Financing the future

Speaking during the ‘Optimising the Value of Port Land’ session of the IAPH World Ports Conference 2021, Franc Pigna, managing director and founder at Aegir Port Property Advisors said that ports frequently rely on governments when they need to invest, but global infrastructure demands now exceed the value of global infrastructure funding.

“The intensive capital requirement of infrastructure outpaces the government’s ability to fund them,” he said. “Ports will need to be self-funding and self-sustaining.”

Transparency required

Regardless of size, all ports are facing the issue of how to finance expansion and modernisation and they will need to be financially transparent because they need to access private sector capital, Pigna explained.

Ports have been forced to look at their finances and subsequently are looking at their role as a landlord.

They need to get better at measuring returns, as they are not making money in most cases. Because if costs are not being recovered in full, ports are subsidising shipping lines and other port users, he points out.

Also present at the session was Patrick Verhoeven, managing director of IAPH, who posed the question of how ports can become an asset manager when land is held in trust.

Pigna suggested the kind of shareholder is irrelevant as the shareholder should always aim to try and generate revenue.

Looking at North America in particular, he pointed to the potential repercussions of not utilising assets, highlighting Canada Marine Act which enables government to seize an asset if the port isn’t using it.

Different landlord approaches

He highlighted two US ports and their different approaches to land use. The Port of San Diego in California generates 75% of revenue from ground leases as it owns a large amount of waterfront. This means port operations generate just 25%.

Looking at the Port of San Francisco, also in California, he noted it has become a real estate company, with most port functions transferred to the Port of Oakland.

He left attendees with a simple but important message: “If you allow a port authority to operate as a business it can be more profitable.”