PPP International Best Practice and Regional Application Tegucigalpa, Honduras April 23 - 25, 2008 Sponsored by the Spanish Trust Fund

PPP International Best Practice and Regional Application

Tegucigalpa, HondurasApril 23 - 25, 2008

Sponsored by the Spanish Trust Fund

Materials prepared by:

C. Bert Kruk - Lead Port Specialist - The World Bank

Sabino Escobedo - TAG Financial Advisors

Session 5.3

Case Studies by Sector

PORT SECTOR


Private Sector View

Session 5.3

PPPApproach

PPPApproach

Day 1: Session 1.1Overview of

PPPDay 1:Session 1.2

Challenges: Latin America

Day 1:Session 1.3Considering

Private Participation

Day 1:Session 2.1Planning the

Process

Day 1:Session 2.3Involving

Stakeholders

Day 1:Session 3Case Study:

Transmission

Day 2:Session 5Case Studies:(1)Highways

(2)Water & Sanitation(3) Ports

Day 2 :Session 4.1Standards,

Tariffs, Subsidy, Financials

Day 2 :Session 4.2Selecting an

OperatorDay 1:Session 2.2

Regulation & Institutions

UpstreamPolicy

Readinessof

Government

CapacityBuildingFor PPP

Day 2 – Session 6Readiness of Government

Day 1- Session 5

Case Study:Ports

Day 1- Session 5

Case Study:Ports

Contents

Sector background

Recent Industry and Sector Trends

Case Studies: EUROPE - Port of Rotterdam, Holland LATIN AMERICA - Port of Valparaiso, Chile MIDDLE EAST - Port of Sohar, Oman AFRICA - Port of Doraleh, Djibouti

Conclusions

Ports in developing countries represent a key asset for economic development

They need to operate efficiently and be properly structured in order to support an increase in trade and GDP by linking countries, both coastal and landlocked, productive hinterlands and consumers to global markets

Through their nodal role of facilitating intermodal transport ports have a significant role in contributing toward achievement of the Millennium Development Goals

Sector Background

Industry and Sector Trends

Development of World Maritime Transport

0

1000

2000

3000

4000

5000

6000

7000

8000

Tota

l tr

ansport

(m

io tons)

1990 1992 1994 1996 1998 2000 2002 2004 2006

Year

OthercargoDry bulk

Crude andproducts

Source: UNCTAD Review of Maritime Transport 2007

World port container traffic (mio TEU)

0

100

200

300

400

500

600

mio

TEU

1973 1977 1981 1985 1989 1993 1997 2001 2005 2009*

Year

Source: Containerisation International and other publications

Regional share:World port container traffic (mio TEU)

23%

39%

16%

6%

2%2% 3% 1%8%

West Europe

Far East

South East Asia

Mid-East

Latin America

Oceania

South Asia

Africa

Eastern Europe

World Top 10 container ports 2003 – 2007

0

5

10

15

20

25

30

Thro

ughput (m

io T

EU

)

200320042005

20062007

Source: Yearbook Containerisation International

Governments, in particular since the 1990’s, started to invite the private sector both for capital and operational experience

To date, developing economy countries entered into 230 projects totalling more than US$ 24.7 billion of investment in 15 years

In Africa some 70% of the (container) port operations are still run by the public sector

LAC is second, but the process is gaining momentum

Private sector involvement

Private investors are flocking to the ports industry and so far have been proved right (ING source)

Cargo volume increases are outpacing terminal capacity

Typically investors were paying multiples 12-14 times above the port group's earnings level

Growing involvement of private investors in port projects

(Source: Lloyds’ List November 2006)

Private participation in seaports:developing countries 1990-2005

21

10

15

19

26

19

21

26

18

22

87

13

1617

0

5

10

15

20

25

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Projects

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2005 US $ billion

Projects Investment commitments

(Source: World Bank and PPIAF, PPI Project database)

Cities may benefit from ports: employment, tax income, economic development, but

Ports may also has a negative influence on cities such traffic congestion, air, noise and light pollution and security issues

Port zoning plans may lead to improved co-existence

Increasing trend to move ports to Greenfield sites and redevelop the port in real estate (housing, recreation, business), marina, cruise terminal, and / or fishery facilities

City - Port relationship

City – Port (Valparaiso, Chile)

Public versus private: Port Handling Costs

$85$99

$174

0

20

40

60

80

100

120

140

160

180

mio

TEU

Chile LAC Ports withConcessions

LAC Ports withoutConcessions

Source: Economic Commission of Latin America and Caribbean

Increased participation: Private Sector in Ports Investment

Management

Operations

Maintenance

Port services

port functions

port managementmodel

reasons for change

port reform modalities- improvement of the port administration- liberalization- commercialization- corporatization- privatization

service porttool portlandlord port

port reform tools- contracting out- management contract- concession• lease• bot schemes- full privatisation - regulation

contract issues- concession documents and contracts- issues to be addressed in a concession agreement- critical items of concessions - table of contents of a concession contract

PORTS

REFORM

Port Management Models

Type Infra-

structure

Super-

structure

Stevedoring labor

Other functions

Public Service Port

Public Public Public Mainly public

Tool Port Public Public Private Mainly public

Landlord Port Public Private Private Mainly private

Private Service Port

Private Private Private Mainly private

port functions


reasons for change



port reform tools- contracting out- management contract- concession• lease• bot schemes- full privatisation- regulation


port functions


reasons for change





port functions


reasons for change





Port Reform Tools

Contracting out

Management contract

Lease

Concession• BOT schemes

Full privatization

Leasing

Lease systems most used:

Flat rate lease

Shared revenue lease

Leasing - Shared revenue lease

Characteristics Lease is computed on the basis of a minimum lease

plus a compensation (often referred to as ‘Royalty’) per move (preferably) on a decreasing scale

A model may be a combination of a fixed and variable Royalty (based on performance)

The lessee guarantees a minimum annual compensation

Inflation adjustment

CASE STUDIES

1. The Port of Rotterdam Flat Rate Lease System

(Contract)

The Port of Valparaiso, Chile Concession

Sohar Industrial Port, Oman Joint Venture, Concession

and Licenses

The Port of Doraleh, Djibouti Concession

CASE STUDY:

A Flat Rate Lease System (Contract)

1) The Port of Rotterdam

Municipality of Rotterdam owns land and water except for the river Rhine

Municipality (through the Port Management) leases the infrastructure and provides: Site ready for building

Access to site

Quay wall

Contract depth at quay

Flat Rate Lease system Rotterdam


Private companies provide Surfacing of site Superstructure (office buildings, workshops,

warehouses/sheds, gate, fencing Rail, electricity, water, gas, etc.

Principal clients

Stevedoring companies

Warehousing companies

Transport companies

Industrial companies

Repair/maintenance/service companies

Government agencies (Customs)


Lessee pays for use of land area occupied

When site has water front lessee also pays for right of berth(ing) according to quay length and water depth


Contracts/review of lease

Formerly

Usually 25 years with every 5 years negotiations on lease price

Present

Usually 25 years with every year inflation correction


Contracts/review of lease (cont’d)

After 25 years option for another 25 years

Municipality may terminate contract after 50 years

Lessee may terminate after 25 years or renew after 50 years


Special items

At termination of contract site free of superstructure

Buy-out of contract through negotiations

Buy-out of superstructure through negotiations


CASE STUDY:

Port Sector Reform in Chile

The Port of Valparaiso Concession

2) The Port of Valparaiso, Chile

City – Port of Valparaiso, Chile

The Port of Valparaiso, Chile

Port Sector Reform: Objective: Encourage investment in better port equipment in the

hope that it will lead to more efficient service, in part by attracting larger, more modern ships.

The old multi-operator system established in 1981 was replaced by Concessions

The first 4 major Concession - integrated terminals - are run exclusively by private companies, which started operations in January 2000

Port Sector Reform (cont.) The Process:

The GoC had to obtain approval by the legislature(one of the conditions: reach agreement with labor unions and stevedore companies);

The GoC had to form 10 new state port companies (land lord ports) as successors to EMPORCHI with no service disruptions;

The new state port companies had to remain as public corporations but had to operate according to the rules of private stock companies; and

The GoV sought to attract international interest to the ports bidding process.


Port Sector Reform (cont.) The new state port companies:

Own the port infrastructure;

Run maritime and land access;

Enforce the Concession Contract;

Are not allowed by law to handle cargo or berthing;

Share revenues with Concessionaires:

- A minimum annual rental payment, and

- Some revenue sharing on the upside.

The first 4 Concession were awarded in 3 ports in August 1999.


Port Sector Reform (cont.) The Bidding:

1) The Bidders are asked to offer the lowest maximum tariff

( the authority set a floor to discourage: (a) overoptimistic bids and

(b) to renegotiate charges after the Concession Contract is awarded);

2) A Bidder offering the floor tariff should also offer an upfront tie-breaking payment;

3) Annual rental payments are determined in advance, to prevent implicit subsidies to Concessionaires

(Concession Contracts establish an increasing rent to the state port company as tonnage rises)


Port Sector Reform (cont.)

Reform results: POSITIVE SIGNS in terms of LOWER TARIFFS and MORE EFFICIENT

SERVICE;

Keeping a high level of competitive tension among prospective Bidders brought lower tariffs to clients and reasonable returns to Chile’s Treasury;

Other reforms are needed to complete the modernization of the ports: Tariffs for navigation aid systems are too high

Pilotage is monopolistic (reserved to former Navy officers) and charges are too high.


1. Areas for future port developments2. Espigón: Development of the terminal 2 to double the capacity of the port3. Area for the project for the opening and development of the waterfront, 'Puerto Barón’4. Logistics Support Extension Zone (ZEAL - Zona de Extensión de Apoyo Logístico)


4. Logistics Support Extension Zone (ZEAL - Zona de Extensión de Apoyo Logístico)




• For the construction of the Puerto Barón project’s first phase, which will begin in 2008, US$100 million will be invested and 1,500 temporary jobs created;

• Once the initiative is inaugurated, it is expected that 2,500 permanent jobs will be generated;

• Traffic congestions will be solved;

• In a second phase, the project includes the construction of a hotel, a convention center, a university, a medical center, a marine center, and a housing project of nearly 500 apartments, with lofts for offices

and restaurants and commerce with an ocean view.


Project Brief details by:C. Bert KrukMarch 11, 2004 Updated March 2008

CASE STUDY:

3) Sohar Industrial Port, Sultanate of Oman

Sohar: Location

Sohar

Aerial view of Sohar - May 2001

Sohar 2007

1999: visit Omani Government Officials to Rotterdam (RMPM)

2000: Negotiations between GSO and RMPM about in-house consultancy

2001: Acceptance of Partnership

March 2002: Signing of MOU

Management principles and project history

Milestones

July 2002: Signing of Shareholders, Concession and Usufruct Agreements between the Sultanate of Oman and the Port of Rotterdam, based on 50/50 joint venture

August 2002: Establishment of Sohar Industrial Port Company – SIPC (SAOC), with a 25 year concession over SIP by Royal Decree (RD 80/2002) to develop and manage a 2,000 hectares industrial area with a word class deep sea port.

April 2004: Arrival of the first commercial vessel carrying project cargo

Status of the project in 2008

Many internationally established companies have settled in Sohar such as: Air Liquide, Alcan, Hutchison Port Holdings, Larsen & Toubro, LG, Odfjell and Oiltanking

Private sector investments are in the range of US$ 12 billion

Marine services (towage) are provided by private company

International Maritime College

Future employment 8,000 direct and 30,000 indirect

CASE STUDY:

A Concession Contract

4) The Port of Doraleh, Djibouti

The Port of Doraleh, Djibouti

A 30-year Concession for the development, financing, design, construction, management, operation, and maintenance of a new container terminal in the port of Doraleh

Project investment: USD$ 427 million

The port is strategically located in East Africa along one of the fastest growing East-West international shipping routes;

About 85% of imports into Djibouti are destined for the land-locked nation of Ethiopia;

The project will increase port traffic and open up new opportunities for investment and growth in the country;

The port will attract other African countries to use the port as a gateway too;

The port will promote regional integration through trade development.

The Port of Doraleh, Djibouti (cont.)

Financing the Project with modern and innovative products:

Financing provided through a Project Finance Facility; MIGA (World Bank Group) issued financial guarantees to the

concessionaire and its lenders for their investments in the Doraleh Container Terminal;

MIGA provided guarantees to cover: Concessionaire’s USD$5 million equity investment Lenders’ USD$422 million - funds provided by Dubai Islamic Bank, Standard

Chartered Bank, WestLB AG, and other participating banks; MIGA issued its first guarantee for an Islamic project finance facility


MIGA provided financial guarantees to the transaction to cover a 10-year period against the risk of: Transfer restriction War and civil disturbance Expropriation, and Breach of Contract

MIGA’s participation in the transaction is helping to mitigate perceived political risks for the banks and enabling the project sponsors to raise medium-term, cross-border project financing!


ConclusionsConclusions

Obviously in many ports there is a requirement for a certain level of autonomy

The level of autonomy is a critical success factor for port re-organisation

Institutional reform is an exceedingly complex issue There is much confusion about the successes of specific

experiences with changes Limited solid evidence about the effectiveness of the

various strategies Existing situations will not automatically improve when

applying any of processes mentioned Port Reform is a very complicated process and requires

expert assistance

Recommendations

PPP Arrangements do work and are successfulPrivate operator involvement will continue in the sectorEstablish clear roles, responsibilities and realistic goalsPreferred roles of public sector

• Public sector continues to own the land and infrastructure• Masterplanner• Regulator• Finance, supply, maintain and own common user infrastructure





THANK YOU!

Contacts

For comments or further details contact:

Junglim Hahm [email protected]

Richard Cabello [email protected]

Sabino Escobedo [email protected]

David Stiggers [email protected]




Session 5.3

Case Studies by Sector

PORT SECTOR


Documents

PPP International Best Practice and Regional Application Tegucigalpa, Honduras April 23 - 25, 2008 Sponsored by the Spanish Trust Fund