So far, the majority of port authorities have favoured extensions and renewals, employing a common-sense and timely approach. If a concession holder has paid the concession fees on time, been a responsible port stakeholder in terms of HSSE and CSR, provided good service and invested as necessary; then no obstacle is seen to concession renewal.
Indeed, forward thinking port authorities move early to negotiate extensions with the aim in mind of securing ongoing and timely investments. From, say, the seven-year point towards the end of a concession term it becomes progressively unlikely that a concession holder will want to undertake major capital investment or carry out expensive capital refurbishments and preventive M&R without the surety of an ongoing presence at the terminal concerned.
It is usually not possible within the latter time frame to achieve the required return on investment. So, what stops some port authorities in this happy position from proceeding with the logical step of concession renewal?
Some causes are institutional, such as an inflexible and unreasonable regulatory system where one size has to fit all despite clear evidence to the contrary. The EU’s recent procurement rules come to mind! Or it can be due to an excessive and slow-moving bureaucracy or just the good old human nature factor of the assumption that a better deal can be done elsewhere.
On the latter point, history shows that such assumptions are more often than not proved wrong – and this, it has to be said, is a big factor in the vast majority of port management bodies taking up the option of concession renewal. There has proven to be a lot of merit in the old adage: “better the devil you know than the one you don’t!”
FOLLOW THE PACK
Of course there are cases where concession renewal is not appropriate – where, for example, a concession holder has clearly failed to meet the requirements stipulated in the concession contract, or where the financial terms of the contract were overly favourable to the private operator and the only way to find a new market based pricing structure is via a public tender, or where trade and public planning requirements have changed significantly, thereby requiring different port development solutions.
In the case of Buenos Aires, for instance, the latter factor was identified as the driver behind the plan not to renew existing container terminal concessions at its Puerto Nuevo facilities and instead replace them with one integrated terminal.
Of course, the new plan also has to be right and, in the case of Buenos Aires, the plan to keep the port in the same highly urbanised location (surrounded by an urban area housing 14 million people with a density of 5000 people per square kilometre) – begs a lot of questions. Why not take this opportunity to move container operations to a new location with space and better connections to the hinterland?
Government masterplans can also interfere with seemingly logical concession extensions. This seems to apply to the recent news that PSA, in joint venture with the Saudi government, has been awarded the rights to all container terminal operations in Dammam.
This has the negative effect of reducing competition in the port (as the other incumbent operator Hutchison Ports has to exit the port) but it is part of the Kingdom’s longer term vision to diversify its economy by, inter alia, challenging Jebel Ali’s position as a logistics hub for the Persian Gulf.
The fact remains, however, that in most cases, the sensible course of action for a port authority is to renew a concession where the holder has done a good job and, subject to the usual due diligence, is judged to be able to continue to do so.
Port authorities in this situation that choose not to do so or just dither and prevaricate before eventually getting around to it can basically be seen to be failing in their duty. “Duty” not just economically but also socially with key issues arising such as creating uncertainty in the workforce.
Thus, the best advice is to ‘follow the pack’ – the benefit of straightforward concession renewal has been proven in Europe, Asia and the Middle East.