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Module 3

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Title: Module 3


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

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.

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

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.

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

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

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

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

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

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

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)

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 Authoritys asset
    base.

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

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

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

17
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

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

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.

20
Basic Port Management Models
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

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 ports
  • Geographical location
  • Financial resources
  • Institutional and socio-economic climate
  • Efficiency and price
  • Image

23
Value-added services a means to attract clients
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

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

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
  • Lands value can vary significantly and its use
    as a security be complicated
  • Public-Private partnerships can be set up
    sharing risks and rewards

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

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.

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

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.

31
Commercialization
Objectives
  • Transform the port organization into a truly
    autonomous Port Authority, whose Board will
    oversee the organizations activities
  • Give the Port Authority financial independence
    and responsibility for the ports 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

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

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

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

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

36
Spectrum of Port Reform Tools
37
Contracting out and Use of Management Contracts
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

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

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
  • Sponsors direct agreement
  • Design contract
  • Building contract
  • Financing documents
  • Management contract

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)

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 ports public service function
  • Reluctance of labor unions and public authorities
  • Under-evaluation of the ports market value
  • Self regulation

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 Authoritys operational expertise
    and management

Risk
  • Conflict of interests

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

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
46
The Harbormasters 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

47
Pilotage
  • Pilots have a strong bargaining power and can
    greatly influence port reform
  • Retaining pilots in Port Authoritys 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

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

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

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
51
Other Marine Services
  • Control of dangerous goods is usually performed
    by a specialized branch of the Port Authority
  • Waste management services are often privatized
    under strict control of a Port Authority
  • Port patrol services should not be privatized
  • Emergency response services are carried out by
    the Port Authority, the fire brigade, health
    services and police
  • Control of dredging operations should be
    performed by a sufficiently competent personnel
    employed by the Port Authority

52
Prevailing Service Providers under different port
management models
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