PPP International Best Practice and Regional Application

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

2. Session 5.3 Case Studies by Sector PORT SECTOR Sabino Escobedo - TAG Financial Advisors Materials prepared by: C. Bert Kruk - Lead Port Specialist - The World Bank Sabino Escobedo - TAG Financial Advisors

3. Session 5.3 Day 2 – Session 6 Readiness of Government Day 1: Session 1.1 Overview of PPP Private Sector View Day 1:Session 1.2 Challenges: Latin America Upstream Policy Readiness of Government Capacity Building For PPP Day 1- Session 5 Case Study: Ports Day 1:Session 1.3 Considering Private Participation PPP Approach Day 2:Session 5 Case Studies: (1)Highways (2)Water & Sanitation (3) Ports Day 1:Session 2.1 Planning the Process Day 1:Session 3 Case Study: Transmission Day 2 :Session 4.2 Selecting an Operator Day 1:Session 2.3 Involving Stakeholders Day 2 :Session 4.1 Standards, Tariffs, Subsidy, Financials Day 1:Session 2.2 Regulation & Institutions

4. 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

5. Sector Background • 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

6. Industry and Sector Trends

7. Development of World Maritime Transport Source: UNCTAD Review of Maritime Transport 2007

8. World port container traffic (mio TEU) Source: Containerisation International and other publications

9. Regional share:World port container traffic (mio TEU)

10. World Top 10 container ports 2003 – 2007 Source: Yearbook Containerisation International

11. Private sector involvement • 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

12. Growing involvement of private investors in port projects • 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 (Source: Lloyds’ List November 2006)

13. Private participation in seaports:developing countries 1990-2005 (Source: World Bank and PPIAF, PPI Project database)

14. City - Port relationship • 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

15. City – Port (Valparaiso, Chile)

16. Public versus private: Port Handling Costs Source: Economic Commission of Latin America and Caribbean

17. Increased participation: Private Sector in Ports • Investment • Management • Operations • Maintenance • Port services

18. PORTS REFORM port functions service port tool port landlord port port management model reasons for change port reform modalities - improvement of the port administration - liberalization - commercialization - corporatization - privatization 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 • port reform tools • - contracting out • - management contract • concession • lease • bot schemes • - full privatisation • - regulation

19. Port Management Models

20. port functions service port tool port landlord port port management model reasons for change port reform modalities - improvement of the port administration - liberalization - commercialization - corporatization - privatization 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 • port reform tools • - contracting out • - management contract • concession • lease • bot schemes • full privatisation • regulation

21. port functions service port tool port landlord port port management model reasons for change port reform modalities - improvement of the port administration - liberalization - commercialization - corporatization - privatization 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 • port reform tools • - contracting out • - management contract • concession • lease • bot schemes • full privatisation • regulation

22. port functions service port tool port landlord port port management model reasons for change port reform modalities - improvement of the port administration - liberalization - commercialization - corporatization - privatization 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 • port reform tools • - contracting out • - management contract • concession • lease • bot schemes • full privatisation • regulation

23. Port Reform Tools • Contracting out • Management contract • Lease • Concession • BOT schemes • Full privatization

24. Leasing Lease systems most used: • Flat rate lease • Shared revenue lease

25. 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

26. CASE STUDIES • The Port of Rotterdam  Flat Rate Lease System (Contract)The Port of Valparaiso, Chile  ConcessionSohar Industrial Port, Oman  Joint Venture, Concession and LicensesThe Port of Doraleh, Djibouti  Concession

27. CASE STUDY: • A Flat Rate Lease System (Contract) 1) The Port of Rotterdam

28. Flat Rate Lease system 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

29. Flat Rate Lease system Rotterdam Private companies provide • Surfacing of site • Superstructure (office buildings, workshops, warehouses/sheds, gate, fencing • Rail, electricity, water, gas, etc.

30. Flat Rate Lease system Rotterdam Principal clients • Stevedoring companies • Warehousing companies • Transport companies • Industrial companies • Repair/maintenance/service companies • Government agencies (Customs)

31. Flat Rate Lease system Rotterdam • 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

32. Flat Rate Lease system Rotterdam 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

33. Flat Rate Lease system Rotterdam 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

34. Flat Rate Lease system Rotterdam Special items • At termination of contract site free of superstructure • Buy-out of contract through negotiations • Buy-out of superstructure through negotiations

35. CASE STUDY: • Port Sector Reform in Chile • The Port of Valparaiso Concession 2) The Port of Valparaiso, Chile

36. City – Port of Valparaiso, Chile

37. 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

38. The Port of Valparaiso, Chile • 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.

39. The Port of Valparaiso, Chile • 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.

40. The Port of Valparaiso, Chile • 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)

41. The Port of Valparaiso, Chile • 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.

42. The Port of Valparaiso, Chile 1. Areas for future port developments 2. Espigón: Development of the terminal 2 to double the capacity of the port 3. 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)

43. The Port of Valparaiso, Chile 4. Logistics Support Extension Zone (ZEAL - Zona de Extensión de Apoyo Logístico)

44. The Port of Valparaiso, Chile

45. The Port of Valparaiso, Chile

46. The Port of Valparaiso, Chile • 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.

47. CASE STUDY: 3) Sohar Industrial Port, Sultanate of Oman Project Brief details by: C. Bert Kruk March 11, 2004 Updated March 2008

48. Sohar: Location Sohar

49. Aerial view of Sohar - May 2001

50. Sohar 2007