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Ports

As trade barriers worldwide are dropping, the physical barriers to the movement of goods remain the greatest bottleneck to trade. Over 70 percent of the world’s trade by value and 90 percent by volume travels by ship. With developing country trade growing at nearly 14 percent per year, the efficiency of port activity has become an essential piece in unlocking economic potential.  The speed with which cargo is securely moved from a vessel, the ease and accuracy with which it is tracked, and the turnaround times of the ships carrying that cargo, together define the economics of the maritime industry and impact the economic development of a country and region.

While ports were traditionally viewed as infrastructure and services to be provided by the public sector, past decades have seen a global shift to greater private sector involvement, both in port operations and in financing of port infrastructure. Private operators and investment have changed the standards of acceptable performance for these crucial gateways to trade.

Issues

  • Legal and regulatory framework

    Where a port PPP is being introduced for the first time in a country, a comprehensive review of the legal and regulatory framework governing the port sector may be needed. This process should include a thorough evaluation of existing...

    Where a port PPP is being introduced for the first time in a country, a comprehensive review of the legal and regulatory framework governing the port sector may be needed. This process should include a thorough evaluation of existing institutional arrangements and may require that a new port bill be drafted or the existing law be amended.

    In addition to traditional technical aspects, the review must take account of and reflect the chosen model of port sector management. If switching to a landlord model, this will require the set up and mandate of the public port authority, ensuring transparency in its management.

    Undertaking a thorough review of the legal and regulatory framework would afford the opportunity to revisit all existing institutional arrangements that touch on the role of ports and maritime management in a country to ensure there is no duplication of efforts and/or to ensure the most effective sector management overall. 

  • Staffing

    Overstaffing and excess labor is a common problem in port sectors that have not reformed. There are generally two aspects to this that must be taken into account. First, if a PA has been operating a port, it is likely that a private...

    Overstaffing and excess labor is a common problem in port sectors that have not reformed. There are generally two aspects to this that must be taken into account. First, if a PA has been operating a port, it is likely that a private concessionaire will be able to operate a terminal with fewer staff and labor than has been employed previously. Second, as the role of PA changes as a consequence of concessions, frequently the PA staff numbers and skills mix must be reconfigured.

    Any decision regarding the significant reduction of a workforce requires substantial planning, including an understanding of associated costs, as well as a concept of sequencing and duration of the undertaking. Good practice indicates that such planning should consider use of mitigating measures to try to ensure that the persons affected are left in a dignified and economically viable situation. Financing for each sequenced step needs to be secured before execution starts. In some cases, the rightsizing transition is implemented relatively quickly, while in other cases it may take place over an extended period of time, possibly 1-2 years.

    Following reform, a landlord port authority would have only a handful of technical positions, while a private sector operator would employ operational staff.

  • Port tariffs

    Port tariffs are made up of charges for the costs incurred by the operator, including:  loading and unloading containers; container storage; customs inspection and clearance; and ancillary charges for services such as electricity for refrigerated...

    Port tariffs are made up of charges for the costs incurred by the operator, including:  loading and unloading containers; container storage; customs inspection and clearance; and ancillary charges for services such as electricity for refrigerated containers, cleaning, and reloading cargo from one container to another.

    Tariffs are usually dealt with differently depending upon the nature of the market:

    • If there is adequate competition from multiple terminals within the port or close competing ports, the authority may feel comfortable with no regulation of tariffs since the competitive marketplace will prevent a terminal operator from raising rates to a level that would hurt customers (shipping companies, importers, and exporters) and ultimately consumers.  
    • If there is no or little competition among terminals in the port (this can happen when a single terminal is concessioned to a private operator with no competing nearby ports), the ports authority may:
      • set a maximum tariff at the time of the bid against which bidding port operators evaluate how much they are able to pay in rent or throughput royalties (the basis for the bid); or
      • make the tariff the basis for the bid—that is, the operator who bids the lowest tariff to handle cargo (with rental and throughput payments set out in the bid documents) wins the concession.

    Note, that in cases where tariffs are capped or regulated, it is important that the concession contract include adjustment clauses for inflation and foreign exchange fluctuations.  

  • Political leadership

    PPPs in ports require robust political support and leadership in order to be successful. In countries where ports have played an outsized role in the economy, changing from a public port model to a landlord model can meet significant opposition....

    PPPs in ports require robust political support and leadership in order to be successful. In countries where ports have played an outsized role in the economy, changing from a public port model to a landlord model can meet significant opposition. Vested interests in continuing the current model will likely resist change and legitimate concerns about social effects may be raised, particularly if there are overstaffing issues, as is often the case with publically run ports. The project requires strong political leadership that is able to anticipate objections to the project and articulate its benefits to many different audiences. 

Models

  • Traditionally, ports were operated on the public service model, wherein port infrastructure, equipment and all principal operations were operated by port authorities (PAs). The tool port model allows for private sector involvement as...

    Traditionally, ports were operated on the public service model, wherein port infrastructure, equipment and all principal operations were operated by port authorities (PAs). The tool port model allows for private sector involvement as operators but relies on equipment provided by a PA. Today, most of the world’s largest container ports operate using a landlord model, which has become the predominant choice for governments seeking to reform and engage the private sector.

    Within the landlord model, the public authority owns the port and provides the basic infrastructure and management of the marine side assets, while the private sector through concessions – often to international terminal operators– operates the container terminals with their own equipment and superstructure.

    In typical port PPPs, the public entity enters into contracts with private port management companies which then operate individual terminals within the port. The landlord port authority functions as a technical regulator, overseeing the private operator, and collecting fees which typically consist of a fixed rental charge, a percentage of the private operators’ revenues, a charge per container handled by the private operator, or some combination of the three.

Tools & Guidance

    • 2001
    • Asian Development Bank (ADB)

    Developing Best Practices for Promoting Private Sector Investment in Infrastructure: Ports

    This five-volume set presents the findings of an ADB regional technical assistance study which developed sector-specific best practices for promoting private sector participation in key infrastructure sectors in ADB's developing member countries.The best practices cover the role of government, institutional reform, strategic planning, legal and regulatory frameworks, unbundling and competition, contractual arrangements, sources of financing, and the allocation of risk. This volume reviews the various arrangements used throughout the world to transfer public port activities and assets to the private sector. It examines the trend toward terminal concessions and the transition from operating ports to landlord ports, and considers best...

    • 2007
    • PPIAF

    Port Reform Toolkit: Effective Support for Policymakers and Practitioners

    2nd edition

    ​The Port Reform Toolkit is aimed to provide policymakers and practitioners with effective decision support in undertaking sustainable and well-considered reforms of public institutions that provide, direct, and regulate port services in developing countries. It includes the following modules: Framework for Port Reform, The Evolution of Ports in a Competitive World, Alternative Port Management Structures and Ownership Models, Legal Tools for Port Reform, Financial Implications of Port Reform, Port Regulation: Overseeing the Economic Public Interest in Ports, Labor Reform and Related Social Issues and Implementing Port Reform.     

    • 2007
    • James Leigland and Gylfi Palsson
    • PPIAF

    Port reform in Nigeria

    Upstream policy reforms kick-start one of the world’s largest concession programs

    Over a two-year period, beginning in late 2004, the Nigerian federal government implemented one of the most ambitious port concessioning programs ever attempted. The success of this program resulted from the government’s vision and decisiveness, as well as the need to remedy massive shortcomings in the sector, which were sharply inhibiting economic development. But the program also benefited strongly from policy reform recommendations made by PPIAF-funded consultants in 2002. The role of these “upstream” policy and planning recommendations highlights the value of best practice steps for creating an enabling environment in which sustainable arrangements for the private participation in infrastructure can be concluded.

Projects & Case Studies

    • 2013
    • International Finance Corporation (IFC)

    Madagascar: Port of Toamasina

    Brief on IFC's PPP advisory support to the government of Madagascar to structure a 20-year concession for the operation, maintenance, financing, rehabilitation, and development of the container terminal at the port of Toamasina.

    • 2014
    • International Finance Corporation (IFC)

    Niger: Dry Port

    Brief on IFC's PPP advisory support to the government of Niger on the implementation of a 20-year concession to build, develop and operate a dry port project in Dosso and Niamey.

    • 2009
    • World Bank Group (WBG)

    Benin: Port of Cotonou

    PPP Brief

    Benin’s port of Cotonou is a potential gateway to landlocked West African countries, but high shipping costs, low efficiency, and poor logistical facilities have kept it from becoming a key trade route. As part of a major port sector reform program, the government hired IFC as the lead advisor on a public-private partnership for a new container terminal. The concession agreement was signed in September 2009.

    • 2010
    • World Bank Group (WBG)

    Brazil: Suape Container Terminal

    As part of a major port sector reform program, the government of the northeastern Brazilian state of Pernambuco hired IFC as the principal advisor on the public-private partnership for the first dedicated container terminal (TECON) at the Port of Suape. International Container Terminal Services (ICTSI) of the Philippines won the public tender to build and operate the container terminal for 30-years. The agreement was signed on March 2001 and the container terminal began operations three months later.

    • 2015
    • Mathieu Verougstraete, Ferdinand Marterer and Clovis Eng
    • United Nations Economic and Social Commission for Asia and the Pacific (ESCAP)

    Regulation in PPP projects

    The case of Port Klang

    The Malaysian government has improved the capacity and efficiency of its port infrastructure by involving the private sector. This case study reviews the development of the largest port in the country, Port Klang, and considers the role of the public partner when ports are privately operated.

Lessons & Analysis

    • 2007
    • Alan Harding, Gylfi Pálsson, Gaël Raballand
    • European Union, United Nations Economic Commission for Africa, World Bank Group (WBG)

    Port and Maritime Transport Challenges in West and Central Africa

    • 1998
    • Gylfi Palsson
    • United Nations Economic Commission for Africa, World Bank Group (WBG)

    Multiple Ports of Call versus Hub-and-Spoke

    Containerized Maritime Trade between West Africa and Europe

    Hub-and-spoke systems in containerized maritime transport often bring significant cost advantages, benefiting the various parties to the trade. Yet, comparison of a unit cost of the best example of a current multiple port call system with a hypothetical optimal hub-and-spoke system reveals only marginal cost benefit for the region. In addition, all the cost benefit would befall the hub itself, while costs for all other ports in the area would be higher. The most effective way to cut the total logistics cost for West Africa is to improve current practices, rationalize customs operations, weed out corruption, increase port efficiency, and cut through red tape in order to create a commercial and user-friendly...

    • 2013
    • Inter-American Development Bank (IDB), World Bank Group (WBG)

    The Challenges to Small Caribbean Ports

    Are there lessons to be learned from recent port reforms in Africa?

    • 2012
    • International Finance Corporation (IFC)

    Handshake Issue #6: Air & Sea PPPs

    Handshake Issue #6: Air & Sea & PPPs examines how public-private partnerships (PPPs) push air and sea transport development forward with greater speed and richer benefits.

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