Water Transport PPPs

May 2010

Sustainable Transport Initiatives

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Water Transport

IFC Experience & Case studies

Private Sector Participation in the Port Sector

Agenda

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Marine Ports & Services Market Facts - 2007

• Total Volume = 7,331 million metric tonnes, a growth of 6.5%

• Total Revenues generated were $45.3 billion

• Asia-Pacific generated 62% of the global market’s value

• Container & freight generated 39% of the global market’s value

Source: DataMonitorMarine Ports & Services Market is defined as the total revenue obtained by owners and operators of public & private marine ports and providers of related services.

The crisis and prospects for port PPPs

• Significant increase in private sector investments, particularlyin Asia and Africa in the 1997-2007 period

• However, crisis has negatively impacted maritime traffic, which has yet to recover to pre-crisis level

• New investments (public and private) – limited due to the impact of the financial crisis

• Governments also rethinking and only developing a limited subset of projects

• Major terminal Operators are expected to be extremely strategic while considering new investmentsFlight to quality, well prepared projects

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Water Transport

IFC Experience and Case Studies

Private Sector Participation in the Port Sector

Agenda

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Private Sector Participation Overview

• Key factors defining type of private participation include:

• Port Ownership

• Role of Port Authorities

• Relationship between the public and private sectors and their respective roles

• Most port PPPs have tended towards transferring selected port services and/or assets to private or mixed economy companies by means of restrictive leasing, licensing or concessionary contracts.

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Four kinds of PortsKind of Port

Ownership Status Strengths Weeknesses

Service Port

• Ownership: Government• Management: Port Authority • Operations: Port Authority

• Unity of Command: All operations carried by the same organization

• Lack of competition• Strain on Government budget• Less Efficient

Tool Port • Ownership: Government• Management: Port Authority • Operations: (i)port-owned

equipment: Port Authority, (ii) Cargo-handling: Private sector

• Avoids duplication of facilities - Investments in port infrastructure and equipment are decided and provided by the public sector

• Strain on Government budget• Lack of innovation• Since Private operators do not

own major equipment, they tend to function as labor pools and do not develop into firms with strong balance sheets.

Landlord Port

• Ownership: Government• Management: Port Authority • Operations: Private Sector

• Terminal Operators are more loyal to the port and are more likely to make needed investmenst

• Efficient Operations

• Risk of overcapacity as a result of pressure from various operators

• Risk of misjudging the proper timing of capacity additions

Private Port

• Ownership: Private Sector• Management: Private Sector• Operations: Private Sector

• Maximum flexibility • No direct government

interference

• Risk of monopolistic behavior from private operators

• Government looses its ability to regulate the port business

Source: World Bank Port Reform Toolkit

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Role of Port Authority after PSP

• The role of a Port Authority typically includes:

• Landlord and performance monitoring function

• Policy-making, planning and development function

• Traffic control, regulatory and surveillance function

• Marketing, public relations and promotion function

• In addition, the Port Authority and/or Government retain responsibility for policy formulation

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Governments benefit from Private Sector Participation

• Potential for new revenue streams for governments

• Access to private sector financing freeing Government budgets for social sectors

• Introduction of Experienced Management and International Trade Benefits

• Higher Efficiency through the involvement of the private sector

• Platform for Government Trade Strategies: Establishing a supportive environment and platform for an export-focused economy, and lowering the artificial costs of imported raw materials.

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Marine Ports Industry

Private Sector Participation in the Port Sector

Agenda

IFC Experience in Port Transactions

IFC has extensive experience in the Ports Sector

Investment• Ports sector includes 33 investment projects • Projects cost ranged from US$516.8 million (Damietta Port in

Egypt) to US$4.4 million –(Terminales Rio del La Plata in Argentina)

• Approximately 15% in Asia PacificAdvisory• 6 projects, of which three (6) have been completed• One active project: Vizhinjam Port (Kerala, India)• Five completed projects: Port of Suape (Brazil) Port of

Tomasina (Madagascar), Durres Port (Albania), Port Louis Harbor (Mauritius), and Cotonou Port (Benin)

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Typical Issues in Port Concessions

• Tariff limitations

• Market Risk

• Port Connectivity

• Climate change

• Social issues

• Technical uncertainties

• Privatization model

• Services to be provided by the port They may not be in consort the socio-economic environment of the region

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Case Study #1

Concession of a Container Terminal Port of Suape, Brazil

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Suape – Map and Location

Quito

Oceano Pacífico

Oceano Atlântico

Brasil

BelémManaus

Rio de Janeiro

Santos

MontevidéuBuenos Aires

Baia Blanca

Colômbia

Equador

Peru

Venezuela Guiana

Suriname Guiana Francesa

Bolívia

Argentina Uruguai

Paraguai

Chile

SUAPE

PE

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Suape After the Concession

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Transaction Structure

• Privatization Model Primarily container terminal (but other cargo possible) Lease term: 30 years, non-renewable Investment obligations: 2nd and 6th years only

• Market Risk Limitation on additional container terminals (15y/240k TEU)

• No tariff limitations Transshipment market driven

• Clear transfer provisions at termination

• Objective bid criteria, i.e., highest NPV for port revenues

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Balanced Contractual Provisions

• Technical uncertainties ISO 9000/1400 certification within four years Technical specifications for investments:

• new gantry cranes and yard pavement only Operational performance improvement:

• 16 then 24 then 44 moves/hr

• Very detailed penalty provisions (up to U$50,000/day)

• Dredging: obligation of Port Authority ( also with penalty!)

• Few reversible assets (depreciation allowed): equipment owned by operator @ termination

• Set in Brazilian Port Law regarding quality of port services: Regularity, continuity, efficiency, generality, courtesy, affordability

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Since then..

• March 2001: ICTSI Wins Brazil Port Bidding

• US$17 million invested in container handling equipment since

• Sustained traffic growth, although severe initial disputes with port labor force

• More than 240,000 TEUS in 2007

Suape - Traffic Containers

0

50,000

100,000

150,000

200,000

2000 2001 2002 2003 2004 2005 2006

Year

TEU

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Case Study # 2

Concession of a Container Terminal Port of Toamasina, Madagascar

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Toamasina – Map and Location

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Toamasina – After Concession

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Transaction Structure

• PPP Model 20 years Concession guided by performance objectives

• Operational and management performance indicators• Important penalties in case of non performance

• Market Risk Exclusivity of container terminal operations (up to a certain level of

traffic: 400,000 TEUs) � Traffic 2003: 91,900 TEU

• Concession upfront fee includes development costs of the project and initial budget of the Port

Authority

• Yearly Fixed and Variable concession Fees• Mandatory rehabilitation and construction works over the first

two years• Mandatory capitalization of project company

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Transaction Structure (Cont’d)

• Expected returns to Madagascar over the life of the concession: efficiency gains, international best practices, investments

• Estimated financial returns to Madagascar: US$ 300 million in investments and concession fees.

• Tariff reduction: 20% (handling) and 10% for reception & delivery

• Social Issues Obligation to keep 350 employees for 5 years

• Operator’s Obligations backed up by Performance Bond over the lifetime of the concession

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Since Then…

• June 2005: ICTSI Wins Madagascar Port Bidding

• October 2005: Contract signing ceremony

• Upfront payment (including asset acquisition): €10 million

• US$36 million invested in container handling equipment since Quay strenghthening works Gottwald heavy duty mobile crane, model GHMK 6407 Bromma twin-lift spreader (able to lift two 20ft containers

simultaneously with each of these weighing up to 25 tons) 4 rubber tyred gantries New reach stackers 14 new Kalmar terminal tractors. Major investments made in IT hardware and systems including the

successful rollout of the Navis SPARCS system.

THANK YOU

PPP Transaction Advisory Services14F One Pacific Place, 88 Queensway, Admiralty, Hong Kong

Attn: Edgar Saravia, +852 2509 8139, esaravia@ifc.org

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