Green levers in concessions?

Governments, port authorities and terminal operators are exploring ways to make ports greener. This is a multi-faceted challenge ranging from deploying electrified equipment for cargo handling, to providing cleaner fuels for bunkering ships but also being a node in the supply chain for clean fuels, and even using port land (and water) for clean power generation. All these ideas require specific parties to take on the cost and risk (and reap the benefits); aspects that are central to port and terminal concession agreements (PPPs).

In October 2023, DP World and APM Terminals published a ground-breaking white paper. Entitled Reaching a tipping point in Battery-Electric Container Handling Equipment it set out the companies’ call to action for the entire port ecosystem and Container Handling Equipment (CHE) value chain to accelerate towards a tipping point for widespread adoption of Battery-Electric CHE. The report sets out four key levers that could be used to achieve this. Three of them relate to technical and operational aspects but significantly, the fourth is aimed at port authorities (and affiliated government and public entities) and relates to the possibility of introducing green levers in port and terminal concessions.

Specifically, the potential new green levers the report suggests are:

• Award extra credits to concession bids with zero-emission fleets.
• Require that bids for new concessions rely on zero-emission fleets.
• Offer to extend concession durations only to those terminal operators who agree to replace their diesel fleets with zero-emission CHE.
• Offer favorable financial lease tariffs or discounts to terminal operators who invest in a zero-emission CHE fleet
• Assisting terminal operators with the infrastructure adjustments required for zero-emission CHE fleets to operate

EARLY DAYS
Clearly the industry is at the very early stages of looking at such green levers. Plus, at the same time there remains a great deal of uncertainty (and hence risk) with regard to the whole decarbonisation story. It is interesting to note that the African Development Bank, for example, is at the early stages of creating a Green Ports Certification Scheme which would help in this respect. What is also clear is that there is much capacity building to be done in terms of expertise and knowledge to support such initiatives.

Another significant aspect, particularly in relation to Battery-Electric CHE, is the simple feasibility or otherwise of providing electrical power for charging (and the “greenness” of this power). The challenge is not just to design, supply and operate the CHE, but also about the wider power infrastructure of the port and country in which a terminal is located. In this respect, developed world locations such as North America, Europe and parts of Asia are clearly better placed, whereas some parts of the emerging world have much more rudimentary infrastructure which needs to be addressed first before any thoughts of Battery-Electric CHE can be considered. In this context, whether a terminal is small, medium, or large does not necessarily favour or deter implementation. Rather, it is all about location, location, location.

NEW CONCESSIONS EASIEST
The most practical way to introduce green levers into port concessions is in the bidding process for new concessions. Starting with a clean slate, port authorities and governments should be able to devise ways to reward bidders offering green(er) options, although some form of uniformity to ensure fair comparisons would be required.

Offering favourable concession financial terms to terminal operators who invest in a zero-emission CHE fleet is a sensitive issue because it cuts to the root of the “who pays” question. There is a danger that public port authorities are seen as the “bank” to fund such investment, having as they do a wide public and social remit that is not solely profit motivated. While clearly it would be advantageous for a port authority to select a concessionaire with whom both parties see eye-to-eye on this, it has to be a win-win solution.

Competition rules also come into play, because any discounted concession fees must be justifiable and fair – and legal. For example, an increasing number of ports already offer discounted port dues for more environmentally fueled vessels, e.g. based on the International Association of Ports and Harbors’ (IAPH) Environmental Ship Index, but this is a public, published, fixed tariff. Very different from a privately negotiated concession where the question of subsidies raises its head.

The financing aspects of green levers in port concessions are also significant because ultimately every concession must be bankable to succeed. Could the extent to which a concession is green result in a better interest rate, or availability, for loans? Environmental, social, and governance (ESG) green financing is certainly on the rise and new infrastructure project evaluation methods are being rolled out, but it remains early days on this question. Perhaps more significant is the fact that green lever port concessions ought to have better bankability. Time will tell.

REGULATION FIRST
The World Bank takes the view that port authorities and governments cannot be expected to meet the cost of green initiatives in terminals, and that in any case, what first needs to be addressed is the bigger picture, namely regulations by international policy-setting bodies such as the International Maritime Organization (IMO). In other words, rather than individual port authorities having to take on board additional cost and risk, the regulatory playing field needs to be clearly set out first. Internationally agreed rules – for example similar to the established emission control areas (ECAs) for shipping in Europe and North America – would provide a backbone for greener concession negotiations. Multilateral development banks can also play a role as facilitators when providing financing or offering technical assistance, based on their policies and programmes.

EXPOTENTIAL GROWTH
The DP World-APM Terminals white paper also makes a key point about exponential growth in new technology reaching a tipping point when it becomes more competitive than conventional technology in three dimensions: affordability, attractiveness and accessibility. Historic examples such as telegraphs and electric power are cited as well as steep growth rates of more recent technologies such as solar power, electric vehicle sales and battery storage sales. More widespread use of Battery-Electric CHE may well be coming sooner than might be expected, therefore.

To further this aim, DP World and APM Terminals are establishing a grouping of interested parties under the name of ZEPA (Zero Emission Port Alliance). Careful to make it clear that all ZEPA activities will be strictly structured and undertaken in accordance with antitrust/competition laws, the group aims to gain and share knowledge, accelerate implementation and improve business relations. Membership is open to terminal operators, ports, equipment manufacturers and government entities.

CHANGES CHALLENGING
The port concession PPP context for all of this is the fact that most of the world’s port and terminal concessions are already in place. Extending, renewing, and re-negotiating such existing concessions to build in green levers will undoubtedly be the most challenging option. As the Port of Gothenburg points out, as recently as 10 years ago, most new concessions hardly touched upon green issues. Renegotiation of existing concessions is already a complex and challenging exercise and adding in the green “wild cards” will not make it any easier. The market can and will however, likely adapt accordingly.

_{This article was written by Neil Davidson and Erik Wehl of the WAPPP* Port Chapter and reflects the discussions that took place during an online roundtable event held in May 2024 by WAPPP, supported by UNCTAD. The speakers at the roundtable, raising the ideas reviewed and assessing the challenges identified, were from the World Bank, DP World, Port of Gothenburg, and the African Development Bank.}

_{* Based in Geneva, WAPPP is a global non-governmental organisation that promotes best practices in PPP to align with UN Sustainable Development Goals.}