Public Private Partnerships as an Option to Speed Up Investments in Intermodal Infrastructure and Services César Queiroz, Ph.D. Transport Infrastructure Consultant World Bank Klaipeda, Lithuania November 2007 InterBaltic Final Conference: “A Future Transport Policy for the Baltic Sea Region”

Presentation Outline The World Bank Lending for Transport World Maritime Traffic World Port Container Traffic Major Container Routes World Top-10 Container Ports Global World Port Capacity Performance Based Contracts (PBC) From PBC to Concession World Bank Port Reform Toolkit Logistics Performance Index (LPI) Concluding Remarks References

World Bank Lending for Transport Lending (US$million)

World Bank-Financed Klaipeda Port Project Includes Rehabilitation and extension of breakwaters Dredging of the channel entrance Training of port pilots Improved navigation systems, wave current monitoring, wreck removal Construction of a confined disposal facility for storage/treatment of contaminated dredging masses

Klaipeda Port: Reconstruction and Extension of Breakwaters

Dredging of Channel Entrance

Wreck Removal from Channel Entrance

Development of World Maritime Transport Source: UNCTAD Review of Maritime Transport 2006 Total transport (billion tons)

World Port Container Traffic Source: Containerisation International Million TEU

Major Container Routes (mio TEU) 2005 Transatlantic Europe – Far East Trans - Pac 5.1 Trans - Pac 12.9 Total East/West50.3 Total North/South20.3 Total Inter-Regional45.3 World Total115.9 Source: Drewry

World Top 10 Container Ports Source: Yearbook Containerisation International Throughput (million TEU)

Relative Growth: Top 10 World Container Ports Source: Yearbook Containerisation International Relative Growth (2003 = 100)

Global Container Port Capacity Container port capacity is reaching critical levels Development of new port capacity in countries like China is fast, but in other regions (like USA and Europe) much slower, due to many procedures (e.g., public inquiry, EIA, inefficient hinterland connections) Example: Le Havre and Yangshang Offshore Terminal in Shanghai

Le Havre and Yangshang 2000 project in Le Havre: First Phase of 4 berths took 3 years Yangshang Offshore Terminal in Shanghai: Phases 1 and 2 (9 berths) and 32.5 km long bridge took 5 years

PPPs are not new ! Toll road at Wadesmill in Hertfordshire, UK, established in 1663 by Act of Parliament 19th century concessions: toll roads, bridges, tunnels in US; railways in France; subway in London Suez (1860) and Panama (1880) canals Decline around 1930 (great depression) Resurgence in the 1980s: collapse of the state-owned monopoly paradigm

Public-Private Partnership (PPP) A sustained collaborative effort between the public sector (government agencies) and private enterprises to achieve a common objective (e.g., a container terminal project) while they pursue their own interests

Performance Based Contracts for Dredging – a Form of PPP Also known as draught guarantee contracts The contractor bears sedimentation risks over longer periods and is paid for services with monthly fixed amounts (or alternative financing such as toll – then a concession) Most ports and waterways have carried out maintenance dredging by two types of contract: Dredging paid by volume, or Charter contracts Before: directly by the government

Where to Apply Performance Based Contracts for Dredging? Where a stable level of policy is to be expected Where sedimentation can be evaluated within reasonable assumptions of risk Where other risks are covered with reasonable contractual limits (for example, extreme weather conditions) Sufficient volume to allow competitive bidding

Example of Performance Based Contract (PBC) for Dredging BAHIA BLANCA, Argentina A 5-year PBC for maintenance dredging Phase 1: Capital dredging; Opening Volume preset at 1 million m3; when real opening volume is measured the contract value was adjusted accordingly Phase 2: Maintenance dredging during remained of 5-year period The bid price was comprised of 60 equal monthly payments, plus the initial dredging

From Performance Based Contract to Concession – A Typical Case PBC: The contractor bears sedimentation risks over longer periods and is paid for services with monthly fixed amounts Concession: In addition to sedimentation risks, the contractor also bears demand risks, as payments are made by the users (e.g., toll)

Example of Concession for Dredging Hidrovia Waterway Concession, Argentina Concession contract for 18 years: 1995 – 2013 Rio Parana and Rio de la Plata from Santa Fe to the Atlantic Ocean Mainly for oceangoing traffic, but also river barges use the waterway 800 km of main waterway for Argentine exports (> 80% of export)

Hidrovia Waterway Concession Risk of sedimentation and traffic born by the concessionaire The works include: Capital dredging and installation of buoys in ; Deepening works from 9.8 m 10.4 m navigation channel; 800 km maintenance dredging – about 22 million m3/year; Maintenance of the buoys and beacons; Toll system Contract clause includes guaranteed depths and safety all year round, 24 hours per day

Hidrovia Waterway Concession Contractor has to provide sufficient equipment Three hopper dredges of 3400 to 6000 m3 holds are constantly working Additional hopper dredges assist during sedimentation seasons Additionally a large Cutter Suction Dredge maintains a sedimentation trap in the Rio de la Plata estuary on a 2 yearly basis Contractor places and maintains buoys Survey: 5 survey vessels for constant mapping of draft situation

Hidrovia Waterway Concession Tolls: paid by all commercial vessels per tonnage (NRT) and used stretch Toll level is revised on regular basis with state to find equilibrium between costs and income End costs for typical users: about 1 USD/ton of grain exported; 16 USD/TEU Concessionaire: Jan De Nul Group (DJN)

World Bank and Port Reform World Bank is and has been catalyst in reforming the Port Sector in Emerging Economies Service Port to Landlord Governance model has found wide application The Landlord Model has resulted in a clear separation between public and private responsibilities and returns, embedded in a concession contract: investments, tasks, revenues, and risks

World Bank Port Reform Toolkit A decision support tool to undertaking reforms of public institutions that provide, direct, and regulate port services in developing countries Helps to choose options for private sector participation Assists in the analysis of the relationships between public and private parties Suggests legislation, contracts, and institutional charters to govern private sector participation

Toolkit’s Main Modules A Framework for Port Reform The Evolution of Ports in a Competitive World Alternative Port Management Structures and Ownership Models Legal Tools for Port Reform Financial Implications of Port Reform Port Regulation: Overseeing the Economic Public Interest in Ports Labor Reform and Related Social Issues Implementing Port Reform

Toolkit Availability Second Edition: Available since 2007 Free of charge RNAL/TOPICS/EXTTRANSPORT/EXTPR AL/0,,contentMDK: ~menuPK: ~pagePK:148956~piPK:216618~t heSitePK:338594,00.html Also available as a CD ROM

The Landlord Model Lease Dues State Subsidy Port Authority Fixed Assets Loans OPEX

Port Management Models TypeInfra- structure Super- structure Stevedoring labor Other functions Public Service Port Public Mainly public Tool PortPublic PrivateMainly public Landlord PortPublicPrivate Mainly private Private Service Port Private Mainly private

PortAdmInfraEqui pm’t Build ing Carg Hand Moor ing Dred ging Pub Serv Tool Land Lord Priv Serv Public-Private Roles in Port Management PublicPrivate

A Good Example of Landlord Port -- Klaipeda

Logistics Performance Index Scale of 1 to 5 – lowest to highest performance Joint effort: World Bank, Turku School of Economics, Global Facilitation Partnership for Transportation and Trade (GFP), International Federation of Freight Forwarders Associations (FIATA), Global Express Association (GEA) Available, since November 2007, for 150 countries on the World Bank website TOPICS/EXTTRANSPORT/EXTTLF/0,,contentM DK: ~menuPK:515440~pagePK: ~piPK:216618~theSitePK:515434,00.html

LPI assesses the performance of countries in seven areas of the logistics environment Infrastructure Customs and border crossing Logistics competence Domestic costs Timeliness Tracking and Tracing Ease of arranging international shipments

LPI in Selected Countries

CountryLPICusto ms InfraEase of Int Ship. Logist. Comp. Track Trace Dom. Logist. Costs Time liness Fin Chi Lat Est Lit Ukr Rus

Some Concluding Considerations Since 2006 there has been increasing interest of investment banks and other financial institutions to invest (in particular) in the container terminal business A few examples –Investment Bank Goldman Sachs purchased a 49% stake in operator SSA Marine –Insurance conglomerate American International Group (AIG) bought the US terminals of Dubai Ports World –A unit of Deutsche Bank bought Maher Terminals (New York and New Jersey) The long-term Rate of Return is high, secure and stable Will this trend continue?

High Low High Low Importance of Regulation Private Sector Risk Public Service Port Private Service Port Landlord Port Tool Port

Allocation of Risks Public Service Port High RISK TO PUBLIC SECTOR Low RISK TO PRIVATE SECTOR High Landlord Port PBC Concessions Decreasing Public Risks, Increasing Private Risks

Thank you!

WB PPP-related Sites World Bank Port Reform Toolkit XTTRANSPORT/EXTPRAL/0,,contentMDK: ~me nuPK: ~pagePK:148956~piPK:216618~theSitePK: ,00.html How to Hire Expert Advice on PPP Labor Issues in Infrastructure Reform World Bank (2006). “Resource Guide for Performance- based Contracting.” Washington, D.C. guide/index.html

The Doing Business Project provides objective measures of business regulations and their enforcement ranks economies on their ease of doing business, from 1 (Singapore) to 178 (D. R. Congo) includes 10 dimensions: Starting a Business, Dealing with Licenses, Employing Workers, Registering Property, Getting Credit, Protecting Investors, Paying Taxes, Trading Across Borders, Enforcing Contracts, Closing a Business s/?direction=Asc&sort=1

Lithuania, Pop 3,396,862 GNI US$7,870/capita ranks (26) above the regional and income group averages in six dimensions three most problematic factors for doing business: tax rates, inefficient government bureaucracy, and tax regulations among the top five countries in the Registering Property indicator, but it ranks in the bottom 10% of countries in non-wage labor cost and rigidity of hours index labor regulations are listed among the top 10 obstacles to firm investment

Estonia, Pop 1,341,042 GNI US$11,410 /capita ranks (17) above the income group and regional averages three most problematic factors for doing business: an inadequately educated workforce, inefficient government bureaucracy, and poor work ethic in national workforce among the bottom 25 countries in the Employing Workers indicator labor regulations are ranked as the most significant obstacles to firm investment annual GDI growth has been above 10% for the last two years

Latvia, Pop 2,286,633 GNI US$8,100/capita ranks (22) above the regional and income group averages in six dimensions in the political risk rating, the primary declines were in external conflict, internal conflict, and government stability three most problematic factors for doing business: inflation, tax rates, and corruption top constraints to firm investment: tax administration, tax rates, and economic and regulatory policy uncertainty annual GDP growth has been above 10% for the last two years

Major Port Functions Administration Infrastructure Superstructure: Equipment and Buildings Cargo Handling Mooring Dredging Regulatory function Planning function Nautical function Port marketing and promotion function

Ownership of infrastructure Ownership of superstructure (in particular ship-shore handling equipment) Employment of stevedoring labor Main Distinctions in Port Management Models

Cesar Queiroz Transport Infrastructure Consultant World Bank, 1818 H Street NW Washington DC USA Tel Mob

Cesar Queiroz is an international consultant on transport infrastructure, with main interest in public-private partnerships (PPP) in infrastructure, performance-based contracts, road management and development, port rehabilitation and reform, improving governance, quality assurance and evaluation, research, teaching and training. Between 1986 and 2006, he held several positions with the World Bank in Washington, D.C., including principal highway engineer, lead highway engineer, and highway advisor. Prior to joining the World Bank, Cesar was the deputy director of the Brazilian Road Research Institute in Rio de Janeiro. He holds a Ph.D. in civil engineering from the University of Texas, USA, a M.Sc. in Production Engineering from the Federal University of Rio de Janeiro, and a B.Sc. in civil engineering from the Federal University of Juiz de Fora, Brazil. Cesar was awarded the Maua Medal for his contribution to transport development in Brazil, and is an elected member of the Russian Academy of Transport. He has published more than 130 papers and articles, including being a co-author of two World Bank main publications on PPP and performance-based contracts, respectively the “Toolkit for PPP in Highways” and the “Resource Guide for Performance-based Contracting.” He has participated actively in several international organizations and conferences.