Check and double check, the best project evaluation criteria

What drives a port authority or other government agency to develop the infrastructure for a new terminal and offer a new concession when there is little or no prospect of the facility offering a satisfactory rate of return to potential operators, asks Mike Mundy.

History tells us that such projects can be politically motivated, both at a local and central government level. It can even be one influential political figure putting ‘weight’ behind a
project – the desire to initiate a project in or near his or her hometown is one example of this.

Fingers have been pointed at the port of Hambantota in Sri Lanka and at the recently suspended Bagamoyo new port project in Tanzania in this respect.

The ready availability of financial grants or soft loan facilities can be another reason – one example that springs to mind in the EU is of a new facility being built to replace an existing terminal seen as a desirable location for waterside urban development.

While, however, such an existing facility may have ‘washed its face’ achieving satisfactory returns, for an entirely new facility is inherently problematic in a relatively low volume situation. All the more so, when there are efficient established terminals nearby.

There is one other notable cause of such projects being brought to the market that are really not fit for purpose, namely poor consultancy. This can be something as straightforward as a consultancy providing a rationale for a project with the next phases of the project in mind and the associated billing.

There can also be consultancy for a financing agency with the delivered consultancy fitting a given agency’s lending criteria, again leading to further billing opportunities.

Generally, serious problems can arise when consultants belie their name and instead work as ‘enablers’ giving the clients what they want rather than what is good for them. And, of course, usually when mistakes become apparent, related to elements such as demand forecasts, these are often a long way ‘down the track’ and so accountability is difficult to realise.

This flawed consultancy problem becomes all the more dangerous, and ultimately costly to government, when it is allied or spurred on by one or more of the pitfalls referenced earlier.

It is vitally important that comprehensive effort is put into proper consultant selection and particularly in conjunction with the demand for and overall economic evaluation of the feasibility of a project.

Our industry does have ‘white elephant’ projects dotted around the world. Avoiding initiating one of these is absolutely essential, in order to not waste hard earned taxpayer generated revenues and to bring the best economic result. A lot of airport projects nowadays require traffic forecasts from more than just one source. Given what is at stake in the ports sector, with more marginal and ‘white elephant’ projects appearing this appears to be a wise course of action.

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