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PPP International Best Practice and Regional Application. Tegucigalpa, Honduras April 23 - 25, 2008. Sponsored by the Spanish Trust Fund. Session 5.3 Case Studies by Sector. PORT SECTOR Sabino Escobedo - TAG Financial Advisors. Materials prepared by:

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PPP International Best Practice and Regional Application

Tegucigalpa, Honduras

April 23 - 25, 2008

Sponsored by the Spanish Trust Fund


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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


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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


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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


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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



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Development of World Maritime Transport

Source: UNCTAD Review of Maritime Transport 2007


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World port container traffic (mio TEU)

Source: Containerisation International and other publications


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Regional share:World port container traffic (mio TEU)


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World Top 10 container ports 2003 – 2007

Source: Yearbook Containerisation International


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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


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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)


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Private participation in seaports:developing countries 1990-2005

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


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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



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Public versus private: Port Handling Costs

Source: Economic Commission of Latin America and Caribbean


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Increased participation: Private Sector in Ports

  • Investment

  • Management

  • Operations

  • Maintenance

  • Port services


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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



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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


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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


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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


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Port Reform Tools

  • Contracting out

  • Management contract

  • Lease

  • Concession

    • BOT schemes

  • Full privatization


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Leasing

Lease systems most used:

  • Flat rate lease

  • Shared revenue lease


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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


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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


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CASE STUDY:

  • A Flat Rate Lease System (Contract)

1) The Port of Rotterdam


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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


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Flat Rate Lease system Rotterdam

Private companies provide

  • Surfacing of site

  • Superstructure (office buildings, workshops, warehouses/sheds, gate, fencing

  • Rail, electricity, water, gas, etc.


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Flat Rate Lease system Rotterdam

Principal clients

  • Stevedoring companies

  • Warehousing companies

  • Transport companies

  • Industrial companies

  • Repair/maintenance/service companies

  • Government agencies (Customs)


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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


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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


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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


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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


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CASE STUDY:

  • Port Sector Reform in Chile

  • The Port of Valparaiso Concession

2) The Port of Valparaiso, Chile



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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


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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.


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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.


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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)


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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.


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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)


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The Port of Valparaiso, Chile

4. Logistics Support Extension Zone

(ZEAL - Zona de Extensión de Apoyo Logístico)




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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.


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CASE STUDY:

3) Sohar Industrial Port, Sultanate of Oman

Project Brief details by:

C. Bert Kruk

March 11, 2004

Updated March 2008





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Management principles and project history

  • 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


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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


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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


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CASE STUDY:

  • A Concession Contract

4) The Port of Doraleh, Djibouti


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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


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The Port of Doraleh, Djibouti (cont.)

  • 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.


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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


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The Port of Doraleh, Djibouti (cont.)

  • 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!


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Conclusions

  • 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


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Recommendations

  • PPP Arrangements do work and are successful

  • Private operator involvement will continue in the sector

  • Establish clear roles, responsibilities and realistic goals

  • Preferred roles of public sector

    • Public sector continues to own the land and infrastructure

    • Masterplanner

    • Regulator

    • Finance, supply, maintain and own common user infrastructure


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THANK YOU!

Materials prepared by:

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

Sabino Escobedo - TAG Financial Advisors

Sabino Escobedo - TAG Financial Advisors


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Contacts

For comments or further details contact:

Junglim Hahm [email protected]

Richard Cabello [email protected]

Sabino Escobedo [email protected]

David Stiggers [email protected]


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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


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