceeding 90 years.

21 On what basis can the term be extended? Terminal leases often include optional extension periods, negotiated by the parties. However, decisions regarding additional lease exten-sions beyond those set out in the lease often implicate many of the same economic, legal and policy concerns as new awards, especially if competing bidders are seeking an opportunity to take over the facility. See question 20.


UNITED STATES Blank Rome LLP



See question 16.


These are contractual issues that are negotiated on a case-by-case basis. Any exclusivity agreements that give a port operator a monop-oly over particular services in the relevant market (as defined akin to the antitrust laws) will be at risk of a challenge before the FMC, where the parties may need to demonstrate that the benefits of the exclusive arrangement outweigh the adverse impacts on competition and trade.



Numerous federal, state and local regulatory requirements must be satisfied before commencing construction of a new marine terminal. These requirements can vary significantly from project to project, depending on state and local laws and project details. However, the most significant aspects of this process are the environmental reviews required under the National Environmental Policy Act (NEPA) and its state counterparts, like the California Environmental Quality Act (CEQA).

This environmental review process (and any related litigation) can stretch on for several years. One well-known example is the devel-opment of the China Shipping Container Terminal in the Port of Los Angeles. In March 2001, the port issued a permit to construct the termi-nal, and entered into a lease with China Shipping for the facility. Shortly thereafter, a lawsuit was filed in both state and federal courts alleging that the port failed to comply with the requirements of CEQA for a full analysis of the project’s environmental impacts. California courts ordered a partial halt to ongoing construction and ordered the prepara-tion of a project-specific environmental impact statement/report (EIS/EIR). While part of the terminal was allowed to come online in 2004 as part of a settlement agreement, the final EIS/EIR was not concluded until 2008. It incorporated a number of mitigation measures, includ-ing concessions related to aesthetics, air quality, noise, and transpor-tation. Construction was not completed until 2013, and certain issues related to the implementation of some of the mitigation measures still continue to this day. Accordingly, the importance and impact of these environmental reviews cannot be overstated.


Historically, most port infrastructure construction was the responsi-bility of the public sector agencies. However, tightening government budgets, declining port revenue growth and increasing demand caused by larger ships, shoreside congestion, demands for environmental mit-igation and other factors have pushed the market towards more crea-tive PPP arrangements and private sector financing and construction of port infrastructure.


Construction must comply with all applicable federal, state and local codes and regulations (including the Army Corps, Coast Guard and EPA, as well as those of state and local authorities). Qualification of contractors is generally controlled by contract and local regulations with the relevant port.


These are key contract issues that must be negotiated and addressed in the drafting of any engineering, procurement and construc-tion agreement.

Port operations


See question 5. In addition to meeting all local requirements relating to building codes, fire codes, hazardous materials storage and han-dling and other unique port-specific approvals, terminals must comply with numerous federal operating requirements, as detailed above. For example, FMC-regulated terminals are required to register with the agency before commencing operations, facility security plans must be filed with the Coast Guard, Longshore Act cover must be secured under Labor Department rules and compliance with federal environmental permitting requirements must be established.

An equally important undertaking, however, is securing agree-ments for port labour. In several markets this may require becoming part of a collective bargaining unit and participating in multi-employer pension and benefit plans under the relevant union’s collective bargain-ing agreement, pursuant to the Employee Retirement Income Security Act (ERISA) and related legislation.


It is difficult to generalise, as no two port authorities take an identical approach to dividing responsibilities between the port authority and the tenants or other service providers, and usually the fine details of the relationship are subject to negotiation and contract. However, it is not uncommon for a port authority to assess wharfage and dockage charges on a vessel calling there for use of the berth, even for cargo that is being unloaded from the vessel to a leased terminal. In some ports, cranes and other cargo handling equipment may belong to the port as well, to be operated for a fee. In some ports, tugs and pilots are the responsibility of the port, or a related commission.

One key overarching principle to keep in mind is that public port authorities and local government cannot impose taxes or fees on cargo moving through the port, other than bona fide user fees for ser-vices and benefits arising from use of port facilities or services. These restrictions derive from the Shipping Act and the Rivers and Harbors Act (33 USC § 5), as well as the Tonnage Clause of the US Constitution. Accordingly, it is not uncommon for ports to adopt fees supporting port security, first responders and even some shared environmental and infrastructure improvement. They are largely foreclosed from charging carriers and tenant terminals simply for using or navigating the port’s harbours and waterways.


Given the widespread concerns regarding congestion and emissions around US ports (particularly container terminals), negotiation over inland transportation linkages, especially the financing and develop-ment of rail access and roadway improvements, are key commercial elements of many terminal deals.


See question 5.


With regard to taking over port operations, terminal leases generally have detailed provisions regarding remedies for breach, including the standards and processes for a landlord port to terminate a lease. Regarding access, port authority officials and other regulators, includ-ing Coast Guard, Customs, APHIS and other agency representatives, routinely visit terminal operations as part of their oversight roles. Such access is generally provided for in terminal agreements.





See question 39.


This issue is generally addressed in the text of terminal lease agree-ments. Generally, infrastructure, buildings, fixtures and other improve-ments (but not moveable equipment) revert to the landlord port at the end of the lease term, but tenants may seek prospectively to negotiate compensation for such investments.

Miscellaneous


As a general matter, the use of SPVs is commonplace for structuring the ownership of terminal businesses, although they are not strictly required. Decisions as to structure generally are driven by financing, liability and tax considerations, rather than particular requirements for the use of SPVs or other corporate forms.


For the most part yes, although some sales may require clearance on antitrust or national security grounds (under the CFIUS process described above). Of course, terminal leases and financing agreements may include change of control provisions that require counterparty assent if there is a sale of the underlying interest in the venture.


In general, yes, an operator can grant security to financing banks, although the structuring of such deals varies on a case-by-case basis. Ideally, a port authority would like as much protection and recourse as possible in the event of a tenant default, so guarantees, performance bonds and letters of credit from the operators, lenders and other back-ers can be sought.


Issues of termination and amendment of port agreements are matters of contract law, subject to the terms of the agreements themselves and the contract law of those jurisdictions.


If a terminal operator defaults, the port may bring suit, and has at its disposal all contractual rights and remedies available under its agree-ment and under the contract law of that state. Securing an award of damages or an injunction might provide little practical relief, however, against a failing operator.

The Port of Oakland recently dealt with the bankruptcy of a major long-term PPP terminal operator tenant. Reflecting on that experience recently in a presentation before the American Association of Port Authorities, Port of Oakland general counsel Danny Wan highlighted some sensible steps that ports can take at the outset to guard against tenant default and insolvency. Those include an emphasis on due dili-gence (understanding the tenant’s financials and corporate structure) and careful use of security deposits, guarantees, waivers of certain statutory protections (like the requirement to proceed against tenant assets first), letters of credit and performance and payment bonds. More broadly, he noted the need for tenants to have ‘skin in the game’ by making capital investments at the outset of the lease. See http://aapa.files.cms-plus.com/SeminarPresentations/2016Seminars/2016LeasingWorkshop/Wan%20Hermer%20Strader.pdf. All of these strat-egies are aimed at providing ports with viable avenues for economic relief in case of a tenant default.


As a practical matter, yes, port leases are usually required to apply the law of the project state. However, often other agreements relating to the financing, construction and operation of a terminal might apply the laws of New York, Delaware or other US states. Accordingly, in the case of a default or breach, multiple interrelated agreements and the laws of several US states might come into play.


Litigation between port authorities and operators may play out in state or federal courts depending on the identity of the parties and other jurisdictional issues. However, certain marine terminal disputes may also be raised before the Federal Maritime Commission under the broad ‘reasonableness’ standards of the Shipping Act. It is not unusual to see some terminal disputes brought before both the courts and the FMC in parallel, relaying on the same facts but different legal standards and authorities in each proceeding.

It is important to note that some US port authorities are organised as agencies or instrumentalities of the state government, and therefore enjoy sovereign immunity from suit under the US constitution, poten-tially leaving aggrieved operators with no recourse to pursue claims for lease or statutory violations. See Federal Maritime Comm’n v South Carolina Ports Authority. 535 US 743 (2002).

Matthew J Thomas [email protected]

1825 I Street NWWashington DC 20006United States

Tel: +1 202 772 5971Fax: +1 202 772 1672www.blankrome.com


VENEZUELA Sabatino Pizzolante Abogados Marítimos & Comerciales


VenezuelaJosé Alfredo Sabatino PizzolanteSabatino Pizzolante Abogados Marítimos & Comerciales

General


Venezuela has a variety of ports on coastal, lake and river fronts, comprising:• petrochemical terminals in the eastern and western part of the

country (La Salina, Bajo Grande, El Tablazo, Puerto Miranda, Amuay, Cardon, El Palito, Jose and Guaraguao) under control of the state-owned company PDVSA;

• bulk terminals in the Orinoco river (Sidor, ACBL, Venalum, Bauxilum, Puerto Ordaz-Ferrominera, Copal, Palúa, San Félix and Punta de Piedra), mainly under the supervision of Corporación Venezolana de Guayana (CVG), handling steel products such as iron ore fines, pellets, briquettes and coils, among others;

• public ports (Puerto Cabello, La Guaira, Maracaibo, Guanta, Guamache, La Ceiba and Eulalia Buroz) under the administra-tion of the state-owned company Bolivariana de Puertos, SA (Bolipuertos, SA);

• OCAMAR and Terquimca, navy facilities for public use; • Puerto Sucre and Guaranao, decentralised public ports under the

control of Sucre and Falcón States, respectively; and• a few private companies operating port facilities, among them

Vopak, as well as some marinas and ferry terminals.

While oil and steel terminals are mainly engaged in exports, public ports are focused on imports of general cargo by way of containers and break-bulk, as well as dry and liquid bulk cargo. Trans-shipment used to be important traffic for ports such as Puerto Cabello, but no longer.


Towards the end of 1991, the country embarked on a decentralisation process giving rise to regional public port bodies acting as landlord port authorities with the presence of private port operators in charge of stevedoring, storage and warehousing services. A number of port operators were then granted container yards within the ports through authorisation contracts. On 17 March 2009, amendments to the Law of Decentralisation, Delimitation and Transference of Competences of National Public Powers, as well as to the General Law on Ports (GLP), were published in the Official Gazette No. 39,140. Said amendments aimed to enhance the powers of the National Executive to:• revert control over regional public ports to the central government

for strategic reasons, merits, opportunity or convenience; and• intervene with the assets and services in order to guarantee the

quality of services and to safeguard constitutional rights.

Consequently, pursuant to the amended laws, the National Assembly reverted the infrastructure of the ports of Puerto Cabello (Carabobo State), Maracaibo (Zulia State), Guamache (Nueva Esparta State) and La Guaira (Vargas State) to the central government.

Now controlling the public ports, the National Executive set up a national company named Bolipuertos, SA vested with the administra-tion, development, maintenance and conservation of the ports, and

whose organisational structure is found in the Official Gazette No. 38,146 dated 25 March 2009. Therefore, the main public ports handling general (break-bulk and containers) and bulk (excluding oil-related products that are handled through Petróleos de Venezuela (PDVSA) terminals) cargo are nowadays in the hands of Bolipuertos, SA acting as an operating port (administration and operation), although stevedor-ing services are also performed by private port operators.

It is important to point out that the above changes concerning the recentralisation process have only reached the public ports of com-mercial or public use, and not the ports of private use within which the majority of the oil, steel, navy and particular terminals fall. These terminals are under the administration of the relevant entity (PDVSA, CVG, OCAMAR, Vopak etc) and are subject to the control of the National Institute of Aquatic Spaces (INEA) that grants the correspond-ing title to the entity in charge.

Thus, the GLP distinguishes three sorts of contracts (article 28) through which the INEA grants the administration of ports and termi-nals according to its nature:• concession: for construction, maintenance and operation of pri-

vate ports of private use; • habilitation: for construction, maintenance and operation of public

ports of private use, belonging to public agencies or state-owned companies; and

• authorisation: for construction, maintenance and operation of a pier of local or particular interest.


Although the GLP aimed to introduce the governing principles for ports and their infrastructure, at this point little has been achieved regarding shaping a modern and efficient national port system embod-ied in a National Plan for Port Development (article 1). Such a plan has not even been drafted yet, so there is no overall state policy for port development.


Articles 63–67 of the GLP deal with environmental management, requiring that the INEA, together with the specific ministry, oversee compliance with national laws within the ports in order to ensure the implementation of policies for the conservation, defence and improve-ment of the environment. According to article 65, those in charge of the administration of public and private ports must inform the INEA and the ministry in charge of the environment about any modification, improvement or development of existing infrastructure, submitting an impact study with a corresponding plan for the implementation of measures related to the prevention, correction and control of the effects resulting from the projected works.

As per article 66, ports and terminals also need to have special plans for environmental action and contingency prescribing the pre-ventive and immediate actions that may be needed in case of fire, oil spillage and industrial safety to ensure the continuity of the services, as well as facilities and procedures in place for the reception, treatment and disposal of garbage and oil-related waste generated on board the ship (article 67).


Sabatino Pizzolante Abogados Marítimos & Comerciales VENEZUELA


On the other hand, Decree No. 1,257 dated 13 March 1996, published in the Official Gazette No. 35,946 dated 26 April 1996, obliges any pub-lic or private entity to notify the competent ministry about any project that implies the occupation of the territory, for subsequent compliance with the environmental regulations (ie, elaboration of the impact study and discussions with the competent entity about the methodology to be followed for the environmental assessment). It should be noted that article 6.7 of this Decree makes such an impact study necessary for pro-jects involving commercial ports and piers for ships of 500 gross tonnes or over, or dredging of 50,000 cubic metres or over. On review of the documentation and after approval, the competent authority will issue the authorisation for the occupation of the territory.



The legislative framework is embodied in the GLP, the Law for Public Procurement (LPP) (last amendment published in Official Gazette Extraordinary No. 6,154 dated 19 November 2014) and the Decree-Law for the Promotion of Private Investment under Concessions Regime (LPPICR), related to public-private partnerships for infrastruc-ture and public services, published in the Official Gazette No. 5,394 Extraordinary dated 25 October 1999, whose article 15(c) states that it can be granted under concession projects involving the development, execution and exploitation of port infrastructure, including ports, warehouses, storage and related facilities.


As a matter of strict law, the port authority in Venezuela is the INEA acting as regulatory body for ports nationwide, pursuant to article 22 of the GLP. Under domestic legislation, it is important to make a dif-ferentiation between this port authority and the ‘port administrator’ that, according to article 71 of the GLP, is the public or private entity in charge of the management and maintenance of the port. It is fair to point out that Bolipuertos, SA, having the administration and operation of the main public ports, has a significant degree of freedom.

Despite the above the Executive has recently placed under military control the major public ports, appointing in each one a ‘single author-ity’ (in Spanish Autoridad Única) in the person of military officials. The legal ground for the above is found in Decree No. 2,382 published in the Official Gazette No. 6,242 Extraordinary, dated 22 July 2016, through which the Single Authorities for the Port System are created. Seven sin-gle authorities throughout different regions are established, sitting in the ports of La Guaira, Puerto Cabello, Guaranao, Maracaibo, La Ceiba, Guanta and El Guamache, all of them under the supervision of the Single Authority of the National Port System, sitting in Caracas (arti-cle 1). According to article 2 there corresponds to each single authority the supervision, assessment and monitoring of the administration and operation of the National Port System, ensuring efficient activities in each port, coordinating the work among the competent entities.

Pursuant to article 3, the single authorities shall guarantee the expediting of port operations and the availability in the distribu-tion chain of strategic goods for national consumption, imported by the public and private sectors in the framework of the Great Mission Sovereign Supply, for which they have wider powers, among them the implementation and execution of mechanisms for supervision and control of the port activities; the direction of operations within the ports and terminals throughout the country; coordination of the per-formance of public entities in respect of port activities; determination of the priority order for the loading and discharge of ships; and design-ing and implementing mechanisms to reduce the permanence of cargo within port areas to improve distribution. Finally, article 4 states that although the different public agencies working within the port area are independent and retain their powers as attributed by law, they must review its functioning in the light of the guidelines issued by the single authority, aimed to improve the port operation. In practical terms, and irrespective of the resulting conflicting regulations, the appointment of these single authorities is intended to deprive the INEA of its powers of supervision over public and private ports, transferring these tasks to the Single Authority of the National Port System.


The Organic Law of Aquatic Spaces (Official Gazette Extraordinary No. 6,153 of 18 November 2014) set the general principles governing ship-ping and port affairs at a national level. As the national port authority, the INEA has power over all public and private ports. The GLP lists these powers in article 24 comprising, among others:• elaboration of port policies and monitoring the execution of the

National Plan for Port Development;• supervising compliance with the policies and rules concern-

ing the construction, improvement and maintenance of port infrastructure;

• implementation of the national and international regulations on environment and security;

• representing the republic in the national and international events; • granting concessions and authorisations upon ports; • setting up policies concerning training, collecting and assessing

the port statistics; • monitoring the correct performance of port services; and • taking care of the environment and quality of life in urban centres.


The aquatic authority is assigned to the Ministry of Aquatic and Air Transportation and exercised through the INEA and its local branches in the shape of harbourmaster offices, also called port captaincies. Pilotage, towage and launch services within a port are under the con-trol of the harbourmaster, not ports and terminals, and the berthing and unberthing operations must be coordinated between them.


The GLP does not contain provisions dealing with competition; how-ever, port activities are subject to the Antimonopoly Law published in the Official Gazette No. 40,549 dated 26 November 2014, regulating the conduct, practices, agreements and contracts that may prevent, restrict or limit competition. Such practices are monitored and sanctioned through a national body named the Antimonopoly Superintendency.


There are basically two kinds of tariff scheme within the port legisla-tion, the first applicable to the main public ports, and the second to those under the control of the INEA. Thus, tariffs to be charged by Bolipuertos, SA in its capacity as administrator of public ports are embodied in the Law on Port Dues, last amendment published in Official Gazette Extraordinary No. 6,150 dated 18 November 2014. The port dues referred to are similar to those prescribed in article 56 of the GLP, namely: arrival (anchorage and channel transit); berth-ing; embarking and disembarking; wharfage; deposit; warehousing; parking of vehicles and machinery; and registration. In addition to the former, a Ministerial Resolution on Port Tariffs (published in Official Gazette No. 40,618 dated 11 March 2015) has also been enacted to charge for services such as renting of equipment, stevedoring and secu-rity. Dues are payable by shipping and cargo interests, as the case might be. According to article 11 of the Law on Port Dues, foreign shipowners are required to pay the dues in US currency.

The second tariffs scheme is applied to ports under the control of the INEA granted through concession, habilitation or authorisa-tion contracts. In these cases, article 41 of the GLP prescribes the fees to be paid to the INEA by the contracting party, based on the annual gross income for port operations worked out on Tributary Units (TUs) a domestic rate use for tax and other governmental charging purposes, annually adjusted by the Executive, with 1 TU currently equivalent to 177 bolivars. Therefore, the concessionaire will pay a monthly figure as per the applicable percentage: • up to 10,000 TUs of gross income, up to 4 per cent;• between 10,000 and 40,000 TUs of gross income, up to 8 per cent;• between 40,000 and 80,000 TUs of gross income, up to 12

per cent;• more than 80,000 TUs of gross income, up to 15 per cent; and




• in any case, the annual minimum amount will be estimated as 10 TUs.

In so far as tariffs payable by users are concerned, under this category of ports and terminals there are no specific regulations. Usually these are set by the concessionaire in accordance to the contractual provisions.


Port activities are regarded by the port legislation as a public service, so ports are open to all users depending on the nature of each one. Article 77 of the GLP states that ports will be available on all days throughout the year. As per domestic legislation, the state can satisfy its obligation to provide port services by delegating them to private parties through concessions or other contractual instruments. Ports controlled by Bolipuertos, SA are commercial ports of public use and access is open to all ships subject to compliance with operational regulations. This is not the case in ports regarded as facilities of private use.


There are no domestic provisions preventing a state entity from doing so, nor requiring a specific percentage threshold. The GLP fosters pri-vate investment in ports, for which the INEA will encourage strategic associations with port operators (article 18). The port law of Falcón State, for instance, allows several figures for its administration, one of them being the use of a mixed company with public or private partici-pation. Strategic alliances are also a mechanism to achieve this public or private cooperation in port projects.

13 Are there restrictions on foreign participation in port projects? There are no restrictions on foreign participation in port projects, so it is possible to incorporate a national company owned 100 per cent by the foreign entity to carry out the project.



The governing legislation is a general one embodied in the LPP and the LPPICR regulating public-private partnerships (PPPs) for infra-structure and public services. Nevertheless, it is important to bear in mind that in light of articles 4 and 5 of the LPP, there are some contracts excluded from its application. These contracts comprise those for the execution of works and provision of services that are within the frame-work of international cooperation agreements between Venezuela and other states, including joint ventures incorporated within the frame-work of these agreements.


Under article 17 of the LPPICR, anyone may submit a proposal for the construction of new infrastructure or the maintenance, modernisa-tion and exploitation of the existing one. However, subject to a review by the competent body, a tender procedure must be opened with the participation of all interested particulars to grant the eventual con-cession. Proposals could also be considered in the frame of bilateral or multilateral agreements, through strategic alliances or other ways of cooperation.


Article 28 of the LPPICR states that the concession contract will be awarded to whoever submits the best economic and financial proposal among those accepted from the technical point of view.


There is no specific PPP model agreement. Any project is discussed between the competent body and the particulars, in order to draft the contractual terms very much based on the general conditions of the tender process. Once the contract is signed it will be published in the Official Gazette (article 28 LPPICR).


Although there is no need for a specific law to be passed, the lack of regulations to the GLP makes it difficult to have clear guidance as to the steps to comply with and the necessary approvals. Generally speaking, a proposal by the particular must be submitted to the relevant body. Or, in the context of the tender procedure, it could even be implemented as a result of a bilateral agreement between countries; usually a ministry with powers in respect of the specific area it is involved, for instance, the Ministry of Aquatic and Air Transportation or the Ministry of Oil and Mining (with power over the oil marine terminals). Environmental and INEA approvals are also needed at national level, whereas local approval is required by the respective municipality concerning the urban variables.


Currently there are no precedents for port projects under build–oper-ate–transfer (BOT) or build–own–operate–transfer (BOOT) schemes. Pursuant to article 40 0f the GLP, based on strategic reasons the National Executive may grant concessions for the construction and operation of new private ports for public users. They will listen to the opinions of the regional planning and coordination council of public policies and the National Council of the Aquatic Spaces. In any case, the regional state where the port will be developed will receive part of the income from the concession. BOT or BOOT schemes could be pro-posed for this category of port.


Domestic legislation prescribes a maximum term of 50 years for the concession contract (article 16 LPPICR), although it can be renewed at least one year before expiration (a revision must be effected).

21 On what basis can the term be extended? Article 16 prescribes that renewal will be subject to an objective evaluation of performance by the concessionaire. For the purposes of the extension, the grantor may listen to the opinion of the organ-ised community.


Article 41 of the GLP provides guidance for the estimation of the con-cession’s fees, according to which the INEA must take into considera-tion the investment, profitability and duration of the concession over the annual gross income for port operations, to determine the corre-sponding fee, based on the scale provided by the article in reference. Unfortunately, due to the lack of regulations to the port law, there are currently no clear technical and economic criteria to work out the appli-cable percentage dependent on the structure of costs. Domestic legis-lation does not make reference to indexation.


Nothing is expressly said about guarantees and exclusivity in the rel-evant legislation, so such aspects should be covered in the general conditions of the tender and the concession contract. However, it is important to point out that article 44 of the LPPICR states that, through the specific ministry or competent entity, the republic is responsible for the acts, facts and omissions attributable to them that may cause damage to the concessionaire. In such cases the concessionaire will be indemnified for the patrimonial reduction that he or she may suffer and




the benefits that he or she may be deprived of. Some other provisions may be found in the law ensuring compensations to the concessionaire where substantial modifications are introduced by the grantor affect-ing the economic regime of the contract.



Article 29(a) of the LPPICR requires the concessionaire to incorporate a national company who will sign the contract. The company must comply with municipal licences. Besides this, the concession contract should be signed with the INEA, and approvals by the grantor and the minister in charge of the environment should also be in place. If dredging is to be carried out, permission is required from the National Institute for Canals.


This is something to be discussed in the context of the submitted proposal or the tender procedure. As the public company in charge of dredging, the National Institute for Canals could eventually get involved, whereas hinterland access could be undertaken by the gov-ernment or relevant ministry.


There are no specific construction standards to comply with, since the INEA, as the port authority, has not issued any. So in principle the port operator could engage any contractor. Nevertheless, it should be borne in mind that through Decree No. 6,839 dated 28 July 2009 the legal entity Puertos del Alba, SA was set up by Venezuela and Cuba using the framework of an existing bilateral agreement for the modernisation, equipping and construction of ports in both countries, as well as for the execution of engineering projects, development plans and managing funds for such purposes. It follows that in some cases during the course of negotiations the technical management and inspection of the pro-ject could be awarded to Puertos del Alba, SA.


The grantor has powers of inspection, vigilance and control at all times throughout the concession, as prescribed by article 37 of the LPPICR. This ensures compliance with the concessionaire’s contractual obliga-tions, specifically to verify its performance, the state of the works and the conditions of quality and other technical specifications in accord-ance with the general conditions of the tender. Eventual delays and defects in construction are likely to be regarded as a gross breach of contractual obligations, giving the grantor the right to apply the sanc-tions set up in the general conditions and the contract (article 43), as well as to suspend the concession and to proceed with intervention and the extinction of the contract according to the circumstances.

Port operations


According to article 31 of the LPPICR, the concessionaire is obliged to conclude the works and put them into service on the dates and terms indicated in the general conditions of the tender and the contract. The same provision states that the regulations (not enacted so far) or the general conditions should prescribe the procedure for commencement of operations. If no authorisation is received, the grantor must justify it, indicating any objections that exist regarding the projected work and the executed work. A timeframe will also be set for the concessionaire to correct the deficiencies, without prejudice to the sanctions for the delay not imputable to the grantor. Again, in the absence of GLP regu-lations there is no express procedure as to the approvals needed, for

which reason commencement of operations is an aspect that should be clearly stated in the concession contract if possible.

In any case, the GLP requires port operators to perform services within the public ports under the control of Bolipuertos, SA. They should be registered there as per internal regulations.


Due to the variety of ports it is difficult to easily describe the services vested with the port authority and the port operator, as such services vary in accordance with the category of the specific port. To properly answer this question, a review of some concepts is required. Under domestic legislation the ‘port operator’ is defined as the public or pri-vate company performing services to the merchandise (article 78 GLP). It follows that by strict interpretation of law the port operator is that which is rendering stevedoring, storage and warehousing services. On the other hand, article 79 of the port law defines the ‘terminal opera-tor’ as the port operator that has direct control over an open area or specialised installation within the port area, by means of a contract entered into with the port administrator. Nevertheless, it is fair to say that in colloquial language any company rendering services within the port area is named port operator. Besides, it has been already said that in Venezuela the only port authority is the INEA, acting as a regulatory and not an operational entity, leaving aside the pilotage, towage and launch services provided by the former, although as aquatic rather than port services. In any case, the INEA does not charge the port operator for any services. On the contrary, under domestic legislation the port administrator controls the management and operations of the port or terminal, although in practice some of them do not perform services, leaving them to port operators who may then pay some charges to the port administrator. Having said this, article 74 of the GLP contains a list of port services, among them berthing; mooring; stevedoring; cargo handling within port area, including storage and warehousing; stuff-ing and stripping of containers; renting of cargo handling equipment; scale; and services of a similar nature.

Update and trends

From the previously mentioned review of the legislation embodied in the LPP, LPPICR and the GLP, and particularly due to the lack of regulations for the last two instruments, it is clear that the legal framework governing public procurement and PPP is cumbersome, and that there are gaps that could be filled. There are no prospects for the introduction of legislative changes in the foreseeable future, but by way of contrast there will always be opportunities to invest in the country, due to its economy based on huge petrochemical and steel resources as well as import volumes. Even so, the gaps can be overcome by seeking expert advice in respect of the tender proce-dure, and also by means of thorough discussion with the competent government agency about contractual clauses to be agreed in the concession contract, clearly setting out the rights and obligations for the parties.

Of the main port projects sponsored by the government the expansion and modernisation of the port of La Guaira executed by the Portuguese Consortium Teixeira Duarte, with capacity for 600,000 TEUs, has been now completed and about to enter into service; however, the construction of the container terminal at Puerto Cabello to handle approximately 700,000 TEUs in phase I, works entrusted to China Harbour Engineering Company, has stopped due to lack of funding.

Although the move by the Executive to place under military control the major public ports has been regarded by some people as a ‘militarisation’ of the marine terminals, this scheme does not mean the presence of military personnel within the port areas, at least not to a greater extent than in the past, which may affect or prevent the operations in any way. Changes have been imple-mented in the context of a state of economic emergency, due to the precarious financial situation resulting in severe shortages of food, medicine and basic supplies. Thus, the government claims to have handed over the ports to the military authorities in order to attack corruption and ensure the effective distribution of supplies as a matter of national security and defence.





Access to the hinterland should be discussed as a result of a proposal submitted to the relevant body, or the general conditions governing the tender procedure. Consequently, the operator might be required to finance the development of access routes or interconnections if these are needed.


As per article 24(10) of the GLP, the INEA has the power to supervise the activities of the concessionaire, which in most cases will include the terminal operations. This can be done through the Port Management unit of the INEA, or the port captaincy of the jurisdiction where the port or terminal is located. The GLP does not contain specific sanctions for port operators, but it might be expected that such sanctions, includ-ing a suspension, should be prescribed by the concession contract.


As per article 36 of the LPPICR, certain obligations are imposed upon the concessionaire, in particular those related to the rendering of unin-terrupted services under the conditions prescribed by the contract. Unless exceptional situations of force majeure occur, the port activity is regarded as a public service. In line with the former, the INEA has the powers to access the port; whereas the grantor has the right to super-vise and if necessary intervene in the concession and take over port operations, pursuant to article 51 of the LPPICR.


According to article 51 of the LPPICR, if the concessionaire abandons the works, interrupts the services or is involved in conduct regarded as a gross breach of its obligations under the contract or which is unlawful, then the grantor will appoint a controller in order to avoid the paralysis of the works or services.

In doing so, the grantor will open a procedure to notify the con-cessionaire, to determine the alleged breaches and to take the neces-sary measures or decisions. The controller will remain in office until the concessionaire resumes its functions or the concession is granted again according to the law. In any event, if the concessionaire does not resume its functions after 90 days following the appointment of the controller, there will be a gross breach of the contract, giving rise to its extinction pursuant to article 50.


According to article 38 of the GLP, all the assets affected by the con-cession will revert to the republic without compensation on termina-tion of the contract. This provision must be expressly included in the contract. Nevertheless, article 48 of the LPPICR states that the contract will establish the term or duration of the concession, the investment to be made and the assets that, being affected by the contract, will revert to the grantor, if they are not amortised during the term. The contract should also identify the works or installations to be effected by the con-cessionaire that are not subject to reversion, which if considered to be of public interest may revert to the grantor, subject to compensation.

Miscellaneous


There is no express reference in national law to the concept of SPVs. However, article 29 of the LPPICR requires the concessionaire to incor-porate a national company for the purposes of signing a contract.


Cession of the contract, or the ownership of it, can be transferred as per article 35 of the LPPICR, subject to the previous authorisation of the grantor.


As per article 34 of the LPPICR, the concessionaire can use the contract or future incomes as a guarantee for the credit obligations assumed for financing the execution of the works, with the previous authorisation of the grantor. A similar provision is prescribed by article 36 of the LGP.


Article 39 of the LPPICR prescribes the unilateral modification of the concession contract after it has been formalised. The grantor may vary the characteristics of the works and services, subject to compensation to the concessionaire in case of damages, such compensation being pay-able by way of an increase of tariffs, subsidies etc. If during the course of the contract the works are not sufficient for the rendering of services in accordance with the parameters required by the concession or the general conditions of the tender, and its extension or improvement is

José Alfredo Sabatino Pizzolante [email protected]

Centro Comercial ‘Las Valentinas’, Nivel 2Oficinas 12/13, Calle Puerto CabelloPuerto Cabello 2050Estado CaraboboVenezuela

Tel: +58 242 3618159Fax: +58 242 3614453www.sabatinop.com




deemed convenient by the grantor or the concessionaire, it is possible to sign a supplementary agreement to the contract (article 40).

On the other hand, as per article 46, the concession will be ter-minated for the following causes: expiration of the contract; mutual agreement between the grantor and concessionaire; rescission of the contract for gross breach of the concessionaire’s obligations; antici-pated rescue of the concession; bankruptcy; and those prescribed by the general conditions and the contract.


Apart from the right of intervention referred to in question 33, the declaration of gross breach of the contractual obligations will result in the extinction of the contract, in light of article 50 of the LPPICR. Irrespective of the gross breach of the obligations contained in the general conditions of the tender, article 51 lists the following as gross breach of the concessionaire’s obligations: • unjustified delays in construction;• non-compliance with the minimum levels of quality in the services

as required under the general conditions of the tender;• charging of unauthorised tariffs; • failure in the maintenance of the works as specified in the general

conditions of the tender; and • no submission of guarantees, also as required by the gen-

eral conditions.


Ports are regarded as a public service in Venezuela and so are subject to domestic laws. As per article 151 of the Constitution, in contracts of public interest an implicit clause is deemed to be included, according to which the doubts and controversies which may arise and that cannot be solved by the parties under amicable terms will be dealt with by the competent courts in accordance to the laws of the republic. It is impor-tant to bear in mind that port matters are declared matters of public interest by article 8 of the GLP. Besides this, article 31(10) of the Law on Foreign Investment, published in the Official Gazette Extraordinary No. 6,152 dated 18 November 2014, states that any foreign investment must be subject to the applicable national legislation on commercial, labour, taxation, customs, environmental and any other matters in con-nection with said investment.


Article 61 of the LPPICR states that for the solution of conflicts aris-ing from the execution, enforcement and extinction of the contracts referred to by said legislation, the parties may use mechanisms of direct solution such as conciliation and transaction. It is also possible to refer the controversies to an arbitration court whose composition, competence, procedure and applicable law will be mutually agreed between the parties.


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