Experts Group Meetings on PPP Projects for Ports

Amman, 23 -24 November 2019

Experts Group Meetings on PPP Projects for PortsAmman, 23 -24 November 2019

o Overview of PPP models

o Current Trends and Lessons

o Cases presentation

Overview of PPP Models

Why PPP ?

a. Transport is one of the public authorities' main areas of responsibility.

b. Partnership with the private sector can bring great added value

c. The government keeps its primary regulatory role, while the private sector injects investments and expertise into developing infrastructure projects.

d. The operational and project execution risks are transferred from the government to / or shared with the private partner

e. PPP allows government funds to be redirected to other important socioeconomic areas, and thus reduce budget deficits

Port Model Public / Institutional Functions Private Sector Role

Public Service Port Ownership and operations Traditional activities (« dry side »)

Tool Port Ownership and outsourcing Operating – equipmentand workforce

Landlord Port Regulation and concessions(or similarly)

Operating concessions contracts

Private Sector port Infrastructures Ownership and operations

General Classification of Port Models

Arguments and Facts

PROs CONs TRENDS

Public Service Port

Tool Port

Landlord Port

Single integrated organization

Coordinated investments

Sovereign functions

Weak weight of users

Potential tensions

Same

Dominant before Globalization

Frequent use

Most recent dominant

Private Service Port

Market orientedLoss of sovereignty &

monopolySpecific facilities /

activities

Port Model

Functions / Activities Public Service Port Tool Port Landlord Port Private Service

General management

Seaside infrastructures

Dredging

Pilotage

Towage

Mooring

Other services to ships

Dry infrastructures

Equipment - General

Eqt / services - Handling

Storage

Other logistics services

WHAT REGULATION?

Public

Private

P & P

PORT OPERATIONS & SERVICES* - Most frequent functions sharing

Current Trends and Lessons

SECTORS PRIVATE - incl. potentially TRENDS

Oil & Gas• Frequent at Ports (part of the industrial

process)• Big National or international users • Standard PPP and operation schemes

• Light Control by Public PAs• New offshore solutions?

Dry Bulk (Minerals, Grains…)• Frequent at Ports (part of the industrial

process)• Big National or International users• Standard PPP and operation schemes

• Special PPP: iron, coal, grains.• Light control by Public PAs• Specific status / regime

General Cargo Breakbulk / conventional

• As part of a package deal for all activities• Frequently « left » to public / Pas• Often considered as low profit

• Diverse solutions• Multi-purpose facilities • PPP of product volumes

Containers

• «THE» reference of all Port PPPs• Linked with handling technique & Shipping

Lines’ needs • Standardization of process and practices

• Pursuance of the PPP wave• Growing pressure from Lines• Ongoing / Next: automatization• … with social changes

SECTORS PRIVATE - incl. potentially TRENDS

RO-RO - automotive industry• Special dedicated terminal facilities• Important yard areas used as storage• Expected similar rules/practices in linked

ports

• Function of markets• More dedicated areas*• « Spatial » tensions with others

Ferries (Pax and Ro-Pax) • Dedicated or shared Terminals facilities• Specialist / niche markets

• growing weight of Companies• pressure for standard services

Cruise • More and more privately-operated terminals• Pressure to get similar treatment at ports

• Continued « privatization»• Tourist industry specials

Fishing • multi-users or industry specialist• not much standardized / small ports

• Dedicated harbors / areas• to meet demand’s requirements

Other specialist(reefer, Project cargo….)

• Special facilities either with others (containers:

• Or to meet demand of space -beyond others

• Dedicated Terminals / Yards• Specific design

Lessons from the models

• Things are less simple and evolving since the big wave of liberalization and privatization

• Multiple possibilities to mix models and schemes

• Next tables showing different objectives and practices of PPPs

• As also illustrated in the cases presentation

Lessons from concepts and definitions

• Plenty of definitions / diverse policies / various interpretations

• Useful models, long experience relative standardization

• Frequent « mixed schemes / solutions »

• Adaption to Country / Ports context (incl. Political regime /Port status…)

• Importance of national institutional context, investment needs

• Differences deriving from Port activities: market trades (type, volume…)

• Balance of powers Public / Private, national and foreign industries (export/ import)

Lessons from concepts and definitions

• Different approaches depending on Ports activities

• Complexity of PPP depends on number of actors / users

• PPP depending on possibility to allocate space

• Dedicated Yards vs Multiusers terminals

• Same issues for the berths

• Needs of special planning to reduce tensions

PPP options in adequacy of targets

Transfer / outsourcing activities

• Management contract

• Sub-contract

• Lease contract

Rehabilitation / modernization

• Upgrade

• Specialization

• Concession or BOT

Expansion / modernization

• Concession

- Infrastructure

- Equipment

- Operations

• With / without transfer

Greenfield Projects: new Port / facilities

• BOT & BOOT = with or

without operations

• Lease, with or without

construction

• Integral privatization

Shareholders/ Stakeholders

VALUE & IMPACTS(potential)

RISKS

ALL • Expected value / returns of PPP• Efficiency, quality of services

• Market, financing, legal, social• Errors of investment: technical,

dimension• Exit strategy

Public Authorities / State

• Funding Project development• Returns from PP contract (fees …)• Alleviation of management• Focus on central national powers• Less administrative procedures

• Loose of control• Tensions over contract application

Semi public Port Authorities(« autonomous » status)

• Same • Plus: capacities / expertise• Loss of revenues vs savings

• Underestimates of PPP values• Delays and / or other tensions

Shareholders/ Stakeholders

VALUE & IMPACTS(potential)

RISKS

PrivateMaritime operators

• Service quality• Control of operations• Alignment on other ports practices• Vertical integration

• Under or slow funding• Over estimation of markets and

revenues

PrivateDry side operators

• Market / customers oriented• Quality of operations and services

• Private monopoly instead of public• Reduced market access

PrivateDemand side users

• Quality of operations and services • Handling mainly (biggest % of Port

costs)

• Dependency vis-à-vis service providers• Reduction / selection of third-party

services

Lessons for PPP preparation and implementation

• First priority: strategy - medium /long term vision

• Scenarii / options incl. potential impacts (economic, / competition, social aspects)

• Risks: market, funding, value return…

• Define P and P roles incl relationship and constraints for both

• Deepen / adapt PPP model / clear framework

• Legal, financial, resources / HR aspects and requirements

• Identification / selection of potential Private partners (criteria & process)

Cases presentation

Benchmark (summarized)

Spain France Italy Malta Greece

General management

Public entity

Public Public entity Public entity Public C°

Land Public Public Public Public Public

Port Ownership Public Public C° Public (regions) Public Agency P+P

Infrastructure Private P+P Private Private P+P

Operations & services

Private Private Private Private Private

Self-Financing Yes Partly Partly Partly Partly

N.C. European Ports – Compared

situations (part of a benchmark, valid for major Ports)

❖Mixed PP solutions Public Authorities: National and Regional levels

❖Regional and municipal levels largely involved in small and medium Ports

❖Public Authorities represented either directly or by dedicated sub-companies

❖Important involvement of municipalities

❖Self-financing completed with facilitation and/or subsidies (if/as authorized)

Poland Germany Netherland Belgium France

General management

Public entity P+P P + P J/V Public Public

Land Public Public Public Public Public

Port Ownership State-City J/V State-CityJ/V State-City J/V City Public C°

Infrastructure P+P Private Private Private P+P

Operations & services

P+P Private Private Private Private

Self Financing Partly Partly Yes Yes Partly

Mediterranean European Ports

–Compared situations

❖Mixed PP solutions in accordance with National Laws and/or Special Law

❖Public Authorities: National and Regional levels

❖Regional and municipal levels largely involved in small and medium Ports

❖Public Authorities represented either directly or by dedicated sub-companies

❖Important involvement of municipalities

❖Self-financing completed with facilitation and/or subsidies (if/as authorized)

Cases presentation

Detailed

History – Overview about contextColombia

o 1960s - management and operation of the main ports were centralized under Colpuertos*

o 1970s - government allowed private firms to operate terminals and berths in the major port districts alongside the public terminals managed by Colpuertos.⁽¹⁾

o 1980

- Colpuertos commercialized as a state-owned enterprise

- its performance did not improve

- financial crisis by the end of the 1980s

o 1991 - A law enacted defined private regional port societies as concessionaires

o 1991 – 1993

- Privatization of the general cargo port terminals

- A separate concession was offered for each port.

History – Overview about context

Croatia

o 1913 - Port of Rijeka ranked 10th in transport volume among European ports

o 1920 - Rijeka became an independent city-state →beginning of port's decline

oWWII - Rijeka was targeted by around 30 Allied bombing raids

o 1945 - retreating Germans damaged approx. 90% of the port facilities

oAfter WWII - Rijeka became a part of Croatia and Yugoslavia → a new market and further development.

o 1996 - Port of Rijeka Authority was founded (1st in the country)

oAs of 2011 - three concessionaires operating in the Port of Rijeka

History – Overview about context

Lebanon

o1887 - the ruling Ottoman authority gave the concession of the Port⁽¹⁾

o1960 : a 30-year concession was given to a Lebanese company called "Compagnie de Gestion et d'Exploitation du Port de Beyrouth⁽²⁾ - regional hub.

o1990 – Present: Government formed a temporary committee to manage the Port of Beirut. Terminal Container was extended (public funding - 2000) and a Management / Operation contract was implemented in 2005 (till present)

History – Overview about countriesIndia

• 198s - the concept of private ports was conceived in India

• 1991 – Government adopted liberalization policy and enacted major economic reforms

• 1996 - Guidelines of the central Government to allow private participation

• 1998 - Port Pipavav became India's first port under concession

• Present - Influenced by the success of the PPP policy, a number of private terminals in major ports on BOT basis as well as greenfield ports have come up in the country. These include container terminals, liquid and dry bulk berths.

• 1998 / 2007 - Private sector participation in ports has increased

Port of Piraeus – Greece

Port of Piraeus – Greece

• 50 years concession to Piraeus Port Authority(PPA)

• Corporatization of PPA with shares in the port to the public (25.5%)

• 2004 - Serious discussion for a PPP at Piraeus began

• 2007 – round of competitive bidding in the country’s port sector via a PPP

• 2008 - Concession awarded to COSCO pacific

• Initial payment: a one-off payment of EUR 50 million

• Concession Period: 30 years, with an extension option of 5 years conditional on completion of the Pier III investment Programme

→ one of the most successful Greek PPPs.

Risk Allocation - Piraeus

Share Capital Composition

Port Barcelona (BEST)

Barcelona Europe south Terminal (BEST) – Spain

• Investment cost: EUR 860M.

• Concession Period: 30 years

• Procurement model: DBOFMT – Design Build Finance Operate Maintain Transfer

• 3rd largest Spanish container port, and the 9th in Europe

• In order to deliver a leading, competitive and efficient container terminal, Barcelona Port Authority (BPA) adopted a PPP approach

• Contract awarded to: TERCAT SA (HPH) in May 2006

• Although initially planned for 2008, the works were delayed until 2010. In July 2012, the terminal started to operate

Risk Allocation – Barcelona

Port Barcelona Muelle Costa

Barcelona Muelle Costa Terminal – Spain

• Investment cost: EUR 22M.

• Concession Period: 15 (+7.5) years

• Procurement model: BOT – Build Operate Transfer

• Terminal opened to public: July 2013

Risk Allocation - Muelle

Critical Success Factors

1. Allocation of risks

2. Appropriate Procedures and regulations

3. Accurate project implementation

4. Duties and obligations of each partner

5. Clear and fair tendering process

CHALLENGES AND RISKS OF CONTAINER TERMINALS

Major Ports and Terminals

• Characterized by volumes, combining:

- Trades (in / out) attracting Shipping Lines services: « gate » port markets

- Transshipments – Interlining (way ports)

- Transshipments / feedering with « out ports » (not included in schedule)

- Hubs offering best coverage /connectivity

• Two categories of clients:

- Shippers for Gate Ports = freight revenue

- Shipping Lines for Transshipped boxes = costs (vs savings)

• Standardized Terminals designed for target capacities

- In technical and operational terms: access, berths, yards, handling, inland connections...)

- With pre-designed PPPs, more and more imposed by both industries (Ports and Lines)

Major Ports and Terminals

• Challenges and risks:

- Attract -and keep- the vessels of Mega Alliances and (or big Regionals)

- Sustain competition with neighboring Ports on the same range

- Options offered by Ports: dedicated or multi-users’ Terminals

• Highest Risk for PPP:

- Loss of Lines’ / Alliances’ services

- Over estimated investments / capacities

Major Ports and Terminals

44

Characterized by volumes, combining:

Two categories of clients:

Standardized Terminals designed for target

capacities:Challenges and risks: Highest Risk for PPP:

› Trades (in / out) attracting Shipping Lines services: « gate » port markets

› Transshipments –Interlining (way ports)

› Transshipments / feedering with « out ports » (not included in schedule)

› Hubs offering best coverage /connectivity

› Shippers for Gate Ports = freight revenue

› Shipping Lines for Transshipped boxes = costs (vs savings)

› In technical and operational terms: access, berths, yards, handling, inland connections...)

› With pre-designed PPPs, more and more imposed by both industries (Ports and Lines)

› Attract -and keep- the vessels of Mega Alliances and (or big Regionals)

› Sustain competition with neighboring Ports on the same range

› Options offered by Ports: dedicated or multi-users’ Terminals

› Loss of Lines’ / Alliances’ services

› Over estimated investments / capacities

Medium Container Ports / Terminals

Main features: Challenges and risks

❑ Gate Port : direct Trades only / mostly

❑ Service / calls according to attractivity / freight

contributions

❑ Connectivity: direct + transshipped

❑ Standard Terminal design and equipment

❑ Focus on captive markets, depending on

potential competition with other ports

❑ Low intra -port Competition between Lines

services and

❑ Same if single Terminal operator linked with

Shipping Line

❑ Over or under estimation of prospect

movements

❑ Wrong commercial / market positioning

Smaller / feeder Ports

Main features and challenges: Challenges and risks

❑ Local trade markets with / without

options

❑ Deep Sea Lines or common feeder

operator?

❑ Containerships or multi-purpose

(Con-Ro, Ro-Ro..)

❑ Connectivity: poor or satisfactory?

❑ Design: dedicated berth and yards or

multipurpose?

❑ Single ocean carrier’s service or common

feeder?

CONTRACTING PORT PPPs:(for CT)List of key provisions / articlesExample of concession contract

I. Usual generalities

Between the Parties etc. + Set up of a dedicated company

• Objectives

• Scope (perimeter) of transferred / conceded activities

• Infrastructures and equipment

• Personnel and social conditions

• Port Operations rules and regulations (Law/ by-laws)

II. Rights and obligations of the contracting Party – Private concessionaire

• Investments and maintenance

• Performance indicators (often detailed in Annex)

• Royalties: level and minimum guaranteed

• Tariffs - Equal treatment of Users

• Tax / Customs regime

CONTRACTING PORT PPPs:

List of key provisions / articlesExample of concession contract

III. Settlement of disputes

• Resignation: causes and effects

• Revision (same)

• Arbitration

IV. Duration

• Expiry date

• Conditions of renewal

• Repossession (return) and acquisition of assets

V. Administrative provisions

VI. Annexes

Potential issues / questions for discussion

Limits / frontiers between P and P

• Public property / ownership of assets & functions (strategic?), National sovereignty

• Public service obligations (counterparts…)

• Balance of powers

• Politics & Policy

• Influence / lobbying

Regulation

• Framework (Law & contracts)

• Body / qualified persons (mixed PP, independent?)

• Scope & fields

• Coordination (method)

• Monitoring, audit, evaluation,

• Beyond contact issues (eg impact, competition.)

• Review, follow up of conclusions / recommendations

• Corrective measures

Private Partners

• Profile, per category of PP activities

• Consultation process: open vs shortlist

• Selection: criteria / capacities (fin. , technical /pro …)

• Competitive dialogue

• Risks of overestimated offers

• Change of Partner (revision of contracts terms …?)

Indicators

• Port / terminal performance, all kinds (vessels, cargo, transshipment, dwell time,...)

• Financial (revenues, rates of return, distribution…)

• Economic (GDP contribution, …)

• Costs and prices (impact of tariffs…)

• Social (job creations…)

• Environment

Financing / funding

• General financial conditions (instruments…)

• Port specifics: Royalties and fees: entry ticket, yearly fixed, variable… Subsidies

• International institutions

• Conditions of payment

Risks

• Legal / contract

• Financial

• Commercial

• Social

• Environment, Safety, Security?