Time for change

Spain finds itself amid rough seas, being battered by deep financial problems, a prolonged economic crisis and high unemployment rates.

Spanish ports can play a significant role in getting the country back on track, but is the existing port governance structure adequate enough to allow them to sustain their positions?

The port landscape in Spain consists of a handful of big ports and many more, smaller ports, handling around 80%-85% of Spanish imports of goods. For exports, sea transport accounts for 60%. The total volume handled via Spanish ports totalled 475m tons in 2012, 4% more than in 2011, placing Spain as the fourth largest in terms of throughput handled via seaports in Europe. The four largest ports Algeciras, Valencia, Barcelona and Bilbao account for more than 50% of the total Spanish throughput.

Larger ports should be able to achieve a higher return on their assets than smaller ports, but what bearing does that have on port governance in times when the central government has little to invest in port assets?

In many countries ports are considered strategic assets for the development of the national economy and their contribution to employment rates. In terms of governance there are countries that offer ports up to the private market, while others govern their ports as a public entity. In the case of Spain, the main authority governing and monitoring all the port authorities is the public entity, Puertos del Estado.

With the present economic climate, as well as a new political landscape, port authorities in Spain will need to undergo significant challenges in the forthcoming years. This could be the perfect opportunity for reframing the business model to consider the introduction of the private sector in the management of port authorities.

Landlord losses

The national legislation ruling and governing the port industry in Spain states that port authorities are ‘state-owned under the landlord model’. Puertos del Estado sets the rules and monitors the compliance with those.

Port authorities also have to be financially independent from the national budget and achieve a minimum target of 2.5% profitability. However, this is rarely the case: in 2011, only the largest ports, such as Barcelona or Algeciras, recorded positive results above 2%. This means that most Spanish ports have to rely on public subsidies and budgets, which nowadays are not always granted.

And while the Spanish port industry is well positioned in terms of port infrastructure competitiveness – ranking 14th in the world – continued competitiveness relies on long term investment, maintenance and performance. Lower national port budgets will ultimately have a bearing on competitiveness. Private investors could be the answer: private firms are interested in port investments – it is considered a lucrative business in the long term, in return for a stake in management and decision-making over their assets.

The main challenge for Spanish port authorities is to find guaranteed funding. Full privatisation is an option, however there are risks such as a perceived loss of control over assets or a deviation from the core business. The most suitable option for the management of the Spanish port authorities would be a corporate structure, which allows the State to regulate, guarantee and grant the interest of Spanish port industry facilitating the development of specific ports.

Two management levels could be considered to achieve a successful transition from public to private ownership. Firstly, decentralise and liberalise Puertos del Estado, transferring its administrative functions and responsibilities to the port authority. This could work for port authorities with volumes above 5m tonnes and profitability above 2% on average over the last three years. This model allows private investors to be partial shareholders and to be a source of funding for port development. This category could include the ports of Valencia, Barcelona, Bilbao and Algeciras Bay.

Secondly, continue government support for smaller ports to ensure their sustainability. Here, a restructured governance model should focus on simplifying and reducing the number of port authorities and combine resources, skills and know-how over port services and infrastructure. This category could apply to port authorities that have a throughput below 5m tonnes and negative economic figures. This would reduce the number of port authorities from 28 to 11, reducing expenses and unifying regional and economic efforts.

While overhauling port governance models is a challenging task, the current set up does not provide structure or funds that allow all ports – big or small – to execute their port infrastructure planning. As a consequence, they will not be able to sustain their competitive positions. Adopting a more flexible approach to port governance will, in our view, give Spanish ports more freedom and consequently more chance of getting funding for their port expansion plans.

The analysis, findings and conclusions of this article are based on and documented in a thesis, independently conducted and written by Emilio Montoro Bustos, in partial fulfilment of his Master degree in Shipping and Transport at Netherlands Maritime University in Rotterdam. Maurice Jansen, head of Netherlands Maritime University, acted as his thesis supervisor.