Are you a government agency considering implementing a port master concession? The WAPPP* Port Chapter has developed two simple frameworks that can help evaluate the opportunity
| FACTOR | KEY QUESTIONS | NOTES | |
|---|---|---|---|
| 1 | Legislation/Port development policy | Have the national and local legislation and policies been up to the task? | The legislative framework under which the master concession functions must be considered. Is there an overall national policy for the development of ports in national jurisdiction and has it worked? |
| 2 | Port governance/ Regulatory oversight | Has the regulatory function been appropriate and effective? | Have the duty/guardianship priorities of a public port authority been reconciled with the natural profit maximising motive of a private master concession holder? Have some aspects of port regulation such as security and environmental matters been picked up by federal or national-wide regulators? Has the port master concession holder performed to required levels? |
| 3 | Strategic/Political issues | Has the port ownership remained in the hands of the original concessionaire, and has their behaviour been acceptable? | The question of foreign ownership/control of strategic assets is key, as is national security objectives. Has there been a change in the ultimate ownership of the master concession holder during the lease period? |
| 4 | Financing | Have any issues been encountered in financing major port projects? | Financing of major infrastructure projects at ports is often shared between state and local government/port authorities. Has the privatised landlord port authority made and met its commitments? Have the differing expectations of the level of return on investment between the public and private sectors been reconciled? |
| 5 | Length of lease | With hindsight, is the lease period considered to be the right length? | Given that one of the primary roles of a landlord port authority is investment in long-term infrastructure such as quay walls, a long lease period is usually called for (in Australia 99 years was used in some cases). There is also the issue of the wider asset base relative to revenue generating capability (real estate infrastructure, landside connection infrastructure etc.) and maintenance of same; some of these assets do not include revenue generating activities on their own. However, circumstances can change radically over such long periods and some parties feel lease periods are too long. |
| 6 | Clawback provisions | Has it been necessary to invoke any clawbacks? | There should be protection built into the concession so that if the master concessionaire has sold off certain assets, the monies can be clawed back by the government. However, defining which assets should be subject to this provision can be complex. |
| 7 | Prices/Tariffs/Rents | Have port prices and rents been maintained at acceptable levels? | Pricing powers of master concession holders is a thorny issue, given that their primary aim will be to maximise profits (the same as the private terminal operators in the port). Has regulation been necessary or not? If so, has it worked? Master concessions often result in the creation of local monopolies. There is also possible vertical integration across the supply chain by the master concession holder. |
| 8 | Level and suitability of investment in capacity | Has the promised (and appropriate) investment in capacity and facilities been made? | Linked to both the length of the master lease and the pricing controls, there is the need to ensure that the master concessionaire has invested in additional capacity at the port as and when required. Private companies take a different view to publicly-owned ones. Plus, there may be other types of important investment which may not directly generate a positive NPV but generate positive externalities etc for the neighbourhood (e.g. initiatives to reduce noise pollution) or when it comes to business development (e.g. energy transition), which may require a subsidy from municipality or region to make financial sense for the PA. Is the private partner committed to such type of investments? |
| 9 | Level of inter-port competition | Has there been sufficient inter-port competition in the market? | Given the very long length of master concessions there may have been new competition and entirely new port entrants to the market. So even if a master concession has a natural monopoly to start with, this may not be the case decades down the line. |
| 10 | Terminal operators | Have there been any issues with major port tenants? | Relationships with existing terminal operators in the port (who may be competitors of the master concession holder) are relevant. |
There are a number of examples of port master concessions where governments, mainly in developed nations, have chosen to grant concessions to the private sector for the role of a landlord port authority. Ports such as Geelong, Adelaide, Brisbane, Sydney (Botany), Melbourne and Newcastle in Australia, and Piraeus, Thessaloniki and most recently Igoumenitsa in Greece have seen control of their port authority companies, holding long-term leases, move to private sector investors in the main (Piraeus was sold to the Chinese state-owned entity Cosco).
Some emerging nations have also pursued this policy, such as Madagascar and more recently Nigeria. Other countries are considering it, for example, Brazil, although the policy direction seems to have recently changed with a new government.
The value and risks of this approach – effectively monetising strategic assets that have previously functioned as public bodies, and which must retain a remit well beyond simply making profits – has been subject to a great deal of often heated discussion. Australia and Greece in particular have seen in-depth work carried out to assess the efficacy of the policy, and opinions vary widely. Politicians, financiers, academia, “neutral” observers and the industry itself often have different agendas.
In order to assist interested parties in analysing past deals, and consider possible future ones, the WAPPP Port Chapter has developed two simple frameworks – one to help look at those port master concessions that have already been granted, and the other to help weigh up whether a particular country or location has the necessary ingredients for the policy to stand a chance of being successful in a future master concession deal.
The frameworks take a deliberately straightforward approach. This is not to say that the task of analysing port master concessions is simple – far from it in fact. Rather, the aim is to provide an “entry-level” foundation, highlighting the key factors commonly seen. These factors must be considered in the context of the stated goals, aims and reasons used to justify port master concession policies, for example generating income for the public sector from port assets, facilitating greater investment or increasing port efficiency (and note again the above comments about the varying opinions on the value or otherwise of the policy).
| CATEGORY | FACTORS | |
|---|---|---|
| National governance systems | Strong rule of law/Political stability | |
| Quality, power and capability of regulatory authority | ||
| Absence/Control of corruption | ||
| Voice and accountability | ||
| Market and competition | Market stability and predictability | |
| Effective inter-port competition | ||
| Absence of political/strategic concerns about foreign ownership | ||
| Nature of the port authority/company | Scale and activities | |
| Institutional structure | ||
| Ethos and role | ||
ANALYSING PREVIOUS MASTER CONCESSIONS
The following framework uses key questions for individual factors. The notes column provides some guidance on how to consider each of the key questions. A simple traffic light system could be applied to evaluate the result of the analysis by weighing up the success or otherwise of existing port master concessions. Red/amber/green colours may be used to illustrate whether any issues and obstacles encountered as a result of the master concession should be regarded as serious, manageable or limited/absent. The judgement in each case is of course ultimately subjective, but ought to be based on reviewing as extensively as possible the available objective evidence for each of the key questions.
There are ten key questions to be considered – Table 1 - ranging from high level policy, strategic and regulatory matters, to the finer detail of tariffs, rents, competition and port tenants, in particular terminal operators.
It must be said that analysing the Australian experience in particular is complex and challenging. There are numerous port master concessions, each under different state jurisdictions. There is little federal (national) level involvement in the master concession process and in subsequent governance other than meeting statutory requirements. It is at a state level where the main ongoing governance takes place which of course makes sense as it is the state that is the ‘seller’ and the recipient of the concession revenue. The exact nature of this governance varies from one port to the next, taking into account local factors ranging from macro political considerations to local needs. There is of course some uniformity but also an influential bespoke element. Added to this, some Australian port authorities were concessioned a long time ago, others more recently – the process has been around for over 25 years. Some master concessions were priced too low, others much too high, it is claimed.
There are also micro level issues in port master concessions that are highly significant. There is the issue, for example, of new investment benefitting some terminal operators active in the same sector more than others – as can currently be seen to be the case with the installation of new rail links in the Port of Melbourne. Victoria International Container Terminal (VICT), known to be the terminal with the highest per square metre concession costs, will not be a main beneficiary. The new Coode Rail Terminal, featuring two rail sidings, both able to handle 600m trains, is located adjacent to the Swanson Dock East International Container Terminal and in fairly close proximity to the Swanson Dock West International Container Terminal but some way from Webb Dock where VICT is based.
Analysing the Greek experience is also not without challenges. Piraeus is a large, multi-purpose port with a landlord port authority whereas Igoumenitsa is a small passenger ferry port and effectively an operating port authority with a small, niche customer base. The Piraeus port master concession was awarded to Chinese operator Cosco and so any analysis can easily be over-shadowed by the nature of the foreign ownership whereas Igoumenitsa was awarded to a consortium headed by the Grimaldi Group, the port’s main ferry customer.
ANALYSING POTENTIAL MASTER CONCESSIONS
The following framework is designed to be used when weighing up whether proposed future port master concessions have all the necessary ingredients to deliver a successful and smooth result. Building on the experience of past master concessions, it takes a top-down approach with three layers of assessment.
- Firstly, the national governance systems (what is the rule of law and regulation like, is corruption an insurmountable issue and so on).
- Secondly the nature of the market in which the port operates, and the competition which exists in that market.
- Thirdly the nature of the port authority itself (what type of port is it, how is it structured and what are its aims).
Collectively these factors combine to influence whether a port master concession policy stands a chance of working, and the list of criteria is long and extensive.
At the national level, assessing whether a particular country has the necessary rule of law, absence of corruption and voice is challenging, and subject to a significant degree of subjectivity. At the market and individual port level, things become more concrete and measurable. The port market should be capable of detailed analysis, and existing and potential new competition for the port can be assessed.
Ultimately, the specific nature of the port authority is likely to be the key driver of success. In simple terms, establishing a port master concession for a small, single cargo sector port, run as an operating port authority should be more straightforward than that of a large multi-purpose landlord port. That said, small, single cargo ports are more likely to have just one or two main customers (especially in the bulk and neo-bulk cargo sectors), who therefore have a strong bargaining position when it comes to determining who the holder of a master concession is going to be. The same can be true for small ferry and ro-ro ports.
Clearly it is unlikely that any country or location could meet all of the criteria in the framework. Nevertheless, the framework does help to identify aspects where the conditions are supportive for port master concessions, and those areas where work would need to be done or protections built into an agreement. Before all of this, though, there remains a philosophical and political discussion to be had about whether control of port authorities is best served by remaining in public hands.
Based in Geneva, WAPPP is a global non-governmental organisation that promotes best practices in PPP to align with UN SDGs. This article is authored by Neil Davidson and Erik Wehl, of the WAPPP* Port Chapter.
