Thursday 20 November 08 - 08:51
 

Insight & Opinion

Mixed messages

02 Apr 2008

Maybe we can give ourselves a pat on the back? Last month our Post Script page discussed the container handling facility privatising process underway in the Greek ports of Piraeus and Thessaloniki. One of our criticisms of the process – and there were several – was the relatively short time allowed to bidders to submit their respective bids. Well, perhaps our voice of reason was heard along with others as we are now informed that the bid deadlines for both Piraeus and Thessaloniki have been extended to dates in May, a big and sensible step on from the 50+ days originally allowed for bidders to study the opportunity and to prepare the bids.

Nothing has changed, however, with respect to our other criticisms of the process which cover other aspects of the bid submission arrangements, the qualifying criteria and the proposed structure of the concession agreements. In our opinion, there is significant room for improvement in all these areas and we fail to see why with so much experience of container terminal privatisation under the worldwide industry’s belt, the Greek authorities have not tapped into this.

Our thoughts on the negatives in the bid submission arrangements and the qualifying criteria for bidders were well documented in March's issue (pg 50). In terms of the concession structure, there are two examples that jump out from the bid documents relating to the Thessaloniki container terminal concession. One is that the Thessaloniki Port Authority “reserves the right” to have a permanent representative on the board of the company set up by the successful incoming bidder. Another, even more striking, is the effective placing of cap of 15% on the Internal Rate of Return for the incoming investor.

These two measures have the smell about them of government in theory privatising but in practice of not wanting to let go. Or, to put it another way, the hand of government will still be manifest in the day-to-day operation of the new terminal operating company. And just what is the point of that?

The move to privatise – as we have said many times before – is in itself an admission that the private sector can now take a business forward in a more effective way than government. So what is the point of government promoting arrangements that effectively allow it to tinker with the business or which curtail the reward of an entity that is taking significant risk in its role of an investor? Experience shows a clean cut is the best. When will these governments learn?

Also in the spotlight this month, in a similar respect, is the concession offered for the $320m, two-berth box terminal at Ennore, India. The Indian authorities here stated at the outset that the tariffs charged will be capped at a certain level, and the impact of this is perhaps reflected in the fact that there are only two bidders for the project. What is wrong with letting the market decide what the handling charges should be? Or alternatively having an independent regulator – an arm’s length one – of the type found in other industry sectors such as energy and telecommunications.

We see no merit in a landlord port authority that effectively wants to keep pulling the strings after retiring from front line cargo handling operations. The message is clear: you can’t have a foot in both camps.

Motorship