In a 2006 presentation at the XV Latin American Port Congress, a World Bank ports expert, on secondment from a large terminal operator, told the group that “governments remain at the heart of infrastructure service delivery” and need to “spend better” on infrastructure. He particularly had in mind the arterial type of infrastructure that maritime ports rely on to function efficiently. His intention was also to highlight the many ways in which government can now “spend better” on infrastructure including, practically speaking, via arrangements such as establishing toll roads and concessioning railroads.

At the same event, a speaker from APM Terminals implored governments and port authorities to privatise, saying that “private companies are ready, willing and able to develop capacity”.

From a capital allocation standpoint, development bank funding has in the past flowed to transport projects critical to cargo movement between the hinterlands and the coast. Not surprisingly, however, World Bank statistics for FY2002-FY2004 reveal that ports/waterways/shipping saw the lowest modal share, some 3%, of its $3bn average annual transport sector lending.

This is very much in line with the Bank’s new generation policy of providing good advice and nolonger being the first stop finance lender. The ball,  nowadays, is very much in the private finance sector in this respect as recent experience tells us.

Emerging nation finance options One strategy, entirely bypassing the development banking sector, is to obtain finance from a commercial user of a facility.

In a transaction announced in late July, 2007, the state-owned Nanjing Port Group (NPG), based in the Yangtze Delta in Eastern China, sold a 45% stake in a recently constructed terminal to a listed company, Pacific Basin Shipping. The terminal, built by NPG and located strategically near rail and highway links in Jiangsu Province, will handle steel products, scrap metal and other general cargoes suitable for PacBasin’s handysize ships. The Nanjing Port Authority, a shareholder in NPG, is no stranger to commercial interfaces, having previously joined forces with shipping lines in developing container terminals in the area.

According to the company, the equity investment will total roughly $16m. Wang Chun Lin, who runs the PacBasin subsidiary responsible for the investment, adds: “We expect to conclude further maritime-related infrastructure projects in China in the next twelve to eighteen months.”

North of Jiangsu, in the very populous Shandong Province, Yantai has seen the advent of the “Rising Dragon Container Terminal”, launched in the first half of 2007. A 60% stake in this interesting project is held by a wholly-owned subsidiary of Manila-based International Container Terminal Services Inc (ICTSI). This investment typifies the type of inward investment now undertaken by international terminal operators who are largely private entities with the notable exception of DP World and PSA International.

The state-owned Yantai Port Company has retained a minority stake in the terminal. In 2006, Yantai saw a throughput of 81m tonnes of cargo including container traffic of 1.05m teu.

Another investor in the mix that is state-owned but operates in accordance with private sector principles, like DP World and PSA International, is the Chinese fund manager State Development and Investment Corp (SDIC). It has invested in port expansion projects in Caofeidian, Jingtang, Zhenjiang, Longkou and Yangpu.

ICTSI has particularly strong experience of investing in emerging nation projects – and, it has to be said, with exceptionally good results. Besides China, examples can be found in the Indian Ocean, South America and Middle East.

Off the coast of East Africa, the island of Madagascar is benefiting from ICTSI’s investment in the modernisation of the container terminal in the country’s major port of Toamasina.

Indeed, the experience in Madagascar has led to World Bank accolades, underscoring the inter-relatedness of government and private efforts where infrastructure development is concerned. What might, colloquially speaking, be called a win-win situation. In late 2003, the World Bank committed $150m to a multi-year infrastructure project in Madagascar (topped up in May 2007 with an additional $15.6m for the rail sector), encompassing mainly roads but also ports and infrastructure.

The maritime portion of the original expenditure, approximately 15%, went towards improvements benefiting the entire port system – such as buoys and dredging. Other institutional reforms were implemented and in conjunction with these a concessioning process for the fledgling container operation in Toamasina was initiated.

Following on from this, ICTSI was declared the winner in June 2005.

Since this time, ICTSI has invested heavily in Toamasina to the tune of around $30m.

What was previously a rather crude container terminal operation in Toamasina has been turned into a modern one, performing in line with best practice internationally. New mobile crane handling power has been installed on the quayside, extensive remodelling of the yard and gate entry systems carried out, new one over five rubber-tyred gantries installed as the main container handling muscle on the landside and comprehensive IT systems installed for vessel planning, yard management, gate system and administration and client interface.

Another notable emerging port where ICTSI is investing is Guayaquil, Ecuador. On August 1, 2007, ICTSI’s wholly-owned subsidiary, Contecon Guayaquil SA formally commenced its 20-year concession to manage the container and multipurpose terminal in the port of Guayaquil. Over the lifetime of the concession, ICTSI will make an investment of $170m over three years, in addition to $30m invested in the first four years. The Port Authority of Guayaquil will receive from ICTSI a fixed fee of $8.4m per year and $10.40 per teu handled.

Also in Ecuador, Hutchinson Port Holdings has secured a 30-year concession to build and operate a 16m deep draft container “mega-port” at Manta. It originally announced that it would invest $523m over the 30-year period, commencing in 2007, however, it is understood that investment is throughput-triggered and so far with Manta handling a scant 34,000 teu in 2004 this has remained at a relatively low level.

Though development banks will continue to play a role, the shape of port investment is increasingly being defined by private operators like ICTSI, Hutchinson and DP World, which are, effectively, conduits for infrastructure investment from their public shareholders and private investors.

The pockets of the big players, with developing country ports in their sights, are deep. DP World is amply funded. It is presently investigating further bond offerings beyond a recent $3bn deal, after having recently cancelled a $5bn equivalent UK share offering. Hutchison and PSA International are also highly powered on the finance front.

ICTSI has demonstrated its worth as a niche player in emerging markets, in particular with container terminal projects in the 50,000 teu-1.5m teu range. It was actually the first company to undertake a fully-fledged container terminal privatisation in Africa, in Dar es Salaam where it again received plaudits from the World Bank for its leading role in upgrading container handling service here.

Options expanding

Not all operators are suited to tackling projects in emerging nations; they often present a unique cocktail of formidable challenges. Traditionally, they have also only been able to draw on limited financial resources. But with experience now showing that many of these projects can deliver significant rewards, commensurate with the risk taken, the financing options are expanding including those offered by infrastructure funds and private equity houses at an investor level.

One other barometer of this is that slowly but surely a resale market in port facilities is developing – one recent example of this being construction concern Skanska putting up for sale its equity stake in the port of Maputo, Mozambique.