Port Sector Eng

7/31/2019 Port Sector Eng

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Public-Private Partnerships (PPP)

Michel Audig

Lead Port Specialist

ECA region The World Bank

Workshop on PPPs in Russia(Moscow - March 3-4, 2005)

Port sector


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The Four Main Russian Gateways to the Global Market


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Distribution of Roles in The New Ports Era

Public Port and Marine Authorities

Provide basic infrastructure (access / protection / connection)

Establish a reliable administrative framework

Traffic Safety and Environment Protection

Technical regulation matters

Promote Port Community dialogue

Commercial Terminals (Private Sector)

Handle operational aspects Manage commercial risks

Propose and implement investment policy

Incentives for high performance and competitive tariffs

Play a crucial role in fostering efficient logistics development


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Source ADB


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Definition of PPP Schemes

Very wide spectrum, from work and service contracts tofull privatization

Pros and Cons of PPP schemes

In any case, a long up to 18 months -- and complex[two or three steps] process to ensure success, i.e.,resulting from long term win-win deals

In each case a tailor-made design is required

Size matters, i.e., US$100 million minimum per deal


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Policy Framework (i.e., PPP legislation, institutional capacity, economicregulation and communication program)

Transaction Design (i.e., market structure, cost recovery and affordability)

Financiability (i.e., adequate risk allocation mechanisms)

Public Sector Risk Management (I.e., assessing and monitoringgovernments commitments under PPP schemes)

Key Challenges for Success:

PPPs : Options and Challenges for Success


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Pros. Cons.

Competitive process

Increased transparency Well designed risk

allocation

Balance sheetconsideration

Private sector efficienciesand innovation

Commercial risk sharing

Complexity

High transaction costs Higher borrowing costs

than public financing

Skill deficit forAdministration

Structuring risks Public perception and

political reactions

Reference EBRD 2004

PPPs : Pros. and Cons.


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Mainly for mobilizing private financing, but also

to improve port competitiveness [examples: Antwerp,

Mexican, and Laem Chabang ports];

to strengthen linkage with global market [illustration:Maersk in St. Petersburg (Transib), and Algeciras];

to boost international trade to/from Russia with the rest ofthe world [promising development of internationalcontainer trade, doubled in the present decade.]

Why Seeking for PPPs in Ports?


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Developments in The Container Business

Increase in flows of containers;

Increase in maximum vessel sizes;

Growth of ICT and automation;

High performance demands;

Major international players; and

Need for investments in terminal facilities and

modern handling equipment.


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Development of The International Container Trade(Sources: Various)

0

100

200

300

400500

600

700

millionTEU

1973

1976

1980

1984

1988

1992

1996

2000

2004

2008

2012

Year


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A competitive land bridge for containerized cargo?

Source: MOTC Finland - 2005


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Key Factors for a Successful PPP in Ports

Objectives of the PPP: difficult choice between two

extremes:

Maximum revenue for Port Authorityversus

Maximum competitiveness for port users];

Public and transparent tendering process;

Optimal risks allocation [2 slides];

Standard timeframe for a well designed PPP; and

Two-step vs. Three-step approach [3 slides].


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Optimal Risks Allocation (1/2)

Political Risks(Confiscation / Expropriation / Nationalization, Civil

Strife / War). Mitigation through International Arbitration and Risk

Guarantee (IBRD and MIGA)

Government Performance Risks (Compliance to contractual terms

in a Concession Agreement). Mitigation through insurance and

guarantees (IBRD and MIGA)

Environment and Safety Risks Environmental and safety

constraints to be defined in Concession Agreement

Construction Risks Risk generally borne by Concessionaire.

Acquisition of land by Government before construction. Issue of

geotechnical risks


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Optimal Risks Allocation (2/2)

Technical Operation Risks Risk to be borne by Concessionaire

Revenue Risk in existing facilitiesOften an acceptable risk to be

borne by Concessionaire (adequate provision on tariff inConcession Agreement)

Revenue Risk in newly-built facilities A major risk (traffic volume,

tariff setting, revenue in local currency). Often not possible for

Concessionaire to bear all the risk

Financial Risks Inconvertibility/Transfer Risk to be insured. Issue

of Exchange Risk. Other risks borne by Lenders. World Bank

Partial Risk Guarantees.


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Indicative Transaction Timetable [15-18months]:

(Two steps process)


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Phase I: Strategic Review and Due Diligence[6 months]

Technical/Technical/OperationalOperational

ReviewReview

LegalLegal

ReviewReview

Social/Social/EnvironmlEnvironml

ReviewReview

PreliminaryPreliminaryMarketMarket

AssessmentAssessment

Strategic Options andRecommendations

Report

Financial /Financial /EconomicEconomic

ReviewReview


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Phase II: Transaction [9 months]

Info.Memo/Info.Memo/MarketingMarketing

Bidder DueBidder DueDiligence/Diligence/DataroomDataroom

Draft BidDraft BidDocumentsDocuments

PrePre--qualificationqualification

BidBid

Bid AwardBid Award&&

ClosingClosing

NegotiateNegotiateBidBid

DocumentsDocuments


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1. Pre-qualification: (Previous experience in port facilities

financing and operations, Project finance capacity)

2. Technical Selection: (Essentially on the basis of a

detailed Business Plan) using Pass or Fail criteria

3. Financial Selection: (on the basis of unified

documentation, i.e., draft lease / concession agreement) Simple selection criterion, e.g., fixed annual fee plus

royalty (per container movement) of service provided by

Concessionaire to the port users

Three Steps Process


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What Is Eligible for PPP Schemes?

In any case, PPP can only result from economically and

financially justified projects

Size does matter [Transaction costs -> minimum project size ofUS$100 million and more]

Private sector interest in port business [see ADB graphic]:

Cargo handling, especially containers; and

Marine services (towage, berthing, etc)

Added Value logistic services

Port/City interface redevelopment for urban purposes

past experience in Russia and worldwide


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List of PPI in The Port Sector in The Region (1992-2003)

Source: WB PPI Database 2003


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List of PPI in The Port Sector Worldwide (1992-2003)

Source: WB PPI Database 2003


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Possible PPPs Prospects in Russia

as listed in the Russia Transport Strategy until 2020:

St. Petersburg and Ust Luga railway/ferry services with

Kaliningrad;

Transshipment facilities for oil, grain and containers in the portof Novorossiisk;

Vostochnyy/Vladivostok ports and railways access;

Plus logistics services and development of inland waterways:

Astrakhan water transport node;

the Makhachkala port; and

Reconstruction of the Kochetov lock on the Don River.


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Possible PPPs Prospects in Russia


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World Bank Group comparative advantages

Close partnership with Russian authorities

Advisory services from either the IBRD and/or the IFC

Skill-mix and worldwide experience External consultants and experts

Reputation to act as an honest broker

Increased confidence of the private sector

Balancing interest of both Public and Private sectors

Transparent and competitive PPP process and more

The Port Reform Toolkit (www.worldbank.org).


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WBG: Financial Support for PPPs

Hard Currency:

Loans (Investment & Policy, IBRD, IDA) On-lending facilities

Co-financing schemes (A/B Loans, IFC) Guarantees (IBRD, IDA, IFC, MIGA) Insurance (MIGA) Equity and related products (IFC)

Local Currency:

Currency Conversion Option (FSL) Currency swap Guarantees

Institutional Building Capacity:

PPIAF WSP BNPP (Bank & Netherlands Partner) TAF (PIDG) FIAS

Project (transaction) Execution:

DEVCO (IFC Advisory Services) GPOBA Cities Alliance PIDG (EAIF, Guarantco, Infracoalso

includes financing products)

Financial Products Advisory Services/1

/1Includes Partnerships with other donors


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Next Steps (1/2)

Independent review of the Russian port sector to:

Review the relevance of its current institutional framework and

administrative organization

Determine the level of competition intra- and inter-ports as well as

the efficiency and relevance of regulatory mechanisms in place

Assess the level of operational performance, tariffs and shippers

degree of satisfaction for the service provided

Assess current and future port capacity (in volume and by type of

cargo)

Intermodalism and value added logistics

Evaluate the prospects for promoting PPP schemes.


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Next Steps (2/2)

Short/medium term action plan to:

Develop an appropriate regulatory legal framework

Increase port capacity and efficiency through PPPschemes

Improve the overall rail, road and inland waterwaysconnection between the ports and their hinterland,especially with Russias oil/gas production centers

Introduce modern information and communicationtechnologies

Where necessary, improve port/city interfaces to minimizethe impact of port related businesses on the functioning ofthe city


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Public-Private Partnerships (PPP)

Michel Audig

Lead Port Specialist

ECA region The World Bank

!Workshop on PPPs in Russia

(Moscow - March 3-4, 2005)

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