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Public-Private Partnerships for Sustainable Port Development
Jyoti BisbeyInfrastructure Finance and Economics Officer
Macro Policy and Financing for Development, UN ESCAP
3 April 2019 1
Source: Tibar Bay Port
What are PPPs?
• Public-Private Partnership (PPP) is an option to procure infrastructure (infrastructure PPPs) and services (service PPPs), which may provide some incremental benefits in addition to being a means to access private financing for the promoting governments
• There is no universal definition of PPPs✓ Long-term contract between a public party and a private party for the
development/significant upgrade and management of a public asset ✓ Significant transfer of risks and responsibilities from the government to
the private sector✓ Remuneration linked to performance and/or demand for the services of
the infrastructure asset being built
• PPPs may be classified as user-pays PPPs (funding of the payments is based in charges to users e.g. tariffs) or government-pays PPPs (funding of payments is based on the public budget)
• PPPs are not the same as privatization
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How PPPs work?
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Traditionally under a PPP system, the whole process is bundledtogether and handed over to a single entity that is organized as a “Special Purpose Vehicle” (SPV)
SPVs occupy the center of the structure, designing, building, financing, operating, and maintaining the infrastructure asset in a way that delivers services to the public in accordance with the PPP contract
Government is still engaged, regulating the activities through the contract, and paying the SPV directly, or authorizing it to collect user fees
Finally, the government takes over responsibility for the asset from the SPV at the end of contract period
Source: ADB. Sustaining Development through Public Private Partnership
What can the private sector do?
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• What are the functions performed by the private party?
• Designing the infrastructure
• Building or upgrading or renovating the infrastructure
• Financing the capital investment
• Operating the infrastructure
• Maintaining the infrastructure
• Who will pay the private party, users of the infrastructure or the government?
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Spectrum of PPP agreements
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Private Risk & ControlPublic Control
Private Risk & ControlPublic Control
Utility Restructuring
Civil Work and
Service Contracts
Management and
Operating Contracts
Lease Contracts
ConcessionsBOT
DBFOM
Joint Venture
Full Divestiture
Public owns and
operates assets Public-Private Partnership
Private owns and
operates assets
Low HighExtent of Private Sector Participation
Why PPPs are needed?
• When designed well and implemented in a balanced regulatory environment, PPPs can bring greater efficiency and sustainability to the provision of public services
• PPPs can allow for better allocation of risk between public and private entities
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Cost Management
Life Cycle Management
Reliability & Effectiveness
InnovationRisk
ManagementUtilization
EFFICIECNY(VALUE FOR MONEY)
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Current trends in Port PPI in Asia and Pacific
Source: WB PPI DatabaseNote: The Asia-Pacific region is based on ESCAP categorization
Types of Ports PPI in ASEANTypes of Ports PPI in South Asia
In 2013 major spike due to:
• Sub-Saharan Africa: 2 mega projects from Nigeria (Onne Port Expansion, Lekki Deep Seaport)
• Latin America & Caribbean: significant investments from Honduras , Mexico and Colombia
comprised >86% of total amount invested in the world
Greenfield
Brownfield
Divestiture
Management & Lease Contract
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USD
bill
ion
Time
Private Participation in Port Infrastructure
World Asia and the Pacific South Asia ASEAN
PPP Port Projects in
Asia and the Pacific
Region Country Project Name Type ContractContract Period
Year
Total Investment
(USD million)
East and North-East Asia
ChinaTianjin Port Shenghan Petrochemical Wharf
Greenfield project
BOT 50 2014 93.98
North and Central Asia
Georgia Poti Sea Port Development Divestiture Full 49 2008 100
South and South-West Asia
India Paradip East Quay Coal TerminalGreenfield
projectBOT 15 2018 184.64
Pakistan Pakistan Deep Water ContainerGreenfield
projectBOT 25 2010 1,200
Sri Lanka Colombo South Container Terminal Greenfield
projectBOT 35 2011 500
Turkey Istanbul Salipazari Cruise Port BrownfieldBuild, rehabilitate, operate, and
transfer30 2014 1,052
South-East Asia Malaysia Pengerang Terminal Phase IIGreenfield
projectBOT 25 2017 1,543
MalaysiaKemaman Port East Wharf
PrivatizationBrownfield
Rehabilitate, operate, and transfer
60 2006 13
Myanmar Yangon and Mandalay dry portsGreenfield
projectBOT 50 2018 45
Philippines North Harbor concession BrownfieldRehabilitate, operate, and
transfer25 2010 321
Thailand Laem Chabang Terminal C3 BrownfieldRehabilitate, operate, and
transfer30 2003 45
Thailand Laem Chabang Terminal A1Greenfield
projectBOT 30 2001 15
Timor-Leste Tibar Bay Deepwater PortGreenfield
projectBOT 30 2018 490
Vietnam Saigon Premier Container TerminalGreenfield
projectBOT 44 2008 200Source: WB PPI Database
Tibar Bay Port
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Source: Laohamutuk
First PPP in the country
Grantor Government of Timor-Leste
Special Purpose Vehicle (SPV) Project Management Unit (PMU)
Concessioner Bollore Logistics
Project Type Greenfield
Concession Period30 years; until 2047(Possible extension by 10 years)
Concession Model (Contract Type) Build, Operate and Transfer (BOT)
Project Detail
Design Vessel 7000 TEU
Port Capacity 1,000,000 TEU (final phase)
New Infrastructure
• 2 Berth Quays• 27 HA Container Terminals with
buildings and utilities• Dredging of quay berths, turning
circle and channel
Financing of the Port
Total Project Cost USD 490 million
Financing Source (Viability Gap Financing)
PublicUSD 130 million (WB: USD 70 million; ADB: USD 59 million)
Private USD 360 million
Project Implementation Period December 2017 – September 2021
Main Parties• GoTL• Bollore Logistics • World Bank, ADB, PPIAF, IFC
10Source: World Bank
TIBAR BAY PORT
Project Benefits
Government Revenue• Royalty Fee (per container/ tonnes of cargo)• Navigation/Dockage Fee per ship• Tax Income
Economy FDI worth USD 350 million over the concession
Sectoral Development• Redevelopment of Port• Avoiding cost of delays and diversion of Cargos
Tibar Bay Contractual Structure
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User ChargesDebt Financing
WB, ADB, IFC & PPIAF
Government of Timor-Leste
(GoTL)
Concession Agreement
Project Management Unit(SPV)
Operation & Maintenance
Construction
UsersLenders
IFIs
Technical Support
Source: Lao Hamutuk
Risks
• Political: complex political environment
• Reluctance to receive donor funding or foreign investment in public assets
• Falling petroleum prices
• Presidential and parliamentary elections in 2017
• Traffic: concessionaire takes full traffic risk, albeit mitigated by an exclusivity on international container handling.
• Excludes activities at future ports in Oecusse and Suai (South Coast)
• Suai would include a port, storage yard, warehouses and a fuel tank farm
• Compensation in case Suai strongly impacts activity at Tibar Bay in the first 20 years
• Currency: TL uses US dollar
• If change of currency, then
• Automatic monthly tariff adjustment mechanism
• Reflect exchange rate fluctuations
• In addition, Grantor to make VGF payments in US dollars in case of change of domestic currency
Environment and Social Safeguards
Environmental and Social Impacts
• Removal of large marine habitat, most notably consisting of seagrass bed, live coral and mangrove
• Land acquisition and resettlement
• Livelihood impacts on fishing communities,
• Cultural heritage sites
• Restricted access to marine area, safety and visual impacts
• Substantial indirect and induced impacts on adjoining and nearby land uses and environments are also likely if not managed effectively
Action Plans Taken
• IFC performance standards applied
• Resettlement and livelihood action plans
• Government compensated affected community
• Concessionaire carried out environmental impact assessment and mitigation measures
• As part of the mitigation plan, Biodiversity action plan will be implemented by the concessionaire
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Benefits
What economy gets
• FDI worth around $350 million over the life of the concession (around 75% of the project capital expenditure)
• Public funds can be used for other sectors like health and education
• Avoiding cost of delays and diversion of cargo
• Bigger ships - savings on freight costs due to economies of scale
• Development of Tibar Industrial Park around the port
• Redevelopment of Dilli Port
• Better quality of life in Dili
• Possibility of transhipment (new revenue generating activity)
What government gets
• Royalty fee; per container/tonnes of cargo
• Navigation/ dockages fee per ship
• Tax income
• A port worth around $166m at the end of 30 years plus
• Cost control during 30 years of the concession (gov’t only pays the Viability Gap Fund upfront – no additional Capex, no Opex, no maintenance costs)
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Source: HRStrategies Plus
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Colombo Port for modernization – A brownfield project
Grantor Sri Lankan Port Authority (SLPA)
Special Purpose Vehicle (SPV)South Asia Gateway Terminals Private Limited (SAGT)
Concessionaire John Keells Holdings Limited and P&O Group
Concession Period 30 years
Concession Model (Contract Type) Build, Operate and Transfer (BOT)
Construction Period 1999 – August 2003
Main Parties
• PUBLIC Sri Lanka Ports Authority (SLPA), ADB, IFC, Commonwealth Development Corporation (CDC)
• PRIVATE P&O Nedlloy Container Line, P&O Australia Limited, John Keells Holdings Limited, Evergreen Group
Source: urbanplanner, newsradio
Colombo Port Project Financing
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Total Project CostUSD 224 million (USD 240 million initially planned)
Financing Source (Debt/Equity Financing)
Debt (60%) USD 135 million
Public• IFC and Commonwealth Development
Corporation (CDC): USD 35 million each• ADB: USD 25 million
PrivatePrivate Sector Infrastructure Development Company Limited: USD 39 million
Equity (40%) USD 92.4 million
Public
USD 32.4 million• SLPA: 16%• IFC and CDC: 7.5%• ADB: 4%
Private USD 60 million
Contractual Structure
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User Charges
Debt/Equity Financing
ADB, IFC, CDC
Sri Lankan Port Authority (SLPA)
Concession Agreement
South Asia Gateway Terminals Private Ltd
(SPV)
Operation & Maintenance
Construction
Users
Lenders
IFIs
Technical Support
Shareholders
Private Sector
P&O Group, John KeellsHoldings, Evergreen Group
Risks
• Limited or none commercial financing
• Political instability during mid 1990s
• War risk surcharge by insurance industry
• Attack on the International Airport near Colombo in July 2001
• During this time many vessels used ports in neighboring nations
• However, when the surcharge was removed in March 2002, traffic returned to Sri Lankan ports.
Political Risk – Resumption of Civil War
• Weak investor confidence
• High volatility of currency risk as a spill-over effect from the currency shock from Asian economies (high depreciation of others)
• General trend of capital outflow from Asia
Macroeconomic Risk – East Asian Financial Crisis
Lessons learned from projects
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Planning needed
Ports an integral part of the overall
transport and logistics system
Maximize potential for value creation in
the supply chain
Logistics services, terminals, customs
and inspection, vehicle management,
warehousing and other landside
capacities
Optimal Integration
Landside transportation
Optimal integration with each mode,
given the constraints of physical and
economic geography and the regulatory
environment for road and rail transport
Demand
Configuration of shipping networks
shapes port development rather
more than ports shape shipping
networks
Programmatic approach
Without the prospect of scale economies, difficult to attract
interest of terminal operators to invest in,
or even operate, a terminal
Government’s role
Policy to integrate value chains, shipping
networks, freight operators,
manufacturers
Financing- port side vs. land side
infrastructure
Feeder infrastructure to the port
Guarantees
