Module 3 Alternative Port Management Structures and Ownership Models

1. Module 3 Alternative Port Management Structures and Ownership Models

2. Alternative Port Management Structures and Ownership Models • Objectives and Overview • Evolution of Port Institutional Framework • Port Functions, Services and Administration Models • Port Finance Overview • Port Reform Modalities • Reform Tools • Marine Services and Port Reform Module 3

3. Overview • Evolution of Port Institutional Framework : respective roles of the public and private sectors • Port Functions, Services and Administration Models : typical management structures • Port Finance Overview : funding for infrastructure development, management impacts • Port Reform Modalities : strengths and weaknesses of the different options • Reform Tools : managing the shift in public/private sectors balance of power • Marine Services and Port Reform : description of marine services and possible reform approaches thereof. Module 3

4. Alternative Port Management Structures and Ownership Models • Objectives and Overview • Evolution of Port Institutional Framework • Port functions, services and administration models • Port Finance Overview • Reform Tools • Marine Services and Port Reform Module 3

5. Why did Private Sector Participation emerge? • Supply/distribution chains : ports as bottlenecks • Labor Practices : labor unions often ignored the need to reduce the labor force and upgrade skills implied by the modernization of port-handling equipment. • Centralized government control was too rigid and slowed down the pace of planning, control and command structures, limiting responsiveness to market demand. • Public investment in port infrastructure was often insufficient or inadequate, and implied heavy reliance on state budget. Module 3

6. Appropriate division of responsibilities between the Public and the Private Sectors • Public Sector : planner, facilitator and regulator • Private Sector : service provider, operator and developer • Shifting the boundary line : results rather than ideology • Increased service levels for infrastructure users • Increased efficiency in operations • Improved allocation of limited public funds Module 3

7. Ports integrated in global logistics chains • Local benefits also have global and regional attributes • Private port services providers are increasingly global in scope and scale • Globalization will challenge the protection of “public” and local interests Module 3

8. Alternative Port Management Structures and Ownership Models • Objectives and Overview • Evolution of Port Institutional Framework • Port functions, services and administration models • Port Finance Overview • Port Reform Modalities • Reform Tools • Marine Services and Port Reform Module 3

9. Port functions, services and administration models : table of contents • Port activities and new trends • Choosing a framework to operate public intervention • Interaction with port cities • Role of a Port Authority • The delicate function of planning • Role of a Transport Ministry • Port administration models : the four categories • Globalization of port operation • Port management and Port competition • Value-added services : a means to attract clients Module 3

10. Ports activities and new trends Ports produce : • Public Goods : create positive externalities that justify public intervention. Ex : coastal protection works. • Private Goods : generate direct economic benefits that can be captured in market transactions. • The mix of public and private goods can create economic multiplier effects New trends in activities : • Clustering of activities : heavy industries, manufacturing • Development of value-added services Module 3

11. Choosing a normative framework for public intervention • Market surrogate framework : remedy market imperfections and capture non-market externalities (ex: competition “for the market”). • Public interest framework : pursue explicit goals designed to satisfy the demand for public goods Module 3

12. Interaction with port cities : two major trends • Increasing space intensity of ports takes them away from urban centers. • Abandoned urban industrial zones close to deep water show a potential for redevelopment by… • Retaining the surplus of port land within the Port Authority for redevelopment (Barcelona) • Transferring it to the local authority (Baltimore) • Creating a special development corporation for this specific purpose (London Docklands) Module 3

13. Objectives of a Port Authority • Definition : State, Municipal, public or private body, which is largely responsible for the tasks of construction, administration and sometimes operation of the port facilities • Objectives : • Fully recover all port-related costs • Attract outside investment • Stimulate innovation • Generate internal cash-flows to replace and expand infrastructure • Compete according to market rules • Limit cross-subsidization • Avoid dissipation of the Port Authority’s asset base. Module 3

14. Role of a National Authority • Statutory powers : • Approval of proposals for port investment • Setting of financial objectives for ports • Regulation of rates and charges • Definition of a labor policy • Establishment of principles for licensing • Facilitation of data collection and research about the port • Legal advice to local port authorities • Parallel roles : • Regulation of shipping and port operations • Oversight of nautical operations • Port marketing and promotion • Strategic planning … Module 3

15. The delicate function of planning Planning requires the Port Authority and the municipality to coordinate and to take into account … • The global context of the proposed investment • Investment plans of industrial and commercial port operators • The integration of individual master plans at the national level Module 3

16. Role of a Transport Ministry • Policy making : planning and development of basic maritime infrastructure, of ports and of port hinterland connexions • Legislation : drafting and implementation of laws, regulations and decrees • International relations : representation of the country, negotiation of agreements • Financial and economic affairs : planning, assessing and assisting in financing projects of national importance • Auditing • Executive functions : Maritime Administration Directorate Module 3

17. Moved to local autonomous Port Authorities under regulatory board oversight Maritime Administration Directorate : Typical Functions • Ship safety oversight • Traffic safety and environment • Aids to navigation • Maritime education and training • Search and rescue • Execution of national port policy Module 3

18. Port Functions • Infrastructure landlord • Regulator of economic activities and operations • Planning for future development • Marketing and promotion of port services • Operation of nautical services • Supplier of cargo-handling and storage services • Provider of ancillary facilities Module 3

19. Port Administration Models : the 4 categories • Public Service Port : the public Port Authority offers all the services required for the functioning of the seaport system • Tool Port : the Port Authority manages the port infrastructure and heavy superstructure, with private cargo-handling companies providing commercial services • Landlord Port : the Port Authority acts as a regulatory body and as a landlord. Port operations are carried out by private companies. • Fully Privatized or Private Service Port : the port is privately owned, operated and sometimes self-regulated. Module 3

20. Basic Port Management Models Module 3

21. Globalization of Port Terminal Operations • The major global container trades are increasingly dominated by : • a few major carriers alliances, aiming at controlling the full chain of logistics • a few independent terminal operators, aiming at making a profit only by offering terminal services • Relationships between ports and carriers : • traffic volume / transshipment / competitive pressure • common user facilities / dedicated terminals Module 3

22. Port Management and Port Competition • The Port Authorities aim at stimulating intra-port competition, with the objectives to… • Ensure fair competition among operators in the port • Control monopolies and mergers • Prevent anti-competitive practices • Inter-port competition depends on a port’s… • Geographical location • Financial resources • Institutional and socio-economic climate • Efficiency and price • Image Module 3

23. Value-added services : a means to attract clients Module 3

24. Alternative Port Management Structures and Ownership Models • Objectives and Overview • Evolution of Port Institutional Framework • Port functions, services and administration models • Port Finance Overview • Port Reform Modalities • Reform Tools • Marine Services and Port Reform Module 3

25. Financing Port Projects • Ports are increasingly considered as separate economic entities • Who finances what ? • Basic infrastructure : government-financed • Operational infrastructure : • government-financed under the Service and Tool port scheme, • concessionaire- or lessee-financed under the Landlord port scheme. • Superstructure : usually financed and owned by the operator under the Landlord port scheme • Compensation payment for the personnel : triangular and direct financing • Port operations : debt financing or flotation of equity shares Module 3

26. Securities for lenders • Guarantee from the State or the Municipality (if the Port Authority is the borrower) • Concession or lease contracts to private operators • Other assets, above all when they can be used in other ports • Cash flow generated by the port or terminal • Governmental guarantee against political risk • Provision of additional governmental support • Land’s value can vary significantly and its use as a security be complicated • Public-Private partnerships can be set up : sharing risks and rewards Module 3

27. Alternative Port Management Structures and Ownership Models • Objectives and Overview • Evolution of Port Institutional Framework • Port functions, services and administration models • Port Finance Overview • Port Reform Modalities • Reform Tools • Marine Services and Port Reform Module 3

28. Definitions • Modernization : introduction of more suitable systems, working practices, etc. within the existing system of bureaucratic constraints. • Liberalization/de-regulation : reform or partial elimination of government rules, enabling private companies to operate in a previously publicly-operated area. • Commercialization : the public port is given more autonomy, made accountable for its decisions and overall performance, and applies private sector management accounting principles. • Corporatization : the public port is given the legal status of a private company, although the public sector sill retains ownership • Privatization : transfer of ownership of assets from the public to the private sector, or the application of private capital to fund investments in port facilities, equipment and systems. It can be comprehensive or partial. Module 3

29. Modernization Possible improvements not implying any legal or policy changes: • Adoption of corporate planning practices • Application of Human Resources Development planning • Development of tools to improve port administration and communication, such as… • Computer applications • Management Information Systems • Electronic Data Interchange • Information and Communication Technology Module 3

30. Liberalization • Temporary advantage : the public operator may continue to exist as a form of insurance against disruption in service, while unsuccessful private port operators can be replaced. • Disadvantages : possibility for remaining internal and external cross-subsidies, or other unfair practices from the public sector. • Solution : clear separation of the regulatory and commercial roles in the port, all the commercial activities being transferred to the private sector. Module 3

31. Commercialization Objectives : • Transform the port organization into a truly autonomous Port Authority, whose Board will oversee the organization’s activities • Give the Port Authority financial independence and responsibility for the port’s performance • Enable it to have its own Human Resources management schemes Common problems : • Continuing interference of the government in port decisions • Insufficient market pressure, leading to potential lack of efficiency Module 3

32. Corporatization : positive and negative aspects Corporatization allows to… • Give financial autonomy to the port • Give time for the management to settle into its new role before contemplating full privatization • Overcome the reluctance of private capital suppliers to invest in the company • Protect the public interest during the transition period Usual negative aspects • Monopoly of the new corporate entity • Lack of efficiency when competition is weak • Possible politicization from the government • Need for a port sector regulator to create a level-playing field Module 3

33. Corporatization : principal steps • Preparation and enactment of any needed legislation • Development of the charter of the corporatized port enterprise, of a corporate plan, of a business plan • Capitalization and vesting of part of the assets/liabilities in the new corporation • Creation of a new labor statute and retraining of management and staff Module 3

34. Privatization Main advantages • Removal of trade barriers • Harnessing of the efficiency and know-how of the Private Sector • Elimination of political interference • Reduced demand on the Public Sector budget • Adjustment of port labor • Other objectives : raising revenues for State Treasury… Core features • Divestiture • Deregulation / Liberalization • Competitive tendering • Private ownership of operational assets with market-based contractual arrangements Module 3

35. Alternative Port Management Structures and Ownership Models • Objectives and Overview • Evolution of Port Institutional Framework • Port functions, services and administration models • Port Finance Overview • Port Reform Modalities • Reform Tools • Marine Services and Port Reform Module 3

36. Public Management and Operations Outsourcing Management Contracts } Lease and Rent Contracts Concessions Full Concession including BOT/BOOT/etc. Build, Own, Operate (BOO) Divestiture by license Divestiture by Sale Private Supply and Operations Spectrum of Port Reform Tools Module 3

37. Contracting out and Use of Management Contracts Module 3

38. Concession Arrangements : Leasehold The lessee (a shipping line, an operating company…) has the right to use a fixed asset for a specific period of time, in exchange for periodic payment of an amount of money which is : • Fixed for flat rate lease • Variable with minimum and maximum payments for mini-maxi lease (risks and rewards of investments and operations are shared). • Variable with only a minimum payment for shared revenue lease Module 3

39. Concession Agreements (1/2) Benefits • Better and more efficient port operations management • Diminished reliance on State budget • Transfer of commercial risk to the private sector • Attraction and use of foreign investment and technology Difficulties • Need for continuing close government regulation and oversight • Need for an effective legal framework to handle transfer of property rights • Sustainability of the agreement may be endangered by unrealistic financial projections • Possible improper maintenance of the facilities, disagreements between the Port Authority and the concessionaire Module 3

40. Concession Agreements (2/2) Documents that may be included in the agreement : Subjects to be dealt with : • Land, facilities and equipment included in the concession • Functional requirements, proposed designs, construction program and time schedule • Rights and responsibilities regarding the construction program • Human resource development • Activities to be carried out • Equal access to common areas • Payment to the Port Authority • Termination of the concession • Leasehold agreement • Terminal access agreement • Port service agreement • Sponsor’s direct agreement • Design contract • Building contract • Financing documents • Management contract Module 3

41. BOT Arrangements • Definition : specialized form of concession designed to increase private financial participation in the creation of port infrastructure/superstructure without changing the landlord structure of the port. • Parts of the Port to be concessioned : • Fairways/channels • Terminals • Entire Port Complexes • Variants : • Build-Own-Operate (BOO) • Equip-Operate-Transfer (EOT) • Build-Transfer-Operate (BTO) • Build-Own-Operate-Transfer (BOOT) • Wraparound-BOT (WBOT) Module 3

42. Comprehensive Privatization • Necessary steps : enactment of new laws • Claimed benefits : revenue for the Treasury, diversification of business of privatized companies, new industrial relations practices, more commercial and entrepreneurial management, greater competition • Actual disadvantages and risks : • Formation of a private monopoly • Threat to macro-economic benefits • Discriminatory treatment of customers • Undermined competition • Over-investment or bad investment • Neglect of the port’s public service function • Reluctance of labor unions and public authorities • Under-evaluation of the port’s market value • Self regulation Module 3

43. Ports as Transport Chain Facilitators Possibilities : • Complementary terminal facilities • Supply chain management • Facilitation and/or co-financing of terminal facilities outside the port area (ICDs) • Use of the Port Authority’s operational expertise and management Risk : • Conflict of interests Module 3

44. Alternative Port Management Structures and Ownership Models • Objectives and Overview • Evolution of Port Institutional Framework • Port functions, services and administration models • Port Finance Overview • Port Reform Modalities • Reform Tools • Marine Services and Port Reform Module 3

45. Marine Services Definition : Port related activities undertaken to ensure the safe and expeditious flow of vessel traffic in port approaches and harbors and the safe stay at berth when moored or at anchor Module 3

46. The Harbormaster’s functions • Management of port activities relating to maritime safety and the protection of the marine environment, in particular : • Efficient traffic flow through port and coastal waters • Coordination of all marine services • Management of the port police • Management or coordination of the Pilotage service • Regulatory oversight of the carriage and storage of dangerous goods in the port area and of the proper use of port reception facilities • The harbormaster should not have his function privatized, and should have freedom of action to carry out his public tasks in an unimpeded manner Module 3

47. Pilotage • Pilots have a strong bargaining power and can greatly influence port reform • Retaining pilots in Port Authority’s Marine Department may be desirable • Two ways of privatization remain possible : • Self-employment of pilots, who are overseen, regulated and licensed by a Maritime Authority • Organization of a private company, regulated by the Port Authority or Maritime administration Module 3

48. Tugboat Operations • Tugboat operations are typically carried out by private firms. • In the case of a single company in the port, the Port Authority should regulate the service with respect to… • Minimum crew size • Minimum bollard pull • Communication equipment and channels • Coordination with vessel traffic management system • Tariffs Module 3

49. Mooring Services • Mooring services are usually carried out by a specialized private firm. • If there is insufficient competition, the Port Authority may have to regulate this activity with respect to… • Minimum manning requirements • Communication equipment and channels • Number of mooring boats and their characteristics • Tariffs Module 3

50. Vessel Traffic Services and Aids to Navigation • Vessel Traffic Services… - Usually are part of a Port or a Maritime Authority - When outsourced, should be regulated with regards to : • System functions • Types and specifications of radars and tracking software • Manning level and qualifications • Reporting duties • Tariffs • Aids to Navigation… - Usually rest with a national Maritime or Port Authority - Are difficult to privatize Module 3